French Tax Reforms

Trouble ahead for non-residents owning property in France?

The Sarkozy government in France has announced various tax reforms which may affect those living in the UK but owning French assets.

The proposed new tax on homes owned by non-French resident individuals will be a particular concern to French Nationals living here who have retained property in their homeland and anyone who owns a French holiday home, although it is likely that French Nationals who are in the UK under a permanent employment contract will be exempted. It is intended that this new charge will be based on the rental value of the home, although the exact detail has yet to be announced.

Further details including the tax rate will follow but it is notable that the French tax code already has a similar provision (based on three times the rental value of the French property) which applies to individuals who are tax resident in a country – typically a “tax haven” – which has not concluded a tax treaty with France.

Whilst the compatibility of this new tax charge with EU legislation and the existing tax treaty with the UK could be questioned, it is unlikely that any such challenge will prevent it from being introduced altogether. Further information is expected on 11 May 2011, together with full details of other proposed changes which include:

French wealth tax

  • The wealth tax threshold is to be increased from €800k to €1.3m, but the “tax shield” which protects French tax residents from suffering income tax and wealth tax in excess of 50% of their income is to be withdrawn.

Inheritance and gift taxes

  • The top rates of the inheritance and gift taxes are to be increased from 35% to 40% (on taxable values between €900k and €1.8m) and from 40% to 45% (on taxable values above €1.8m).
  • The limits for tax-free gifts (€159k for a child and €81k for a spouse) which currently apply every six years will instead apply over a ten year period.

Please click here to speak to an advisor about how the changes may affect you.