How can I avoid or reduce current and future French Wealth Tax (ISF)?

This is a common question we hear in our client appointments.  This article is dedicated to explaining French Wealth Tax and sharing the experience of our Harrison Brook Advisers’ in helping clients achieve this goal.

Important note: Tax avoidance is not the same as Tax Evasion. Avoidance is the legal usage of one’s tax regime to their advantage, reducing the tax that is payable with strategies that are within the law.

Background:

The French Wealth Tax has existed since the Socialists Party 1981 programme and has swung with political agenda’s since:

  • 1986 – Abolished by Jaques Chiracs’s right-wing government
  • 1988 – Re-stablished as ‘Impôt de solidarité sur la fortune’ (ISF) after Mitterand’s re-election
  • 2011 – ISF significantly reduced during Sarkozy’s final year of right-wing politics
  • 2012 – Immediately reversed by Hollande as left-wing politics took rise again

As we will see, French Wealth Tax is critical for individuals with assets and property in France over €800,000. However, we believe it is equally as important for all our clients who are just below or likely to be approaching the threshold within 5 years.

Although most of you probably will… try not to wait until you reach the ISF threshold. Proactive financial planning can help avoid or reduce this tax, and believe me staying off the French Wealth Tax radar is the preferable option!

 So what Counts as Taxable Assets?

  • Land & Buildings – Principle and secondary residences, rental property, holiday homes…
  • Financial Investments – Deposits in high street bank accounts, quoted and unquoted stock & shares…
  • Sizeable Assets – Cars, boats, motorcycles, aeroplanes…
  • Furniture & Jewellery – Including precious stones…

Assets must be consolidated for all members of your household and as a couple you are obliged to make a joint declaration whether you are married or not. Any assets held by children under 18 must also be disclosed.

Property – Having the right to live somewhere or receiving income from property, can make you liable on the capital value even if you are not the owner. As such Trust Assets should now also be included in your calculations.

“Non-residents” – ISF is only liable on assets physically held in France (excludes financial investments). However, whilst 183 days is a benchmark, non-residents should heed caution as residency is defined by French law so seek expert advice.

Partial Exemption – The majority of people moving to France are exempt from the French Wealth Tax for five years. This exemption only applies to assets beyond France though, so good financial planning is essential.

French Wealth Tax

French Wealth Tax – ISF Rates

French Wealth Tax begins for individuals with net assets above €800,000 and is evaluated at the 1st of January each year. To calculate French Wealth Tax, sum the total value of your household assets and deduct all outstanding debts and overdraft.

The following bands apply for 2014:

French Wealth Tax

A reduction exists for those whose assets fall just within the first banding (€1.3-1.4M). This reduction is calculated using the following formula 17500€ – (1.25% x P) where P represents the value of your assets.

How & When? For those below €2.57M you need only declare this wealth in your normal annual income tax return in May (paper) and June (online). You will receive your ISF “avis” in August and the ISF must be paid by September 15th. Individuals above €2.57M must complete their declaration in paper form by June 16th and pay the associated tax at the same time.

“Non-Residents” must complete the paper version and send payment by July 15th (EU residents) or September 1st (non-EU).

So How Can I Avoid or Reduce My French Wealth Tax (ISF)?

As with any taxation: Optimisation and forward planning is key.

  1. Utilise Your Rights – Vive la France!

Don’t be caught out by overestimating the value of your home property:

  • French residents are allowed to deduct 30% from the comparable sales value of your principle residence
  • You can also deduct up to 20% of rental property if “unfurnished”
  • Assets you use for company and professional purposes can be exempt if they meet appropriate conditions.

