Tax Reforms In France – How Do They Affect French Residents?

07.07.11

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

There has been much debate about the latest round of tax reforms and the draft Finance Bill has now been approved by the Senate. The definite adoption of the Bill is expected soon.

There has been much debate about the latest round of tax reforms and the draft Finance Bill has now been approved by the Senate. The definite adoption of the Bill is expected soon.

Wealth tax ? are you a winner or a loser?

With effect from 2011, the wealth tax threshold increases from ?800,000 to ?1.3 million, though the rates remain unchanged this year. From 2012 the number of different rates are considerably reduced. They are no longer scaled however, so if your chargeable wealth is above ?1.3 million you will pay wealth tax at 0.25%, if above ?3 million 0.5%, from the first Euro.

New rates for 2012, on gross worldwide assets of household:

?1.3m – ?3m: 0.25%

More than ?3m: 0.5%

If your wealth just exceeds either band (so up to ?1.4m or ?3.2m) there are deductions which can reduce your wealth tax by around half.

If you look at wealth tax alone, most people will now have a lower wealth tax bill. For example, if your chargeable wealth is ?2,000,000 your current wealth tax bill is ?7,980, but under the new system it is ?5,000. If your wealth is ?3,500,000 your current bill is ?21,555 compared to ?17,500 under the new rates.

However, as part of the reforms the bouclier fiscal is being abolished (except for people on very low incomes whose taxe fonci?e exceeds 50% of their income), and this plays an important factor in determining whether you will pay more or less tax. Most of the people who benefitted from the bouclier fiscal (especially those who are asset rich but cash poor) are likely to find themselves paying more tax.

It depends on both the level of your income and the value of your assets. Let?s look at two families, both of whom have assets worth ?15m. One has a sufficiently low income to claim the bouclier fiscal and now faces a tax increase of ?30,000. The other family?s income is too high to claim the bouclier fiscal and under the new system will pay ?120,000 less tax.

If you are affected by the abolition of the bouclier fiscal, it is more important than ever to ensure you reduce your other tax liabilities in France.

Succession and gift tax

The two top rates increase by 5% to 40% and 45%.

The 30%/50% gift tax deductions based on the donor?s age are to be abolished.

The time limit for the renewal of tax-free allowances increases from 6 to 10 years. The tax payable will be reduced on a sliding scale for gifts between 6 and 10 years.

These changes will apply as soon as the Finance Act comes into law (probably mid-July) for all deaths and gifts after that date.

These taxes can still be mitigated through careful planning. This should ideally be done before you become French tax resident but if you already live here it is not too late.

Exit tax

Individuals who have left France will be subject to a new 19% tax (plus social charges) on the proportion of share gains accrued whilst French resident. Shares held for over 8 years remain exempt. Any exit tax will be deferred for anyone moving within the EU, however, and in any case the tax is likely to have limited application.

Taxation of trusts

The Finance Bill is looking to clarify the tax treatment of trusts where the settlor or beneficiary is resident in France. The aim is to confirm the tax rules that currently apply and create new ones to address specific situations.

Trusts established after March 2006 have had no real benefit for British domiciles. If you have an existing pre-2006 structure, contact Blevins Franks for advice on how the tax changes would affect you. We have some strategies to help.

Note that overseas pension trusts remain specifically exempt from the proposed changes.

More tax rises to come?

A new special tax on very high incomes has already been proposed, but we do not yet have solid information on the level and type of income to be affected or the tax rate, but it is likely to affect income over ?1m.

There are also calls for a new 45% top rate of income tax on income over ?150,000 or ?200,000, but Sarkozy is opposed to this. It will now not be debated until September as part of the 2012 Finance Bill.

Despite the proposed tax changes, there are still opportunities for British expatriates resident in France to shelter their income from French tax and their assets from French and UK inheritance tax. You can also continue to benefit from reduced tax rates by moving your pension offshore. There are also strategies to deal with the proposed trust tax changes. As per usual in the tax planning world, when some doors close, others open. With advice from Blevins Franks and careful planning, many individuals will be better off under these new tax changes.

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.

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; individuals should seek personalised advice.

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