A taxing issue
It’s sad but true – with the New Year comes new taxes. Bill Blevins explains the changes in French tax for 2011 and how they will affect Brits living in France
Living France readers who are moving to France during 2011 will face tax rises for those on higher incomes along with the removal of some tax breaks. Like many other countries, including the UK, France needs to reduce its public deficit and find financing for its controversial pension reforms.
The government’s key objective is to consolidate public finances. It aims to axe tax breaks by €9.5/�8 billion which during 2010 cost about €115/�97 billion. The attack on fiscal spending is intended to generate approximately €9.5/�8 billion in 2011 and €10.5/�8.9 billion in 2012, representing an average saving of €10/�8.5 billion over the two-year period. In both 2013 and 2014, the government aims to cut tax shelters by a further €3/�2.55 billion.
France’s public deficit stood at just under 8% of GDP in 2010. In 2011, the government wants this to drop by around 2% and by 2013 the public deficit slashed to 3% in line with the European Commission’s preferred limit. The government has predicted that economic growth will be 1.5% in 2010, 2% in 2011 and 2.5% for years 2012-2014.
The government insisted that the budget is not an austerity measure because France’s economic situation differed from European economies such as Greece and Spain. "We want to break with a tradition that makes our country the European champion of public spending," Budget minister, Fran�ois Baroin said. "In this sense the budget is historic. Never in the last 50 years have we seen a 2% reduction in public deficit in a year. The effort will continue until public finance is balanced."
Key tax changes for 2011:Highest tax rate up by 1% to 41%;
Fixed rates of tax for bank interest, dividends and other income from moveable assets up 1% to 19%;
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Capital gains on immoveable property (except the main residence) jumps from 3% to 19%;
Capital gains on moveable assets up 1% to 19%;
The annual threshold of €25,830/�21,969 on capital gains on the sale of shares is abolished. From 2011, the entire gain will be taxed;
Also abolished is the tax credit related to dividends, which in 2010 was €115/�97.81 for an individual and €230/�195 for a married couple or PACS partners. The number of tax returns required to be completed in the year of marriage, divorce or entering a PACS (pacte civil de solidarit�) will be reduced, effectively increasing the amount of tax payable especially for high earners.
The increase in the top tax rate, fixed rates for bank interest and dividends etc, rises in capital gains tax and the tax credit related to dividends will not be taken into account when calculating the amount of tax that can be reclaimed under the bouclier fiscal.
Capital gains on immoveable propertyCapital gains in relation to immovable property were subject to 16% tax and 12.1% social charges in 2010. These rates applied after deduction of the 10% allowances for each year of ownership after the first five years. After 15 years, the gain was free of tax and social charges.
It was originally proposed by the Budget Ministry that the tax be increased by just 1% from 16% to 17%. Then an amendment was adopted by the National Assembly during the course of examining the 2011 finance bill which was to increase the tax rate by 3% from 16% to 19% and put up the social charges on property gains from 12.1% to 12.3%. The tax will still be calculated after the 10% deductions for length of ownership, but the social charges will be calculated on the total gain before taking account of the ownership time-related allowances.
The gain is taken into account when looking at taxable income for the purposes of the bouclier fiscal, but the amount taken into account will be the full gain before any allowances (previously it was just the taxable gain after allowances).
Tax returns in year of marriageCouples getting married or those entering into a PACS previously completed three tax returns in the year the union took place: one each for the period before the marriage, and one joint household return for the period after the marriage. There was a similar arrangement for those getting divorced or having the PACS annulled.
The multiple tax return system is set to be abolished in 2011 to be replaced by couples choosing whether or not to complete two individual tax returns or to submit a joint tax return covering the entire fiscal year. For couples getting divorced or where a PACS is annulled then two separate income tax declarations must be completed.
The new regime equates to a tax rise for couples who previously through marriage or a PACS agreement attracted a lower tax liability during the year of marriage or PACS. By cutting this tax break, high earners especially will be hard hit during that year.
More tax reforms plannedFrench President Nicolas Sarkozy has reportedly announced his intention to undertake a comprehensive reform of taxation in France in 2011, and has made known that the first priority for the government will be to focus on the taxation of assets. Sarkozy has been under pressure from within the ranks of his own ruling Union for a Popular Movement (UMP) party to abolish both the controversial tax shield the bouclier fiscal, which limits direct taxes in France to 50% of income, and wealth tax, and has finally acknowledged the need for a comprehensive reform of taxation.
A third of all UMP party members in the National Assembly backed a proposal that the tax shield and wealth tax be removed and replaced by a 5% rise in the top rate of personal income tax to 46% (after the 1% rise to 41% due to take effect in 2011), and by an increase in the tax levied on income derived from capital, including income from dividends and from the sale of both transferable and fixed assets.
The government intends to debate the issue within the framework of a supplementary finance law, possibly in June 2011. French Budget Minister Fran�ois Baroin alluded to the bouclier fiscal as a mechanism that has "become a symbol of injustice", but nevertheless warned of the need to proceed with caution and to not act too hastily, and to take time to consider matters before removing the tax shield. At the time of writing, the full Finance Bill for 2010 was still being debated by parliament, but it was unlikely that any further major changes would be made.
It is possible to reduce the amount of tax you need to pay as a resident of France with an investment strategy designed to legitimately mitigate your tax liability, and to generate income and preserve your wealth. Consult a tax and wealth management professional for advice on the available arrangements best suited to your specific circumstances. It is more advantageous to do this before you leave for France although still beneficial after you have arrived.
ContactBill Blevins is managing director of Blevins Franks International and advises retired expats www.blevinsfranks.com
The level and bases of, and reliefs from taxation may change. Any statements based on taxation are based upon current taxation laws and practices which are subject to change.Living France January 2011