French Budget 2011 ? Tax Increases And Tax Breaks Cut

The French Finance Bill put before the Council of Ministers on 29th September 2010 contained expected tax hikes which focused on wealthier taxpayers and cuts to existing tax breaks.

The French Finance Bill put before the Council of Ministers on 29th September 2010 contained expected tax hikes which focused on wealthier taxpayers and cuts to existing tax breaks.

The budget aims to reduce the public deficit from 7.8% of gross domestic product in 2010 to 6% in 2011 and to 3% in 2013. Tax breaks which are costing an estimated ?115 billion this year will be cut by ?9.5 billion.

Key tax increases proposed are:

1)Top rate of tax to increase by 1% from 40% to 41%

2)Increase in capital gains tax on the sale of moveable assets from 18% to 19% and on immoveable assets from 16% to 17%

3)The fixed rates of tax (opted for by the taxpayer) for dividends, bank interest and other income from moveable assets to be increased from 18% to 19%

4)The tax credit available on dividends currently up to ?115 for a single person and ?230 for a married couple or PACS will be abolished

5)The tax free threshold on gains on the sale of shares, which are currently tax free where the sale proceeds are less than ?25,830 per year, will be abolished and the entire gain will be taxed

Increases 1-4 will not be taken into account when calculating the Bouclier fiscal.

The budget has yet to be ratified by parliament and there could be amendments. The success of the package is dependent on several factors coming together including the implementation of pension reforms. If it doesn?t work, further tax rises and spending cuts may be introduced in the future.

Tax breaks for couples reduced

The French Budget proposals set out changes to the number of tax returns filed in the year of either marriage, PACS (Pacte Civil de Solidarit? or divorce.

Currently, married or PACS couples complete joint tax returns and are entitled to the “parts” system where the taxable income to be assessed is based on the total income of the household. High income earners can avoid higher rates of tax if there is more than one household member because the total income is divided by the number of “parts”, or number of people in the household. The income tax scale rates are then applied to the lower figure, and having computed the income tax due, it is multiplied by the parts to provide a larger number. A married or PACS couple’s total income would therefore be divided into two parts.

Where the marriage or PACS is entered into during the year, three tax returns must be completed; one each for the period falling before the marriage, and one joint household return for the period falling after the marriage. Similar provisions apply for the year of divorce or the year a PACS is annulled.

From 1st January 2011, individuals will no longer be required to file three returns for the year of marriage, PACS or divorce. Couples who marry or enter into a PACS during the year will choose between filing a single declaration as a couple (reporting the total income the couple received during the year, regardless of the date of marriage or PACS) or two separate declarations.

In the case of divorce or annulment of the PACS the couple will have to file separate declarations for the year.

Changing the system in effect amounts to a tax hike in the year of marriage or PACS agreement.

This is an appropriate moment to review your personal financial planning to avoid or reduce the impact of taxation. There are opportunities available in France to legitimately lower your tax liabilities and protect your wealth. Speak to a professional tax and wealth manager such as Blevins Franks for advice on your specific situation.

The level and bases of, and reliefs from taxation may change. Any statements based on taxation are based upon current taxation laws and practices which are subject to change.