Wealth Tax, Tax Shield, Gift Tax, Exit Taxes and Secondary Residence Taxes
In early March this year the French government announced its intention to reform the annual wealth tax (impôt sur la fortune). Wealth tax is currently levied on individuals whose net assets exceed €800,000 calculated on the 1st January each year.
The tax is imposed on a sliding scale starting at 0.55% and rising to a top rate of 1.8% for sums in excess of €16,790,000. It was suggested that the existing wealth tax might be abolished and replaced by a new form of tax on an individual’s assets.
The announcement of this review of the annual wealth tax is in addition to the removal of the tax shield (bouclier fiscal), that was published earlier in the year. This will effectively remove this cap on total taxes as a proportion of income.
The French Finance Minister has now provided details of the proposed reform. It is intended that the annual wealth tax will be maintained, but the starting threshold will be raised from €800,000 to €1.3 million. From €1.3 million to €3 million the rate of tax will be reduced to 0.25% and sums in excess of €3 million will be taxed at 0.5%.
The obligation to complete the annual wealth tax declaration and the self-assessment will remain unchanged. The date for submission of the declaration is expected to be pushed back from June to 15 September 2011.
The government hopes that this reform will take effect this year following a parliamentary vote on the proposals set for May.
Effect of the Changes
The proposed changes are generally good news for those subject to wealth tax. Those presently in the €800,000 to €1.3 million band will see a tax saving of €2,745 this year and those with assets of €10 million will see their tax liability fall to €50,000 a saving of €62,450.
Only those in falling in the band €1.3 million to €1.404 million are expected to be worse off, by around €500.
Other Tax Changes As a result of these proposed changes the government expects to see an initial fall in revenue of €1.7 billion, which it believes will be reduced to €900 million when netted against savings of €800 million from the abolition of the tax shield.
To address the remaining shortfall, the government is considering other routes to recover the lost revenue.
Exit Taxes, Secondary Residence Tax
Taxes that are being considered include a flat rate tax on second homes and also an exit tax for French tax exiles. The French minister of finance indicated that the exit tax could be applied with effect ‘from this year’.
Changes to Gift Tax
At present, each parent may give to each of their children up to €159,325 without a charge to gift tax providing they survive for six years. In the event of their death in that six year period, the gift will be included in their estate for inheritance tax purposes.
It is proposed that the present six year period will be increased to ten years. The current age reduction will be abolished as part of the reform.
The government has, however, for the moment, decided against taxing life assurance for the wealthiest or the introduction of a top rate of tax of 45%.