Since 1989 there has been a wealth tax in France, called Impôt de solidarité sur la fortune (ISF).
ISF is an annual progressive tax, with rates from 0.5% to 1.5%, and liability triggered where your net personal wealth is greater than €1.3m, when it is then applied on net assets above €800,000.
It has been a tax that has attracted a lot of adverse publicity, much of it misinformed, because it is paid by only around 350,000 households each year, of whom around 250,000 pay less than €5,000 in ISF (2016).
Nevertheless, with the growth in house prices since the 1990s it is a tax that is imposed on those who are 'capital rich’ but ‘income poor’. Thus, in 2016 20% of those liable to ISF had an annual income of less than €49,000 and 10% had an income less than €33,000.
The unjust nature of this imposition on households with modest incomes has been made worse by the manner in which some of the wealthiest taxpayers have been able to use questionable tax planning optimisation strategies to minimise (and even escape) their own liability.
The tax is also a singular French exception, with most other countries around the world having no such tax, so it has caused some French households to become tax exiles and discourages rich foreign nationals from living in France.
The tax was also one heavily criticised by 2017 French presidential candidate Emmanuel Macron, who argued that it was unfair to those who invested in the ‘real’ (productive) economy, promising in his campaign to abolish it, stating: "Je transformerai l'ISF en impôt sur la rente immobilière. J'exonérerai tout ce qui finance l'économie réelle".
With his election to the presidency, as part of the Loi de Finances 2018, the scope of ISF was substantially reduced, with liability to the tax now based solely on personal real estate assets and investments.
Accordingly, the replacement tax has been retitled Impôt sur la Fortune Immobilière (IFI). It is noteworthy that the word 'solidarité' has been dropped from the title.
The effect of the change is to reduce to around 100,000, the number of households who remain liable to wealth tax.
The change has not been without its critics, who argue that:
- the tax remains unjust because the assets of the wealthiest are not concentrated predominantly in property but in a range of financial products and luxury goods which now escape the tax;
- it fails to deal with the inequity of those who own a valuable property but whose income is modest;
- it will represent a significant loss to the public treasury, reducing net receipts from around €3 billion to under €1 billion;
- there is no justification, on economic grounds, for excluding cash assets from the perimeter of the tax;
- it fails to acknowledge the contribution that property investment makes to the economy;
- the tax remains a peculiar French exception.
The new tax is also complex, particularly those aspects relating to property based financial instruments, leading many to consider that further reform will be necessary in the future.
Next: Liability to Wealth Tax
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