Be smart and specify all eligible taxes due at the end of the year as liabilities in your net asset calculation:

  • Income tax and social charges (last years “avis” statement is always a good estimate if unsure)
  • Your French Wealth Tax ISF for the current year
  • Property Taxes – (Foncier & Habitation)
  1. Income Tax Ceiling 75% (plafonnement ISF)

This operates in a similar manner to the old ‘Bouclier Fiscal’ to ensure total French and Foreign taxes do not exceed 75% of your income. If the calculation results in a ratio above 75% then the French Wealth Tax can potentially be reduced to zero.

As such, I always encourage my retired and semi-retired clients to (where possible) consider living off their capital and withdrawing funds from their offshore wrappers or Assurance Vie’s, ensuring their “income” is deemed as minimal.

Despite attempts from the left Government the Conseil Constitutionnel has confirmed that no interest and gains received within offshore and Assurance Vie investments should count in the 75% calculation. The Income Tax Ceiling is a complex mechanism, leave your details with us today for further advice.

  1. Where Possible… Transfer your Assets

Spreading assets amongst your descendants is one of the most effective ways to reduce French Wealth Tax. Making gifts can open a minefield of family politics, not to mention client concerns over their children’s lack of experience in managing money rather than spending it! However, the option exists to make “temporary gifts” or usufruit temporaire.

When well organised, such arrangements can substantially reduce your French Wealth Tax and in some instances help you avoid it completely. When badly organised, you could instead incur higher levels of gift tax, making the process pointless.

The current French government is not stupid in regards to gifting and will punish any mistakes with taxation. As such, we recommend talking with a Harrison Brook Adviser at an early stage to strategize the most effective plan for your family.

  1. Utilise Available Deductions & Exemptions

Ever been impressed by the selection of art & antiques at your friends’ in France? This could be for more subtle reasons then you first thought! Nearly any object older than 100 years or created by hand is normally exempt from ISF.

Harrison Brook also have options for investing in small European company funds specifically designed to alleviate ISF. Qualifying investments are usually exempt in the following years. This is complex area so please contact for further info.

Conclusion

In summary, whilst many strategies exist for helping clients avoid or reduce French Wealth Tax, every client’s circumstances are different. As such, sitting down with an Adviser is the only way to begin formulating the very best strategy for yourself.

Request a call from a Harrison Brook Adviser to arrange an introductory appointment at your convenience.

, last updated - Advice

Expat Living in France / South of France? Wondering where to start?

Whether you call it the South of France or the French Riviera, when living in France the French will soon remind you that’s it’s actually called the Côte d’Azur!

A topic that needs no debating among expats living in France is the lifestyle in the South of France. With the delights of Nice, Cannes, Monaco, and Saint Tropez on your door step, the French Riviera remains a popular destination for expatriates.

Living in France as an Expat can be a demanding experience though and so our Harrison Brook French Advisors have compiled their following top financial tips for you.

1)    Purchasing Property in France

The Côte d’Azur is a prestigious region so being realistic with your budget is important. The chances of finding a picture perfect property that will triple in value as your second home is becoming more unlikely. This strong regional demand does however afford buyers the safety net of stable and rising property values.

Many properties with stunning views and deep architectural character can be found well within the €500k bracket with those on the sea rising towards and beyond €1m. A popular and growing alternative for couples and retirees are apartments which can be found for as little as €160,000 in the some of the region’s most vibrant areas.

Our dedicated page on purchasing property in the South of France covers this expansive topic in greater depth.

Our #1 financial tip is the competitiveness and timing of your foreign currency exchange deal. High street bank charges are extortionate and representatives are unlikely to have the expertise or incentive to advise you upon the best deals.

Harrison Brook specialise in such currency matters so get started today to ensure you get the best advice.

2)    Cost of Living in France

This will vary with the lifestyle and level of comfort you desire, but excluding mortgage costs, €2,500-3000 pm (65% for singles) is suffice for a couple to enjoy an active and rewarding social life.

Obviously for those wishing to frequent the regions hotspots, dine in Nice, Cannes and Saint Tropez’s more esteemed restaurants, and enjoy the odd flutter in Monte Carlo, an increased budget is advised.

