Macron's planned tax reforms and you
During his presidential campaign, Emmanuel Macron promised changes to the way property was taxed in France. Now he is in office, what are these changes likely to mean for you?
Sweeping exemptions to taxe d’habitation
One of President Macron’s most popular election pledges was to exempt 80% of the population, about 18 million households, from paying the local residence tax, the taxe d’habitation.
Residence tax is currently payable annually by the occupier of any property, whether tenant or owner, in which they were resident on the first of January of that year.
Rates vary by commune but are loosely based on notional rental values. Holiday lets are exempted but second homes are not. Owner-occupiers pay taxe d’habitation in addition to taxe foncière, a local land tax.
During his campaign, Mr Macron branded the taxe d’habitation “unfair”. About 30% of French households are currently exempt, because they fall below the net income threshold, or because they comprise members over the age of 60, or widowed or disabled people.
If Mr Macron sticks to his stated policy, a further 50% of the population look set to be exempted in the first wave of its implementation, which is planned over three years, from 2018 to 2020.
The President has indicated that he will look at eventually scrapping taxe d’habitation altogether.
A revised tax will be applied on the basis of household income, as is currently the case, but the threshold for payment will be much higher.
A couple with two children would be liable only if their net income is more than €5,000 per month, or €60,000 per year.
A single person with net income is below €2,000 per month, and retired couples with a monthly net income of less than €4,000 would be exempted.
The policy, if implemented, will come with an estimated national price tag of €10billion per year. Revenues from the tax comprise about 36% of local government income, and Macron has pledged to plug the resulting deficit using central government funds. Critics have speculated, however, communes may also raise taxe foncière rates, which would hit owner-occupiers.
From wealth tax to property tax
Emmanuel Macron has vowed to simplify the complicated national wealth tax, known as the impôt de solidarité sur la fortune (ISF) by turning it into a property tax, or impôt sur la fortune immobilière (IFI), a measure which is unpopular with the French property sector.
The ISF is an annual tax that is currently payable on all forms of wealth (property, cash, life insurance policies, and savings etc) above €1.3million.
The estimated 343,000 households liable to pay ISF raise about €5billion in revenue each year. About 40% of these revenues are currently believed to derive from wealth held in property.
Macron has said that he wants to stop taxing forms of wealth that contribute to the real French economy, instead focusing exclusively on property-based wealth above a threshold of €1.3million net.
Given this figure will not include any mortgages taken out on a property, and that, when calculating liability, all primary residences will be subject to a 30% deduction from their estimated market value, the number of households liable to pay IFI looks set to shrink from the number currently paying ISF. In other words, only a small percentage of the population will be affected by this policy.
Those who are affected should find that their liability to pay wealth tax either remains constant, decreases, or disappears altogether.
Additional taxes on property-owners?
During his campaign, it was rumoured that Mr Macron intended to impose an additional tax on all property-owners expressed as a percentage of the theoretical rental income, or loyer fictif, if the property were to be placed on the open market. Macron has repeatedly denied having any such intention and has promised that, under his presidency, the tax burden on property ‘will not increase by a centime’.
Macron has proposed reforming the credit d’impôt transition énergétique, the tax credit that refunds 30% of the cost of any work done to transition to more environmentally-friendly sources of energy, by paying it upfront, when the work is carried out, instead of in arrears. Under this policy, home improvers would no longer be out of pocket for the year following completion of such work.
Owners of French property who live abroad currently pay social charges of up to 15.5% on any rental income or capital gains they make on that property. This measure was the subject of an unfavourable European Court of Justice ruling in 2016. Mr Macron has not undertaken to lift the charges, but has promised to keep an open mind and to re-examine the policy.