The draft French Finance Bill for 2011 proposes some important new tax changes which will offer opportunities for both French tax residents and non-residents. This article considers
The draft French Finance Bill for 2011 proposes some important new tax changes which will offer opportunities for both French tax residents and non-residents.
This article considers existing or forthcoming French tax residents. A separate article has been written about non-French tax residents.
Wealth Tax (ISF)
Although the bouclier fiscal (the ?tax shield?) is being abolished from 2011, there will be many individuals who will be far better off under the new changes. The 30% main home deduction remains, as does the 50% deduction for certain small and medium enterprises (up to ?45,000).
(a) Wealth Tax: 2011
The threshold increases from ?800,000 to ?1,300,000 and the rates remain the same.
(b) Wealth Tax: 2012 onwards
The five year exemption for overseas assets remains for British nationals, and so newer residents continue to only pay wealth tax on their French assets.
The lifting of the exemption in 2011 to ?1,300,000 remains for 2012 onwards.
The 2012 rates are considerably reduced:
? Between ?1,300,000 and ?3,000,000 = 0.25%
? Above ?3,000,000 = 0.50%
The highest rate from 2012 will be 0.50%, which is a 72% reduction from the current 1.80%.
For example, wealth tax on assets of ?5,000,000 reduces from ?40,000 to ?25,000 from 2012 for someone who had no bouclier fiscal claim.
Although these new rates of 0.25% and 0.50% start on the very first Euro once the thresholds have been exceeded, there will be reductions if your wealth is just over the threshold so there will be a progressive increase in tax rather than a sudden steep jump.
Inheritance and Gifts Tax
These taxes can still be avoided by careful offshore tax planning ideally undertaken before you first become French tax resident. If you haven?t already pre-planned, it is still not too late. You will need to meet a Blevins Franks adviser to tailor a tax plan to your needs, whilst complying with the new tax changes.
There are three proposals:
1) Gifts made more than 6 years before death are currently not included in the estate for inheritance tax. This 6 year exemption will be extended to 10 years. After 10 years, the gift is outside of the estate.
2) The tax rates at the very top bands will be increased by 5%; the other bands remain the same.
3) The tax deductions or credits applicable to gifts will be abolished.
Any proposed exit tax will be deferred for anyone moving within the EU, and in any case it is likely to have very limited application. The draft legislation envisages social charges not being deferred even for movers within the EU, but our view is that the European Court of Justice will strike this down.
Trusts have in certain circumstances avoided French inheritance and French wealth taxes. However, for British domiciles Offshore Trusts have had no real benefit for Trusts established after March 2006. As a result, there has been very little use of new trusts since 2006 unless you were a non-UK domicile, or could take advantage of the UK?s business property relief.
Where you do have an existing pre 2006 trust structure, you need to seek advice on how you can now ameliorate the proposed tax changes. We have some strategies at Blevins Franks to help.
Overseas pension trusts remain specifically exempt from these proposed changes.
You can still live in France despite the proposed tax changes taking opportunity of sheltering not only your income from French tax, but also from UK and French succession taxes. You can also continue to benefit from the reduced taxation rates available from moving your UK pension offshore (assuming you haven?t already done so). There are also strategies to deal with the proposed trust tax changes. As usual in the tax planning world, when some doors start to shut, others begin to open. Our view is that with careful planning, many individuals will be better off under these new changes even though the headlines don?t feel that way.
By David Franks, Chief Executive, Blevins Franks
7th June 2011
Note that at the time of writing the tax reforms are still being debated by parliament and so changes are possible. Any statements concerning taxation are based upon our understanding of current / proposed taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.