Tax rises will hit savings

Tax breaks to close as share dividends, capital gains and high earners targetted to fund pensions

30 June 2010

SAVERS will be hit by tax rises planned to pay for French pensions.

The government wants an extra €1.5 billion from households and €2.2 billion from businesses from next year to plug its e32 billion pension deficit.

Unless steps are taken the deficit is predicted to be €70 billion by 2030.

The plans, yet to voted on by parliament, include 1% higher tax on those savings and share dividend income currently taxed at source; 1% extra tax on the capital gains of property and share sales and an extra 1% on the top income tax band. The retirement age is also set to rise to 62.

On top of tax rises, the government wants to save e5 billion in two years by reducing the number and value of tax reduction schemes – niches fiscales – such as deducting some costs of employing home help or making green improvements to your home.

Financial adviser Michael Annett of the Pelican Consultancy said that, while several measures, including more tax on stock options, are aimed at the rich, “the poor old average taxpayer has to pay more on investments and dividends.”

He added that the government is also seeking cut back on the billions of aid currently available to companies such as reduced social charges for businesses hiring unemployed people.

“That will especially affect little businesses, trying to get up and go,” he said.

Adviser Robert Kent, of Kentingtons, said while the proposals will hit the rich the most (the top band increase would affect a couple who earn over €139,566), extra tax on shares will affect many expats.

All sales would be subject to capital gains tax – at present you must sell at least €25,830. “A lot of people have shares, so it’s quite a big deal,” he said.

“Before you could sell a few without putting it on your tax return.” A 50% tax credit on some share dividend interest is also scrapped and tax on some share interest goes up.

“Expats would be better off selling shares before they come to France,” said Mr Kent. “There are better tax wrappers, such as assurance vie.”

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