French Tax Reforms 2011 - projet du loi de finances 2011 (French Finance Bill)
British owners of French Property should take note of proposed reforms to the French Tax system, especially concerning Inheritance Tax, Gifts, Wealth Tax and Tax Foncière. There are many proposed changes under the French Finance Bill for 2011, and John Kitching, who has been practising in French law for almost 10 years has outlined those that are most likely to affect his British clients. The existing rates for French Inheritance Tax and French Gift Tax can be seen on John Kitching’s previous posts on this blog, and an explanation of French inheritance law is available on www.frenchlawconsultancy.com website. The reforms detailed below are currently only proposals. However, the projet du loi de finances 2011 (French Finance Bill) will be voted on in July and may well take effect. Some of the key proposals are as follows.
French Inheritance Tax and French Gift Tax
The 35% rate of French inheritance tax is to be increased to 40% and the existing 40% rate will be increased to 45%. This is unlikely to affect the majority of estates where there is a spouse and children, as the spouse has a full exemption and children each have an allowance of €159,325 and have a generous sliding scale of tax above that value before reaching the higher rates of tax.
The current survival time for French Lifetime Gifts is 6 years, although it is to revert back to 10 years as was the case several years ago. The time limits will be retrospective and calculated from the date of death. For example, a lifetime gift that has currently passed its 6 year limit could still be assessed for tax under the 10 year rule if the donor dies within ten years of the gift.
Furthermore, French Gift Tax reductions based on the age of the donor are to be abolished, these had been set so that there was a 50% discount if the gift was made by a donor under the age of 70, if they were aged 70 to 80 the discount was reduced to 30%.
Taxe Foncière increase
There are also suggestions of a second Tax Foncière for non resident owners of French property, which will be assessed at 30% of the Cadastral Value of the property as of 1st January 2012. It is not certain whether this will affect British or EU owners.
Wealth Tax
Wealth Tax will become payable on the whole value of assessed wealth where relevant assets exceed €1.3m. The current threshold is €800,000. It is not just the wealth exceeding €1.3m that is assessed for tax, it is the entire €1.3m (and above).
A rather peculiar system of tax discounting has been contrived to allow some leniency to those who only just creep into the Wealth Tax Band, as outlined below.
Wealth Tax bands and rates of tax
The fundamental rates of Wealth tax are:
€1.3m to €3m at 0.25% (on the entire amount)
€3m and over at 0.5% (on the entire amount)
€1.3m to €1.4m leniency
However, if your assets are between €1.3m and €1.4m a reduction applies, calculated as follows:
The wealth tax is calculated at the standard rate (€1.3m x 0.25%) which gives a wealth Tax figure of €3,250. However, the tax is then multiplied by 8, and then reduced by an allowance of €24,500, which gives a Wealth Tax bill of €1,500, a discount of €1,750. As the figures approach the €1.4m figure, there is much less of a discount, with €1.39m returning a tax bill of €3,300 after applying a discount of just €175
€3m to €3.2m leniency
A similar discount applies where assets stray into the €3m bracket. Where taxable assets are between €3m and €3.2m, the tax rate of 0.5% applies, the tax is then multiplied by 8.5 and an allowance of €150,000 is applied.
John Kitching is a bilingual Solicitor and has been practising in French law and estates for almost 10 years. John acts as a Consultant Solicitor to many firms of Solicitors and Notaries Public when they need his expertise, and also helps individuals on a freelance basis.
email: info@frenchlawconsultancy.com
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