Capital Gains Tax and the Expat Property Owner
By Spectrum IFA
This article is published on: 28th May 2014
You have realised your dream, bought a property in France, perhaps as a holiday home to start with but now you have moved here, maybe to work, or perhaps you have retired. The big question is what to do with your property or properties in the UK?
When moving to a new country many people are a little nervous about letting go of their old one, rightly so after all holidaying is one thing, but living in a foreign country quite another. So often people keep their property in the UK, for a while at least, however this can have Capital Gains Tax (CGT) implications on a future sale.
A tax treaty signed between France and the UK which became operative on 1st January 2010, meaning that for former UK residents now resident in France, they are liable for french CGT on the future sale of any property including your former main residence. However no liability will apply in the UK.
Main Residence
If you sell your UK home when you move to France or within a relatively short space of time (usually within a year) then no CGT will be payable in either France or the UK. If however, you hold into it for a while ( then or rent it out) then you will pay CGT on it in France just like any other maison secondaire, with no allowance being made for the fact that it was your main home for a period of time.
Buy to let
If you sell your UK buy to let property when you move to France rather than at a later date then you will pay UK CGT. To work out how much tax you will have to pay, take the selling price of the property, then deduct the buying price. You can deduct the costs of buying and selling, e.g. solicitor’s fees, stamp duty, estate agents fees, advertising etc. You can also deduct the cost of
improvements to the property but not routine maintenance and repairs. There is also an annual exemption allowance (£11,000 for 2014/2015 tax year). CGT rates are 18% or 28% for higher rate tax payers. HMRC website provides a step by step guide.
Any buy to let properties that you own in the UK and subsequently sell after you become a french resident will be liable to French CGT.
Ownership
An important point to note, if you are married, but your UK property is only in one person’s name, it may be sensible to transfer the property into joint names prior to any sale to reduce any potential UK CGT liability. There is no CGT payable between spouses/civil partners and the CGT calculation on sale will be based on the original purchase price for both parties.
In France Gift Tax applies between spouses and applies to gifts made in the previous 15 years so it is sensible to take advice from a professional before taking any action.
French CGT
Like UK CGT, you start with the sale price and deduct the purchase price plus any associated buying and selling costs and costs of improvements (but not repairs or DIY, invoices need to be provided from registered builders etc). If you have owned the property for more than five years the notaire can apply an allowance of 15% of the original purchase price of the property – even if you haven’t done any work!
For EEA residents the starting rate for french CGT is 19% plus 15.5% social charges however these start to reduce on a sliding scale from year 6 of ownership onwards. After a full 22 years have passed the CGT reduces to nil, however it is 30 years before the social charges reduce to nil. Additional charges apply for gains above 50,000 euros.
Working out when, where and how much Capital Gains Tax you should be paying can be quite a headache and the best thing to do is take advice from a professional.
This article is for information only and should not be considered as advice and is based on current legislation. 25/05/2014.
Tax Returns, Pensions & Seminars
By Spectrum IFA
This article is published on: 28th April 2014
What do the above have in common? Well nothing really except they are all topical now! Let’s start with tax returns ……..
I was really surprised to receive the French tax forms so early this year and then I realised why. The date for submission of paper returns has been brought forward to 20th May or if you submit your declaration over the net, then you have until 27th May to do this. Does this mean that we are going to get our tax demands a week or two earlier this year and perhaps with an earlier deadline date for payment? Well I guess that we will just have to wait and see.
No-one should ever try to second guess the Fisc or think that they can out-manoeuvre this government department. I hear some interesting stories of people being contacted and questioned about why they are not registered in the French tax system. You would be amazed at what is used to check – telephone bills, utility bills, etc., etc. How long will it be before our use of cash machines and our bank and credit card transactions in shops might be used to verify how much time we spend in France? Scary thought and actually they probably don’t need to go that far, as we can be tracked through our mobile phones and probably also our internet use.
Are you convinced now to register in the system? You’re still not sure if you are resident? OK, call me and with just a few questions, I will be able to tell you.
