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Major tax reforms in France

By Rob Kay, Senior Partner, Blevins Franks

As part of his election campaign, President Emmanuel Macron promised various tax reforms, particularly on how investment assets and income are taxed. The aim is to encourage people to save more by simplifying taxation on financial income as well as aid business growth.

The draft French budget for 2018 was presented to Parliament on 27th September 2017. A balancing act of tax and spending cuts, it includes the promised tax reforms. The budget will now work its way through parliament before being approved at the end of the year, so changes are possible.

The main measure affecting expatriates in France are summarised below.

Flat tax on investment income

Investment income is currently taxed at the scale rates of income tax, but from 1st January 2018 it will become liable to one fixed rate of 30%, regardless of the amount earned.

This 30% rate includes both income tax (12.8%) and social charges (17.2%).

It will only apply to investment policies over €150,000 (per person, so €300,000 for a joint policy), whether in an assurance-vie or not. Lower income households can continue to opt for the progressive income tax rates, so that they do not have to pay more tax under new system.

Assurance-vie

Note that for assurance-vie, the new system will apply to all policies set up on or after 27th September 2017 but the 30% flat rate system will not start to be applied to withdrawals until 1st January 2018. This is because the French Constitution states that 70 days have to elapse between the budget being proposed to parliament and it being approved.

While most of the reforms were expected, this early date for assurance-vie was a surprise. However, the flat rate can actually be more beneficial for individuals with a higher marginal rate of tax.

If your assurance-vie policy was set up before 27th September, the old fixed rate system is still available, as is the ability to elect to use the scaled tax system.

Policies held for more than eight years will continue to benefit from the €4,600 Prélévement Libératoire allowance (€9,200 for married couples / PACS partners).

Your assurance-vie policy will no longer be subject to wealth tax (see below).

There are no changes to the succession tax treatment of assurance-vie.

Wealth tax

The budget released on 27th September proposed that wealth tax will be abolished from 1st January 2018 and a new real estate tax will be applicable.  Savings and investments, including assurance-vie policies, will be exempt from this tax.

If you own or are thinking of buying investment property, it may be worth considering moving the funds into capital investments instead.

The current threshold of €1,300,000 will stay in place; the wealth tax scaled rates will apply to property, and main homes will still enjoy the 30% abatement. The 75% limit will also continue to apply.

As at the time of writing on 12th October, this, along with the rest of the budget, still needs to be debated by parliament and approved. There have been reports that, to counter criticism that M. Macron is a “president of the rich” he will extend the new wealth tax to include items like precious metals (so possibly jewellery) and luxury yachts and cars.

Social charges

Social charge for all forms of income are increasing by 1.7%, as follows:

– Employment/self-employment income from 8% to 9.7%

– Pension income from 7.4% to 9.1%

– Investment income (including rental income) from to 15.5% 17.2%

Taxe d’habitation 

This property tax will be abolished for around 80% households in France, based on their level of taxable income. This will be implemented over a three-year period, starting with a 30% reduction in 2018.

You will benefit from this 30% reduction in your 2018 taxe d’habitation bill if you are a single person with a net income lower than €27,000 or a couple with income under €43,000. If you have dependent children, this threshold increases by €6,000 for the first and second child and by €12,000 for each child after that.

Income tax

Income tax rates will remain the same year, though the income bands increase by 1% in line with inflation. The 2018 scale rates of income tax (for 2017 income) will therefore be:

Up to €9,807 – 0%

€9,808 – €27,086 – 14%

€27,087 – €72,617 – 30%

€71,618 – €153,782 – 41%

Over €153,783 – 45%

Not yet approved

Remember that all these reforms still need to be debated and approved by parliament, and so changes are possible.

Take personalised advice from a professional wealth manager to establish how these reforms will affect you.

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 is advised to seek personalised advice.

Read more about the financial issues that can affect you by visiting our website www.blevinsfranks.com

 

 

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