French Tax Changes & Tax Rates - 2014/2015

<em>The main French tax changes and tax rates for both French residents and non-residents holding French property. This page reviews the main changes effective from 2014…</em>

Income Tax

French residents are liable to income tax on their worldwide income whilst non-residents usually pay tax on their French source income at a minimum rate of 20 percent.

French income tax scale for 2014 income

The French income tax scale (barème) rates applying to 2014 income no longer include the 5.5% band rate. The barème applicable to 2014 income is therefore as follows:

Income Bands (€) %
Up to 9,690 0.00
Between 9,690 and 26,764 14.00
Between 26,764 and 71,754 30.00
Between 71,754 and 151,956 41.00
In excess of 151,956 45.00

A reminder of last year’s income tax scale (applicable to 2013 income)

Income Bands (€) %
Up to 6.011 0.00
Between 6,011 and 11,991 5.50
Between 11,911 and 26,631 14.00
Between 26,631 and 71,397 30.00
Between 70,397 and 151,200 41.00
In excess of 151,200 45.00

There are extra “social” charges totalling 15.5% known as CSG, CRDS and PS applicable to most sources of taxable income. These do not entitle the payer to any social benefit and their aim is to help bridge the social security deficit. The application of the social charges was extended with effect from 1 January 2012 to gains on sale of French properties (see below) and to unfurnished French rental income received by non-French residents. However, it is thought that the recent developments outlined below in 1.6 will put an end to this practice.

Taxpayers may now lodge appeals against these charges. The deadline in respect of levies paid on capital gains in 2013 is 31 December 2015. It is possible to file an appeal in respect of rentals income received in tax years 2012, 2013 and 2014. 31 December 2015 is also the deadline in respect of 2012 unfurnished rental income which has suffered the surcharge.

Payment of tax on account for interest and dividends received by certain French resident taxpayers

French residents should check if their 2013 revenu fiscal de reference “RFR” (taxable income as shown on their assessment) is over €50,000 and/or €75,000.

If it is over €50,000 they need to pay income tax on account in respect of their worldwide interest at a rate of 39.50% (including the 15.5% of CSG, CRDS and PS).

If it is over €75,000 they also need to pay income tax on account on their worldwide dividend income at a rate of 36.50% (including the 15.5% of CSG, CRDS and PS).

The payment on account system was introduced with effect from 1 January 2013. The payments on account and related tax forms have to be filed before the 15th of the month following the day of receipt of the income.

French banks and financial establishments are already set up to apply these charges as they are similar to the taxation at sources system previously applicable. However, when it comes to non-French investment income, the onus falls once more on the shoulders of the taxpayer. The rates are 36.5% for dividends and 39.50% for interest, including the CSG, CRDS and PS. Late filing and payment can lead to the 10% penalty and interest charge of 0.4% per late month.

French Residents Affiliated to another EU National Health Regime

On 26 February 2015, the European Court of Justice ruled that France should not levy the 15.5% social charges on income received outside France by French tax residents who are not covered under the French social security regime.

This decision (under EU Pilot 5973/2013) follows the principle of EU Regulation n°1408/71 which provides that individuals should be registered and contribute to a social security system only in one member state.  The ECJ has now ruled that this principle extends to income and gains from assets.  Indeed, it had already ruled on this question in 2000 in respect of pensions and earned income.

Individuals in this situation may claim the 15.5% paid in 2013 and should seek advice.

This ruling may influence the outcome of the debate surrounding the levy of the 15.5% social charges on gain and rentals received by non-French residents.

2015 Wealth Tax Rates

Non-residents who hold net French assets with a value in excess of €1.3m (excluding investments) or French residents whose worldwide net wealth exceed €1.3m as at 1 January 2015, must file a wealth tax return with the payment of the liability.

Individuals who arrived in France after 6 August 2008 benefit from a temporary five year wealth tax exemption in respect of their non-French assets.

Exposure to wealth tax is on the assets of the household and the liability is calculated as follows:

2015 Taxable Wealth (€) %
Up to 800,000 0.00
Between 800,000 and 1,300,000 0.50
Between 1,300,000 and 2,570,000 0.70
Between 2,570,000 and 5,000,000 1.00
Between 5,000,000 and 10,000,000 1.25
Above 10,000,000 1.50

The wealth tax form and payment must be submitted by French residents before 15 June.  EU and EEA residents have until 15 July and residents of other territories have until 31 August.

Taxpayers selling their principal private residence benefit from a CGT exemption. This is valid for up to one year in cases where the owners have left their main home before the sale.

The CGT rate applicable to the net taxable gain is set at 19% for French residents and non-French residents alike from 1 January 2015. The 75% CGT rate applicable to the French property gains realised by residents of blacklisted territories was challenged at the end of 2014 and is likely to be altered at some stage during 2015. Non-residents who have paid a rate of 33.33% or 75% may appeal this up to the 31 December of the second year after the sale.

The 15.5% of social surcharges (CSG, CRDS or PS) also applies to the taxable gain. The application of these social charges was extended with effect from 1 January 2012 to French property gains received by non-French residents. However, it is thought that the recent developments outlined above will put an end to this practice. Taxpayers are encouraged to lodge their appeals against social charges levied in 2013. The deadline for this is 31 December 2015.

