Budget Measures for 2013
Thursday 04 October 2012
A number of tax increases are contained in the recently published draft budget for 2013, including an increase in social security contributions for auto-entrepreneurs.
At this stage the government has released only the barest of information on the proposals, some of which are also likely to change during their passage through the French Parliament.
We set out below brief details of the main proposals in the Finance Bill 2013, as well as fiscal changes announced simultaneously in the Social Security Bill 2013.
Although not included amongst the budget proposals, there is widespread speculation that the government is also planning a gradual transfer of certain social security obligations from companies to households.
The aim of doing so is to improve the competitivity of the French economy; employers in France have some of the highest level of social security charges in the world.
It seems the transfer might take place via an increase in the CSG (Contribution Sociale Généralisée), a social charge imposed on most forms of income and capital.
However, at a time of economic recession there is concern about the impact such a transfer would have on household consumption, and the proportional rather than progressive nature of CSG does not appeal to many socialist parliamentarians. So we will need to wait and see just what, if anything, is finally announced.
For now, here is a summary of what the government has stated will be in the budget for 2013. It should be noted that a large number of these tax increases will apply for income earned in 2012.
- Creation of a new rate of income tax of 45% for net incomes in excess of £150,000 pa.
- Those earning over €1 million a year will be subject to a marginal income tax rate of 75% on income above this amount, which will apply 'exceptionally' for 2012 and 2013.
- No cost of inflation increase on incomes, but an increase in the reduction of tax payable for those on modest incomes.
- Abolition of the 10% allowance granted for ‘professional costs’ for majority shareholders of limited companies.
- Dividends and interest earned to be taxed as part of the income tax system, with abolition of the optional taxation at source, although concessions likely for small investors. The fixed sum allowances for dividend income to be abolished although percentage allowances for dividend income to remain.
- Capital gains on shares to be similarly taxed as part of income tax system, with relief for duration of ownership.
- The maximum permitted tax relief will be reduced to €10,000 pa plus 4% of total income, down from €18,000 plus 4%.
- A reduction in the maximum allowance under the quotient familial (which reduces your tax liability the larger the household) will be reduced from €2,300 to €2,000 for each dependant.
- There is to be a new system of tax relief for newly constructed investment properties, granting a reduction in income tax of 18% over nine years. The scheme is geared to increasing the number of low rental properties on the market for those on modest incomes.
Social Security Contributions
- Pension income will be subject to an additional 0.15% in social charges in 2013, rising to 0.30% in 2014. Pensions already exempt from social charges will not be liable, ie those on a small pension and EU expat government service pensions.
- An increase in the health contributions of self-employed persons earning over €14,500 pa, but only likely to impact on big earners, and with a reduction in the level of the contribution for those earning less than this sum.
- Dividends payable to business owners to be subject to social security contributions where they exceed 10% of the capital employed in the business.
- An increase in the social security contributions of auto-entrepreneurs to secure greater alignment with those of other types of business status. Few details are yet available, but it seems an increase of 2 to 3 percentage points is being proposed. So the rate payable would increase from 12% to 14% for sales based business, 21.3% to 24.6% for a service based business, and from 18.3% to 21.3% for the professions libérales.
- Golden handshake termination payments will be subject to 20% minimum social security contributions.
Capital Gains Tax
- Building land will cease to be eligible for an abatement based on duration of ownership. For 2013-14 all sales of building land will be subject to capital gains tax of 34.5% on the total net gain. From 2015, for sales in 2014, the capital gain will be integrated into the income tax system, again with no allowance for duration of ownership. Some transitional measures are envisaged.
- An abatement of 20% will be granted on all capital gains arising on the sale of second homes in 2013, although the abatement will apply only to capital gains tax itself, and not to the social charges. The abatement will be in addition to the allowance for duration of ownership. The move is designed to give an impetus to the housing market.
- There is as yet no proposal to change the current system of capital gains tax on residential property, despite being flagged as a promise during the presidential election campaign.
- The system of wealth tax in place prior to 2011 will be (broadly) reintroduced, although there will continue to be an allowance of 30% against the principal residence.
- The threshold for liability to wealth tax will be €1,310,000, but if this threshold is reached tax becomes payable on wealth in excess of €800,000.
Local Property Taxes
- Increase of 2% in the income threshold granting exemption, for eligible persons, from the local property taxes, the taxe d'habitation and the taxe foncière.
- TV licence to increase from €125 to €129 pa.
- A increase in the level of the taxe foncièreon building land in urban areas with a population of at least 50,000, and where there is a housing shortage.
- Tougher taxation of empty properties in urban areas with a population of at least 50,000, where there is a housing shortage.
This article was featured in our Newsletter dated 04/10/2012