Wealth Tax in France

Anyone resident in France is taxed on their worldwide assets.

Unlike in the UK, France levies a Wealth Tax, known as Impot de Solidarité sur la Fortune or ISF.  Anyone resident in France on 1st January of any year is taxable on their worldwide assets, whereas non-residents with assets in France are taxed on the value of their French assets as at the same date. Blevins Franks explains:

wealth tax threshold increased to €1.3 million In 2011.

So, if you become a resident of France then you will be liable to wealth tax on your worldwide assets if they amount to €1.3m or more. The tax is based on the wealth of the household, including your spouse or co-habiting partner and dependants. Taxable assets include: real estate, cars, other vehicles, furniture, horses, jewellery, shares, bonds, the redemption value of any life assurance or endowments and debts due to you. Liabilities, such as outstanding debts, are deducted in arriving at the net chargeable figure.

For French tax residents the value of an occupied principal residence may be reduced by 30% for wealth tax purposes and there can be similar reliefs for let properties depending on the length and terms of a lease.

Non-residents are only liable to wealth tax on their French assets, and these include any property or any rights over property situated in France, whether held directly or indirectly, including shares or interests in unquoted companies whose seat of management is situated outside France and where more than 50% of the assets comprise property in France.  This includes properties held in France through the intermediary of any company or organization in which the taxpayer holds directly or indirectly more than half of the shares. 

The wealth tax rates for 2012

If your household’s total net wealth is below €1.3m, no wealth tax is due, and no return is required.

Where wealth is between €1.3m and €3m, the total net wealth (including the first €1.3m) is taxable at a flat rate of 0.25%.

Where wealth exceeds €3m, the total net wealth (including the first €3m) is taxed at a flat rate of 0.5%.

For those whose wealth just exceeds the bands, reductions apply:

• For wealth between €1.3m and €1.4m, the wealth tax will be 8 times the theoretical tax due, less €24,500.  For example, at €1.3m, the theoretical tax is €1.3m x 0.25% = €3,250.  Actual tax is ((€3,250 x 8) – €24,500 = €1,500).  So €1,500 is payable instead of €3,250.

• For wealth between €3m and €3.2m, the wealth tax is 8.5 times the theoretical tax, less €120,000.  So, for €3m of wealth, the actual tax is €7,500 instead of €15,000.

If you have children under the age of 18 living with you, your wealth tax liability is reduced by €300 for each child.

Property valuations

The market value of the property is used for wealth tax and succession tax purposes. There is no legal definition of market value, but it is often referred to as the 'pricethe seller could be expected to fetch if the property was on the open market and sold as at 1st January in the year in question'.

The 'comparison' method (where you compare similar properties in the same area which are of more or less the same size, and the prices these have recently fetched in the market) is most commonly used by professionals, the French tax authorities and the courts.

Where the ownership of a property is split into usufruit (lifetime interest) and nue-propriété (underlying bare ownership), the full value of the property (not just the lifetime interest) is assessed on the owner of the usufruit. Accordingly, the owner of the nue-propriété is exempt. The holder of the usufruit is only assessed to wealth tax on the portion of the property over which their entitlement exists. So, if you have a usufruit over only one quarter of the property, you will pay wealth tax on one quarter of the value of the property.

EXEMPTIONS

Wealth tax exemptions include:

• Assets necessary to a business conducted by its owner or their spouse.

• Pictures, tapestries, statues, sculptures etc.

• Antiques (i.e. over 100 years old) – but not historic monuments and buildings.

• Pension and annuities constituted in respect of an employment or business (subject to certain conditions).

• The value of life insurance contracts is not generally assessable unless redeemable, but for policies taken from 20th November 1991, the value of premiums paid since the holder attained the age of 70 is added to his wealth. The value of ‘redeemable’ life assurance contracts such as investment bonds is taxable.

• Portfolio investments and cash held by non-residents.

Filing returns

The deadline for filing your wealth tax return is 16th June for French residents, 15th July for residents of other EU countries (including Monaco) and 1st September for residents of countries outside the EU.  From 2012, those with wealth below €3m will be able to file their wealth tax declaration on their income tax return.

Payment of wealth tax must also be made by the relevant date.  There is no provision for deferring payment of paying in instalments, although from 2013, it will be possible to opt to pay in monthly instalments.

The penalty for late filing of wealth tax returns is 10%.

Residents of France submit returns and payments to their local tax office, and all others must submit their returns and payments to:

Recette des Impôts des Non-Résidents
10 Rue du Centre
TSA 50014
93465 Noisy-le-Grand Cedex
France

Double Tax Treaty

France and the UK signed a new Tax Treaty in June 2008 and it came into effect on 1st January 2010 in France and 6th April in the UK.

It provides substantial relief from French wealth tax for UK nationals (who are not also French nationals). For the five tax years after becoming a resident of France, the wealth tax will only be based on assets in France, and therefore all other assets will be ignored. In the sixth year following French tax residence, wealth tax would then be payable on net worldwide assets as normal.

If you later become a non-French tax resident for a period of at least three years, and then become a resident of France again, then the five year exemption will start again.

Generic five year holiday for previous Non-French residents

Regardless of the Double Tax Treaty position, on 6th August 2008 France enacted a law that entitles all those who have been non-resident in France for the five previous years arriving on or after 6th August 2008, for a five year wealth tax 'holiday' on their non-French assets with first effect from 1st January 2009. This even includes French nationals, providing that they were not resident in France during the five years prior to the most recent arrival.

For readers who are seriously contemplating becoming resident in France, it is well worth considering taking out a Personal Portfolio Bond like an Assurance Vie, which is a specialised form of life assurance arrangement which may reduce your wealth tax liability.

Updated January 2012

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 must take personalised advice. 

For more information on any of the above issues, contact
Blevins Franks Tax Ltd.
TEL: +44 (0)20 7336 1116 - e mail: taxadvisoryservices@blevinsfranks.com

Blevins Franks is a leading pan-European financial advice group, which provides integrated tax, wealth management and estate planning services to private clients in the UK, France and around the world. Blevins Franks Tax Limited advises British foreign property owners and expatriates, both prior to and following their departure from the UK.

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