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When planning your move to France, you need to investigate all the tax implications early on in your research. Tax in France can be rather high, including on your savings if you do not use tax-efficient structures, and could have a noticeable impact on your income and wealth.
There have been a number of tax reforms over recent years, and 2013 introduced yet more changes, particularly on how investment income is taxed. If you researched this a while ago you need to acquaint yourself with the new rules, as they are rather different, and plan to avoid the impact of these changes where possible.
Until the end of 2012, you could choose whether your bank interest was taxed at the scale rates of income tax or at a fixed rate of tax which was 24%.
For interest received from 1 January 2013 you no longer have a choice. All interest is now taxed at the progressive rates of income tax, which means that higher earners pay more tax.
If you have savings in a French bank, a 24% withholding tax will be deducted at source on your interest earnings. This is not necessarily the total tax due though, if when you calculate your tax for the year your tax bill comes to higher than this, you will pay the balance when you submit your tax return for the year.
You can request to be exempted from the withholding tax regime if the taxable income of your household is below €50,000.
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It is no longer possible to have your dividends taxed at the special fixed rate of 21% unless your total income is below €50,000. As with interest, dividends will be taxed at the income tax scale rates, though an initial 21% withholding tax will be deducted at source in France.
The deductions of €1,525 or €3,050 (for a couple) against dividend income have been abolished.
Capital gains on shares and securities
Capital gains made on shares and other securities will also be added to your other income and taxed at the scale rates of income tax.
In 2012 they were taxed at a fixed rate of 24%, while in 2011 it was lower at 19%.
This also applies to gains subject to France’s exit tax, effective for people who left France after 28 September 2012.
Reliefs have been introduced according to the length of ownership. The allowance will be 5% for shares held for two or three years; 10% for shares held for four to six years; and then increasing by 5% per year of ownership up to 40% by the 12th year.
If you sell a company in France, you will continue to benefit from the old 19% capital gains tax rate, and will not be taxed at the income tax scale rates.
Income tax scale rates
The current income tax scale rates (for 2012 income, tax payable in 2013) are listed below. Tax rates are announced in arrears in France, so we do not yet know what the rates for 2013 are.
Income Tax rate
Up to €5,963 0%
€5,964 to €11,896 5.5%
€11,897 to €26,420 14%
€26,421 to €70,830 30%
€70,831 to €150,000 41%
Over €150,000 45%
Currently, income of between €250,001 and €500,000 is subject to a temporary surcharge of 3%, while income over €500,000 suffers an extra 4% tax. The top rate of income tax in France is therefore 49%.
In France, the taxable income to be assessed is the total income of the household. To avoid the higher rates of tax where there is a high income, but more than one household member, the family is divided into a number of parts familiales. The total income is divided by the number of parts. The income tax scale rates are then applied to this lower figure, and having computed the income tax due, it is multiplied back up by the number of parts. There is a maximum benefit that a household can receive from this system, but many households benefit.
Besides all the tax rates listed above, income and capital gains in France are also subjected to social charges.
Entirely different from, and separate to, social security, social charges are effectively another form of income tax, and are calculated based on the income declared in your tax return.
Social charges are made up of four elements, and the combined current rates are:
Salaries and unemployment benefits: 8%
Retirement or disability pensions: 7.1%
Investment income, capital gains, interest, annuities and rental income: 15.5%
UK nationals are exempt from paying French social charges on pension income derived from British schemes if they hold Form S1 for healthcare purposes.
UK investments like ISAs, PEPs and premium bonds are fully taxable in France. If you become resident in France, they no longer offer the tax benefits they provided you in the UK. Income and gains generated within an ISA or PEP are taxed as investment income in France, so now at the scale rates of income tax plus 15.5% social charges.
You should seek personalised advice on what arrangements provide tax benefits in France and then re-structure your investment assets accordingly. You may be pleasantly surprised at how much tax you can save in France with the right advice and structures.
This article has focused on income tax, but your savings and investments may also be liable to wealth tax in France, depending on how much your total wealth is.
If the total taxable wealth of your household (including real estate, cars, jewellery, bank accounts, investments etc) amounts to over €1.31 million in 2013, then you are liable for this tax. It starts at 0.5% for wealth over €800,000 and rises progressively to 1.5% for wealth over €10,000,000.
While France does have high headline rates of tax, there are some very tax-efficient investment vehicles available to residents of France that can reduce taxable income and thus income tax and social charges. Depending on your circumstances they may also mitigate French succession tax and law. Take professional, personal advice from a specialist firm which has offices in France and keep up to date with all the frequent tax reforms in France.
The 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 should take personalised advice.