As widely predicted, President Hollande has made decisive inroads into cutting the French deficit by implementing several key tax rises
The main areas of concern for individuals are:
• Taxes on income including investment income
• Capital gains tax
• Wealth tax
Taxes on income including investment income
Taxes on income will invariably rise for almost everyone as the income tax bands are to be frozen at their existing levels instead of rising in line with inflation.
For those with incomes over 150,000€ per part, there is a new higher band set at 45% which will apply against 2012 incomes, tax payable in 2013.
For those with income over 1 mill€, there is the new “super” tax, applied against employment income, at a rate of 75% which includes 8% social charges. This higher rate “super” tax rate will apply to 2012 and 2013 incomes (assuming there are any earners of this magnitude left in France in 2013!)
The cap for the standard 10% deduction, applied against employment income, will be reduced from 14157€ to 12000€.
There is a fundamental change to the taxation of interest and dividend income in 2012 in that these are now added to other income and taxed at the marginal rate. The flat rate arrangement has been withdrawn. Furthermore, in 2013 the withholding applied to interest and dividends will amount to 24% and 21%, respectively. This withholding will be regarded merely as an “on account” payment of tax, not the final liability unless the household income is below the threshold prescribed.
Non residents with income from furnished property such as gites etc in France will now been subject to the CRDS/CSG and social charges on this income, bringing the total liabilities payable on such income to a level of 35.5%. When such income is reported on, for example, a UK tax return reporting foreign income of a UK resident, a tax credit can be taken for this French tax and social charges but, unless the individual is a higher rate taxpayer, full relief for the French liabilities is not achieved.
From 2013 owner-managed businesses will find that previously effective tax planning, where a mixture of salary and dividends are paid, will no longer be effective as social contributions (equivalent to NIC) will be due on the dividends.
Capital gains tax
Capital gains realised on the sale of shares and securities will no longer be taxed at the flat rate of 19% but, just like interest and dividends, these will now be added to other income and taxed at the marginal rate.
However under certain, very prescribed, conditions, it may still be possible for directors of companies who dispose of their shareholding still to be able to access the flat rate of 19% (plus social charges of 15.5%) rather than be taxed at marginal rates.
Capital gains on real property are taxable still at 19% + 15.5% social charges and in 2013 it is proposed that a special 20% allowance, as well as the current deduction for years of ownership, will be applied against the net taxable gain for purposes of calculating the tax but not the social charges.
One piece of good news – the proposed tax on second homes owned by non-residents has been abandoned.
For 2013, the wealth tax limit is slightly increased to 1.31mill€ but, as in 2012, only the first 800.000€ is tax free. The applicable rates are from 0,5 to 1,5%.
Also a cap is to be introduced on total liabilities (income, wealth taxes and social charges) at 75% of total income. It is not clear at this stage whether the taxe fonciere and taxe d’habitation will form part of the 75% cap.
One piece of good news here, too – the 5 year partial exemption from wealth tax on overseas assets has been left intact.
If you would like to discuss any of the above, please contact [email protected]