Tuesday, 16 October 2012

France - Hollande’s 2012 Tax Reforms

President Hollande has finalised his three major reforms in the areas of wealth tax(ISF), succession tax and the imposition of social charges on rental income belonging to non-residents.

The good news is that if your household’s total wealth is less than €1.3 mill, you will have no wealth tax to pay.  The bad news is that if your wealth amounts to more than €1.3 mill, only the first tranche of €800.000 is tax free.

The wealth tax bands have been realigned to those which applied up until 2010

  • 0.55% on €800.000 to €1.310.000
  • 0.75% on €1.310.001 to €2.570.000
  • 1% on €2.570.001 to €4.040.000
  • 1.30% on €4.040.001 to €7.710.000
  • 1.65% on €7.710.001 to €16.790.000
  • 1.8% on wealth valued at over €16.790.001

For the year 2012 there is an exceptional contribution on wealth which is to be in force for 2012 only.  For 2013, a more comprehensive reform of wealth tax will be undertaken but the details of the reforms probably will not be disclosed until the 2013 Finance Bill is published Autumn 2013.

From 17 August 2012, the succession allowance – inheritance and gift allowance-  between a parent and child have been reduced to €100,000.  Future annual increases in the allowance have been abolished so in real terms the value of the allowance will quickly erode.

Non-residents with French source rental income or capital gains will now become liable to social charges on such income and gains, in line with French taxpayers.  The social charges will be levied on gains as from 17 August 2012 but on rental income received from 1 January 2012.

The first budget of Hollande’s government is due to be announced on 28 September and it is widely forecast that a 45% marginal income tax rate will be levied on income in excess of €150.000 and the exceptional tax on income in excess of €1 mill will be set at 75%.

Furthermore, there will be a major reform as part of the 2013 Finance Bill to ensure that income or gains derived from capital – interest, dividends and capital gains from securities – will be subject to the same rates as earned income and taxed at the progressive rates in force.

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