Now that we are well into 2017, it is a good idea to make sure you know where you stand with your taxes. Doing this now means you could limit exposure to unnecessary taxation, take advantage of available opportunities, and avoid any nasty surprises at the end of the year.
There are no changes to French income tax rates for 2017 (payable on 2016 income). The income tax bands for each rate have increased very slightly, however. For example, last year’s €9,700 nil rate band has increased by €10, and the 45% top rate band is up €152 for a new threshold of €152,260.
|Up to €9,710||0%|
|€9,710 to €26,818||14%|
|€26,818 to €71,898||30%|
|€71,898 to €152,260||41%|
Individuals with a taxable income of up to €18,500 (€37,000 for couples) could benefit from a new 20% tax reduction. There is also scaled relief available for individuals earning up to €20,500, and €41,000 for couples.
The supposedly temporary ‘exceptional tax’ is still in place for 2017. This charges an extra 3% or 4% for income over €250,000 and €500,000 respectively, with higher thresholds for families.
Remember, income tax is payable on earnings, pensions, rental income and investment income, and you are taxed as a household rather than as an individual. Take advice to make sure you are taking advantage of available tax-efficient structures for holding your wealth and investment assets.
No changes to social charges in 2017 means your income continues to attract up to an extra 15.5% in tax. Together with income taxes, this can invite combined tax rates of as much as 64.5% on your investments. However, there are compliant, tax-efficient arrangements available in France that can help you lower this tax liability, sometimes significantly.
Although not due to come into effect until January 2018, you should be aware that a French Pay As You Earn (PAYE) system is planned. Not only will this apply to employed and self-employed individuals, it will affect those receiving French pensions and French unfurnished letting income. If you are a French resident, it will also apply to your wages, pensions and annuities paid by non-French entities, although it is not yet clear how this will work.
While there is a chance that the PAYE reform may be undone by the incoming President, you should prepare for an end to the current system where taxes are payable in arrears at the end of each tax year. As a result, most of your 2017 income may escape the usual income tax and social charges in 2018, although any income classified as ‘exceptional’ will still be subject to the normal scale rates of tax.
Despite rumours that the wealth tax ‘holiday’ period would be extended from five to eight years, this has not happened. So new residents of France still need to start paying wealth tax on non-French assets five years from arrival.
You are liable for wealth tax if your taxable worldwide assets are above €1.3 million, at rates of 0.5% to 1.5% on assets over €800,000. However, the French tax system still limits your combined income tax, wealth tax and social charges liability to 75% of your total income. While this sounds high, it does provide tax planning opportunities.
Wealth tax can prove costly for those unprepared for it, so if you are affected, seek advice on how you can legitimately lower this tax liability.
There have been no major developments here for 2017, although the succession tax reduction for families has been removed. Previously, beneficiaries with more than three children could reduce their French succession tax by €610 per third and subsequent child on inheritances from a parent or spouse, and €305 on legacies from more distant relatives.
Even if the removal of these allowances does not affect you, the new year is a good time to review your estate planning and make sure your arrangements are up to date.
Remember, French succession tax works differently from UK inheritance tax and the effect on your heirs depends on their relationship to you. Stepchildren and unmarried partners, for example, are seen as 'non-relatives' and face tax rates as high as 60% on inheritances and gifts. The ‘forced heirship’ rules also mean that natural children could inherit up to 75% of your estate, regardless of your intentions.
While you can override forced heirship by opting for UK law to apply under the ‘Brussels IV’ EU regulation, this is complex and can have unexpected consequences. Also, bear in mind that this will only affect how your estate is distributed – it will not remove your liability for French succession tax. Take personalised advice to ensure your legacy is dealt with according to your wishes while protecting your heirs from unnecessary taxation.
It is important to understand how French taxation affects you personally, and establish tax planning solutions based on your unique objectives and family circumstances. Even if you have already done this, regular review is essential to make sure your arrangements are up to date. For expatriates, an adviser with cross-border experience can help you make the most of opportunities offered by the French tax system.
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 is advised to seek personalised advice.