French Wealth Tax
It is apparent that in some areas of France property values are increasing quite substantially. Since real property is generally a person’s main asset, it follows from this that the implications of French Wealth Tax (Impôt de Solidarité sur la Fortune) might become more relevant to many owners. In this article we shall have a brief look at wealth tax, to establish who is liable to pay it, upon what property, and at what rates.To avoid any risk of being alarmist, though, it probably remains the case that the vast majority of people owning property in France, whether they own this as a main residence or a second home, will not be subjected to wealth tax. To assess this the various tax bands and the rates of annual tax are supplied further on in this article.
Firstly, as may be anticipated, there is a different affect for those who live in France and those who own a second property there. For the former, their worldwide assets, Whether in France or elsewhere, are valued together for calculation of the tax. Thus if one lives permanently in France but retains a property back in the UK the current market value of that property will also be taken in to account when assessing ones wealth. Where a person owns a property in another country that has a double tax treaty with France in relation to wealth tax, this treaty will work to reduce the amount payable in France. However the UK has neither an equivalent to wealth tax nor a double tax treaty for it, so a British couple living in France but with assets in the UK as well would have to include these in its annual French wealth tax declaration.
For those not resident in France, only their property situated in France is subject to the imposition. Their financial placements in France are expressly excluded. The remainder of their worldwide assets are not subjected to this French tax residents in another jurisdiction it is the tax regime of that country which will apply; since the UK does not have an equivalent tax there would be no further imposition. For some people therefore it may be possible to consider retaining ones permanent tax residence outside of France, in order to exclude French wealth tax on everything but the property in France. One must however bear in mind that to do this might have other implications – for example the loss of that person’s right to benefit for the principle residence exemption to capital gains tax on the sale of the French property. This was referred to in an article in the April edition of Living France.
Included in the calculation is all real property, whether owned in person or through the medium of a French company. It follows from this that just by owning one’s property through a company, one does not avoid the implications of this tax.
If the property is owned through an unquoted company (i.e. a private company not featuring on any public stock exchange listing) not registered in France, there will still be in an imposition unless the property does not represent more than 50% of that company’s assets. It may appear possible from this that one way of avoiding the imposition could be to purchase the property through the medium of a non – French company, which has a number of other assets. However this option could be fraught with adverse implications. One will have to address the accounting complications – having to make tax declarations in two jurisdictions, and probably pay tax in both. One will always have to ensure that the requirements for avoiding the annual 3% tax on property owning companies are strictly observed. Furthermore the capital gains tax allowances for commercial companies are generally not so attractive, so the route may not appeal where a sale of the property is a possible option.
Where property is subjected to split ownership – that is that one party owns an “usufruit”, which can be taken to be a life interest in the property, and other owns the reversionary interest, it is the person with the usufruit who is treated as the taxable person.
Where property is owned by a married couple, the value of their joint assets is taken into account for calculation of the tax, unless they are separated and not living under the same roof or in the process of divorce. The joint value also applies for an unmarried couple – whether subjected to a PACS agreement – or whether living together in a stable relationship. This last situation does not give rise to a joint declaration, however, if both members of the couple are still married to others.
Property is owned by children is included in the calculation of their parents.
The tax is calculated upon the net amount of the estate in France. This means quite simply that the current value of the property after deduction of any loans that may be secured against it is the value to be declared for tax purposes. This therefore is one way in which it is possible fort one to reduce the overall impact of the tax. However one must take into account the level of interest payments and decide whether these would themselves be greater than any tax that would be payable.
The current rates of tax are as follows;
Below 720,000€ 0%
720,000€ - 1,160,000€ 0.55%
1,160,000€ - 2,300,000€ 0.75%
2,300,00€ - 3,600,000€ 1%
3,600,000€ - 6,900,000€ 1.3%
6,900,000€ - 15,000,000€ 1.65%
Above 15,000,000€ 1.8%
The tax is charged annually. There are deductions available of 150€ for each person in the charge of the taxable parties. There is also a ceiling whereby the total amount of income tax cannot exceed 85% of the previous year’s income. The tax is payable in bands, so that up to the first 720,000€ is tax – free, whatever the overall wealth; the next band of 440,000€ at 0.55%, the next 1,140,000€ at 0.75% and so on.
The reassurance for many, as mentioned earlier, is that this tax will not apply to their French estates, where these do not exceed the lower threshold of 720,000€. However above that level the tax may become an important issue to bear in mind.
Any information found in this site is no substitute for proper professional advice.
It should be seen as giving background information in preparation for seeking that advice.
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