A new President, a change for France

The result of the socialist François Hollande’s appointment as the new President of the Republic of France could have a significant impact on French property owners and those looking to buy in the near future.
 
Hollande’s manifesto was made up of 60 measures for France, with proposals including a stronger move towards equality between men and women, a reduction in the retirement age, the creation of 60,000 more jobs in education, and the right to marry to become available for same sex couples. It also included important measures to make fiscal change.

His win is likely to see a move away from austerity in France, with forthcoming legislative changes predicted to lead to an increase in the highest rate of income tax, increasing wealth tax and changes to inheritance  tax.
 
Concerning income tax, taxpayers earning over €150,000 could see a hike in their highest rate of income tax rising from 41% to 45%,  possibly even50%. Taxpayers with income of €1 million or more could see a portion of their income taxed at 75%. Income tax reliefs, already restricted by the previous government to a maximum of about €14,000, could be capped at an even lower overall amount of €10,000 by Mr Hollande. Amongst the other significant measures announced by Mr Hollande is the abolition of the current option for taxation of dividends to the 25% withholding tax and, consequently, their automatic taxation to income tax.

The threshold for wealth tax, after having gone up to €1.3million last year, is announced to be revised downwards again to come back to the threshold of prior to 2011, that is €800,000. Likewise, the current rates of 0.25% (for taxable estates between €1.3 million and €3 million) and 0.5% (estates of €3 million and above) are to be replaced by the old rates from 2010, ranging from 0.55% to 1.8%. These new thresholds and rates may even apply from 2012 for estates of €3 millions or more, as the new government may postpone the date of payment of wealth tax for the current year until September 2012. This measure may raise up to €2.3 billion from 2012. Another old rule that may be revived is the rule of limitation of all taxes paid by the taxpayer to 85% of his/her overall income.
 
In 2007 the then President Nicolas Sarkozy introduced significant reforms to French inheritance tax, with the introduction of a full spouse exemption on transfer between spouses on death, and a threefold increase in the nil rate band allowance for children on inheriting from a parent (from €50,000 to €150,000). In his manifesto François Hollande suggested that the spouse exemption would remain, but the nil rate band allowance for children would be reduced again, possibly to €100,000. Also, the delay between each gift to children free of Inheritance tax up to the nil rate band threshold, currently set at 10 years, could be increased to 15 years. These announcements have already triggered a surge of gifts from parents to children or grand-children in order to take advantage of the current more generous nil rate band allowance.

Any future tax changes will add to the line of recent changes, which include a reform of the capital gains tax rules. Previously a property owner (secondary residence) could be exempt from French capital gains tax after ownership of 15 years but since February 2012 the exempt period was extended to 30 years. Mr Hollande has declared his intention to revert to the previous more generous capital gains tax rules as early as next August/September. Estate agents expect a significant impact of this second forthcoming capital gains tax reform in the same year to boost a rather apathetic property market.

The rise of François Hollande is being announced as a defeat for austerity. If the pound remains strong against the Euro this can mark an era of buying power for the British in France. All eyes will be on France – and indeed Europe - over the coming months to see what impact the new President will have not only on France’s economy and tax system but also within the Eurozone.
 
For those people who own assets in France, they will be concerned to see what changes might be made, in particular to French taxes. We will get the first signs, probably as soon as when the new National Assembly has been elected and the new Government definitively formed in June 2012, with further announcements to be made and reforms with immediate effect.