Hostage to for­tune

If you’re buy­ing a property in France, you should be aware of wealth tax. Le­gal ex­pert Matthew Cameron ex­plains who is li­able and how it is cal­cu­lated

Living France - - LES PRATIQUES -

Many peo­ple buy­ing a house in France, whether as a hol­i­day home or as a per­ma­nent res­i­dence, will not have to worry about the po­ten­tial im­pli­ca­tions of wealth tax, Im­pôt de Sol­i­dar­ité or ISF. Per­haps it is a prob­lem they might wish to have, be­cause as the name sug­gests, it is a tax that is cal­cu­lated by ref­er­ence to the value of a tax­payer’s qual­i­fy­ing es­tate.

The def­i­ni­tion of the qual­i­fy­ing es­tate, and the level of tax payable, will de­pend on a num­ber of var­i­ous points. In this ar­ti­cle, we will con­sider some of the main is­sues of rel­e­vance in re­la­tion to this tax.

Over the past few years, there have been sev­eral sto­ries in the press about high-pro­file French res­i­dents threat­en­ing to leave France (and some ac­tu­ally do­ing so) largely in protest at the im­pact of ISF. Cer­tainly it can be a no­table bur­den for very high net-worth in­di­vid­u­als, as the tax is in­cre­men­tal, which means that not only is the tax ap­plied to a greater set of as­sets, the rate of tax ap­plied is higher.

The term ‘tax­payer’ refers to a per­son, if they are sin­gle, or to a couple, if they are mar­ried or in a civil part­ner­ship. Just as with in­come tax declarations, there­fore, a joint tax dec­la­ra­tion is sub­mit­ted.

HOW IS WEALTH TAX CAL­CU­LATED?

It is pru­dent at this stage to understand how the tax is cal­cu­lated. It is ap­plied on the net value of the qual­i­fy­ing es­tate. If the to­tal net value is less than €1,300,000, then no tax re­turn need be sub­mit­ted. Where the value ex­ceeds that thresh­old, then the tax is charge­able on the to­tal net es­tate start­ing at €800,000. The tax is ap­plied an­nu­ally on the value of the tax­payer’s es­tate as at 1 Jan­uary of each year.

The por­tion of the es­tate worth be­tween €800,000 and €1,300,000 is taxed at a rate of 0.5% per year, which amounts to a to­tal of €2,500 per year.

The por­tion of the es­tate worth be­tween €1,300,000 and €2,570,000 is charged at 0.7%, which amounts to a to­tal of €8,890.

The por­tion be­tween €2,570,000 and €5,000,000 is taxed at 1%, which amounts to a to­tal of €24,300.

The por­tion be­tween €5,000,000 and €10,000,000 is charged at 1.25% which amounts to a to­tal of €62,500.

Any part of a per­son’s net es­tate worth in ex­cess of €10,000,000 is taxed at the rate of 1.5%.

WHO HAS TO PAY?

The def­i­ni­tion of qual­i­fy­ing de­pends pri­mar­ily on whether the tax­payer lives in France or has a hol­i­day home there. If the lat­ter is the case, then it is only the net value of the house that is taken into ac­count. It is the net value that is taken into ac­count, be­cause the amount of any mort­gage reg­is­tered against the property will be taken into ac­count to re­duce it.

The fact that a mort­gage charged against its property will re­duce its value for wealth tax pur­poses is oc­ca­sion­ally used as a rea­son by some peo­ple to take a mort­gage. But while it might make the home­owner’s cash-flow po­si­tion eas­ier, and in­deed re­duce or can­cel the ex­po­sure to wealth tax, care­ful thought should be given as to whether this is nec­es­sar­ily the best op­tion: what if the in­ter­est re­pay­ments on the loan are greater than the tax that would have been payable?

If the tax­payer is per­ma­nently res­i­dent in France, then the value of the whole of their world­wide es­tate is taken into ac­count for the pur­poses of the cal­cu­la­tion of wealth tax. The only ex­cep­tion to this is where a sim­i­lar tax ex­ists in an­other state, in which case the amount of tax paid in that other state is cred­ited against the French tax. There is no sim­i­lar tax in the UK.

AL­LOWANCES AND EX­ON­ER­A­TIONS

When the tax­payer lives per­ma­nently in France, there are sev­eral al­lowances and ex­on­er­a­tions that can be granted to al­le­vi­ate the tax. Some of the al­lowances ap­pear be­low. Please note, it is not pos­si­ble, in the space avail­able in this ar­ti­cle, to es­tab­lish an ex­haus­tive list here, nor

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