The first round of M. Hollande’s tax reforms have been approved by parliament and have come into effect this year. The three main areas of reform were to wealth tax, succession tax and social charges on property owned by non-French residents.
Wealth tax has been changing one year to the next lately, and there are more changes to come next year. It is hard to keep up with it all so here is a summary of how the tax works this year.
If the total chargeable wealth of your household amounts to less than €1.3m, then you do not have any wealth tax liability. Note however that if your wealth exceeds this threshold, only the first €800,000 is tax free, and not the whole €1.3m.
Your total wealth tax bill this year will now be based on the tax bands and rates which were in place up to 2010. They range from 0.55% for wealth between €800,000 and €1,310,000, up to 1.8% for wealth over €16,790,000.
When these rates were last in use there were restrictions on the amount of combined taxes an individual could pay on his income. There are no such restrictions this year, which means that wealth tax burdens are higher than ever before. France’s 10% wealthiest households will pay 143% more wealth tax than expected at the beginning of the year, and even those with wealth just above the threshold will see a 14% rise.
Since wealth tax returns have already been submitted this year, you will pay the difference between the old and new rates as an “exceptional contribution”.
If your wealth is between €1.3m and €3m, the exceptional contribution will be included in your usual wealth tax avis d’impôt received in October. If your wealth is over €3m or you are non-French resident, you will receive a special declaration at the beginning of October. In both cases you will need to pay the exceptional contribution by 15th November.
This exceptional contribution is an exceptional measure for 2012. The government is planning a structural reform of the tax in 2013. More details are likely to be included in within the framework of the 2013 Finance Bill in September.
M. Hollande’s succession tax reforms have also been approved by parliament, as has the introduction of social charges on income and gains made from property owned by non-residents. Next year is expected to bring new top rates of income tax, plus a reform on how income from capital (so bank interest, dividends etc.) is taxed.
Contact Blevins Franks Partner for further information on the tax reforms and advice on effective tax mitigation in France.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
17th August 2012