French Wealth Tax (ISF)
This page outlines
- Taxable assets
- Wealth tax rates
|
Last Updated April 2009 |
- Wealth Tax Optimisation
Each household's circumstances are different, and the legislation is complex. We strongly recommend obtaining advice from qualified professionals in France - and we would be glad to assist.
It seems unlikely that French Wealth Tax (ISF) will be abolished in the short term, however the current government have brought out several mesures to reduce ISF - for example by making appropriate investments.
In August 2008, the government "slipped through" a partial temporary exemption for most newcomers to France, although care should be taken since this only applies to foreign assets.
French Wealth Tax is payable on net assets above 790000 held on 1st January. French residents must include all worldwide assets and send in their declaration and payment by 15th June.
"Non-residents" with property in France are only liable for wealth tax on assets phyisically situated in France (therefore excluding purely financial investments) and have slightly longer to declare (17th July for Europeans and 31st August for non Europeans). Residency is defined by French law and is not simply a matter of being present for 183 days. If in doubt, please contact us.
The French parliament has agreed partial exemption for five years from French wealth tax for most people moving to France after 6th August 2008. This is part of the Loi de la Modernisation de l'Economie approved during summer 2008 (when most French were away on holiday!). Amongst other objectives this law aims to encourage high-earning professionals to move to France. The ISF exemption is similar to the existing US treaty and the proposed Anglo-French treaty - although the latter is still awaiting approval. The exemption only covers assets outside France, so careful financial planning is necessary. Newcomers may now prefer to choose appropriate foreign assets that fall under favorable French tax rules - but beware of the additional costs of living off foreign assets... Please contact us for full details.
Assets must be consolidated for all members of the household. Couples must make a joint declaration whether married or not. Assets held by children below 18 years of age must also included.
Assets include
- Land & buildings (Principal & secondary residences, rental property,
...)
- Financial investments (quoted & unquoted stocks & shares, bank accounts,
...)
- Jewellery and precious stones
- Furniture
- Cars, Motorcycles, Boats, Aeroplanes, ...
Even if you are not the owner, simply having the right to live somewhere or receive income can be enough to make you liable on the capital value.
If you own shares in a property company (eg SCI), your declaration is based on the value of the underlying property.
To calculate the tax, add up the total value of assets for the household and deduct all outstanding debts and overdrafts as at 1st January. You then apply the rates from the following table:
The 2009 tax bands
for ISF are
- to 790000
0%
- 790,000
to 1,280,000
0.55
%
- 1,280,000
to 2,520,000
0.75
%
- 2,520,000
to 3,960,000
1.00
%
- 3,960,000
to 7,570,000
1.30
%
- 7,570,000
to 16,480,000
1.65
%
above 16,480,000
1.80
%
OPTIMISATION : HOW TO REDUCE WEALTH TAX
1. Know your rights.
Don't over estimate
property values,
for example:
- As a French resident, for
your principal residence, you can
deduct 30% from
comparable sales value
- For each rental property you can
usually deduct
up to 20%
if unfurnished
(and up to 40% if under a government controlled rental scheme such as de Robien)
Don't include any exempt assets used for company or professional purposes.
Do deduct
all allowable taxes, including:
- total income tax for the previous year and any outstanding tax for
previous years
- property taxes (Habitation and Foncier)
- television licences
- the ISF for the current year (creating an interesting complexity in the
calculations...)
2. Use the Bouclier Fiscal.
This method is only available to French residents.
The Bouclier Fiscal ensures that no-one pays total French taxes of more than 50% of their income.
The taxes taken into account include not only income tax, but also social taxes, ISF, and local property taxes.
If a taxpayer can show that he paid more than 50% - he has 12 months to reclaim the excess. As from 2009, he can calculate the excess himself and deduct from the ISF due in June.
If you have low income, but high net assets, you can entirely wipe out ISF using this method.
The income used in the Bouclier Fiscal calculation is net after allowable deductions. Please contact us to discuss the full range of deductions available.
If income on capital is re-invested inside appropriate French wrappers (such as Assurance Vie), the Bouclier Fiscal can be become extremely effective. However - the authorities have made certain restrictions on the contents of such wrappers.
Please contact us if you would like further information about the Bouclier Fiscal.
3. Start transferring assets.
One of the most effective ways to reduce ISF is to spread assets amongst your descendants.
If well organised, the family will pay lower rates or avoid ISF altogether.
If badly organised, you could end up paying high levels of gift tax instead.
Careful planning is required and we suggest discussing the situation with professional advisors at an early stage, and we would be glad to assist you. Do not wait until you have reached the ISF threshold!
4. Make use of available exemptions.
If your French friends have decorated their houses with antiques & works of art, it may have been for more subtle reasons than you thought!
Consider making additional investments in qualifying pension schemes.
Investing in a small European companies is
another method to reduce ISF (available since August 07).
75% of the cost is
deductible - limited to 50,000 per family. Rather than choosing a company
yourself, you can use professional venture capital funds,
including regional (FIP) and innovative (FCPI) funds managed by
specialists. In this case, the
limits are reduced to 20,000 and 50% of your investment. Please
contact
us for more
detailed information.
Certain types of Life Insurance policy (Assurance Vie) provide ISF exemption. However, there is no point in saving ISF if the financial performance is inferior. We regularly review the performance of such schemes and can provide advice on choosing appropriate policies and funds.
Many other types of exemption exist and depend on your personal interest, your short and long term financial objectives and your appetite for risk.
We would be glad to assist.
5. Use of French bank loans by non-residents.
Since non-residents are only assessed on net assets located in France, they should certainly consider using a mortgage when purchasing property - even if the capital is readily available elsewhere.
The mortgage should be secured on the French property to ensure the debt will be subtracted from the property value when estimating your liability to wealth tax. Loans should therefore be interest only so that the debt does not reduce over time. The capital that would otherwise have been brought into France to purchase the property can be invested on financial markets outside France - thus creating the income to pay the French banks.
Please contact us if you would like more information on this, or if you have difficulty in obtaining a suitable loan from a French bank.