If you are planning to move to France, you need to be aware of a completely new tax you will be liable for – wealth tax. This is not a tax on income or gains, but rather on how much you are worth each year.
If you are planning to move to France, you need to be aware of a completely new tax you will be liable for – wealth tax. This is not a tax on income or gains, but rather on how much you are worth. This may also affect you if you are non-resident but have property and other assets in France, depending on their value.
Known as Impôt de Solidarité sur la Fortune or ISF, wealth tax is an extra tax each year, on top of income tax and social charges. It can be expensive for those who are unprepared for it. It can also be quite complicated, so you need to understand how the rules affect you.
Do not let this tax put you off moving to France though, since there are usually steps you can to reduce it.
You are liable to wealth tax if you are resident in France on 1st January on any year, and your taxable wealth amounts to over €1,300,000. You need to include all your worldwide assets in your calculations.
The 2015 tax rates are:
Household’s worldwide assets
€800,001 to €1,300,000
€1,300,001 to €2,570,000
€2,570,001 to €5,000,000
€5,000,001 to €10,000,000
It is charged on your household wealth, rather than on individuals. So if you are married or have a PACS (civil) partner, the tax is calculated on your joint assets. If you have dependent children, their assets are also included.
If you are not resident in France but own any assets in France, they are taxable as at 1st January. Portfolio investments and cash are exempt for non-residents.
Taxable assets include: real estate; bank accounts; shares, bonds and other investments; the redemption value of any life assurance or endowments; debts owed to you; vehicles; furniture; jewellery and horses.
When it comes to real estate, the value of your main home (so where you own and live in a property) can be reduced by 30% for wealth tax purposes. It is the market value of a property which used. There is no legal definition of this, but it is often referred to as the ‘price the seller could be expected to fetch if the property was on the open market and sold as at 1st January in the year in question’.
Liabilities, such as outstanding debts, are deducted in arriving at your net chargeable wealth tax figure.
There are some assets which are exempt from wealth tax, which include: pension and annuities constituted in respect of an employment or business (provided certain conditions are met); assets necessary to a business conducted by the owner or spouse; pictures, tapestries, statues, sculptures etc and antiques (but not historic monuments and buildings).
The value of life insurance contracts is also not generally assessable unless redeemable, but for policies taken from November 1991 the value of premiums paid since the holder attained age 70 is added to his wealth. (The value of ‘redeemable’ life assurance contracts such as investment bonds is taxable.)
If your wealth is above €2,570,000 million you will need to complete and file a wealth tax return each year; generally in June for residents and July for residents of other EU countries. Otherwise you can file your wealth tax declaration on your income tax return. There are penalties for filing returns late, which range from 10% for when a return is filed within thirty days of receipt of notice to pay the tax, to 80% in cases of non-declaration of a wealth tax liability.
You can opt to pay the whole tax bill when you submit your return, or in monthly instalments.
The good news is that the French tax regime does apply a ‘tax cap’ mechanism, which limits how much total tax you pay a year. It is currently 75%, which means you cannot pay more than 75% of your income in wealth tax, income tax and social contributions.
75% may sound too high, but this tax cap can create attractive tax planning opportunities to mitigate wealth tax by reducing taxable income, but without reducing spendable income. The mechanism is complex, so you need specialist advice to ensure you use it to your advantage.
There is also a ‘wealth tax holiday’ for new arrivals in France.
Under the France/UK Double Tax Treaty, for the first five tax years after becoming a resident of France your wealth tax will only be based on your assets in France. All other assets are ignored, so with careful planning you can arrange for your investments to be held in arrangements outside France.
From the sixth year onwards you will have to pay wealth tax on your worldwide assets. However, if you were to leave France for at least three years, the five year holiday would start again if and when you return.
Other nationals besides British also benefit from the wealth tax holiday, including French nationals who have been non-resident for at least five years.
This is a summary of a complex tax, so you are best advised to take professional advice from a French tax specialist, to understand exactly how this tax will impact you each year. They will also be able to advise you on the best way to mitigate this tax, along with other French taxes, for your personal situation.
4 June 2015
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 should take personalised advice.