French Taxes: Wealth, Inheritance/Succession, Gift and Property Tax

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French Taxes: Wealth, Inheritance/Succession, Gift and Property Tax

There are two local property taxes payable by both residents and non-residents. The first owner of a property applies for the property to be registered for these taxes. The notary notifies subsequent changes of ownership. If the home is a main home, it should be mentioned as there are possible reductions that only apply to the main home.

A demand for payment is sent each year and must be paid by the specified date. Failure to so will incur a 10 percent penalty.

Taxe d'habitation

The taxe d'habitation (occupier's tax) is paid by the occupant of a property. So, it is paid by anyone who owns a residential property and uses it themselves (or has it available for their use), or it is paid by the tenant if the property is let.

The tax is paid by the person who occupied the property on 1 January in any year. It is not usually apportioned if they later move.

Taxe d'habitation is raised and spent by the mairie of the area where the property is situated. It is calculated on the basis of the notional rental value of the property. This is assessed by the land registry (cadastre) to whom notification of any improvements or changes to the property must be sent within 90 days.

The amount charged to the occupier is the rental value multiplied by the tax rate fixed in the locality.

This tax also applies to caravans and mobile homes if they are the taxpayer's main residence. The rate is €25 per square metre. The tax is not payable if the surface area is less than four metres squared.

Various deductions for the main home (résidence principale) are available to those on very low incomes or with dependants.

Where the property is the main home, the occupant is over 60 as of 1 January of the relevant year (although there is no age restriction for widow/ers), and not subject to wealth tax, if the net taxable income does not exceed €10,024 for a single occupant, or €15,376 for married occupants (the single occupancy limit plus €2,676 per occupant), an exemption for taxe d'habitation is given. The 2011 taxable income is taken into account for calculating the exemption available against the 2012 taxe d'habitation.

Taxe foncière

The taxe foncière is paid by the owner of the property, irrespective of who occupies it. If an owner sells the property part-way through the year the tax will be apportioned by the notary dealing with the sale.

The tax is divided into two parts: tax on the buildings (taxe foncière sur les propriétés bâties) and tax on the land (taxe foncière sur les propriétés non bâties).

Land used for certain purposes, such as farming, attracts exemptions and reliefs. For example, farming land receives a 20 percent deduction from taxe foncière.

The tax on the buildings is paid on any property that is habitable whether or not it is actually occupied.  It does not apply to barns or other buildings actually used for agricultural purposes.

New houses, or renovated properties, used as a home are spared taxe foncière for the first two years after construction. Renovated properties can benefit from the exemption provided that reconstruction or additional construction work has been carried out (to change the shell, the size or the surface area of the building), and this is determined according to the nature and extent of the work carried out.

In limited cases the exemption can be extended to 10 or 15 years, for example to specific properties such as social housing.

As with taxe d'habitation, there is an exemption available against the main home; however, this only applies where the occupant, for the purposes of the tax, is 75 or over as of 1 January of the relevant year. Again, the exemption for the current year tax is based on the level of taxable income in the previous year.

The maximum income levels for 2011 taxable income against the 2012 taxe foncière is €10,024 for a single person, and €15,376 for a married couple.  The calculation, which also applies to the exemption for taxe d’habitation depends on the number of "family quotient" (quotient familial) units available.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices as of 17 November 2011 which are subject to change. Tax information has been summarised; an individual must take personalised advice.

Wealth Tax 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 (Impot 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. Wealth tax liability is reduced by €300 for each dependent child under 18 years of age.

• 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
• Exempt assets include: those necessary to a business conducted by its owner or their spouse; pictures, tapestries, statues, sculptures, lithographs, antiques over 100 years old; funds in a pension fund constituted in respect of an employment or business (subject to certain conditions)

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, including 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.

Liabilities such as mortgages and other debts are deductible in arriving at net assets.

A new law was enacted on 6 August 2008 exempting the non-French assets of anyone arriving in France after that date for five years, provided that they were not resident in France at any point during the five years prior to their arrival in France.

Note: nationals of certain countries are also offered this exemption via the double tax treaty that those countries have with France.

Wealth tax rates for 2012

As of 2012, if the household total net wealth is below €1.3m, no wealth tax is due and no return is required.

Where wealth is between €1.3m and €3m, the total net wealth (including the first €1.3m) is taxable at a flat rate of 0.25 percent.

Where wealth exceeds €3m, the total net wealth (including the first €3m) is taxed at a flat rate of 0.5 percent.

For those whose wealth just exceeds the bands, reductions apply:

• For wealth between €1.3m and €1.4m, the wealth tax is 8 times the theoretical tax due, less €24,500
• For wealth between €3m and €3.2m, the wealth tax is 8.5 times the theoretical tax, less €120,000

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".

The fair market value of an owner occupied main home may be reduced by 30 percent for wealth tax purposes.

A mortgage will reduce the assessable value for wealth tax purposes, but only if it is secured against the property itself, and was used for acquisition or renovation of the property.

Valuation of furniture

Furniture can be valued either:

1. 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.
2. 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.
3. 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.

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. From 2012, those with wealth below €3m are able to file their wealth tax declaration on their income tax return.

There is no provision for deferring payment or paying in instalments, although from 2013 it will be possible to opt to pay in monthly instalments.

The penalty for late filing of wealth tax returns is 10 percent.

50 percent income tax and wealth tax restriction (Bouclier Fiscal) and 85 percent wealth tax restriction

As of 2012 these restrictions no longer apply.

Five year wealth tax holiday for UK nationals

The new France/UK double tax treaty which came into effect on 1 January 2010 provides substantial relief from French wealth tax for UK nationals (who are not also French nationals).  For the 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.

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.

Gifts Tax in France

French gifts tax automatically applies to gifts that are required to be made formally by deed or with judicial recognition. A lifetime gift by manual transfer does not necessarily have to be declared and taxed, although such gifts are brought into account when inheritance tax is computed if the donee is also a legatee of the estate.

Cash gifts

The specific exemption for cash gifts where the gift is made to a child, grandchild or, if there are no direct line descendants, to nieces or nephews is €31,865 (2011). This is provided the donor is less than 65 years old and the donee more than 18 years old. In addition, the gift should be declared and registered by the donee at their local tax office within one month of the gift.

This exemption can be cumulated with other allowances, (e.g. the €159,325 for children, the grandchildren’s general €31,865 gift allowance or the €7,967 for nieces and nephews).  It renews every ten years, i.e. cash gifts totalling up to €31,865 (2011) can be given to each child every ten years tax free.