Today is: 30 July 2010
Please note that French and English inheritance and tax law is a complex subject and you should not rely on this article without professional advice on the facts of your case.
Q: I am moving to France but understand that I will have to pay French wealth tax when I become resident. Please could you explain this to me?
A: Wealth tax is charged on the net value of your assets as of 1st January each year. French residents are charged, on a household basis, based on the value of their worldwide assets (although some assets are exempt from this tax). The tax is levied at banded rates, up to a maximum of 1.8% with a tax-free threshold of just under €800,000. Any debt associated with an asset is deductible for these purposes.
Q: Are there any reliefs or exemptions from Wealth Tax?
A: Yes but it depends upon which country you are a national of. Some countries’ tax treaties with France give nationals of those countries an exemption from French Wealth Tax so that their non-French assets are not taken into consideration for wealth tax purposes in that period. If you leave France for at least 3 years then return to become resident again, the 5 year period will run again.
Q: Which countries have such favorable tax treaties?
A: Of the European Member States only Austria, Germany, Italy and Spain have treaties with France containing this exemption. The new UK-France treaty, which should come into force in 2010, also contains this exemption. It is only available to British citizens or subjects who do not have dual nationality with another Commonwealth country and who have a right of abode in the UK. You also do not qualify for this exemption if you hold dual UK and French nationality.
Q: So, if I have dual UK-Belgian nationality I qualify for the relief, but if I have dual UK-Australian nationality I don’t qualify?
A: Yes.
Q: How could the UK government agree to something like this?
A: It is discriminatory and arises from the UK’s view of who should benefit from the protection of international tax treaties on the basis of nationality. Most of the provisions of the tax treaty apply to UK residents with no mention of nationality. The UK Parliament has approved the treaty which was signed by the French Finance Minister and the UK Chancellor. It needs to be reconsidered urgently.
Q: So if I am Irish or Danish and move to France I would have to pay Wealth Tax on my worldwide assets straight away but if I am German I would not?
A: Yes. In the case of Ireland because the Irish treaty with France does not have the special exemption and, in the case of Denmark because it no longer has a tax treaty with France.
Q: What is the effect of this provision in the new UK Treaty?
A: Up to now, wealth tax for UK nationals has been dealt with entirely by French internal law. There is no need for the tax to be mentioned in the double tax treaty as there is no equivalent UK tax against which protection from double taxation is needed. The whole point of double tax treaties is to protect people from paying tax twice ie once in each country involved. This cannot happen with wealth tax because the UK does not have such a tax.
Q: So legally what does the wealth tax clause in the new treaty amount to?
A: The new treaty amounts to a unilateral change in French domestic law which provides a specific exemption for UK nationals. There is no effect on UK law as there is no wealth tax in the UK.
Q: If this is only relevant to internal French law, why is it in an international treaty?
A: We can’t work this one out. It makes no sense. The new treaty clearly excludes wealth tax from its scope. In some of the other treaties France has entered into wealth tax is within the scope of those treaties and so it is understandable.
Q: If the wealth tax clause has nothing to do with international tax, is it actually valid?
A: Yes, because the treaty comes into force by being voted as a law in France and the UK.
Q: Do you think that this legislation may conflict with European Law?
A: It seems very likely that the bilateral treaties (including the new treaty with the UK) restrict the free movement of people within the EU. Nationals of say Ireland or Denmark would be less inclined to move to France than nationals of the UK, Austria, Germany, Italy or Spain because of this exemption. Although countries are allowed significant freedom when negotiating the terms of double tax treaties, such a clear infringement of one of the fundamental rights of Community Law may result in the legislation being challenged.
Q. If France had passed a domestic law instead of incorporating it into the new treaty with the UK what would the law have to say.
A: The French internal domestic law would say that UK nationals do not have to pay Wealth Tax in France for 6 years but say Irish, Danish and other EU nationals have to pay the tax regardless of where they come from. Any UK national who was not “100%” British because they had dual nationality with a Commonwealth country is also barred from taking advantage of the French tax exemption. There is no way a law like this would stand any chance of getting through Parliament either in France or the UK.
Q: What should nationals of countries without a favorable treaty do when moving to France?
A: In the first five years of moving to France, they may wish to consider filing wealth tax forms with a covering letter claiming an exemption as to not have such benefit would be discriminatory.
March 2009
Sykes Anderson LLP
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