An overview of the French tax changes ( including CGT ) introduced in July 2012
Since this article was written and further links to articles added, PKF and BDO companies have merged, effective from 10 April 2013. The French tax team remains unchanged and now operates within the BDO Guernsey office. It is apparent already that this merger offers great opportunities to extend the ranges of services and assistance they can offer to their clients.
New contact details:
Tel: +44 1481 724561
Fax: +44 1481 711657
Email: french.tax@bdo.gg
Website: www.bdo.gg - click on French Tax
The original article and additional links follow:
The "projet de loi de finances rectificative pour 2012" was released on 4th July 2012 and contains a number of measures which will necessarily affect individual taxpayers. As expected, areas such as wealth tax, inheritance and gift tax have been revisited by the new Government with a view to generating more income. French income and property gains received by non-residents of France are also targeted and may now be liable to French social surcharges known under the acronyms of CSG, CRDS and PS and adding up to an extra 15.5%.
The Budget creates a "contribution exceptionelle" in respect of 2012 and, therefore, with a retrospective "bite" for taxpayers whose net taxable assets are over 1.3 million Euros. This exceptional contribution will simply be calculated on the scale rates applicable last year and will be payable by 15th November 2012. For ease of reference, below is the scale and rates that would be used to calculate the extra charge:
Net Taxable Asset Value Rate
Less than 800,000 Euros - 0.00%
Between 800,000 Euros and 1,310,000 Euros - 0.55%
Between 1,310,000 Euros and 2,570,000 Euros - 0.75%
Between 2,570,000 Euros and 4,040,000 Euros - 1.00%
Between 4,040,000 Euros and 7,710,000 Euros - 1.30%
Between 7,710,000 Euros and 16,790,000 Euros - 1.65%
Above 16,790,000 Euros - 1.80%
The 2012 wealth tax paid by taxpayers so far would, of course, be set against the new tax.
A wealth tax reform is planned for the 2013 Budget and is likely to be presented in the Autumn.
This increase will be effected through the reduction of the tax-free allowance for transfers between ascendants and descendants from 159,325 Euros to 100,000 Euros. The French tax authorities will also be able to reassess gift tax up to fifteen years in arrears, rather than ten years, when lifetime gifts are made between the same parties.
This proposal has already sent shock waves through the media as it plans to subject non-residents to the 15.5% French social surcharges on their French rental income or property gains. Up until now, these charges applied to residents only. Known as CSG, CRDS and PS for "Contribution Sociale Generalisé", "Contribution au Remboursement de la Dette Sociale" and "Prélèvements Sociaux" they were essentially set up to plug the social security deficit. A portion of the CSG applicable to income is deductible for French income tax purposes (currently 5.8%). Non-residents are unlikely to benefit from this deduction as they would have to be taxed at scale rates (barème) as opposed to the set 20% minimum rate.
Nevertheless, this is not specified in the text and it is an area that will need to be clarified.
As these charges do not entitle the payer to any French benefits, they should really be treated as an extra income tax charge with no nil rate band and no allowances for dependants.
For non-residents who are currently assessed at the minimum rate of 20% on their net rental income, this would mean a total tax rate of 35.5%. The rate on capital gains varies depending on whether the vendor is EU resident or not. EU residents currently pay a 19% tax rate. This would therefore increase to 34.5%. Non-EU residents are assessed at 33.33 % so their total rate would increase to 48.8%, almost half of the capital gain arising on the sale of the property consisting of the French tax charge. To make matters worse, the measure would apply to rentals received from 1st January 2012. As far as capital gains are concerned, the new rates would apply to gains realised from the entry into force of the law, and possibly as early as the end of July.
It is unclear at this stage how residents of non-double tax treaty partner countries exposed to French income tax on a notional income basis (Art. 164c of the CGI) will be affected, if at all. Currently, the notional income attributed to these individuals is determined as three times the annual unfurnished rental value of the property. The taxable basis may be pro-rated to reflect the fact that the property might not have been available all year round if it is tenanted. The text refers to income and gains from real estate and does not seem to include "revenu forfaitaire" or notional income, but this needs to be clarified.
There is still no news of the long awaited "décrêt" or "instruction" on the filing obligations of trustees introduced by the new French tax law on trusts passed last year. As a reminder, trusts in existence as at 31st July 2011 with French assets and/or French beneficiaries or settlors would need to be reported by the trustees. The filing deadline and tax forms remain unconfirmed.
In addition to the personal taxation and trust measures detailed above, there are a number of proposals which will adversely affect French businesses.
This article was provided by PKF (Channel Islands) Limited. For further information, assistance with the preparation of French tax returns or specific advice on the French tax implications of a permanent move to France or French property purchase and structuring, please contact Virginie Deflassieux or Catherine Le Pelley at french.tax@pkfci.com, or telephone +44 1481 727927. Alternatively visit their website (www.pkfguernsey.com) to request free French Tax Bulletins or to order your copy of "Taxation in France, a Foreign Perspective" a complete guide to the French tax system.
This document has been prepared as a general guide. It is not a substitute for professional advice. Neither PKF (Channel Islands) Limited nor its directors or employees accept any responsibility for loss or damage incurred as a result of acting or refraining to act upon anything contained in or omitted from this document. PKF (Channel Islands) Limited is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
Further information on French tax can be found on our site using this link:
Moving to France
Please note that information given in the articles found here may supersede the relevant sections above.
Capital Gains Tax in France on Property
Tax in France
French Wealth Tax
Inheritance Tax in France and the Assurance Vie or PCP (Private Client Portfolio Bond)
French Tax Changes in 2011
Holiday Homes in France - how to avoid Capital Gains Tax when you want to sell
Can you help please? We are concerned re: new tax on holiday property. Our house is in France near Limoges. Its not habitable and we don't own one in the UK. Will we be charged? Any help gratefully received.
Thanks for contacting us. Though I am unsure which taxes you are referring to. If it is CGT on the sale of your French property, I don't think this law has changed so don't think you would incur French CGT as you don't own property in the UK. But I would suggest you contact a tax expert or legal advisor in this case, as things are changing all the time in France it would seem, and this may not be the case tomorrow.
Thank you so much for your help. It's not CGT which I'm enquiring about. I'm asking about the new tax on holiday homes. Our place is tiny and is not habitable as it has not been renovated. There is no plumbing, toilets, water, it's just a shell, with no ceilings or rooms.
The only recent new tax laws I have heard of in relation to holiday homes are for CGT and tax on rental income, so as your property is not habitable, I assume you are not renting it out. I'm afraid I'm not aware of other changes.
Has the proposed increase in Capital Gains Tax for non resident EU members become law?
Thanks for contacting us. I would suggest you contact a legal advisor or tax expert for information on this. I thought that this would happen by the end of July 2012, but cannot find any confirmation of this. Sorry not to be of much help.
Can I elect to pay the CGT on the upcoming sale of my French property in the UK instead of France? Will this allow me not to pay the 15% French social tax?
Thanks for contacting us. I would think this would not be possible, however, as I am no expert in these matters, I would suggest you contact a legal or tax advisor for accurate current advice.
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