What are the main changes in taxation in France for 2011?

Despite the regular promises from President Sarkozy that he would not increase taxes, the budget for 2011 provides for an overall increase in tax revenues of around €11 billion.

The changes are generally quite subtle, being mainly a reduction in tax reliefs (including business reliefs not considered here), although there are a small number of increases in taxation rates.

However, not all the reforms apply immediately, and the main allowances have all been increased in line with inflation.

Income Tax

i. Allowances

The main allowances for income tax have been increased by 1.5%, and a new top rate of 41% (previously 40%) has been introduced.

The thresholds and the rates for 2011 (for income earned in 2010) are as follows:

ii. Tax Reliefs

There has been a reduction in a large number of tax reliefs, although the general tax relief of 10% against salaries and pensions remains.

The main reductions as they affect individuals are:

1. a. The tax credits in favour of energy conservation works have been reduced by varying amounts;
2. b. Tax relief on mortgage interest has been abolished;
3. c. The tax reduction on off-plan buy-to-let properties (Scellier) has been reduced, and the tax relief on investment in off-plan holiday homes in rural areas has been abolished;
4. d. The tax relief on dividends has also been abolished, although the more important abatement of 40% remains in place;
5. e. Assurance vie contracts will also pay 12.3% social charges each year.

The maximum annual tax relief that can be granted has also been reduced to €18,000 (against €20,000 currently) plus 6% of income (currently 8%), a measure that is likely to affect few of us!

iii. Marriage and Divorce

The option for couples getting married, entering into a civil partnership, or getting divorced to choose to be taxed separately in the year ceases from 2012, for any legal change in the relationship occurring in 2011.

Married couples and those in a civil partnership will be taxed jointly for the full year, and those divorcing will be taxed separately for the full year.

Capital Gains Tax

Capital gains tax on the sale of property rises to 31.3% as a result of both an increase in the rate of both capital gains tax and social charges.

The rate of capital gains tax rises from 16% to 19% and the rate of social charges rises 0.2%, from 12.1% to 12.3%.

While the increase in capital gains only applies for gains realised from 1st January 2011, the increase in the social charges applies for gains realised in 2010.

This same new level of capital gains will also apply on shares, dividends and earned interest.

All gains on shares made from 1st January 2011 will now be taxed for capital gains, whereas previously the sale of shares valued less than €25,830 in the year were exempt.

VAT (TVA)

The rate of VAT for those with bundled ‘triple play’ broadband services (telephone, television, and internet) offered through a router or mobile phone increases from the reduced rate of 5.5% (on 50% of the bill) to the standard rate of 19.6% (on 100% of the bill).

Wealth and Inheritance Taxes

The thresholds for liability to wealth tax are increased by 1.5%, as are the allowances under inheritance tax. The rates of both taxes remain the same.

Liability to wealth tax now starts at €800,000, and the allowance for inheritance tax for each child increases to €159,325.

The allowances for gifts tax are also increased in line with inflation.