The Fortunate Taxpayers…or Avoiders

The first question we often get from a would-be property purchaser or would-be new resident in France is about taxes. Sure, taxes are higher in France in many cases, but not in all cases when comparing ‘apples with apples.’ One tax, however, that the U.S. does not (yet) impose is the much talked-about “Impôt de Solidarité sur la Fortune” — or Wealth Tax.

This is an annual tax on the sale or market value of your assets (cash and property owned by the household, as well as cars, jewels, furniture, shares, fine wines and other valuables) based on January 1st of the year. For non-residents, this applies only to fixed assets in France. For residents, currently the threshold is €1.3 million worth of assets, less 30% allowance against the value of a principal residence (unless held in the name of an SCI — Société Civile Immobilier). This is one very valid reason for taking a mortgage as what is owed is considered exempt against the value of the asset.

Contents of the home are valued at a set 5% of the total assets, or they can be valued at their real value, however antiques, collector’s items and fine art are exempt — a good reason to collect art and antiques. And if you operate a registered business, those assets can also be exempt as they contribute to your source of income. Pension funds can be excluded, but assets held in trusts must be declared if the trust has a beneficiary who is resident in France.

Wealth Tax shelters and exemptions may also include life insurance policies, financial products such as stock shares and investment properties that are rented. Certain alimonies are also exempt as well as investments in small to medium-sized companies based in the EU, partial exemption for woodlands and long-term shares held by clubs and business properties.

Assets held outside of France are exempt from Wealth Tax…until December 31st of the 5th year following an official year of residence. When the sum of all taxable assets reaches €1.3 million, that’s when a declaration must be filed as part of your tax return. Over €2.57 million requires a separate tax return filed by June 15th along with a check for the tax due.

The rates of taxation applicable for 2013:

Fraction Taxable            Rate of Tax
€0 – €800,000                        0%
€800,000 – €1,300,000          0.50%
€1,300,000 – €2,570,000       0.70%
€2,570,000 – €5,000,000       1%
€5,000,000 – €10,000,000     1.25%
€10,000,000+                        1.50%

Since 2013, there is a cap on wealth tax, so that the total of the taxes should not exceed 75% of the income. The calculation is complex, but living off the proceeds of capital is a way of reducing potential wealth tax liability.

The subject of Wealth Tax is under constant debate. High profile executives and celebrities, such as actor Gerard Depardieu have moved off shore to avoid paying French taxes — the highest tax burden in the EU. About 360 billion euros of capital have exited France in the last 20 years, according to a report by the Fondation Concorde Research Center. Exodus escalated after 1995 when the then Prime Minister Alain Juppé scrapped a limit on the wealth tax created in 1981 by late Socialist President Francois Mitterrand. Caps were later reinstated.

A new wave of departures is predicted at the start of 2015 when a tax treaty with Switzerland is revoked and gifts and inheritance received by French residents from parents based in Switzerland will be taxed.

The solution?

1. Remain a non-resident of France.
2. Hold less assets.
3. Bite the bullet and pay the tax — money is just money, after all, and if you have that much money, how much do you really need?

A bientôt,

Adrian Leeds

Editor, French Property Insider & The Adrian Leeds Group, Inc

Email: [email protected]

P.S. Tune in to House Hunters International tomorrow, October 3 at 11 p.m. or 2 a.m. E/P for “Finding Happiness in Paris” as Lisa Anselmo searches for the perfect apartment in her favorite arrondissement. But Parisian prices could put a damper on her dream — can she find the sweet spot between size and location? And visit our Facebook page and let us know what you think of this episode.