The newly elected French President proposes a number of key changes to the system of taxation in France.

Until the legislative proposals have actually been formulated and published these are only manifesto commitments.

The following are the main lines of the proposed changes.

Income Tax

i. Tax Rates - The creation of two new rates of tax:

• 45% for those with income higher than €150,000.
• 75% for those with income higher than €1 million.

The other existing bands and rates will remain in unchanged.

ii. Investment Income - Investment income (including rents) be taxed on the same basis as salaried income, as part of the income tax system. Indeed, the integration of other forms of personal taxation into the income tax system is a thread that runs through much of the Hollande programme.

iii. Tax Relief - To reduce the maximum level of tax relief (niche fiscales) that an individual can obtain in any single year from €18,000 (plus 6% of total taxable income) to a maximum of €10,000. The maximum allowance under the quotient familial (which reduces your tax liability the larger the household) will also be reduced from €2,300 to €2,000 for each dependant, a change that will affect only the most well-off households.

Social Charges

It is proposed to undertake the gradual fusion of the social charges (Contribution Sociale Généralisée - CSG) with the income tax system.

Although this was an early key manifesto proposal of François Hollande it is unlikely that there will be any early changes, as the scale of the change is very substantial and it is possible it may not be fully implemented. Neither is it entirely clear whether this reform affects other elements of the social charges, ie CRDS, PS.

Witholding Tax

The ability to opt for the withholding tax (prélèvement forfaitaire libératoire - PFL), where gains are taxed at source on dividends and investment income, is to be abolished.

The rate of this tax, including social charges, is up to 39%, so only those with the highest levels of income are likely to have opted to use it.

Such income and gains will be integrated into the income tax system.

Assurance-vie

The withdrawal of funds held under 8 years will be subject to income tax in the normal manner, although only for new contracts. Accordingly, existing policies will remain unaffected.

The existing tax regime for funds withdrawn over 8 years retention will remain unchanged.

Capital Gains Tax

A return to the system of capital gains on real estate which was in force up to 2004.

Under this regime relief against liability to the tax was at the rate of 5% a year for every year of ownership after two years of ownership. This meant that there was complete exemption after 22 years of ownership.

Capital gains on property sold under two years of ownership was taxed under the income tax system.

Post-2004 the period of exemption was 15 years, which was increased to 30 years with effect from 1st February 2012.

Although under the pre-2004 regime there was no exemption for the principal residence, it is proposed that the current exemption will remain in place.

Wealth Tax

There is to be a return to the pre-2012 rates and bands of wealth tax - Impôt de solidarité sur la fortune.

Last year President Sarkorky increased from €800,000 to €1,300,000 the starting point for liability to the wealth tax, and reduced from 6 to 2 the rates of wealth tax.

Only if your wealth exceeds €1.3m will you be liable for wealth tax from €800,000.

The change will be accompanied by ceiling on the total tax charge from income tax and wealth tax of 85% of income.

The current 30% discount for the main home will remain in place.

Inheritance Tax

The inheritance tax allowances available for each child from each parent will be reduced from current limit of €159,325 to €100,000.

The current complete exemption from inheritance tax in favour of the spouse or civil partner will remain in place.

Gifts Tax

The gift tax allowances available for each child from each parent will be reduced in the same manner as that of inheritance tax ie, from €159,325 to €100,000.

VAT

The increases in VAT (TVA) from 5.5% to 7% on the lower rate and from 19.9% to 21.2% on the higher rate will be abolished.

Livret A

The current ceiling of €15,300 per person for the tax and social charges exempt banks savings account, the Livret A, will be doubled to €30,600 and with a guaranteed return above inflation.

The same increase will apply to the other regulated tax exempt savings scheme, the Livret de Développement Durable, which will increase from €3,000 to €6,000, although it is less clear that it will be inflation proofed.