With the 17th July deadline looming for non-French residents’ French wealth tax return, this blog post contains seven key facts and tips about French wealth tax.
All too often even the lawyers advising on the acquisition of high value property in France omit to advise clients that French wealth tax may be payable every year. I recently assisted a new client who had only just become aware that they had six years’ worth of back taxes to pay in France.
Its predecessor was introduced in 1982 during François Mitterand’s first term as president. It was scrapped briefly by Jacques Chirac, only to be reintroduced under a different name; it has now become a permanent fixture in French taxation. It is generally referred to in France by its abbreviation ‘ISF’ and stands for Impôt de solidarité sur la fortune, which literally translates as ‘solidarity tax on wealth’.
1. Territorial scope
For non-French residents, the tax applies only to assets that are located in France. For most people, the significant asset that will be caught will be real estate property, for example a holiday home in France. However it covers all assets held in France including the household contents, cars, boats or yachts. For French residents, the tax applies to all their worldwide assets.
2. Household taxed as a unit
French wealth tax is assessed not just on the individual’s wealth but the whole family. ‘Family’ in this context means the two spouses (or unmarried partners living together) and their dependants which would normally be children under 18.
3. The threshold – €1.3million
There is a minimum threshold below which nobody (resident or non-resident) is subject to the wealth tax. The threshold is currently €1.3million of net assets on 1st January of each year. The value of the whole family’s assets taken into consideration is broadly speaking their market value at 1st January less liabilities at 1st January (such as outstanding mortgage on a property). A theoretical amount for the wealth tax liability itself is also a deductible liability.
4. Main exemptions
- As mentioned earlier, non-French assets of non-French residents are not taken into account.
- An important class of exemptions for non-French residents is ‘French financial assets’ such as cash held in a French bank account, life insurance policies subscribed with a French insurer, stocks and shares issued by French companies. There are two important exceptions within this class:
- Significant shareholdings (over 10% share) in a French company.
- Shareholdings in a company whose assets comprise mainly real estate property.
- Antiques and collector’s items (e.g. vintage cars, stamps, rugs and carpets), works of art (e.g. paintings, sculptures) and anything over 100 years old (including furniture, musical instruments, ceramics, jewellery)
- Qualifying business assets and agricultural property
5. Calculating the tax
Once the total net asset for the family has been determined, the tax is calculated by applying tax rates on a sliding scale as follows:
|Between €800,000 and €1,300,000||0.5%|
|Between €1,300,001 and €2,570,000||0.7%|
|Between €2,570,001 and €5,000,000||1.0%|
|Between €5,000,001 and €10,000,000||1.25%|
If taxable net assets totalled €2,800,000 at 1 January 2016, the tax due would be €13,690, calculated as follows (assuming no reductions available):
|€800,000 @ 0%||€0|
|€500,000 @ 0.5%||€2,500|
|€1,270,000 @ 0.7%||€8,890|
|€230,000 @ 1%||€2,300|
6. Certain investments can reduce the tax liability
There is a tax reduction to encourage investment in start-ups. The tax liability can be reduced by up to 50% of the total subscription of qualifying shares (capped at €45,000). There are several restrictions including the types of qualifying shares (for example shares in financial businesses like banks are excluded) and the length of time the shares must be held.
7. Qualifying donations can reduce the tax liability
There is also a tax reduction to encourage donations of a specific type. Examples of qualifying donations are for research and educational institutions and non-profit organisations of general public interest.
These points and others frequently come up when I am advising non-French residents with property in France about their French tax obligations. It’s always great to help reduce the level of tax payable in France but simply ensuring that clients avoid liability for interest, fines and penalties is always required. Please get in touch if you would like to discuss how I might assist you.