10. French Wealth Tax
The wealth tax in France is called Impôt sur la solidarité fortune (ISF).
It is a tax that has attracted a lot of publicity abroad, much of it misinformed, because it is paid by relatively few people (under 500,000) and the amounts paid are generally very small.
Nevertheless, with the increase in the value of property in France in recent years, it is a tax that is catching those who may be 'capital rich’ but ‘income poor’ and who may, therefore, find it difficult to pay the tax.
- 10.1 Liability to the Tax in France
- 10.2 What Assets are Included in French Wealth Tax?
- 10.3 Rate of Wealth Taxation in France
- 10.4 Wealth Tax Declarations
10.1. Liability to the Tax in France?
The tax is payable if you have total net assets in excess of €760,000, a threshold that is now inflation linked.
Taxes due, bank loans and other debts are all deductible before the calculation of net assets.
If you are resident, there is also a 30% allowance against the value of your principal home. This concession does not apply to second homes.
The applicable date for determining net assets is 1st Jan each year.
So, whatever may have transpired in the household during the year is not applicable for the purposes of assessing liability to the tax, as it is based on the situation as at the beginning of the year.
The extent of your liability will depend on whether or not you are resident in France.
If you live in France then the whole of your worldwide assets must be taken into consideration for the purposes of the tax.
If you do not live in France, then only property assets actually in the country are considered.
So, the value of your second home in France will be used to assess your liability to wealth tax, even though you are not resident in the country.
In determining your wealth the total net assets of the whole household are taken into consideration.
It is for each household to assess and determine for themselves whether or not they consider they are liable to pay wealth tax. There is no need for a professional valuation to be made.
To some extent, therefore, there is an element of voluntarism in the declaration of tax liability!
However, in the event that the tax authorities decide that you are liable to pay wealth tax, they are entitled to collect arrears of payment over the proceeding 10 years.
The French tax authority does have sight of all property transactions in the country so will be aware of the price you paid for a property.
In relation to residential properties that are let, the authorities would ordinarily accept valuation of such a property on the basis of capitalisation of the rent at the rate of 5%. Commercial properties can be capitalised at 8%.
Top Tip!
If you make a declaration the tax authorities will have an expectation that a declaration will be made in subsequent years. If you do not, they may well require proper verification of the change of circumstances.
10.2. What assets are included in French wealth Tax?
The assets that are included in the calculation for wealth tax will depend on whether you are resident or non-resident.
- 10.2.1. Resident of France
- 10.2.2. Non- Resident of France
10.2.1. Resident of France
If you are resident the tax is wide in the scope of assets which must be included in the calculation.
They include, of course all cash and property owned by the household, as well as cars, jewels, furniture, shares, fine wines and other valuables.
Assets must be valued on the open market valuation at 1st Jan each year, with a discount of 30% granted for the main residence.
A 20% discount is also applied to properties that are let on a permanent basis.
So as to ease the valuation process it is permissible to value household furniture and accessories at the rate of 5% of the value of all other assets.
As a general rule, business assets are completely excluded for the purposes of the calculation.
In addition, antiques over a 100 years old, art collections, historic cars, the value of artistic, industrial and literary rights and certain alimonies are also exempt.
There is also substantial exoneration for employee and director shareholdings and those by investors in small or medium sized companies (PME) based in the EU, in addition to partial exemption for woodland, long term shares held by share clubs and business properties.
There are also proposals for UK nationals who relocate to France, but retain property in the UK, to be granted temporary exemption from the wealth tax for up to 5 years, but these have yet to come into force.
10.2.2. Non-Residents of France
If you are not resident then only the net value of your fixed property assets will be taken into consideration for the tax.
Given that the tax is not payable if the property has a value of less than €770,000, it is only going to be relevant for a small number of owners.
Top Tip!
If you happen to be in this select group one way of eliminating or, at least, reducing your potential liability is to have a mortgage on your second home in France.
10.3. Rate of Wealth Tax in France
The rates of taxation applicable for 2008 are shown below.
Table: French Tax Bands 2008
| Up to €770,000 | 0% |
| €770,000 - €1,240,000 | 0.55% |
| €1,240,000 - €2,450,000 | 0.75% |
| €2,450,000 - €3,850,000 | 1.00% |
| €3,850,000 - €7,360,000 | 1.30% |
| €7,360,000 - €16,020,000 | 1.65% |
| Over €16,020,000 | 1.80% |
It is important to note that the tax is imposed on a sliced basis so that, for instance, if you owned net assets valued at €1,000,000 you would only pay tax on €230,000 at the rate of 0,55%, as the first €770,000 has a zero rating.
10.4. Wealth Tax Declaration
If you are resident in France then the tax is payable by 15 June each year; if you are a non-resident European you have until 15 July; if non-resident from elsewhere you have until 1 Sept.
The declaration should be made on Form 2725 accompanied by supporting documentation.
Non residents should contact the Centre des non-résidents at Centre des impôts des Non-Résidents (CINR), 10, rue du centre, Noisy-le-Grand (93).
Their e mail address is cinr.paris@dgi.finances.gouv.
Next: French Capital Gains Tax
Finance & Taxation