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Don’t Move to France ... until you’ve done your homework. |
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Tax: French taxes and social charges are ridiculously high. Whatever tax you pay in the UK, or anywhere else for that matter, if you move to France you will get nailed by their high taxes and cotisations. For many people who have moved to France to make a new life, this is what shatters their dream of a pleasant life in France. France has a redistributive tax policy. It taxes highly and then puts it where the government thinks it is most needed (i.e where it is going to yield the largest number of votes). A lot of it is eaten up in France’s huge bureaucracy and its colossal number of civil servants. The cost of servicing the interest payments on the French national debt is greater than all revenue derived from income tax. France is so much in the mire, that all income tax is consumed in paying interest on money borrowed to fund France’s extravagant and unaffordable public works and other programmes. The French economy is, to put it mildly, in a very bad way. French taxes are considerably higher than British taxes. Income tax is comparable, but this is only the tip of the iceberg. French social charges are out of control. If you live in France you will pay French taxes, even if you earn your money in the UK. You should expect to pay between half and three quarters of what you earn in taxes and social charges - even if you earn a modest wage. It is not uncommon for ordinary people to work seven or eight months of the year just to pay what is due to the state! A lot of people work on the “black” if they can. However, if you don’t know what you are doing you will probably get caught and if you do, you will lose your shirt. Lots of British people leave France and move back to the UK, because they find the French tax system too repressive. It is interesting to see there is a large population of French people in Britain (the largest outside France) and this is put down to Britain’s comparatively friendly tax regime and the abundant work opportunities in the UK - compared to France. Some French taxation related links: http://www.institut-francais.org.uk/fiscal/principale/principalegr.htm http://www.impots.gouv.fr/portal/dgi/home?pageId=home&sfid=00 If the links stop working, please can you let me know. To calculate your likely cotisations if you are self employed in France check out this little gem: https://www.calcul.urssaf.fr/ti.htm or go to http://www.urssaf.fr/ and choose espace independants. One reader of this website reported he would have to pay €26,000 out of €40,000 after year three of operations. That doesn’t include income tax and the myriad other taxes such as the equivalent of the two council taxes that would be due. Oh, and don’t forget you will also need medical insurance. In my case I would probably pay 50.4% equivalent of income tax and NI and my employer (in my case my own small company based in England) would pay at least 40% cotisations on top of that. Which means that for every euro I receive, the French authorities would get something like €1.80 (and they will get some VAT on top of this amount). That is, in order for me to get €1 in my pocket, I have to earn €2, half of which goes in income tax and cotisations that I am due to pay, and then on top of this my employer will pay 40 centimes for each of the two euros I need to earn in order to get my €1, which means my employer will pay an additional 40 + 40 = 80 centimes. This means my employer needs to generate €3.32 (with VAT) just so I can have €1. And this doesn’t include the Taxe Professionnelle, a local tax set at between five and ten percent of turnover, yes turnover, not profits! No wonder so many small business go bust in France and why 10% of the workforce is unemployed (25-40% in some areas and among some groups). The following was compiled by my wife in early 2004 and is out of date, but it may be useful as a guide. French taxes are different to British taxes. There are many different taxes to take into account. Property Tax: There are two local property taxes in France, Habitation Tax (Taxe d’Habitation) and Funamental Tax (Taxe Fonciére) which are both based on the property's theoretical rental value according to the local land registry, and is adjusted in line with inflation. The rates of tax will vary from region to region due to the varying rates of tax imposed by the regional and local governments. Both taxes must be paid by 1st January each year. If you occupy your French property you are liable to Habitation Tax, but there are exemptions for the over 60’s and properties that are non-habital – the test seems to be whether a property in furnished. The Funamental Tax (a bit like Council Tax) is paid by all property owners and is payable on all land, even un-built on land. It may be divided into two parts, one for the building and some of the land surrounding it, the other for the rest of the land (this is particularly the case with larger rural properties). Any income derived on property in France should be declared in France. Once a property is rented out it will become necessary to file a French tax return (impôt sur le revenu). This Annual Tax Declaration is compulsory and must give the tax authorities complete information concerning your identity and marital and family situation, as well as the rental value of your dwelling and/or of your income from French sources. Taxe Professionelle If you work from home, then you will have to pay 9% of your income (including VAT) in what is called the taxe professionelle (source Living and Working in France by David Hampshire 2003, page 367). Personal Taxes: French income tax is payable by non-residents at progressive rates with a minimum of 25%. Rental income should also be declared in the the country of your dominicile for tax purposes but the French income tax paid in France is taken into account. If your principal home, business or employment is centred in France, or if you live in France for more than 180 days per year, you will be considered resident for tax purposes. As a resident, you are taxed on your worldwide income, subject to applicable tax treaty relief. Individuals resident outside France are taxed on French-source income such as income derived from property (see above). French income tax is levied at a progressive rate, from 7.05% to a maximum rate of 49.58%. There are also tax rules concerning family size, which combine the progressive tax rate with the tax-paying capacity of the household resulting in a lower effective tax rate (each adult is classed as a unit and each child as half a unit – your tax burden decreases as your family increases – but remember the savings in tax will not cover the actual cost of another child that needs feeding, clothing etc., so it is not an invitation to breed like rabbits). Non-resident property owners in France, may be liable for income tax, value added tax wealth tax , capital gains tax and inheritance tax. Individual situations vary considerably and it is best to seek specialist advice from a tax consultant who has knowledge of the French tax system. Even if you do not let your French property, there is the possibility that the French tax authorities may seek to charge you income tax on 3 times the national income from the property if you are a tax resident of a country which has not entered into a double taxation treaty with France (the UK has entered into a double taxation treaty with France.) Wealth Tax: A wealth tax (impôt de solidarité sur la fortune) is levied in France each year on individuals with a total net wealth exceeding €720,000. The value of assets is based on their fair market value in France as of 1st January of each year. Tax is assessed on the net wealth according to a progressive rate from 0.55% to 1.8% (above €15 million). The following tables may help you work out how much income and wealth tax you could be liable to:
Inheritance Tax: The whole system of taxation on death is very different from the UK system and so poses a real danger to Brits who subconsciously assume that the system will be similar to that in the UK. In France a spouse or joint owner does not automatically inherit the deceased’s property. If it is left by will or on intestacy to the other joint owner (and there may be restrictions on your ability to do this), the gift will be taxable. Unlike in the UK, the amount of tax paid is not determined by the size of the estate, but by the relationship between the beneficiary and the deceased and by the size of each individual inheritance. The tax is progressive e.g. the more you inherit the more you pay. Near relatives pay tax at a lower rate than more distant relatives who in turn pay less than total strangers e.g. non-relatives. Near relatives are also entitled to receive a sum tax-free. More distant relatives and strangers are not. An estate of say £100,000 can therefore produce a large tax bill if it is all left to one person, especially a non relative, and little or no tax if it is divided amongst a number of beneficiaries who are close relatives. Many people will tell you that buying a property as 'en tontine' aides the process of inheritance by a spouse or partner. It is however a complex process, which is extremely difficult to unscramble once set up, e.g. should you divorce or separate. It quite simply means that on the death of one partner the property passes to the survivor. Whilst it mitigates the effects of French inheritance law it does not mean that inheritance tax can be avoided. The following tables give some idea of the tax liability of inheritors:
Click here to return to the main Don’t Move to France section.
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