For those of you completing French income tax returns, don’t forget to include a list of foreign bank accounts and life assurance policies. You don’t have to declare amounts (unless you are subject to wealth tax), only the existence of the accounts and policies. If you don’t, the penalty is at least €1,500 per undisclosed account/policy or €10,000 if the bank account is in one of those uncooperative States or territories that have not concluded an agreement with France to exchange information. So even if it is an account that does not pay interest and there is very little in the account, declare the existence or risk the penalty!
Moving on to the other ‘hot topic’ of the day ……… I am already hearing about lots of people who are being cold-called about the UK pension reform. Apparently, these calls are being made by people operating from Spain or Cyprus or perhaps some other place. Typically, they are offering to liberate your UK pension plans now. What do these people know about the French tax system and the implications for you? For that matter, do they even understand the UK tax implications for you?
Rob and I have both written articles on this subject and I hope that we are sending out a strong message of the need to exercise caution. Every case will need to be considered on its own merits – there will be no ‘one size fits all’. Anyway being able to cash in large pension pots is only a proposal at the moment. We will have to wait for the result of the consultation and then probably a few months more to know the outcome. So if you get any of those calls coming from outside of France, my advice is to tell them not to waste your time!
The final thing that I want to mention is our client seminars – Le Tour de Finance. This is a tour that travels around France, where we bring ‘experts to expats’ and we are now taking bookings for the Spring tour for which there will be presentations on the following subjects:
- Assurance Vie (two of our favoured providers will be presenting)
- QROPS & Pension Investing (very topical)
- Currency Exchange (is this a good time to exchange Sterling to Euros?)
- Health Insurance (are you affected if the UK stop issuing S1s to early retirees?)
- Wills in France & UK (are you affected by the EU succession rules from 2015?)
- International Banking (do your current bankers meet your needs?)
- Tax Advice in France (do you need help with those tax returns?)
Spectrum advisers will also be on hand at all events to answer questions. Maybe you need to have a more in-depth review of your financial situation. If so, we can arrange this with you.
As always, there is no charge for any of our seminars and the speakers’ presentations are followed by a buffet lunch/refreshments. The dates for the local events are:
- 21st May – Hotel La Villa Duflot, 66000 Perpignan
- 21st May – Hotel Abbaye École de Sorèze, 81540 Sorèze
- 22nd May – Côté Mas, 34530 Montagnac
- 23rd May – Montpellier Massane Golf & Spa Hotel, 34670 Baillargues
Each event starts at 10.00 am with a welcome coffee and ends at 2.00 pm after a buffet lunch, with the exception of Sorèze, which starts at 5.30 pm, finishes at 9.00 pm and refreshments will be served. The seminars are always very popular and so early booking is recommended.
If you would like to attend one of the seminars or you would like to have a confidential discussion on your financial situation, please contact me by telephone on 04 68 20 30 17 or by e-mail at daphne.foulkes@spectrum-ifa.com.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or the mitigation of taxes.
Are you a Spanish tax-resident for tax purposes
By Chris Burke
This article is published on: 5th March 2014
If you are currently living in Spain, you would assume that you would also be a Spanish tax resident. That is not always the case. The underlining rule is that if you live more that 183 days of the calendar year in Spain then you are deemed to be tax resident also. Although this is usually the deciding factor there are exemptions to the rule. If the ‘centre of your interests’ is arguably in the United Kingdom, Her Majesty’s Revenue and Customs (HMRC) could reason that you are responsible for tax there, not Spain.
Where is your ‘centre of interests’? Well, you could quite conceivably spend most of your time in Spain whilst still having a house in the UK, a business or job based in the UK, children in school in the UK and/or a spouse in the UK. If all these were the case then you would almost certainly be UK resident for tax purposes. You would also be liable to tax in Spain (in theory) if you spend more than 183 days here. In practice there is however a ‘double tax treaty’ in existence between the UK and Spain which ensures you do not have to pay tax twice as a result.
If you currently reside in Spain and the majority of your ‘centre’s of interest’ are (in Spain) then you will be deemed as a tax resident by the Hacienda (the Spanish tax authorities) and liable to pay taxes on your assets world-wide.
