Wealth Tax in France
Understand how wealth tax is calculated in France...
Individuals resident in France and non-residents with assets in France are taxed on the basis of their assets as of 1 January each year.
Wealth tax is known as ISF (mpôt de Solidarité sur la Fortune). Residents are liable to wealth tax on their net worldwide assets, including all properties, subject to the provisions of tax treaties. The tax is based on the wealth of the household, including spouse and children. Unmarried couples living together are treated as one household for wealth tax purposes.
Taxable assets include real estate, cars, other vehicles, debts due to the taxpayer, furniture (except antiques), horses, jewellery, shares, bonds and the redemption value of any life assurance.
Non-residents are only liable for wealth tax on their net French assets. These include any property or any rights over property situated in France, whether held directly or indirectly. This includes shares or interests in unquoted companies whose seat of management is situated outside France and where more than 50 percent of the assets comprise property in France , and properties held in France by non-residents through the intermediary of any company or organisation in which the taxpayer holds more than half of the shares.
Liabilities such as mortgages and other debts are deductible in arriving at net assets.
Wealth Tax RatesIf the household total net wealth is below €1.3m, no wealth tax is due and no return is required.
For those with assets in excess of €1.3m, the rates and thresholds below apply for 2015.
|Gross Worldwide Assets of the Household||Band||%||Tax on Band||Cumulative Tax|
|€800,001 to €1,300,000||500,000||0.50||€2,500||€2,500|
|€1,300,001 to €2,570,000||1,270,000||0.70||€8,890||€11,390|
|€2,570,001 to €5,000,000||2,430,000||1.00||€24,300||€35,690|
|€5,000,001 to €10,000,000||5,000,000||1.25||€62,500||€98,190|
Wealth Tax and Property
Wealth tax is assessed on the property's market value. There is no legal definition of market value, but it is often referred to as the ‘price it could be expected to fetch on the open market’ that year. The fair market value of an owner occupied main home may be reduced by 30 percent for wealth tax purposes.
Strictly speaking, a mortgage will reduce the assessable value for wealth tax purposes only if it is secured against the property itself. However in practice the French authorities will generally accept the deduction if there is proof that the loan is connected to the property.
Valuation of Furniture
Furniture can be valued either:
- By drawing up a detailed inventory of the value of each taxable item. This inventory can be notarised and should be attached to the wealth tax declaration. It is valid for three years.
- A global estimate of the value of the contents, without the need to specify each item. For example an insurance valuation might be used. This is the simplest method and the most commonly used.
- As a flat 5 percent of the value of the property. This is rarely beneficial.
Usufruct and Nue-propriété
Where the ownership of a property is split into usufruit (lifetime interest) and nue-propriété (underlying ‘freehold’ interest), the full value of the property (not just the lifetime interest) is assessed on the owner of the usufruit. Accordingly, the owner of the nue-propriété is exempt. The holder of the usufruct is only assessed to wealth tax on the portion of the property over which their entitlement exists. So, for example, if an individual has an usufruct over one quarter of the property, he will pay wealth tax over one quarter of the value of the property.
Payment of Wealth Tax
The deadline for filing wealth tax returns is 15 June for French residents, 15 July for residents of other EU countries (including Monaco) and 31 August for residents of countries outside the EU. Households with wealth below €2,570,000 can file their wealth tax declaration on their income tax return. Payment must be paid by the relevant date. It is possible to pay by monthly instalments. There are penalties for filing late:
- 10% when return is filed within thirty days of receipt of notice to pay the tax
- 40% where the return is not filed within thirty days of receipt of notice;
- 80% in case of non-declaration of wealth tax liability.
Residents of France submit returns and payments to their local tax office.
Non-residents submit returns and payments to:
Service des impôts des particuliers - Non-résidents
TSA 10010 - 10 rue du Centre - 93465 Noisy le Grand cedex
Tel: +33 (0)1 57 33 83 00
Fax : +33 (0)1 57 33 82 66
Five Year Wealth Tax Holiday for UK Nationals
The France/UK double tax treaty provides substantial relief from wealth tax for UK nationals.
For the first five French tax years after becoming a resident of France, wealth tax will only be based on assets in France and all other assets will be ignored. In the sixth year following French tax residence, wealth tax would then be payable on worldwide assets as normal.
If you can arrive in France at the beginning of the France tax year (January-December), you would stretch out the five year exemption period. Some other countries, including Germany, Spain, Canada and the US have a similar provision in their tax treaty.
75 Percent Income Tax and Wealth Tax Restriction
For individuals who are resident in France, their combined income tax, wealth tax and social charges cannot exceed 75% of their total income for the previous year.
75 percent may sound too high, but this ‘tax cap’ can create attractive tax planning opportunities to mitigate wealth tax by reducing taxable income, but without reducing spendable income. The mechanism is complex, so you need specialist advice to ensure you use it to your advantage.
Where the relevant taxes exceed 75 percent, the taxpayer has to claim a refund of the excess taxes paid using Form 2042 C before 31st December (in respect of excess tax paid in the previous year). There is no ceiling on the limitation under this provision and wealth tax, income tax and social charges paid over the 75 percent limit can all be reclaimed.
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 must take personalised advice.
Blevins Franks are the leading international tax and wealth management advisers to UK nationals living in Europe