An crucial factor to consider is the ‘high season’ between June – August. The population of coastline swells during this period so prices become inflated. A plat du jour or Set Menu may increase from €15 to  €20-€25. Though frustrating, this at least ensures that an equilibrium is maintained and that service and standards of restaurants are upheld.

The worst offenders are the more touristic restaurants of Cours Saleya in Nice. However once living in France you will discover the more authentic places to wine and dine, including my personal favourites Bar de la BourseJan and Melody.

living in france

 

3)   International Schools when Living in France

A strong educational background will empower your children to shape them own destiny doing something they enjoy, making for a content and satisfied life.

Fortunately, many reputable schools exist when living in France including Mougins School (Sophia Antipolis), the International School of Nice (Nice) and the International Bilingual School of Provence (Aix-en-Provence).

Mougins is a prestigious school with 50-years experience located by the Sophia Antipolis technology park, a 30-minute drive from Nice. It follows the English national curriculum which has the key advantage of students easily integrating into the UK higher education system.

Mougins 2013/14 tuition fees:

  • €5,900 – Early Years (Mornings only)
  • €11,400 – Reception (Full day)
  • €13,700 – Years 1-6 (SATS Key Stage 2)
  • €14,600 – Years 7-9 (GCSEs)
  • €16,200 – Years 10-13 (A-Levels)

Thoroughly planning current and future educational costs should form an integral part of any expats financial strategy when living in France.

4)   Setup an Offshore Bank Account while living in France

The term ‘Offshore’ often attracts negative publicity and is commonly portrayed as a dark and deceitful world where the super-wealthy hide their yachts and fortunes. This depiction is inaccurate though, and is akin to describing all sports fans as hooligans.

An offshore bank account is simply an account located outside the depositor’s country of origin. No Ferrari needed. In fact, offshore banks offer the most cost effective and convenient way for expatriates living in France to manage their global payments and financial obligations.

Offshore bank accounts afford numerous benefits for those living in France:

  • Convenience – Same bank no matter where you move
  • Easy global access – Choice of multi-currency accounts
  • Geographical freedom – Online and telephone banking
  • Relaxation – Discussing finances in English with a familiar representative

Experience at Harrison Brook has taught us a simple rule: If you are from country A and you live in country B, you should bank in country C.

An Offshore Current Account France swiftly eradicates the bureaucracies of living in France, allowing you to enjoy your reasons you moved for in the first place.

living in france

 5)   Financial Advice for living in France

France’s famous laissez faire’ approach is a key attraction for living in France. This attitude is great for many aspects of your life, however it can be very frustrating when dealing with your finances.

For instance banks in France are generally closed on Mondays and shut for two hour lunch-breaks during the week. At Harrison Brook we respond and where possible resolve all enquiries within 24hrs as we understand the importance of service.

Furthermore, the UK is arguably the most regulated financial advisory market and the ‘Twin Peaks’ model enforced by the Financial Conduct Authority (FCA) & Prudential Regulation Authority (PRA) ensures that clients receive only the highest levels of advice and protection.

Get started today with professional, expert expat financial advice from a UK qualified French Adviser through our easy online advice service.

6)   Review your Existing Pensions & Investments

Living in France without fully understanding your financial situation is not advised. A free evaluation will help assess how robust your existing arrangements are for attaining your long-term personal objectives.

Additionally, the rules and regulations regarding your pensions and investments whilst living in France can be complex. Where are you liable for tax purposes? Can your pension provider make payments overseas? How are your lump sum and lifetime allowances affected?

Whatever your plan for living in France, taking expert advice today is an essential step in ensuring your every possible success.

, last updated - Uncategorized

Buying Property in France? Want to avoid the common pitfalls?

Buying property in France is an exciting but exhausting experience. This tailored article simplifies the process and ensures purchases are completed in the most cost-effective way for yourself and not the seller or the French agent.

