France has one tax that Britons are generally not familiar with – wealth tax. It is an annual tax on the worldwide assets of French residents as at 1 January in any French tax year, although there are reductions available on how much you actually pay. When you first move to France from the UK, you will only be liable for wealth tax for five years on French assets, and not global assets.
Providing you have been non-resident in France for the five previous years of your arrival after 6 August 2008, you will enjoy freedom from wealth tax on your non-French assets effective from the 1 January in the year following the year of your arrival. If you arrive after 1 January in any year, because France ‘splits’ the tax year into period of residence and non-residence, as you were not resident on 1 January in that year, you will only be subject to French wealth tax on your French assets (if any) in the year you arrive.
The UK/France Double Tax Treaty also provides for a five year exemption from wealth tax on non-French assets after becoming resident there. It is only in the sixth year of residence when you are liable for wealth tax on worldwide assets. If you should leave France and become a non-French tax resident for a period of at least three years, and then return and take up tax residence again, then the five-year exemption will start once more.
The wealth of the household
Those who own a second home in France, and who will remain French non-resident, are liable to wealth tax on net assets in France, including the value of shares in a property owning company known as an SCI. However, loans to the individual (or the SCI) specifically attached to the French assets may be deductible against the asset value to reduce the wealth tax calculation.
Non-residents are liable to wealth tax on any property or any rights over property situated in France, whether held directly or indirectly and including shares or interests in unquoted companies whose seat of management is situated outside France and where more than 50% of the assets comprise property in France.
Wealth tax is known as ISF (Impot de Solidarité sur la Fortune). The tax is based on the wealth of the household, including spouse and infant children. There is a €150 deduction for each dependent child below the age of 18, or invalid person. Unmarried couples living together are treated as one household for wealth tax purposes.
The wealth tax rates for 2010 are:
|Gross Worldwide Assets of the household||Band||Tax rate||Tax on band||Cumulative tax|
|€790,001 to €1,290,000||500,000||0.55%||€2,750||€2,750|
|€1,290,001 to €2,530,000||1,240,000||0.75%||€9,300||€12,050|
|€2,530,001 to €3,980,000||1,450,000||1.00%||€14,500||€26,550|
|€3,980,001 to €7,600,000||3,620,000||1.30%||€47,060||€73,610|
|€7,600,001 to €16,540,000||8,940,000||1.65%||€147,510||€221,120|
85% wealth tax restriction
Your total wealth tax plus income tax, plus social charges cannot exceed 85% of your income (‘net revenues’) providing your net wealth is equal to or less than the upper limit of the third wealth tax band (i.e. €2,530,000 for 2010). It is not necessarily just taxable income though, and will include for this purpose many exempt or relieved items.
If your wealth exceeds the limit above (i.e. €2,530,000 for 2010), the reduction is limited to 50% of the full wealth tax subject to a minimum wealth tax being payable of the cumulative tax due at the upper limit of the third wealth tax band (€12,050 for 2010).
50% restriction with Bouclier Fiscal
For French residents, combined French income tax, wealth tax, social charges (CSG, CRDS and PS) and local property taxes connected to the main residence cannot exceed 50% of your total income for the previous year. This provision is known as the Bouclier Fiscal.
Where the relevant taxes exceed 50%, you will have to claim a refund of the excess taxes paid in respect of excess tax paid in the previous year. There is no maximum limit to the amount of refund that can be claimed.
For 2010, you would take into account:
– Income tax for 2008 paid in 2008 at the fixed rates and 2009 by reference to the 2009 tax return (for 2008 income taxed at the scale rates)
– Social charges on 2008 income
– 2008 capital gains tax
– 2009 wealth tax
– 2009 local taxes on the main home (taxe d’habitation and taxe foncières)
If they exceed the 50% limit, a refund will need to be claimed. The refund can be claimed from 1 January and before 31 December 2010. The 85% restriction still remains in force although in most cases this will be less advantageous than the 50% restriction. Nevertheless, where the 85% restriction applies, this is calculated on the individual’s tax return, so the taxpayer does not pay over the excess taxes over 85%.
Assets assessed and exemptions
Assets taken into account for wealth tax include real estate, vehicles, debts due to you, furniture (except antiques), horses, jewellery, shares, bonds, redemption value of any life assurance and endowments. Assets exempt from wealth tax cover those necessary to a business conducted by its owner or his spouse, pictures, tapestries, statues, sculptures, lithographs; antiques over 100 years.
Funds in a pension fund are usually exempt, as are annuities constituted in respect of an employment or business (subject to certain conditions) and portfolio investments such as bonds, cash deposits, and shareholdings of less than 10% in French companies held by non-residents.
The fair market value of an occupied main home can be reduced by 30% for wealth tax. The fair market value is the price the property could be expected to sell for on the open market as at 1 January of the year in question. A mortgage will reduce the assessable value for wealth tax purposes only if it is secured against the property.
Wealth tax returns must be filed by 16 June for French residents, 15 July for residents of other EU countries (including Monaco) and 1 September for residents of countries outside the EU. Payment in full of the wealth tax must also be made by the due date.
There is a specialised life assurance structure available called an Assurance Vie which may reduce your wealth tax liability. It is advisable to speak with a tax and wealth management specialist who is experienced in UK and French tax systems, preferably before you move to France.
The tax treatment(s) detailed above is current at the time of writing although the tax treatment outlined may change in the future.