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This will be a taxing year

What does 2011 have in store by way of new taxes or fiscal changes?

DEPLETED tax revenues following the financial crisis and the cost of bailing out banks and quantitative easing resulted in countries around Europe starting to increase taxation or reduce tax breaks in 2010, and I think we can expect more of the same this year.

As I discussed in my December article, the Finance Bill for 2011 includes tax measures that affect high income earners and investors in France.

The good news for property investors is that the proposal I mentioned, whereby immovable property gains would be subject to social charges from the first euro, was rejected by the Senate. So gains made on the sale of property owned for more than 15 years remain exempt from both tax and social charges.

With regards to gains made on negotiable securities, the Senate also rejected the proposal to delay the exemption to tax after eight years of ownership by three years, so if you have owned assets from January 1, 2006 onwards, any gains on disposal are free from tax from 2014.

However, the increase in tax and social charges from 30.1 per cent to 31.1 per cent on the gains, and the removal of the annual tax free allowance of €25,833, remain.

This affects investors who own shares directly, OEICS, unit trusts, ISAs, corporate bonds etc.

However people who invest via an assurance vie (life assurance policy) escape these increases.

At the time of writing, the Finance Bill has still not been finalised (though it should have been by the end of December), so further changes are possible, though probably unlikely at this stage.

The big tax news for 2011 may be the abolition of wealth tax and, along with it, the Bouclier Fiscal tax shield.

The latter was introduced by President Sarkozy to limit direct taxes to 50 per cent of income. This helps those who are asset-rich but cash-poor and find it hard to find the cash to cover their wealth tax bill each year. It has, however, proved increasingly controversial and is seen by many as symbol of fiscal injustice.

This year, France will have a supplementary Finance Bill in the spring, and in November President Sarkozy signalled that both wealth tax (l'impôt de Solidarité sur la Fortune: ISF) and the Bouclier Fiscal (Tax Shield) could be abolished as part of the tax reform.

In an attempt to make France more competitive on the world stage, the President said it was simply “unacceptable” to have a gap in competitiveness with Germany, its principal trading partner, which abolished wealth tax in 1997. France is more or less alone in Europe in holding on to this tax and is the only G7 member to impose it.

Mr Sarkozy emphasised the need to make taxes in France comparable and compatible in order to prevent an exodus of capital, jobs and industry.

He said:“France has long made the mistake of taxing assets, rather than the earnings and capital gains from assets. We’re heading towards abolition of the tax shield and of the ISF, and towards the creation of a new tax.”

And there’s the catch. While the abolition of wealth tax would be good news, of course the government is in no position to lose out on valuable revenue at the moment, so it will have to raise tax from elsewhere.

This means that higher earners could see another increase to the highest rate of income tax, perhaps along the lines of the UK’s rise to 50 per cent, and/or the tax levied on capital gains could increase again, as could the social charges. Or Mr Sarkozy could introduce a new tax on assets.

The above tax rises are again likely to impact on those who own assets directly, rather than those who invest via assurance vie.

At the end of November, François Baroin, the Budget Minister, suggested that one proposal being examined by the government was to increase the wealth tax threshold from €790,000 to €1.2-1.3 million.

We may hear other hypotheses about how the tax will be reformed before details are published in the spring, but Mr Sarkozy does seem keen on completely abolishing it.

This column is by Bill Blevins of Blevins Franks financial advice group ( who has written for the Sunday Times
on overseas finance for 10 years. He is the co-author of the Blevins Franks Guide to Living in France. This column is exclusive to Connexion.

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