Vote on increased taxes due in July

Significant changes on tax and tax allowances were promised as part of President Hollande’s election campaign.

Significant changes on tax and tax allowances were promised as part of President Hollande’s election campaign. Connexion looks at what is planned as the government finds a €10billion hole in the budget it inherited

THIS month parliament is expected to vote on a “corrective finance bill” whose measures are likely to hit many French residents in the pocket – and not just the richest ones.

While headline measures include higher wealth tax and new top income tax bands, others, such as lowering the tax allowance for children inheriting, may affect people of average means.

However, the budget for proposals agreed by the previous administration at the start of this year has a shortfall of €10billion – and the government must find ways to recuperate funds.

About €4bn of this will come by axing Sarkozy measures which exempt businesses from paying social charges on employees’ overtime, and which exempt overtime work from income tax.

Financial promises from President Hollande’s campaign not included in this bill will go into the 2013 Finance Law, for vote at the end of the year.

Key measures include:

* A tax at 75% on any part of a person’s income above €1million. Around 3-3,500 households are likely to be concerned by the measure. Big business and football clubs have been among the leading critics, claiming it may lead to more tax exiles or encourage high-earners to move elsewhere.

* A tax rate at 45% for income above €150,000 (compared to the top rate for 2011 income of 41% for incomes above €70,830).

* A return to the old wealth tax bands, reversing this year’s second round of the Sarkozy wealth tax reform (involving bands at either 0.25% or 0.5%) which has been expected to lighten the bill for many taxpayers, especially the richest - probably from this year.

However it is not planned to change the higher ceiling at which the tax becomes payable under the reform. Declarations (and, for the top band, payments) have already been made - lawyers consulted by Les Echos said a solution could be a one-off tax this year equal to the difference between tax payable under the two systems.

The government also plans to bring back the wealth tax plafonnement (recently abolished along with the similar, and more advantageous bouclier fiscal) which limits wealth tax, income tax and social charges to 85% of income; meant as a safety cap to those who are capital rich but comparatively income poor.

* Tax reductions due to niches fiscales (ways to invest so as to lower tax) to be capped at €10,000 instead of €18,000 plus 4% of income. Some niches would themselves be reduced, such as the tax credit for employing at home, likely to go from 50% of the costs to 45%.

* The maximum tax-reducing effect of the “parts” system for income tax (that lessens the effect of progressive banding for large families) to be lowered from €2,336 to €2,000 per half part added for dependents.

* Abolishing fixed-rate taxation available for some kinds of income from capital (dividends, interest, capital gains), which would be subject to the normal income tax bands. According to Le Figaro this means higher tax for those with income of €26,420 or more per part.

* The tax allowance for children inheriting (after which progressive tax banding starts) to drop from €159,000 to €100,000.

* A new tax (possibly 3%) on shareholder dividends.

Zidane and Noah back 75% top tax

PLANS for a 75% tax on income above €1million have been attacked by big business and football clubs who fear high-earners will prefer to go into tax exile.

But former French captain Zinedine Zidane – who lives in Spain – said: “I have never had any problems in paying tax; in paying 50 centimes for a euro earned.

“I don’t live in tax exile. I live in Spain and I pay my taxes like everyone else.

“Today, with what’s going on you’re going to ask for money from those that have it. It’s logical.”

Singer Yannick Noah told a Sénat hearing that he “earned his money from the people of France and paid French taxes”.

He said he was “happy to pay” and said it was “not enough” – but he admitted he is contesting a 1993 tax bill for one million euros due from his world tennis earnings.