French personal taxation 2013

Siddalls outlines the tax implications of the French 2013 Finance Bill

When it comes to the setting of national budgets and tax structures, political brinkmanship seems be emerging as something of a global trend. While North American politicians tottered on the edge of their fiscal cliff, in France the Finance Act for 2013 was finally published on Sunday 30 December 2012 and entered into force on the 31st, just in time for the new 2013 financial year.

Before its enactment, the French 2013 Finance Bill, first published in September 2012, had made tortuous progress through the parliamentary system, with amendments and re-amendments being made up to the 11th hour, and beyond. And finally the intervention of France’s Constitutional Council meant that several key measures, including President Hollande’s cherished 75% tax rate for those earning over €1 million a year, were dropped from the Act before its official publication.

So where does this leave the structure of personal taxation in France for 2013? This article provides a summary of the key measures.

INCOME TAX BANDS & RATES

The first five bands and rates remain frozen at their 2012 levels, with a new 45% tax band introduced for income per household “part” over €150,000.

Per household part

Up to €5,963 0.0%

€5,964 to €11,896 5.5%

€11,897 to €26,420 14.0%

€26,421 to €70,830 30.0%

€70,831 to €150,000 41.0%

€150,000 and over 45.0%

Additional tax on high income

For a single person:

3% of income between €250,000 and €500,000

4% of income over €500,000

For a couple

3% of income between €500,000 and €1,000,000

4% of income over €1,000,000

Exceptional contribution on very high income

The proposed exceptional contribution of 18% on individual earned income over €1,000,000, which, when combined with social contributions, would have created an effective top tax rate of 75% was censured by the Constitutional Council and was removed from the published Finance Act. However, this was not before a high-profile spat between Gérard Depardieu and the French prime minister resulted in the larger-than-life actor renouncing his French citizenship and announcing his intention to move over the border to take advantage of the less onerous tax regime of neighbouring Belgium.

Interestingly the 75% tax measure was thrown out by the Constitutional Council, not due to any revolt of political dogma, but due to a technicality which judged the provision to be “unfair” as it would have created tax disparities between households with the same level of income but with a differing distribution of income between individual household members.

As a result the Government has already indicated it intends to “re-engineer” the measure for re-introduction in 2013, through a Finance Amendment Act, probably in the autumn.

Age Allowances & Thresholds

For those over the age of 65, there is an extra tax-free allowance of €2,312 if the total income does not exceed €14,510 and of €1,156, if total income is between €14,510 and €23,390.

Interest and Dividend Income Arising in 2013

Interest income (with the exception of interest from tax-free accounts) and dividend income will now be added to other taxable income and subject to the standard income tax bands and rates. The optional withholding tax rates of 24% for interest and 21% for dividends have been abolished.

The only exception is that households with annual interest income of less than €2,000 retain the option for application of 24% withholding tax, on request.

The previous fixed allowances for dividend income of €1,525 for a single person and €3,050 for a couple have also been abolished.

Investment Capital Gains

Gains realised in 2013 will be added to household income and subject to the standard tax bands and rates. However gains can be reduced according to the length of ownership of investment assets on the following basis:

20% reduction for ownership between 2 and 4 years

30% reduction for ownership between 4 and 6 years

40% reduction for ownership over 6 years

Real Estate Capital Gains

For gains not covered by the main residence exemption, an additional surtax has been introduced payable on gains over €50,000.

There are five rates of taxation, depending on the size of the gain.

The following shows a breakdown of the thresholds at which the supplementary tax is triggered and the rates that apply.

Greater than €50K up to €100K 2%

Greater than €100K up to €150K 3%

Greater than €150K up to €200K 4%

Greater than €200K up to €250K 5%

Greater than €250K 6%

For each tax band there is a ‘dampening’ mechanism for reducing the level of the charge for the first €10,000 of gain in that band.

This surtax is in addition to the set rate of capital gains tax of 19% on gains calculated in accordance with the 30-year ‘taper relief’ scale.

Gains are also subject to social charges.

The 19% capital gains tax rate, additional surtax rates and social charges all apply to both French-resident and non-resident EEC owners of French real estate property.

Additional Social Charge on Pension Income

An additional 0.3% charge will be levied on pension income.

However, UK expatriates covered by an S1 form (formerly E121 or E106) will be exempt from this charge on UK pension income, as they are in respect of all other social charges.

French residents in receipt of a UK government service pension (for example a civil service or police pension) should receive a 100% tax credit to offset all assessed social charges.

Wealth Tax Bands and Rates

Where total taxable assets exceed €1,300,000 as at 1 January each year:

Up to €800,000 0.00%

Between €800,000 and €1,300,000 0.50%

Between €1,300,000 and €2,570,000 0.70%

Between €2,570,000 and €5,000,000 1.00%

Between €5,000,000 and €10,000,000 1.25%

Above €10,000,000 1.50%

For new residents to France, assets held outside France are not assessed for wealth tax for the first five years of residency.

In addition a “cap” (plafonnement) has been re-introduced limiting direct taxation to a maximum of 75% of income.

Inheritance Tax: Bands and Rates

Between parents and children

Less than €100,000 0%

The next €8,072 5%

€8,072 to €12,109 10%

€12,109 to €15,932 15%

€15,932 to €552,324 20%

€552,324 to €902,838 30%

€902,838 to €1,805,677 40%

Over €1,805,677 45%

Between siblings*

Less than €15,932 0%

The next €24,430 35%

Over €24,430 45%

*tax free in certain circumstances

Between other relatives (to 4th degree)

Less than €7,967 0%

Over €7,967 55%

Between unrelated persons, including stepchildren

Less than €1,594 0%

Over €1,594 60%

Summary

The personal taxation structure in France for 2013 certainly presents some new challenges and opportunities, particularly for those on high incomes or with substantial assets over the wealth tax threshold.

However, for most French residents, careful financial planning can always mitigate and even totally avoid the impact of many personal tax measures.

As ever, the key is to take independent advice from experts who are fully familiar with the most appropriate financial and tax planning strategies for one’s individual financial circumstances and objectives.

Siddalls UK

Tel: 0845 872 2268

www.siddalls.net

Siddalls is a trading name of IFG Financial Services Ltd which is authorised and regulated by the Financial Services Authority