French Trust Law
By Spectrum IFA
This article is published on: 3rd March 2014
As a financial adviser to the expatriate community, I am contacted by lots of people who have either already moved to France from another country, or are planning to do so. Amongst many other things, people are seeking advice as to how best to structure their financial assets for tax-efficiency in France. Since most of the people I advise originate from Anglo-Saxon countries, it may be the case that they may have an interest in a trust, which creates difficulties for them, due to the French tax treatment of trusts.
In 2011, France introduced legislation, which defined the taxation rules and reporting requirements, concerning trusts with at least one of the following:
- French resident settlor;
- French resident beneficiary; or
- French situated assets – even if the settlor/beneficiaries are not living in France.
Basically, the law is aimed at the ‘family type of trust’ and generally excludes trusts falling outside of this area. A summary of the taxation treatment is shown below.
Income tax relating to trusts
Distributions received from a trust (whether capital or income) are treated as investment income, in the hands of the taxpayer. Therefore, 100% of the amount received is added to other taxable income of the household and taxed according to the progressive rates of income tax set out in the barème scale, for which the highest rate is 45%. Social contributions (current rate 15.5%) are also chargeable on the amount distributed.
Wealth tax (ISF) relating to trusts
The law aims for transparency, so that the real ‘owner’ of the assets placed in a trust can be identified. This will either be the original settlor or where that person has died, the beneficiary is subsequently deemed to be the settlor.
The trustees are required to report the annual value of the assets of the trust and to pay a levy, based on the highest percentage rate of ISF (currently 1.5%) of the underlying value of the trust’s assets. However, the levy is not payable if the French resident taxpayer has already declared the trust assets for ISF. Failure to report by 15th June each will result in a fine of 12.5% of the value of the total trust assets or if greater, €20,000. The settlor and/or the beneficiaries are jointly and severally liable for the payment of the levy and for any penalty as a result of non-reporting.
Gift & succession duty regimes relating to trusts
Lifetime gifts and inheritance transfers from a trust with a French resident settlor or ‘beneficiary deemed settlor’, as well as to beneficiaries who have been resident in France for at least six out of the last ten years, are liable to taxation; so too is the transfer of assets into a trust. For non-resident settlors, the transfer of French assets into or out of a trust (for example, property) is also caught by the rules.
Using the market value of the assets, as at the date of transmission, the tax liability is as follows:
- For trusts set up after 11th May 2011, or for trusts set up in a jurisdiction that has not concluded a Tax Information Exchange Agreement with France (referred to as a “non-cooperative territory”), the tax rate is 60% in all cases.
- For existing trusts, which are set up in a “cooperative territory”, the rate of tax is as follows:
- if the relationship between the settlor and the beneficiary can be identified, the tax rate and allowance will be according to the standard IHT barème scale;
- if the beneficiaries are, globally, the descendants of the settlor, the tax rate will be the top rate for descendants in direct line, i.e. 45%; and
- anything else will be subject to a tax rate of 60%, unless covered by specific exemptions in the French tax code.
Overall, trusts do not work well in France and an alternative structure is needed to achieve the same objectives. Therefore, seeking professional advice from someone who understands both the Anglo-Saxon systems and the French system is essential.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets.
France’s Fight Against Tax Evasion
By Spectrum IFA
This article is published on: 3rd February 2014
As part of France’s continuing efforts to combat fiscal fraud, a new piece of legislation was enacted into law on 6th December 2013. This has far-reaching effects, including:
Criminal sanctions for serious cases of fiscal fraud are to be increased to a maximum of seven years imprisonment and a fine of €2 million, when the fiscal fraud is facilitated by:
- the use of foreign bank accounts or foreign life assurance policies;
- foreign entities, including trusts, set up outside of France;
- the use of false identity or false documents; or
- artificial or fictitious tax residency.
Undeclared monies held outside of France, whereby the taxpayer cannot prove the provenance, to be taxed at 60%.
If, as a result of failing to declare assets outside of France, a taxpayer does not make a wealth tax return because the ‘none inclusion’ of the assets indicates that they are under the wealth tax threshold limit (currently €1.3 million), the penalty is to be increased from 10% to 40% of the tax due.