The taper relief rates which reduce the taxable gain for every full year of ownership are set as follows:

  • 6% between 6 and 21 years of ownership
  • 4% in respect of the 22nd year, thereby cancelling the taxable gain after a total of 22 years of ownership

This relief applies to the main CGT rate of 19% (or 75% for residents of blacklisted territories).

The taper relief applies differently in respect of the 15.5% social surcharges and is determined as follows from 1 September 2013:

  • 1.65% for 6 to 21 years of ownership
  • 1.6% for the 22nd year
  • 9% thereafter leading to a total exemption after a full 30 year of ownership

From 1 September 2014, the above taper relief rates also apply to the sale of building plots. In addition, the sale of plots, which have been formally agreed (promesse de vente stage) in the period from 1 September 2014 to 31 December 2015, benefit from a 30% abatement. The sale must take place before 31 December of the second year following the signing of the promesse de vente.

There is an extra charge applicable to net taxable gains in excess of €50,000 on the sale of properties (excluding building plots)

  • 2% between €50,001 and €100,000
  • 3% between €100,001 and €150,000
  • 4% between €150,001 and €200,000
  • 5% between €200,001 and €250,000
  • 6% in excess of €250,000

Certain non-residents who have been fiscally resident in France for at least two full tax years may benefit from an exemption on the sale of their French property. This exemption is granted under strict conditions.

Couverture Maladie Universelle (CMU)

The income limit (2013 revenu fiscal de référence) to benefit from the Couverture Maladie Universelle (basic cover) without paying any contributions is set at €9,610 for the period from 1 October 2014 to 30 September 2015.

Gifts Tax and Estate Duties Payable in 2014 and 2015

Transfers between spouses or members of a PACS agreement are exempt from French inheritance tax. The following rates apply however to lifetime gifts, after a tax-free allowance of €80,724:

For gifts made in 2015
Gift Value (€)
%
Up to 8,072 5.00
Between 8,072 and 15,932 10.00
Between 15,932 and 31,865 15.00
Between31,865 and 552,324 20.00
Between 552,324 and 902,838 30.00
Between 902,838 and 1,805,677 40.00
In excess of 1,805,677 45.00

Transfers (through lifetime gifts or succession) between parents and children are taxed on the following sliding scale after a tax-free allowance of €100,000:

Gifts or inheritance tax 2015
Estate Value (€)
%
Up to 8,072 5.00
Between 8,072 and 15,932 10.00
Between 15,932 and 31,865 15.00
Between31,865 and 552,324 20.00
Between 552,324 and 902,838 30.00
Between 902,838 and 1,805,677 40.00
In excess of 1,805,677 45.00

Transfers between siblings benefit from a €15,932 tax free abatement and the excess gives rise to a charge calculated as follows:

Gifts or inheritance tax 2015
Estate Value

%
Less than 24,430 35.00
24,430 plus 45.00

The rate of inheritance tax for transfers of assets to nephews and nieces is 55 percent after a tax-free allowance of €7,967 each.  Where nephews and nieces inherit in lieu of their mother or father the rate applicable may be that used for transfers between siblings but the €15,932 is shared.

Transfers of assets to other relations up to the fourth degree are taxed at 55 percent and all other transfers (to remote relatives or unrelated individuals) are taxed at 60 percent after a small tax-free allowance of €1,594.

The gift tax allowance for lifetime gifts from a grandparent to a grandchild is €31,865. It is fixed at €5,310 for lifetime gifts made by a great-grandparent.

Trust Reporting

Since July 2011, all French connected trusts must be reported to the French authorities by their trustees. This requirement concerns trusts with French resident parties and/or French assets (see also 6.4).

The annual trust report must contain the full details of the trust parties and assets valuation as at 1 January of the tax year. The annual report filing deadline is 15 June for trusts with French resident settlors and 31 August for those with non-resident settlors.

Trustees also need to file a declaration of modification whenever there are changes affecting the running or the economy of the trust. This type of report must be filed within a month of the event.

Since December 2013, French resident trustees are also concerned by the reporting requirement, even if none of the trust assets or parties are connected with France. Exceptionally, French resident trustees are given until 31 January 2015 to file their 2014 annual report and reports of any events which occurred between December 2013 and 31 December 2014.

From December 2013, the omission of relevant trustee’s reports leads to hefty penalties set at €20,000 or 12.5% of the trust’s underlying asset value (whichever is the greatest).

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only.  The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice.  BDO Limited, its directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

BDO Limited, a limited liability company incorporated in Guernsey, is a member of BDO International Limited, a UK company limited by guarantee, and BDO is the brand name of the BDO network and for each of the BDO Member Firms.
Copyright © January 2015 BDO Limited.  All rights reserved.

Prepared and provided by Virginie Deflassieux, French Tax Associate Director of BDO Limited. For further information, or to discuss these matters in the context of your particular circumstances, please contact BDO Limited’s the French tax team by email or visit the website Copyright © November 2015 BDO Limited. All rights reserved.