Tuesday 11 September 2012

French tax impact on individuals like yourself.



Hollande's first 'loi Finance' became effective on 17 August 2012: French tax levies on individuals

On 4 July the French government of François Hollande announced the introduction of tax law changes in two stages: the first change during the summer of 2012, and the second in 2013.

After the relevant bill was submitted, the proposed changes still needed to be approved by Parliament and Senate. Objections from parliament that the announced measures were unconstitutional were dismissed by the court. The publication and entry into force of the new Act took place on 17 August 2012. Below we have set out the most important tax changes which may be relevant for you as a client of our private bank.

French inheritance and gift tax (Droits de succession et donation)
Gifts between parents and children formerly enjoyed an ex- emption of EUR 159,325 per child per parent. This exemption could be used once every 10 years, with gifts made within this period being aggregated for exemption purposes.

The following changes have taken effect:
The exemption from inheritance and gift tax for gifts between parents and children has been reduced from EUR 159,325 to EUR 100,000;
The exemption (accumulative) may be used every 15 years (instead of 10 years).


French wealth tax (Impôt de solidarité sur la fortune, ISF).
Under the current French wealth tax regime, an exemption ap- plies for an amount up to EUR 1.3 million. If this amount is ex- ceeded, both residents and non-residents are liable to wealth tax from the first euro. The rate of taxation depends on the size of the net assets (assets less debts).
Assets with a net value up to EUR 3 million attract tax at a rate of 0.25% from the first euro. If the value of the net assets exceeds EUR 3 million, the rate is 0.5% from the first euro. In 2012 individuals who are liable to French wealth tax will pay an additional wealth tax contribution. This additional contribution is calculated by multiplying the value of the net assets by the progressive rate in the table below, after which the payable ISF (0.25% or 0.5%) is deducted.


Capital gains and rental income relate to your second home
Capital gains realised on the sale of French property that was used as the main home are exempt. Capital gains on the sale of French property that was not used as the main home (sec- ond home) are in principle taxed at 19% for EU residents and at 33,33% for non-EU residents.
A partial exemption is available depending on the number of years that the second-home property had been owned at the time of sale (2% from 6 to 17 years of ownership, 4% from 18 to 24 years of ownership, 8% from 25 to 30 years of owner-ship).
In addition to this capital gains tax of 19%, French residents are also subject to social charges (prélèvements sociaux) on these capital gains.
Now that the new Act has taken effect, capital gains on the sale of the second home of non-residents are also subject to these social charges, currently at a rate of 15.5%.

This means that any capital gains on the sale of your second home will not only attract capital gains tax of 19% (or 33.33%), but also a social charge of 15.5%, so that the total tax levy on the capital gains from your second home will be 34.5% (or 48.83%).
The rental income will also be subject to this social charge ('prélèvements sociaux') of 15.5%. This is next to the progres- sive rate (minimum of 20 % for non residents)The new tax rate for rental income will apply to all rental income from 1 January 2012, while the new capital gains rate will apply to all sales for which the contract of sale was signed on or after 17 August 2012 (the publication date of the law). With the 'ordinary' voting on the 'Loi Finance' due at the end of September and the 'second stage' of the changes announced for 2013 still ahead of us, we expect that the last word has not been said on this issue.

We will, of course, keep you informed of any upcoming changes. For now, if you have any questions, you can naturally always get in touch with your contact person at your private bank.
Meanwhile, if you are considering to sell your home in France, feel free to contact Jolanda Marinus of Living at The Côte d'Azur on +33 6 5991 0425. www.livingatthecotedazur.com

With thanks to
Daniëlla van de Putte 
International Structuring & Estate Planning Department 
ABN AMRO Bank (Luxembourg) S.A. 
World Citizen Services 

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