The period during which the tax authority can take action to prosecute is to be increased from three years to six years.
As concerns trusts, legislation was already introduced in 2011, which has required the trustees to declare to the French tax authorities the existence of the trust with at least one of the following:
- French resident settlor;
- French resident beneficiary; or
- French situated assets – even if the settlor/beneficiaries are not living in France.
Since 2011, failure to declare the existence of a trust has resulted in a penalty of the greater of 5% of the value of the total assets of the trust, or €10,000. The new law increases the fine to 12.5% of the value of the total trust assets or if greater, €20,000.
In addition, a public register of trusts is to be established by the Minister of Finance. This will require full details of the trust to be published, including the name(s) of the trustees, the settlor and all of the beneficiaries, as well as the date of establishment of the trust. Therefore, the text of the law is wide and in effect, requires information concerning non-resident beneficiaries to be made public and may also require the names of potential beneficiaries to be published.
France, like many other countries, is targeting tax evasion more and more. Banks and insurance companies are required to report information to tax authorities about their clients and tax authorities around the world are exchanging information. The EU is also proposing to amend EU Directive 2011/16 to expand the field of the mandatory automatic exchange of information between tax authorities to include capital gains, dividends, bank account balances. Banking secrecy will clearly become a thing of the past!
It’s a fool’s game to try to hide assets and pretending not to be resident is not a good idea. One way or another, the taxman always finds out and the penalties can be very costly. It is much better to seek regulated advice from professionals who are registered here in France.
Does any of this concern you? Would you like to ensure that you and your potential beneficiaries do not pay any more tax on your financial capital and investment income than is necessary? If the answer to either of these questions is yes, then please contact me for a confidential discussion.
We are also now planning for our Spring Client Seminars. As always, there is no charge for any of our seminars and the speakers’ presentations are followed by a buffet lunch, so places must be booked in advance. The planned dates for the next local events are:
- 21st May at Castelnaudary
- 22nd May at Perpignan
- 23rd May at Montpellier
As the seminars are always very popular, early booking is recommended.
If you would like to discuss your financial situation, in confidence, or if you or you wish to attend one of the seminars, please contact me or by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on 04 68 20 30 17.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at https://spectrum-ifa.com/spectrum-ifa-client-charter/.
20% withholding tax on all transfers from abroad into Italy
By Gareth Horsfall
This article is published on: 1st February 2014
As of February 1st 2014 banks in Italy will be obligated to withold 20% of the amount relating to transfers coming into personal accounts from abroad. The 20% will be witheld at source, by the bank, unless an exclusion has been applied to declare that the money is not profit from financial transactions being made abroad.
The witheld tax will be assumed to be an advance tax on ‘profit from investment’ and that the tax will need to be declared and paid on it anyway on the end of year on the RW form. The tax will be witheld every 16th of the month following the transfer and the accumulated amount can be used as a deduction against your end of year tax bill.
(Profit from investment includes ‘interest from savings, income from property (i.e rentals, gains from the sale of property etc. This is what they are trying to target!!!)
Even if an exclusion is filed for and granted (at the bank) your name and details will be submitted to the Agenzia delle Entrata. In addition, you have until the 28th February following the year of the deduction (28th February 2015) to apply, to the bank, for an improper application of the witholding tax and request a refund.
The exclusion will be granted by production of a self certification in the form of a letter sent to the bank. It is likely that this self certification will cover a full tax year, in which the remittances were made, but as yet the rules are unclear.
As you can imagine the banks have been caught a little bit on the hop and are not really ready for the implementation of this little piece of legislative wonder. However, if you are remitting funds into Italy in the form of pensions, bringing cash in to renovate a house, income from running a business abroad etc then you must go and speak with your bank manager about how to self certify that the funds have not been generated from profit on investments abroad.
The main aim of the witholding tax is obviously to flush out those who are avoiding paying tax on assets overseas. The government is very cleverly avoiding the necessity of tax collection through third party intermediaries and instead going directly to the source of remittances into the country, the banks and other financial institutions. Since the banks are wholly unprepared for this it could mean a messy period whilst it gets sorted out. The banks are likely to be inundated with self certifcation letters and the hope is that they can administer this without problem.
