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

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

Wealth Tax in France

Individuals resident in France and non-residents with assets in France are taxed on the basis of their assets as at 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 infant children. Unmarried couples living together are treated as one household for wealth tax purposes. Wealth tax liability is reduced by €150 for each dependent child under 18 years of age.

• Taxable assets include: real estate, cars, other vehicles, debts due to you, 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; objects over 100 years old; funds in a pension fund constituted in respect of an employment or business (subject to certain conditions); portfolio investments and cash held by non-residents.

Non-residents are only liable to 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.

Wealth tax rates 

The tax rates for 2008 are:

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 only if it is secured against the property or there is sufficient evidence to show its purpose.

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 usufruct (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 usufruct. Accordingly, the owner of the nue-propriété is exempt.

The holder of the usufruct is only assessed to wealth tax on the portion of the property over which their entitlement exists. So, if an individual has a usufruct over only one quarter of the property, he will pay wealth tax on one quarter of the value of the property.

Payment of wealth tax

The deadline for filing and paying wealth tax is 15 June with respect to the position for the preceding 1 January. Payment cannot be deferred or paid in installments.

85% wealth tax restriction

If a person's net wealth is equal to or less than the upper limit of the third wealth tax band (that is, €2,450,000 for 2008), then the total wealth tax plus income tax, plus social charges, cannot exceed 85 percent of their income ("revenus nets") for the preceding year. It is not necessarily just taxable income though, and will include for this purpose many exempt or relieved items.

If a person's wealth exceeds the limit above (€2,450,000 for 2008), the reduction is limited to 50 percent of the full wealth tax subject to a minimum wealth tax being payable of the amount due at the top of the third wealth tax band (that is, €11,660 for 2008).

If this relief applies it leads to a reduction in the wealth tax payable.

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

In addition, combined income tax, wealth tax, social charges, and local property taxes on the main residence cannot exceed 50 percent of the total income for the previous year. This provision is known as the Bouclier Fiscal.

Where the relevant taxes exceed 50 percent, the tax payer has to pay the wealth tax as normal and then claim a refund of the excess taxes paid. There is no maximum limit to the amount of refund that can be claimed.

The refund can be claimed using Form 2041, between 1 January and 31 December of the year following that in which the taxes in question were paid. For example, a refund would be claimed in 2009 based upon excess taxes paid in 2008, being the wealth tax and local taxes for 2008, and the income taxes (payable in 2008) on 2007 income.

The 85 percent restriction still remains in force, although in most cases this will be less advantageous than the 50 percent restriction. Nevertheless, where the 85 percent restriction applies, this is calculated on the tax return, so the tax payer would not pay over the excess taxes over 85 percent. Assuming the 50 percent Bouclier Fiscal also applies, the tax payer could then make a later claim for the excess taxes paid over 50 percent.

For the Bouclier Fiscal, the composition of the household is assessed at the date the right to receive the refund is acquired. This is the first day of January following the year in which the taxes are paid.

Succession Tax

French succession tax is a tax on gifts and inheritances. Succession tax is paid by each individual beneficiary depending on the amount inherited or received as a gift and their relationship to the deceased/donor.

The gift or inheritance is taxable if the deceased/donor is resident in France at the date of death, or if not French resident, where the asset being gifted or bequeathed is located in France.

Failing that, a gift or inheritance is also taxable if the recipient is resident in France and has been so for at least 6 of the ten 10 years prior to the year in which the gift or inheritance is received.

There is (since 22 August 2007) no succession tax on inheritances between spouses and PACS partners, but it still applies to life-time gifts over the allowance (see below). This inheritance tax exemption extends to sisters and brothers who are single, widowed or divorced providing that at the time of succession they are aged more than 50 or are suffering from an illness which prevents them from working, and they were living with the deceased during the five years preceding the death.

Succession tax rates

Taxable inheritance to spouses and PACS partners (gifts only):

Taxable inheritance in the direct line, including adopted children but not step-children unless adopted:

Taxable inheritance: siblings and other relatives and non-relatives:

Allowances for 2008

• Spouses - gifts (inheritances exempt): €76,988
• Partners under PACS - gifts (inheritances exempt): €76,988
• To each natural or adopted child from each parent: €151,950
• To each natural or adoptive parent: €151,950
• To children on your divorce (up to age 18): €2,700 pa, per child
• To a grandchild (gifts only): €30,390
• To a great-grandchild (gifts only): €5,065
• Cash gifts to a child, grandchild or possibly nephew/niece
  • subject to donor's/donee's ages
  • non-renewable: €30,390
• To unmarried brother/sister
  • over 50 or invalid
  • who has lived with deceased for at least the last five years (gift only): €57,000
• To a sibling not covered above €15,195
• To a nephew/niece (gifts and inheritances) €7,598
• ·To a nephew/niece by representation of a sibling €15,195
• To any other person €1,520
• To any disabled person - additional to above €151,950

Allowances are increased annually in line with inflation.

The living representatives of a deceased descendant share that descendant's allowance between them in addition to their own allowances.

