Latest Debates Regarding Wealth Tax, Bouclier Fiscal And Taxation of Assets In France

At the end of November 2010 Nicolas Sarkozy announced that he would get rid of the Bouclier Fiscal (which limits taxation to 50% of an individual?s taxable income) and wealth tax. With wealth tax

At the end of November 2010 Nicolas Sarkozy announced that he would get rid of the Bouclier Fiscal (which limits taxation to 50% of an individual?s taxable income) and wealth tax. With wealth tax bringing in an estimated ?3.9 billion, with a cost of ?700 million for the Bouclier Fiscal, abolishing both measures would cost the State around ?3.2 billion, which will have to be raised from taxation elsewhere.

As the next French Presidential election approaches, the Right has confirmed their intention to remove the Bouclier Fiscal, in order to deny the Left an electoral argument.

The abolition of wealth tax continues to be debated, and may simply be reformed. The tax is paid by 562,000 households and generates ?3.9 billion for the public purse.

The debate is centring not on the rates of wealth tax, but on the taxation of the main home, even though this represents only 15% of wealth tax revenue. Home owners have seen the value of their properties rise significantly over the past few years and this has resulted in many individuals now becoming liable to wealth tax. The government wants to be sensitive towards these individuals. In addition, the government has been encouraging home ownership in recent years and wealth tax on the main home goes against the wish of the government to create a country of home owners.

UMP MP Gille Garrez has proposed an exemption of ?400,000 or ?500,000 in relation to the main home, and advocates retaining the 30% exemption above that limit. Other proposals have been to increase the exemption to 50% of the value of the home.

Another idea put forward by the Budget minister, Fran?is Baroin, is for the wealth tax threshold to be raised to ?1.2 or ?1.3m, effectively removing the first band. It is expected that this measure would take around 250,000 to 300,000 people out of the wealth tax net.

In order to compensate for the eventual reduction in wealth tax revenue, the government is looking at reforming taxation on income and gains arising from property. Only a few weeks ago Nicolas Sarkozy said it was ?more logical? to tax income from assets rather than to tax the assets themselves. One of the suggestions put forward by certain members of parliament was to introduce capital gains tax on the sale of the main home. Taxation of other investment gains such as shares and the Livret A are also on the agenda. An announcement is expected at the end of February as to which ideas are being retained and which are being shelved.

The UMP MP, J??e Chartier, who was commissioned to look into comparing the French and German taxation systems, submitted his report favouring reducing wealth taxes but introducing capital gains tax on the sale of the main home.

Opponents of this measure claimed that it would risk an increase in house prices as vendors would simply include the tax in their sale price, which would bring an already stagnant property market to a complete standstill.

Speaking on French television channel TF1 on 10th February, Sarkozy however stated that he was against introducing CGT on the main home and that this proposal has now been definitively scrapped.

Parliament will now take time to consider Chartier?s other findings, and a report will be presented to the Council of Ministers towards the end of April. The draft Finance Bill will then be examined by Parliament in June.

By David Franks, Chief Executive, Blevins Franks

14th February 2011