As an example of the chaos, it is unclear at the moment whether remittances under a SEPA transfer will be subject to the witholding tax although it is just a matter of time before that is resolved.
The whole idea seems rather counter productive to me, in that 20% on an amount remitted into Italy is not the same as 20% on the interest on funds that have been legitimately held abroad as savings. Ultimately, the funds being remitted into the country are less than before and hence less funds to spend and use in the economy. I have my sneaking suspicion that this is merely a way to generate more information for the Agenzia. For those who are declaring their assets and incomes correctly and are ‘in regola’ it will be mostly a form filling exercise, lodging these forms with the bank and ultimately, the legislation will be of little concern. The only benefit being that the Agenzia has more ways of matching assets held abroad versus remittances from abroad and amounts declared on the RW (end of year tax declaration) and ensuring that 1+1+1=3
If you would like to contact me to discuss possible financial planning opportunities around this, or any other matter you can do so on gareth.horsfall@spectrum-ifa.com or call me on +39 333 6492356.
French Residency – Dispelling the Myths
By Spectrum IFA
This article is published on: 22nd January 2014
French residency is a popular topic of discussion for expatriates when they get together in a social setting. So many times I hear people saying that they “choose” not to be French resident and just to be sure, they make sure that they do not spend more than 183 days a year in France. Come April/May time, the chatter on this subject increases. So too do the differences of opinion, mostly about whether or not someone should complete a French income tax return.
Well to dispel the first myth – residency is not a choice per se. Based on the facts, you are either French resident or not.
The rules on French residency are really quite straightforward – although admittedly some cases are not! For example, take a couple who are lucky enough to have a property in each of France, the UK and Spain. None of the properties are rented to tenants and so all are available for their own personal use. Every year, they spend five months a year in France, four months in the UK and three months in Spain. They receive pensions from sources outside of France and most of their financial capital is in offshore bank deposits in the Channel Islands. They also have current bank accounts in each of the three countries.
Where are they resident – well the simple answer is “France”. Why – because this is where they spend most time in a year.
Hence, the second myth of the perceived ‘183 day rule’ is also dispelled.
When anyone has interests in various countries, it is often found that they satisfy the internal criteria for residence of more than one country. Understandably, this can be confusing. In France, you only have to satisfy one of the following four conditions and you will be resident in France:
(1) France is your ‘home’: If you have property in France and another country, but the latter is not available for your personal use (for example, because it is rented to tenants), then France is your home.
(2) France is your ‘centre of economic interest’: Generally, this means where your income is paid from. In addition to pension, salaries, etc., this can include bank interest and other investment income.
(3) France is your place of ‘habitual abode’: Notably, no reference is made in the law to the number of days that you actually spend in France and this is where many people are caught out, believing that if they do not spend at least 183 days in France, then they can decide that they are not resident. This is not the case and your place of ‘habitual abode’ is, quite simply, where you spend most time.
(4) Nationality: If your residency has not been established by any of the above points, then it will be your nationality that determines your residence, however, this is very rare.
As a French resident, you are obliged to complete an annual income tax return and must declare all your worldwide income and gains (even if the income is ultimately taxable in another country). In addition, depending upon the value of your assets, you may also need to complete a wealth tax return.
Thankfully, there are Double Taxation Treaties (DTTs) existing between France and all the EU States (and also with many other countries in the world). For anyone with interests in more than one country, the existence of a relevant DTT is very important. This is because a DTT sets out the rules that apply in determining which country has the right to tax your various sources of income and assets, with the aim of avoiding double taxation.
However, France does not have DTTs with the popular offshore jurisdictions of, for example, the Channel Islands and the Isle of Man. Hence, for any French resident with bank deposits in these jurisdictions, where withholding tax is being charged on the interest, there is no mechanism to offset this against the French income tax that is also payable. Probably the best thing to do to avoid paying tax twice on the same source of income is to shelter the financial capital within an investment that is tax-efficient in France. Notwithstanding this, as everyone’s situation is different, it is also very important to seek independent financial advice before taking any action.
