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The French Wealth Tax has a wider scope and longer reach than some people realise, warns Anthony Newgrosh of BKL Tax

Introduction

Significant changes have already been made to the French wealth tax regime this year.  This tax is an annual charge which is payable both by French residents based on their worldwide nest-egg and also by non-residents with French assets in excess of €1,300,000. It typically applies in respect of French holiday homes and shares in French companies.

UK Residents

UK residents with French assets worth between €1.3million and €3million now pay 0.25% tax per year on the value of their French assets.  Those with French assets in excess of €3m instead pay wealth tax at a rate 0.5% per year on the total value of their assets.

The above rates were introduced with effect from 1 January 2012 but this date also saw the start of a clampdown on arrangements perceived by the French authorities as abusive.

Tax on Property in French SCI Companies

Many UK residents were previously not liable to pay French wealth tax on property because they bought it through a so-called SCI company (which is generally considered transparent for French tax purposes but a body corporate by HMRC.)  The SCI is typically funded by a shareholder loan thereby reducing the overall value of the company.  However, from 1 January 2012, loans by non-residents to such companies will no longer be deductible in calculating the value of the shares in the company for these purposes.  Accordingly, all UK residents owning French property worth more than €1.3m are likely to now have to pay wealth tax.

Trusts Now Subject to French Wealth Tax

Furthermore, assets within trust vehicles, which never sat comfortably within the French legal and tax framework, were previously excluded from the calculation of wealth tax. Too good to be true? Well yes, this apparent loophole is to change.  The settlor of the trust (or beneficiaries if the settlor has sadly succumbed to life’s other inevitable aside from taxes) is now going to be required to include the value of any relevant assets in trust, including life insurance policies, property, stocks and shares, in his wealth tax declaration.  Indeed, even pensions transferred to France could be within these new rules although we await clarification in this regard.  However, for non-residents and those who have been resident in France for less than five years, relevant assets include French situs assets only.

In addition, there is a requirement for trustees to notify the French tax authorities of certain trust details if the settlor or any of the beneficiaries is French resident or if the trust property is situated in France.  These rules were expected to apply from 15 June but with the change in French president, the starting date for compliance is likely to be pushed back until the end of August.  However the French authorities are not expected to take a softly-softly approach to non-compliance: the penalty for non-disclosure starts at €10,000 and can even lead to imprisonment with no de minimis as to the size of the trust which must be declared. So in case of any doubt, we recommend that you seek urgent professional advice, especially for those considering emigration to France.

Anthony Newgrosh

Anthony is a chartered accountant with twenty years’ experience in advising entrepreneurial businesses on their corporate tax affairs and related shareholder issues. He believes in working closely with his clients in order to deliver pro-active, creative and pragmatic advice on all aspects of their tax affairs, including group re-organisations, company sales and complex HM Revenue & Customs negotiations. With a Big 4 background, Anthony also has extensive experience of cross-border issues, including tax efficient profit repatriation planning as well as specialising in obtaining Research & Development tax credits for high technology companies.

He has also lectured widely on various aspects of tax.

(T) 020 8922 9144
(E) anthony.newgrosh@bkltax.co.uk