French Tax Reform News
By Mary Taylor, Partner, Blevins Franks
It is that time of the year when we begin to hear details about the next Finance Bill. It was presented to the government on 1st October, and will be debated by parliament before being passed into law. This means that changes are possible.
Prime Minister Manuel Valls recently declared his intention to remove the 5.5% income tax rate as part of the Government’s policy of seeking to lower the tax burden for lower and middle income families. The budget has now confirmed that the 5.5% rate will be removed, so that the 0% rate will extend up to €9,690. Above that the threshold will start at the 14% rate.
With this measure, the government is looking to reduce income tax for those with lower income and the middle classes. The taxpayers who benefit directly are those with income of less than approximately €12,000 for a single taxpayer or €24,000 for a couple. However, it could also benefit those who hold an Assurance Vie for less than eight years.
Also, the décote will increase from €1,016 to €1,135 for a single person, and from 1,016 to €1,870 for a couple.
This proposal does not affect social charges in any way.
Real estate – Capital gains tax reform
To stimulate the French economy, the Government has proposed to modify the capital gains legislation in regard to real estate.
Aligning the taxation of capital gains on development land and real estate – Under current rules, development land is exempt from capital gains tax after 30 years of ownership and real estate after 22 years. The gains are also subject to social charges (15.5%) but are exempted after 30 years.
In future both development land and real estate gains will be exempt from capital gains tax after 22 years of ownership (the exemption from social charges remains 30 years).
Exceptional 30% capital gains tax relief on development land – Development land sold before 31st December 2015 will receive a 30% reduction in the taxable gain.
Pinel law to replace Duflot law – Investors who lease property for a minimum of nine years currently receive a tax credit, referred to as Duflot’s law. Pinel law provides a tax credit equal to 12% of the purchase price of the rental property for leases of more than six years; 18% credit for leases of more than nine years, and 21% credit for leases of over 12 years. Further, the new provisions will make it possible to rent the property to your descendants or ascendants.
€100,000 gift tax exemption for the donation of development land (subject to construction) – This exemption will be added to other gift tax general allowances already applicable.
The tax credit for achieving sustainable energy renovation will be increased – Sustainable energy renovation achieved will now qualify for a tax credit of 30% of the renovation cost (as opposed to 15% or 25% as currently).
Both the income tax and real estate reforms still need to go through the parliamentary process. However, the tax administration has commented on the new real estate rules by updating its documentation, which means they are in force.
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Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
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