By Mary Taylor, Partner, Blevins Franks
05 62 30 51 40
When was the last time you reviewed your tax planning? There have been a number of French tax reforms over recent years and it is important to ensure your arrangements are up-to-date, and designed to avoid unnecessary tax and take advantage of the opportunities that exist within the French tax regime.
Income tax rates for 2016 (payable on 2015 income) remain the same as last year, though the income tax bands for each rate have increased slightly.
Last year saw the removal of the 5.5% income tax band, which, though designed to help lower earners, presents tax planning opportunities for investors because of the difference in France between income and taxable income.
Income tax is payable on earnings, pensions, rental income and investment income. There can be more tax efficient ways of holding your investment assets.
In February 2015 the European Court of Justice (ECJ) ruled that France could not apply social charges on people who were subject to social security in another EU/EEA member state. This meant that non-residents should not be liable on French real estate income and residents who are affiliated to the social security of another EU Member State (generally individuals holding EU Form S1) were exempt on unearned and investment income. The French government confirmed this in October.
Therefore, if you are resident in France and are affiliated to the social security of another EU Member State, you can claim repayment of social charges on capital gains on property and shares, dividends, interest, assurance-vie, letting income etc, for income received in the years 2012 to 2015 (refund rules depend on the type of income and you should seek specialist advice). Claims are being successfully made and refunds received.
However, the French government changed its rules again in its social security budget for 2016. In essence, Article 24 says that social charges will now be paid to non-contributing fund (fond vieillesse). Therefore this is outside the scope of ECJ’s ruling and so for income received from this year onwards (refunds are still available for past years as above), social charges are again due on unearned and investment income (or on French real estate income for non-residents) even if you have Form S1. This law change may be challenged, so watch this space….
The combined tax rates with income tax can reach 60.5%, but there are compliant, tax efficient arrangements available in France that can help you lower this tax liability, sometimes significantly.
Wealth tax remains a concern for wealthier residents. You are liable if your taxable worldwide assets are above €1.3 million, with tax payable on assets over €800,000 at rates of between 0.5% and 1.5%. If you are affected seek advice on how to lower this tax liability.
There are no key changes to succession tax this year, but estate planning has been brought into the spotlight by “Brussels IV”, the 2015 EU succession regulation. If you opt for UK succession law to leave assets freely, depending on who your heirs are they could be faced with tax rates of up to 60%.
You should consider your estate planning as a whole – succession tax mitigation, succession law, probate, how you can control who to leave assets to and when and how. These considerations now include whether to choose French or UK succession law – this is a complex area, and you must take specialist advice.
It is important to understand how French taxation impacts you personally, and establish tax planning solutions based on your objectives and family circumstances. Seek personalised advice.