Proposed Tax Increases In France

The French government has announced its proposals to reform the state pension system. Under the proposals, the legal retirement age will rise progressively from 60 years to 62 years by 2018. Fro

The French government has announced its proposals to reform the state pension system. Under the proposals, the legal retirement age will rise progressively from 60 years to 62 years by 2018. From 1st July 2011 it will rise by four months for each year, with everyone born in or after 1956 affected. The age at which an individual is entitled to receive a full pension will also increase from 65 to 67 years.

To help the government achieve its goal of balancing the pension books by 2018, a series of tax hikes are included in the reforms. These will come into effect next year and are intended to target more wealthy individuals, particularly those with investment income, stock options and assets to sell. The measures are expected to generate ?3.7 billion in receipts for the government.

Currently these are just draft proposals. The final text has yet to be agreed, and parliament will then vote on it in September. While the government will face pressure to relax the pension reforms, the tax increases will probably meet much less opposition.

The proposed tax increases are –

Income tax – The top rate of income tax, which applies to income in excess of ?69,783, will rise from 40% to 41%.

Capital gains tax – Tax on capital gains will also increase by 1%. The rate for property gains therefore increases from 16% to 17% and for financial assets such as shares and securities the rate increases from 18% to 19%. At the same time the capital gains tax exemption for share gains (where no tax is charged if the sales proceeds are under ?25,830 a year) will be abolished.

Fixed rate on income from capital – The fixed tax rate charged on dividends, bank interest and other investment income will rise from 18% to 19%. Taxpayers have a choice of paying this fixed rate or the normal income tax scale rates, depending on which is more favourable for them. The fixed rate can also apply to overseas investment income arising in the EU, provided an election is made.

Other tax rises – The tax credit of ?115 on dividends will be abolished. Social security contributions on stock option gains will be increased, both for the employer (from 10% to 14%) and for the employee (from 2.5% to 8%).

Bouclier Fiscal – French residents are currently shielded from paying more than 50% of their total income in combined income tax, wealth tax, social changes and local property taxes on the main residence. These new tax increases will however fall outside the Bouclier Fiscal. It is not yet clear how this will work in practice, but France?s wealthiest taxpayers can expect to pay more tax next year.

Tax planning

Despite these tax increases, there remain some very tax efficient solutions for residents of France.

In the current environment, tax planning is becoming increasingly important if you wish to shelter your wealth from unnecessary taxation. This is a highly specialised area, and Blevins Franks have been successfully advising expatriates on reducing tax in France for 35 years. Our tax, wealth management and pension services are dedicated to improving and preserving the wealth of expatriates.

24th June 2010