Inheritance taxes should also not be overlooked. As a French resident, you are considered domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend on your relationship to your beneficiaries. However, there are some DTTs on inheritance taxes between France and other countries (although nowhere near as extensive as the number of DTTs that exist for other taxes). Again, it is important to seek advice on your own personal situation because it is my experience that ‘one size does not fit all’.
In summary, French residency is a fact and not a choice. However, by seeking advice, action can be taken to mitigate your future personal French tax bills, as well as the potential French inheritance tax bills for your beneficiaries.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of French tax legislation. Hence, if you would like to have a confidential discussion about your personal situation, please do not hesitate to contact Daphne Foulkes by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on + 33 (0)4 68 20 30 17.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
French Tax Changes 2014
By Spectrum IFA
This article is published on: 3rd January 2014
During December, the following legislation has entered into force:
- the Loi de Finances 2014
- the Loi de Finances Rectificative 2013(I)
- The Loi de Financement de la Sécurité Sociale 2014
Shown below is a summary of our understanding of the principle changes.
INCOME TAX (Impôt sur le Revenu)
➢ The barème scale, which is applicable to the taxation of income and to gains from financial assets has been revalued as follows:
| Income | Tax Rate |
| Up to €6,011 | 0% |
| €6,012 to €11,991 | 5.5% |
| €11,992 to €26,631 | 14% |
| €26,632 to €71,397 | 30% |
| €71,398 to €151,200 | 41% |
| €150,201 and over | 45% |
➢ The décote – which is the tax deduction granted to low taxpaying households – has been increased from €480 to €508.
The above will apply in 2014 in respect of the taxation of 2013 income and gains on financial assets.
➢ An ‘exceptional solidarity tax’ for high earners has been introduced for a two year period. This will apply in respect of taxpayers who are in receipt of a ‘salary package’ of at least €1 million. This extra tax will be payable by the employer (rather than the employee), at the rate of 50% of the amount exceeding €1 million, but limited to 5% of the business turnover for the relevant year.
Wealth Tax (Impôt de Solidarité sur la Fortune)
The government had proposed to include income accrued within capitalisation bonds and life assurance products, which is subject to the deduction of social contributions on an annual basis (typically interest accrued on fonds en euros) in the revenue of the taxpayer to be used for calculating the ‘ISF cap’ of 75% of income. However, this proposal was censored by the Constitutional Council and therefore, there are no changes to wealth tax.
CAPITAL GAINS TAX – Financial Assets (Plus Value Mobilières)
The taxation of capital gains arising from the sale of securities held by individuals has been revised and will be taxed at the progressive rates set out in the barème scale above, after the deduction of an allowance, as follows:
➢ 50% for a holding period from two years to less than eight years; and
➢ 65% for a holding period of at least eight years.
The above allowances also apply to gains arising from the sale of shares in ‘collective investments’, including investment funds, providing that at least 75% of the fund is invested in shares of companies.
Furthermore, to encourage investment in new small and medium enterprises, higher allowances against capital gains for investments in such companies will be provided, as follows:
➢ 50% for a holding period from one year to less than four years;
➢ 65% for a holding period from four years to less than eight years; and
➢ 85% for a holding period of at least eight years.
The above provisions apply in 2014 in respect of the taxation of gains made since 1st January 2013.
CAPITAL GAINS TAX – Property (Plus Value Immobilières)
➢ For sales of property (i.e. maison secondaire) – residents of France
With effect from 1st September 2013, taper relief is granted against the capital gain as follows:
➢ 6% for each year of ownership from the sixth year to the twenty-first year, inclusive; and
➢ 4% for the twenty-second year.
Thus, the property will become free of capital gains tax after twenty-two years of ownership.
However, for social contributions (currently 15.5%), a different scale of taper relief applies, as follows:
➢ 1.65% for each year of ownership from the sixth year to the twenty-first year, inclusive;
➢ 1.6% for the twenty-second year; and
➢ 9% for each year of ownership beyond the twenty-second year.
