Yet More Tax Increases In France

These are taxing times in France, as well as the rest of Europe. The ink had barely dried on the amended Finance Act for 2011 and its tax reforms when the government unveiled a fur

These are taxing times in France, as well as the rest of Europe. The ink had barely dried on the amended Finance Act for 2011 and its tax reforms when the government unveiled a further ?12 billion austerity budget. These fiscal measures are intended to enable the government to meet its ambitious deficit reduction targets despite sluggish economic growth.

Parliament adopted the tax reforms on 6th September after the government made a few concessions, and the S?at then approved them on 8th September.

The key tax measures affecting income and assets are as follows:

Social charges ? The rate charged on income from capital (investment income, bank interest, annuities, rental income and capital gains) increases from 12.3% to 13.5%, with effect from 1st October 2011.

Tax on interest and dividends ? The fixed rate of withholding tax applied to interest and dividends increases from 19% to 25% (a 32% tax increase!) from 2011. The same tax rate applies to bank interest earned outside France.

Exceptional contribution ? A new 3% tax will be charged on income over ?500,000 per part, to apply from 2011 until the public deficit reaches 3%, expected to be in 2013.

Capital gains tax (CGT) on second homes ? The taxation of gains made on the sale of property (excluding the main home) is being reformed. Currently, after five years of ownership there is a 10% reduction of the taxable gain per year, so no tax is payable after 15 years. You now have to wait 30 years for your property to be tax free, as follows:

Years 1-5: full tax (19%) plus social charges (13.5%) payable

Years 6-17: 2% relief each year

Years 18-24: 4% relief each year

Years 25-30: 8% relief each year

Years 30+: tax free

These new CGT measures affect properties where the acte de vente is signed, or for UK properties where contracts are exchanged, after 1st February 2012. If you are resident in France this affects your worldwide properties (though you also need to consider the CGT rules of that country).

The ?main home? is not liable to CGT, but note that this is defined as the place of habitual residence. Therefore, if you own a country property but rent a flat in town where you live five days a week for work, the flat could be considered your main residence and your country home liable to tax on capital gains.

What next?

This is unlikely to be the end of the tax reforms as President Sarkozy seems quite determined to fix France?s economy by 2013 and needs to raise revenue to do so. We already know that parliament will discuss the creation of a 46% income tax band as part of the 2012 Finance Bill. The Finance Minister has also said the government is ?open? to reducing the threshold for its new 3% tax from ?500,000.

Tax planning in France can be complex at the best of times and, with the seemingly endless changes, skilful expert guidance is more invaluable than ever before. Contact Blevins Franks for advice on how to protect your wealth from unnecessary taxation in France.

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.