The new tax law has brought in a number of far-reaching changes, all with the same aim: reducing the rate at which the public debt is increasing, and trying to reduce the debt itself from 7.7 per cent of the nation’s product in 2010 to six per cent in 2011.
The bad news is that levying additional charges wherever an opportunity arises is also an option, and one the government has decided to combine to savings. Here is a summary of the current main changes.
- The income tax bands have been increased by 1.5 per cent, and the associated major abatements and deductions have also been increased, except for the abatement given to the parents who have their married or pacsed children and their families living with them, which has been very slightly reduced.
- For the 2009 income tax year, single persons who had brought up a child for at least five years were entitled to an additional half part for the family quotient. This provision has been extended to 2012.
- For those who changed their marital or pacsed status, there was a requirement for the submission of a joint tax declarations for the period of the year the individuals were joint, and then two individual declarations for the period they were not. From 2011, either the individuals each prepare an individual declaration for the whole tax year or, if they chose so, one joint return for the whole tax year.
- For those having investment income, profits or gains taxed at the forfeit rate of 18 per cent, this has increased to 19 per cent.
- For dividends, the tax credit of tax paid at source of €115 person, €230 for a couple, is withdrawn, effective 2010 income.
- From the 2011 tax year, the maximum that can be claimed under the various expenses qualifying for the crédit impôt is being reduced by 10 per cent, as are most of the rates of allowance themselves. The home employee scheme (chèque emploi service universel) and the care of children are not affected.
- Tax relief on mortgages for purposes associated to the purchase or development of the main residence have been abolished.
Capital gains tax
- The exemption threshold is abolished for all gains, so all capital gains from property, investments and other sources are liable to CGT as of the first euro of profit.
- CGT is increased to 19 per cent for both property and investments or other gains.
- These are increased to 12.3 per cent, applied retroactively, as of the 2010 investment income and gains.
- The measure to make the profit arising from the sale of all property (other than the principal private residence) liable to the social charges, and irrespective of any liability to the capital gains tax liability, was finally not retained. However, as the liability was supposed to be introduced, it is expected that this provision will be brought in, perhaps as soon as June 2011. So, beware: even if exempt from CGT due to owning property for more than 15 years, you will very probably eventually have to pay the social charges at 12.3 per cent on the profit, even though not liable to CGT.
Life assurance contracts
- From July 1, the social charges of 12.3 per cent will be applied to the annual profit or interest of all Fonds en Euros funds in assurance vie contracts, and deducted annually, so reducing slightly the annual, and thus also the compounding, rate of return on these funds.
- The owner of any life assurance contract will be liable to the 12.3 per cent social charges on the profit element contained in the part-surrender of all life assurance contract withdrawals.
- Beneficiaries of life assurance contracts will also suffer from the liability to the 12.3 per cent social charges on the profit element contained in the total surrender of all life assurance contracts, irrespective of the funds in
which the contract was invested. Currently, the collection of the social charges is the sole responsibility of the assurance vie company, but it is anticipated that the onus of liability will eventually be increased to include the owner and the beneficiary in order to catch foreign assurance vie providers and remove the benefit of foreign contracts to French fiscal residents.
The tax bands have been increased by 1.50 per cent, and the tax rates left unchanged. The tax is still ever present, the only potential change foreseen currently being the eventual removal of the bouclier fiscal.