French Tax Changes 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:
|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.
➢ 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.
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.