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31st July 2010
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Wealth tax in France - a tax on your fortuneDo you qualify for French wealth tax?Wealth tax, or 'L'impôt de solidarité sur la fortune' (ISF), is a tax on asset values that strikes fear into the hearts of some expatriates.Wealth tax does not exist in the UK, and the concept sometimes comes as a surprise to the British, since not only are you paying an annual tax on the value of assets that you built up out of your taxed income, but the authorities also oblige you to list everything you own, which can leave some people feeling that their privacy has been invaded. However, this is a tax about which French public opinion feels strongly and anyone who followed the various debates on the 2005 French budget will realise that any attempt to reduce wealth tax is considered to be a political disaster, even for the current government which has a large majority. For the first time in seven years, however, the French Parliament voted to increase the various tax bands in line with inflation, thereby halting the gradual increase this tax has seen in recent years. The recent rise in French and UK property prices, particularly in the south of both countries, means that the number of people liable to wealth tax has increased dramatically, but if you think you fall into this category, there is no need to worry unduly. We at Siddalls have been contacted by ex-pats who have hidden away assets in complex offshore trusts, in the hope (with no guarantee, since there is no trust law in France) of avoiding wealth tax, only to find that the annual cost of running the arrangement was more than the tax saved. In fact, in most cases, the wealth tax bill turns out to be perfectly reasonable and it is not worth going to any major effort or expense to avoid it, however unnerving the concept may seem. It is important to take suitable advice as to what your bill - and for that matter your total tax bills - in France will be, before making any decisions. How the tax works Wealth tax is payable by any 'household', resident of France, whose combined worldwide assets are valued at more than 732,000 euros on January 1, 2005. Your 'household' includes spouses and dependent children, and it should be noted that stable unmarried couples are also taxed together. Non-residents of France may also have a wealth tax liability, but only on their French property assets. The 'values' of your assets are the sale or surrender values as at January 1, 2005, and the onus is on you the taxpayer to put the correct current market value on your assets. You can reduce the value of your principal residence by 20 per cent and can value your home contents at either their real value or set them at 5 per cent of your total assets. Any liabilities you have are then deducted, such as outstanding loans or tax bills to be paid. Very few assets are exempt from wealth tax, with the main ones being antiques, fine art and 'business assets'. The rules are relatively strict as to what defines a business asset, and adherence to the rules is heavily controlled. Once you have worked out the value of your taxable assets, wealth tax is pure self-assessment. You complete a specific declaration form, calculate your own tax bill on the form and then send it off, by June 15 of the year in question, with a cheque. There are various minor complications with the calculation, of which the most irritating is that, once you have worked out your tax bill, you can then take that bill off your asset values as a liability, so you have to start the calculation again! However, basically, tax is calculated on a banded system as follows for 2005: Taxable asset values (euros) Percentage tax Up to 732,000 0 From 732,001 - 1,180,000 0.55 From 1,180,001 - 2,339,000 0.75 From 2,339,001 - 3,661,000 1 From 3,661,001 - 7,017,000 1.3 From 7,017,001 - 15,255,000 1.65 From 15,255,000 1.8 Thus, for a household with taxable assets of 1,000,000 euros, the bill for 2005 would be 1,474 euros. At this level, and with suitable planning, it is normally possible to ensure that your overall tax bills remain perfectly acceptable in France. On the other hand, for estates worth in excess of £1,000,000, the bill begins to rise relatively quickly and planning is essential. New tax treaty The French Government has recently agreed to add into the provisions of the new double tax treaty with Britain, signed in January 2004, a temporary exemption from wealth tax for British nationals resident of France, of any 'property' outside France, during their first five years of French residence. Bear in mind, however, the new tax treaty has yet to be ratified, so it will not be in force for some time yet and the wealth tax exemption will only begin from the year following the year of ratification. Rupert Holderness is General Manager, France, at John Siddall International, Independent Financial Advisers to British expatriates in France: www.siddalls.net Disclaimer. Please note that taxation is a complex subject and you should not take or should refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it. Enjoyed this Article? 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