As expected, when the 2013 Budget was announced by the French government on 28th September it contained a number of tax rises, which will raise an additional €10 billion in tax revenue for the state. These are on top of the tax reforms introduced earlier in the summer.
The key measures are summarised below. They still need to go through parliament and so may change before becoming law.
- Income tax bands to be frozen, instead of increasing inline with inflation. Most people will pay more tax as a result.
- A new 45% tax rate to be introduced on annual income over €150,000 per part. It will apply for 2012 income (tax paid in 2013), and this seems to be a permanent measure.
- A 75% income tax rate to be imposed on income over €1 million per person per year. This only applies to employment income, and includes the 8% social charges. So far this is planned to apply for 2012 and 2013 income.
Tax on investment income
- Taxation of investment income to be aligned to taxation of employment. You no longer have a choice of whether interest and dividends are taxed at the fixed rates of tax; they must now be added to your other income and taxed at the progressive rates of income tax. This applies from 2012 income.
- In 2013 withholding taxes of 21% for dividends and 24% for interest will be introduced. This is a only payment on account of the final tax due.
- Likewise, the 19% fixed rate of capital gains tax on shares and securities will be abolished, and from 2012 gains will be taxed the scale rates.
- It is now even more important to ensure your investments are structured to avoid the impact of these changes where possible.
- The entry threshold for paying wealth tax will increase slightly to €1.31 million next year. As in 2012, only the first €800,000 is tax free.
- The tax bands and rates have changed a little from those being used to calculate wealth tax in 2012. This will generate an extra €1 billion in revenue for the government.
- A cap on wealth tax will be re-introduced next year, this time at 75%. If it works the same as the old cap, it means an individual cannot pay more than 75% of their income in combined income tax, wealth tax and social charges. This can create tax planning opportunities to mitigate wealth tax by reducing taxable income (without reducing spendable income).
- Investigation, collection and penalty procedures for wealth tax will be tightened up.
Tax on property
- Gains made on immovable property (real estate) remains taxable at the 19% fixed rate, plus social charges. From 2013, besides the current deduction for the length of ownership, a special 20% deduction will apply against the net taxable gain (but not for social charges).
- Development land will have different rules. From 2013, unless the promesse de vente is signed before 1st January 2013 and the acte de vente is signed before 1st January 2014, it cannot benefit from the length of ownership deduction, so if you are selling land, try to do so before the end of this year. From 2015 gains will be taxed at the scale rates of tax.
- No changes have been announced for the tax regime on assurance vie policies.
The tax burden on French residents has increased yet again, particularly if you have a higher income or own substantial assets.
At Blevins Franks we specialise in providing integrated and detailed tax and wealth management advice to wealthy British expatriates in Europe. We have an in-depth and up-to-date knowledge of French tax law, and how it interacts with the UK’s, and provide highly personalised advice to ensure your assets are structured as tax efficiently as possible.
Contact Blevins Franks to find out how you can lower your tax liabilities in France and protect your wealth from taxation.
4th October 2012
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.