August 2012
2012 Changes to French Tax
The first round of the French tax reforms have been approved by parliament and have come into effect this year (2012). The three main areas of reform were to wealth tax, succession tax and social charges on property owned by non-French residents.
Wealth tax
For 2012, if the total chargeable wealth of your household amounts to less than €1.3m, then you do not have any wealth tax liability. Note however that if your wealth exceeds this threshold, only the first €800,000 is tax free, and not the whole €1.3m.
Your total wealth tax bill this year will now be based on the tax bands and rates which were in place up to 2010. They range from 0.55% for wealth between €800,000 and €1,310,000, up to 1.8% for wealth over €16,790,000.
Since wealth tax returns have already been submitted this year, you will pay the difference between the old and new rates as an “exceptional contribution”.
If your wealth is between €1.3m and €3m, the exceptional contribution will be included in your usual wealth tax avis d’impôt received in October. If your wealth is over €3m or you are non-French resident, you will receive a special declaration at the beginning of October. In both cases you will need to pay the exceptional contribution by 15th November.
This exceptional contribution is an exceptional measure for 2012. The government is planning a structural reform of the tax in 2013. More details are likely to be included in within the framework of the 2013 Finance Bill in September.
M. Hollande’s succession tax reforms have also been approved by parliament, as has the introduction of social charges on income and gains made from property owned by non-residents.
Tax on Second Homes Owned by Non-French Residents
From 2012, there will be a new annual 20% tax rate on the valeur locative cadastrale (the letting value). It is payable whether or not it is actually rented. This can be regarded as a tax hike on the current annual taxe d'habitation and taxe foncière.
If you have been a French tax resident for three consecutive years out of the previous 10 years before transfer of residence abroad, there will then be a six year exemption.
Essentially, this tax hike is aimed at the non-resident owner and not the French citizen. However the European Court of Justice may very well declare it illegal as it discriminates against foreign owners of holiday homes. So watch this space.
The French government also announced that gains made from the sale of French property owned by non-residents will be subject to social charges. Capital gains tax on property sales would rise from 19 per cent to 34.5 per cent (for EU residents) and tax on rental income would rise from 20 per cent to 35.5 per cent. The extra in each case is being labelled a "social charge".
The capital gains tax exemption on gains after 15 years of ownership, and reduced tax payable after year 6, is untouched.
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