French Tax Reforms 2011

The Finance Bill covering the latest tax reforms in France was presented to the Council of Ministers on Wednesday 11th May 2011. The measures will be voted on in July and are as follows.

Wealth Tax

? Abolition of Bouclier Fiscal, except for people on very low incomes whose taxe fonci?e on their main home exceeds 50% of their income.

? Threshold increased to ?1.3m, with effect from 2011.

? With effect from 2012, wealth between ?1.3m to ?3m taxed at 0.25%. Over ?3m ? 0.5%. Tax is payable on entire wealth at the relevant rate – the rates are not scaled.

? For those whose wealth just exceeds the bands, reductions apply:

– For wealth between ?1.3m and ?1.4m, the wealth tax will be 8 times the theoretical tax due, less ?24,500. For example, at ?1.3m, the theoretical tax is ?1.3m x 0.25% = ?3,250. Actual tax is (?3,250 x 8) ? ?24,500 = ?1,500. So ?1,500 is payable instead of ?3,250.

– For wealth between ?3m and ?3.2m, the wealth tax is 8.5 times the theoretical tax, less ?120,000. So, for ?3m of wealth, the actual tax is ?7,500 instead of ?15,000.

? From 2012, individuals with wealth between ?1.3m and ?3m can declare their wealth on their income tax declaration.

? Declaration of wealth tax is usually due by mid June, but the deadline is being extended to end of September.

? From 2013, it will be possible to pay wealth tax in monthly instalments, at the taxpayer?s request.

? Deduction for main home stays at 30%.

? The wealth tax reduction of 50% for investment in SMEs (up to ?45,000) stays.

Succession Tax

? Time limits for renewal of allowances increased from 6 years to 10 years.

? Gift tax reductions according to age of donor are abolished (they were: reduction of 50% where donor aged less than 70 and 30% where donor aged between 70 and 80).

? Top two tax rates increased by 5% (40% and 45% now as opposed to 35% and 40%).

? Date of effect will be date the Finance Act comes into law (mid July) for all deaths and gifts occurring after that date.

? So for example, if an individual dies in August this year, a gift he made, say, 7 years ago to the same beneficiary will be taken into account when calculating the tax due on the inheritance.

Exit Tax

? 19% exit tax + social charges on share gains exercised by individuals who have moved overseas. The tax applies to the portion of the gain accrued when the individual was resident in France. After 8 years, though, the gain on the shares is exempt (i.e. usual rules apply).

? It is expected this provision will apply from 3rd March 2011 (the date the measure was first announced).

? This measure will affect individuals with direct or indirect shareholdings of more than 1% in a company (together with other members of the household), or where the participation is valued at over ?1.3m.

Tax on second homes owned by foreigners

? From 1st January 2012, non-residents who own a second home in France will be charged an annual tax of 20% of the cadastral value of the property.

? This is like a second taxe fonci?e.

? Expatriates overseas for professional reasons will not be affected.

? Individuals who have been resident in France for 3 out of the 10 years prior to the year of departure will benefit from an exemption for 6 years.

Taxation of Trusts

The tax treatment of trusts is to be clarified where the settlor or a beneficiary is resident in France. The aim of the Finance Bill is to confirm the tax rules that currently apply and also to create rules to address certain specific situations.

Contact us now for advice on tax planning in France.

13th May 2011, updated 1st June 2011

Note that at the time of writing the tax reforms are still being debated by parliament and so changes are possible.

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 must take personalised advice.