Tax law is complex and every effort has been made to offer information that is current, correct and clearly expressed. The information in this summary is intended to be no more than a general overview of the position and certain details have been deliberately omitted. The contents of this page should not be taken as an authoritative statement of French tax law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers should seek professional advice concerning specific matters before making any decision.
French residents whose net assets exceed a certain level are liable to pay an annual wealth tax. This tax is calculated by referring to an individual's worldwide wealth, after deduction of liabilities. However, there are exemptions for business assets and works of art, subject to the proviso that a number of specified conditions are met. Take note: as a result of tax treaties some expatriates may be exempt from wealth tax.
If an individual's net worldwide assets are in excess of €720,000 the excess is subject to a progressive tax which starts at 0.55% and rises to a maximum of 1.8% for the top slice of net assets in excess of €15 million.
Assets include all land and property, shares etc after deduction of liabilities, in the case of a house its value for tax purposes would be after deduction of any mortgage.
In general terms, inheritance tax will be levied on the inheritance of assets after the donor's death and gift tax applies to a gifts made during the donor's lifetime.
When does the tax arise? As a general rule:
If the donor was resident in France at the time the gift was made; or
If the recipient was resident in France at the time the gift was made; or
If the gift comprises assets located in France then tax will be payable.
What is taxable? Tax is payable on gifts or inheritance of worldwide assets. However, for the purposes of inheritance tax only, tax is calculated on the net value of the asset, after deduction of liabilities. Further, it is subject to the application of international tax treaties to prevent double taxation.
What is the rate of tax? The available allowance and the rate of tax depend on a number of factors: principally, the recipient's relationship to the donor needs to be established to determine the recipient's personal allowance.
A spouse's personal allowance is currently €76,000. This is reduced to €46,000 for parents and children. The balance in excess of the allowance is taxed at progressive rates from 5% up to a maximum of 40%.
For more remote family members and others, smaller allowances are given and higher rates of tax will apply. Generally the tax ranges from 35% to a maximum of 60%. Broadly, the rate of tax that is applied to gifts is the same as for inheritance tax.
What exemptions may apply? The most important relief from inheritance tax are the international tax treaties that provide relief from double taxation. There are some other limited exemptions from inheritance tax but these exemptions are subject to a specific conditions being satisfied.
The tax on capital gains can be summarised as follows:
When will it apply? Capital gains made on the sale of certain assets are subject to French income tax and certain specific social taxes known as the "CSG" and "CRDS". As a result, gains made on the disposal of certain assets must be declared when completing the annual tax return.
What is a "gain"? Put simply, a gain is the difference between the original purchase price and the eventual sale price. The costs and expenses of the purchase and sale, and certain expenses during the period of ownership can be deducted for the gain.
Additional discounts may apply to real property, as set out below.
What are "certain assets"? The are two principal categories of personal assets:
Real property - a house, an apartment or land and
Investments - stocks, shares etc. Other assets might be liable to tax on any gain and include works of art and bullion.
What is the position of non-residents? If you are non-resident but living in the EU, for French tax purposes: A gain realised on the disposal of real property will be taxed at a flat rate of 16%. The notaire instructed to act on the sale is a public official, and as such he is obliged to act as the tax collector, and will withhold the tax due on the gain. The gain on the disposal of investments are essentially tax free in France, although substantial shareholdings in private limited companies, i.e. a shareholding of 25% or more, may be subject to tax at the rate of 16% subject to the provisions of the relevant tax treaty.
Are there any relief’s or allowances? Yes. For residents selling their home in France any gain may not be subject to tax, if the property was their principal private residence.
For both residents and non-residents, a gain on the disposal of real property may be subject to the following discounts:
The purchase price and costs incurred on the purchase are increased by a coefficient factor set out in published tables to discount for the effects of inflation; and a discount of 10% a year is allowed after the fifth year of ownership, with the effect that after 15 years any gain is not chargeable to tax.
In certain circumstances a gain made on the sale of a second home may also be exempt, providing a number of conditions are satisfied, including that the individual does not own a principal residence.
What is the position of residents?
If the taxpayer is resident for French tax purposes:
A gain realised on the disposal of real property may have the benefit of allowances before being taxed at the progressive income tax rates. (See the French Income Tax pages for details of the progressive rates.)
A gain realised on the disposal of investments will have the benefit of minimal allowances and, in essence, will be taxed at a flat rate of 26%.
The above is a general guidance only, please contact an accountant or other qualified advisor for specific tax queries and advice that you may have.
Generally there is no annual tax payable (in France) on rental income on a lease back investment in France. This is as a result of the depreciation on the property and interest paid allowances on the borrowings.
All worldwide rental income is taxable in Ireland. Generally you will not have a rental tax liability in France if you have a lease back investment.
The Irish tax liability is calculated on the following formula:
Irish Taxes liability = Rents received – Interest Paid On the loan – Miscellaneous costs incurred in France (land tax, accountancy, inspection visits etc)
This works out very efficient as your interest and miscellaneous costs only leave a small amount of tax payable in Ireland.