Thus, the property gains will become free of social contributions after thirty years of ownership.
Furthermore, in order to encourage activity in the property market, an exceptional reduction of 25% of the taxable capital gain will be allowed for sales completed during the period from 1st September 2013 to 31st August 2014. Thus, this exceptional reduction would reduce both the capital gains tax and the social contributions liabilities. However, the exceptional reduction is not available to properties transferred between spouses and partners who have entered into a PACS, nor to ascendants or descendants.
For sales of building land:
As was widely publicised, the government had proposed to abolish the taper relief on sales of building land with effect from 1st January 2014. However, this was censured by the Constitutional Council
Therefore, the same taper relief rules apply as indicated above for second properties; however, these are effective from 1st January 2014 (rather than 1st September 2013).
The exceptional reduction of 25% of the capital gain does not apply to sales of building land.
For sales of property (i.e. maison secondaire) – non-residents of France
With effect from 1st January 2014, different rules apply for non-residents. It will now be possible to claim an exemption of up to €150,000 of the gain, in respect of one property, subject to the following:
➢ that the owner was fiscally resident in France for at least two complete years at some point prior to the sale of the property; and
➢ that he/she is resident in an EU or EEA country, or in a country or territory which has entered into a full agreement with France to combat fraud and tax evasion, at the time of the sale of the property.
Furthermore, if the property is not available for the owner’s use (i.e. it is let), the sale must take place prior to 31st December of the fifth year of the owner leaving France. However, there is no time limit if the property has been continuously available for the owner’s use since at least 1st January of the year prior to the sale.
Reform of the Plan d’Epargne en Actions (PEA)
With effect from 1st January 2014, the following changes have been made:
➢ The maximum amount that can be invested in a “classic” PEA has been increased from €132,000 to €150,000; and
➢ To encourage more households to invest in small and medium enterprises, the “PEA-PME” has been created into which the maximum amount that can be invested is €75,000 per taxpayer in the household.
Assurance Vie
➢ Previously, for amounts invested before age 70, on the death of the insured person each beneficiary would have be liable to fixed rates of tax on amounts exceeding an abatement of €152,500, as follows:
➢ 20% on the portion of the benefit up to €902,838; and
➢ 25% on the amount exceeding €902,838.
With effect from 1st January 2014:
➢ The amount of €902,838 is reduced to €700,000 and the 25% tax rate is increased to 31.25%.
Death benefits paid to a spouse, or to partner linked by a PACS, remain free from the above taxes.
➢ To encourage more households to invest in small and medium enterprises, a new type of assurance vie contract is introduced – “euro-croissance” or “vie-génération”. In recognition of the greater investment risk with this type of investment, an additional 20% tax allowance will be given against the benefit payable on death, before the abatement of €152,500 is applied.
➢ Previously, for old assurance vie contracts, which were set up prior to 25th September 1997 and relative to premiums paid by 31st December 1997, the social contributions were calculated at the applicable rate according to when the gain was made. This treatment was favourable, as the social contributions rate has varied from 0.5% to 15.5%. For the future, the full rate of 15.5% will apply to the total amount of the gain.
Reporting Requirements
The reporting requirements relating to bank accounts and investments established outside of France have been strengthened. Whilst it is already the case that the existence of foreign assurance vie had to be reported, it was not necessary to disclose the value of the investment, unless the taxpayer was subject to wealth tax. For the future, it will be necessary to report the surrender value or the amount of any guaranteed capital, as at 1st January of the year of the declaration, as well as any amounts invested during the previous year.
Failure to report the information will result in a fine of €1,500 per contract not reported. Furthermore payments made from abroad into undeclared contracts will be treated as taxable income in the year that the payment was made.
2nd January 2014
This outline is provided for information purposes only. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.
