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:

➢ 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»