Unmarried couples are taxable as "strangers" and so have an allowance of only a €1,520 unless they have entered into a PACS agreement, the French version of a civil partnership, open to both same and opposite couples in France. If a PACS agreement is broken before the end of the year following the year it was entered into, for motives other than marriage of the couple or death of one of the partners, the allowance will be denied and the tax relief clawed back. PACS partners are entitled to a deduction of 30 percent from the value of the main residence in the same way as a married couple is.

The allowances (with the exception of the one-off cash gift allowance) all renew every 6 years for lifetime gifts. Gifts up to the available allowances can thus be made every 6 years tax-free.

Deductions

The value of your main home can be reduced by 30 percent for succession tax purposes provided the property is also occupied as a main home by the surviving spouse, PACS partner, or by one or several children.

If you have shares in a qualifying business, the value is reduced by 50 percent in calculating the tax due. The deceased must have held the shares for more than 2 years, the investors must keep these for 6 years and at least one heir must either work full time in the business or exercise the function of a director for the next 5 years.

If a quoted company, the deceased must own 25 percent, and 34 percent of the equity if unquoted.

Family reductions

Where the beneficiary has 3 or more children, they can reduce their French inheritance tax bill by the following amounts:

• €610 per child, but only for the third and subsequent children, where the inheritance came from a parent or spouse
• €305 per child, but only for the third and subsequent children, where the inheritance came from a more distant relative

Payment of succession tax

Succession taxes are generally payable within 6 months from the date of death.

A beneficiary can apply to pay the tax in equal installments at maximum intervals of 6 months over a maximum period of 5 years (depending on the amount of tax payable). Interest is charged at the official rate of interest in place at the time the application is made. This rate remains unchanged for the total period of payment.

The instalment period can be extended to 10 years where a child is the recipient provided at least 50% of the inheritance is non liquid assets (e.g. real estate, unquoted shares, business assets, patents etc.)

If the property in question is sold, then the succession tax becomes payable immediately.

Gifts Tax

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.

Where a gift is made manually there are two choices:

1. The gift is not registered at the time it is made, but when the donor dies, the gift is accumulated with any inheritance received from the same person. The beneficiary is obliged to declare any previous gifts received from the deceased.
2. The gift is registered by the beneficiary and the tax (if any) is paid. When the donor dies, the gift is ignored if it falls outside the 6 year cumulation period.

Gifts of full-ownership or usufruit where the donor is under 80

The tax payable on gifts in full-ownership (or of a life-interest - usufruit) is reduced by 50 percent if the donor is under age 70. If the donor is between 70 and 80 years of age the tax payable is reduced by 30 percent.

Gifts of nue-propriété where the donor is under 80

Where a gift of nue-propriété is made, with the donor retaining the usufruit, tax is payable on the value of the nue-propriété gifted.

On the death of the usufruit holder, the usufruct and nue-propriété are joined, with no liability to succession tax in France.

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 €30,390 (for 2008). 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, (tat is the €151,950 for children, €30,390 for grandchildren and €7,598 for nieces and nephews). It does not renew after six years and can only be used once.

Local Property Taxes

There are two local property taxes payable by 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 second 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 incurs a 10 percent penalty.

Taxe d'Habitation

The taxe d'habitation (occupier's tax) is paid by the occupant of a property. So, you will pay it if you own a residential property and use it yourself (or have it available for your use), or it is paid by the tenant if you let the property.

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

The tax is raised and spent by the mairie of the area where the property is situated.

Taxe d'habitation is calculated on the basis of the notional rental value of the property. This is assessed by the land registry (cadastre) to whom notification must be sent of any improvements or changes to the property within 90 days. An appeal can be lodged against a decision they make, but the sums involved are usually so small it is not worthwhile.

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

Various deductions are available to those on very low incomes or with dependants.

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 4 metres squared.

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 bâtie) and tax on the land.

The taxe foncière bâtie 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. Farming land receives up to a 20 percent deduction from taxe foncière.

In order to qualify for the exemption, a special Tax Form (H1 or IL) must be filed with the local tax authorities within 90 days of completion of the property or the renovation works.

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

Tax on the land is always payable unless it is used for agricultural purposes.

Further Information

The French tax authorities (Direction Générale des Impôts) have published a 74 page document in English which explains all French taxation due by residents of France. This includes details on income taxes (corporation tax, social charges and the tax on income), property tax (registration taxes, wealth tax and more), direct taxes (business tax and residence tax - taxe professionelle and taxe d'habitation) and taxes on expenditure such as value added tax (TVA).

• The document is available as a PDF: Click here
  
• For a glossary of French taxation terms in English, along with a list of the states with which France has signed a convention for the
  avoidance of double taxation (as on 1 January 2005): Click here (PDF)
• Information (rather dated) on French taxes from the French Embassy to the United States: Click here
• Major changes (applicable to secondary residents): Information in French from Impots.Gouv
• Tax related questions for South West France can be sent (in English) to the Direction Générale des Impot: e-mail

Related Information

• AngloINFO INFOrmation Page on: French Income Tax
• AngloINFO INFOrmation Page on: Capital Gains Tax
• AngloINFO INFOrmation Page on: French Property Capital Gains Tax FAQ
• AngloINFO INFOrmation Page on: French Property Tax
• AngloINFO INFOrmation Page on: Paying Taxes in France: Tax Payment Deadlines

Information by Blevins Franks Tax Advisory Service
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