If you would like to discuss how these changes may affect you, please do not hesitate to contact your local Spectrum IFA Group adviser.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Use the tax structures in France to their full potential
By Spectrum IFA
This article is published on: 2nd January 2014
This is my first article of 2014, so Happy New Year everybody. Let’s hope it’s a good one, without any fear. (John Lennon, 1971)
I’m feeling a bit ‘wordy’ this week, so I thought it might be a good idea to use someone else’s instead of my own (perhaps I should do that more often). I saw this very interesting quote whilst browsing the net over the Christmas break:
‘If you think education is expensive, wait until you see how much ignorance costs in the 21st century’ – Barack Obama, 2013
OK, before we start to discuss this in context, there will be many of you I’m sure who will be up in arms shouting ‘That isn’t an Obama quote, that was written by Derek Bok of Harvard University’ Wrong. Actually it started life as part of a newspaper article in New York in 1913, but that’s another story. Barack Obama most definitely did say this in 2013. He didn’t have UK expats living in France in mind at the time, I’m sure, but I’m not going to let that stop me hijacking his words to my own ends.
The fairly obvious point here is that ignorance is not bliss; in fact it can be painfully expensive, and that does apply to UK expats living in France. The plain and simple truth is that unless you take steps to understand and use the tax structures in France to their full potential, the resulting tax bill to you, or your children or any other intended beneficiaries can be amazingly high. The French would never fall into these traps, so why should we? The answer is ignorance, laced with a liberal dose of laissez-faire.
Education is where I come in. I can teach you how to navigate the minefield that occupies the territory between the UK and French tax systems. I can show you how to structure your investments to ensure you enjoy maximum tax efficiency. All that means is making sure that you pay all the tax you have to pay, but not a centime more. Tax evasion is a fools game; the real deal is to make sure that you’re not paying more than your fair share of tax.
This can mean spending some pounds or Euro along the way. Very often you will need to invest via an insurance based tax wrapper. I know we’re verging on the technical here, but I can explain to you how it all works. You may well need the wrapper. It costs money but it can repay you many times over; possibly scores or hundreds of times over. It also treats everybody fairly, as the cost is on a percentage basis. Think of it this way, if you own a fleet of vintage cars you’ll need an impressive amount of garage space to protect them from the weather and all other manner of risk. If all you have is a motorbike, a garden shed will do the job. It doesn’t matter whether you have £20,000 or £20,000,000 to invested in the UK or sitting around in bank accounts anywhere. Every one of these pounds or Euro has the right to be protected from tax and given a fair chance to grow to as great a degree as possible.
And while we’re on a ‘quote’ theme, here’s another one for you:
‘It’s almost impossible to verify quotes found on the internet’ – William Shakespeare
A real forward thinker our Bill, obviously. My interpretation of what he (or whoever did write it) means is that you should under no circumstanced take what you read on the net for gospel. Just as you should not rely on your neighbour who ‘knows about these things’ or that nice couple you met at a dinner party last week. Place your trust in people who are professionals; registered and regulated here in France.
PS: As I’m putting the finishing touches to this I’ve just seen a rival newsletter from that small rotund Norman person, and blow me down, Mary T is quoting from the same John Lennon song. Shows we must be on the same wavelength I suppose, and there’s room for everyone. Happy New Year!
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Financial Peace of Mind
By Amanda Johnson
This article is published on: 13th December 2013
Are you thinking about what to give your family & loved ones for Christmas? How about financial peace of mind!
As we approach the season of goodwill, many of us think about how we can help our families more. Whilst you are our choosing presents or perhaps arranging to spend the festive period with your nearest & dearest there is something you can do which may give them peace of mind well into the future. You can arrange for a financial review with me, which is free & provides the following benefits:
Peace of mind for you
Your financial review will look at your current financial situation and help you ensure that all investments are working for you in the most productive and tax efficient way, whilst taking into consideration your own risk profile
Peace of mind for your children
We will look at your potential inheritance tax obligation & ways to keep this to an absolute minimum
Peace of mind for all of your dependents
There are many options available for your investments or UK private pensions that can provide a more efficient & tailored way to pass money onto your dependents in the event of your death
If you want to know more about these areas you can either drop in to the Café des belles Fleurs in Fenioux where I hold a financial surgery on a Thursday morning, come and see me at Open Door in Civray last Tuesday morning in the Month, register for our newsletter or speak to me directly. Please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
Have a fabulous Christmas & New Year from all at The Spectrum-IFA Group