  1. Establish your Reasons

France is famous for its relaxed lifestyle, excellent food and quality of wine, and these often feature highly for Expats and retirees. The South of France offers these in abundance with the added advantage of enjoying them in a beautifully warm climate.

Whatever your reasons are for buying property in France, they must be clear and fresh in your mind. Flights to France are inexpensive so take the opportunity to get to know your region. Your passion to move will certainly make the more demanding phases of buying property in France all the easier.

  1. Know your Budget

The biggest ‘non-financial investment’ will be your own time spent reviewing properties so knowing your budget is essential in using this effectively. One of the most common mistakes people make is to view properties beyond their finances.

This is not only an unproductive use of time but can leave you feeling unenthusiastic about those properties within your range. Clearly understanding your finances and available funds is crucial when buying property in France and you can accomplish this today by getting started with a hassle free assessment from the comfort of your own room.

  1. Know the Costs

Your budget should include an additional buffer of  8-12% of the property purchase price to cover the following unavoidable costs of buying property in France:

  • Transfer fees: 6-7.5%
  • Notary fees: 1-1.5%
  • Legal (solicitor) fees: 1%
  • Property registration fee: 0.6-1%

There is also no getting away from Stamp Duty which the South East have fortunately  retained at 5.09% unlike other departments who raised it to 5.8% in January 2014. Optional expenses include surveyors, mortgage fees and estate-agents.

buying property in france
Gordes – Vaucluse département – Provence-Alpes-Côte d’Azur

  1. Be Realistic

The Côte d’Azur is a sought after region and so finding a property  that will triple in value as your second home is unlikely. Crucially though, this demand in the property market affords buyers the safety net of stable and rising property prices.

Countless properties with stunning views and deep architecture can be found within the €300-500k bracket. Properties with a sea view often rise towards and beyond €1m. A popular alternative for couples and retirees are apartments which can be bought from as little as €160,000 in the some of the region’s most vibrant urban areas.

  1. Mortgage Options & Taxation

If financing through a mortgage, important decisions must be taken in relation to the country and currency of the mortgage. Macro-economic factors such as projected base rates and currency stability need to be taken into account, but the decision is also largely an individual matter.

Thoughtful assessment of where your future sources of income may come from and your long-term plans for the property are essential in making the best long-term decision. It is rarely black and white though and varies dramatically with your personal financial arrangements, so seeking expert advice of your individual financial landscape is vital.

Taxation for Expats in France is a complex topic with numerous personal factors. An individual assessment is the only way of providing quality advice that is specific to your situation.

buying property in france
French Lavender fields – Provence

  1. Taking Professional Assistance

It is not uncommon in France for purchases to proceed without appointment of a solicitor. This may save money, but it is not advisable. Even as a confident French speaker, an independent solicitor in your native language is the best option.

The Notary is a compulsory part purchasing property in France and acts under Minister of Justice authority. Although slightly more costly, always appoint your own Notary to act on your behalf as opposed to sharing one with the vendor.

Notaries exercise a monopoly in the market, but their fees are unavoidable so you are best to embrace their services and utilise their expert knowledge. Their local government knowledge on proposed motorways, rail links, constructions or other constraints is crucial in estimating the future value of your property.

  1. Foreign Exchange

Finally, a key area often overlooked in the excitement of finding your ‘perfect property’ is the competitiveness and timing of your exchange deal. Charges levied by high street banks can be extortionate and representatives are unlikely to have the expertise or incentive to help you attain the best possible rates.

Political events regularly cause exchange rates to fluctuate dramatically, while 1-2% may sound small, €10k can quickly evaporate from your transaction value. Harrison Brook specialise in such currency matters so speak with an advisor today.

How do you get started and take the first step?

Click Get Started for a free, no obligation, tailored analysis of your financial situation from Harrison Brook Advisor in France.

One of our expert financial advisers will aim to get back to you within 12-24 hours.

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