4 Tax Deductions You Might Be Missing
It is said that nothing in life is certain but death and taxes. Fortunately, while nothing can be done about one’s mortality, there are ways to manage and reduce your taxes – even in France. Below we will take a closer look at the controversial wealth tax, other expatriate tax deductions and how you can cut those cheques to the French taxman in 2016.
Get a wealth tax ‘holiday’
Alongside the impatriate regime, a new rule was introduced to help new arrivals in France who are not entering into that system. Non-French assets of new French residents (those who have not been resident in France during any of the past five tax years) are not subject to wealth tax. Thus, provided the French assets total less than €1.3 million, no wealth tax liability will arise for the first five years of residence in France.
While this has very little impact on UK nationals moving to France, as they receive the same benefit by virtue of the double tax treaty between France and the UK, it applies to people not covered by such exemptions in their treaties with France, and can represent a major saving, certainly for the first five years of French residence. Even better, if you arrive just after January 1 in any given year, this rule exempts non-French assets from tax for the next five years. So, if you move to France in February 2016, you would not be subject to wealth tax on non-French assets until 2022 at the earliest.
UK nationals and the wealth tax ‘holiday’
A further, little-known wealth tax ‘trick’ is available to UK nationals who have the flexibility or need to move to and from France. Under the general wealth tax holiday above, the holiday on non-French assets is renewed if you move away from France for five years.
However, for UK nationals, the holiday is renewed if you leave France for just three years, under the terms of the UK/France double tax treaty. So, if you have to leave France for any reason, and yet are likely to return, you could reset the wealth tax ‘holiday’ clock!
Wealth tax ‘cap’
France introduced a very generous cap on wealth tax in 2007 with the introduction of the Bouclier Fiscal, a sort of shield from wealth tax for those who were asset-rich and cash-poor.
This was abolished for 2012 onwards, but François Hollande was forced by the constitutional council to reintroduce it for 2013. Under these rules, the amount of tax that can be taken in combined income tax, social charges and wealth tax cannot exceed 75% of taxable income. M Hollande wanted ‘income’ to include things like unrealised capital gains, annual growth on all investments and undistributed dividends from companies, but this was rejected by the constitutional council in France.
So, if you can reduce your taxable income, you can reduce your overall liability to wealth tax.
Professional furnished landlord
If you let furnished properties out, you can apply this scheme to both local properties in France as well as those you own and rent out in the UK or elsewhere. Provided you comply with the requirements of the scheme (there are registration requirements, as well as a requirement that the turnover of the business must exceed €23,000 per annum and total more than 50% of the household earned income, such as employment, self-employment and pension income), the properties are outside the wealth tax net, and you can offset any losses against other income.
Plus, once you have been operating as a professional furnished landlord for at least five years, and your turnover does not exceed specified limits, any gain arising on disposal of a business property is exempt from capital gains tax in France.
This can really benefit you, saving wealth and capital gains tax. However, it does involve entering into the French social security system (even if the properties are in the UK), which can be expensive, and where the income exceeds the Micro-BIC simplified deduction scheme turnover limit (currently €32,900), requires near-full accounts in France, so careful consideration needs to be given to the pros and cons.
There are likewise various tax credits, such as for filing a tax return electronically, for employing home help, or child minding expenses. These are capped, however, but can reduce the overall tax bill. There may also be credits for investing in certain types of rental income schemes.
Despite these expatriate tax deduction opportunities, it is essential to take personalized advice on tax matters in France because it is complicated and easy to get wrong. Specialist advice would allow you to be aware of all applicable options and take advantage of lower tax liabilities.
Note: Tax calculations are rounded up to the nearest Euro. The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarized; an individual should take personalized advice.
Blevins Franks specializes in providing integrated and detailed tax and wealth management advice to expatriates in Europe. You may call 0 805 112 163, e-mail france@blevinsfranks.com or visit www.blevinsfranks.com.
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