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Service France
Please note that taxation and property are complex subjects and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.
Wealth tax - or impôt de solidarité sur la fortune - is an annual tax assessed on one's assets. If you are French tax resident, it is based on your worldwide assets and if you are non-French tax resident, on your French-based assets; principally your real property (I'll call this your taxable assets the relevant property ).
This situation may be varied by an applicable double tax treaty - particularly for those who are tax resident in a jurisdiction which itself has a wealth tax of some sort - but this is notably not the case with regard to the UK, as the current UK-France Double Tax Treaty has no provisions relating to wealth tax.
Why do you raise this now?
Because the tax is assessed on the relevant property as at 1st January every year. If the relevant property's total value exceeds €770,000, you will in principle have a liability to wealth tax and will have to lodge a return on form 2725 by the summer (exact deadline depends where you live).
But I have never paid wealth tax before
Yes, and it's an occasional misconception that the value of the relevant property is the price you paid when you bought it. Not so. The taxable value is in fact the market value (valeur vénale) as at 1st January. So it may be that last year your relevant property was worth less than €770,000 but now it is worth more, particularly in the light of recent property market rises (up to 35% in some popular areas of France).
How do I know how much it's worth?
It is up to you to evaluate your relevant property, if necessary relying on expert assistance, and the onus to file a return if your relevant property exceeds €770,000 in value is also on you (i.e. the return will not automatically be sent to you). You must itemise your relevant property and its values on it, calculate your liability and lodge the return with payment. The French taxman can then, within a certain time, challenge your valuation(s). We recommend that even if you honestly conclude that your property is not worth €770,000 in total, you should still complete a return if it is getting on for €700,000. This is better than being categorised as someone who has something to hide.
How much am I likely to have to pay?
The first band is only 0.55% and the bands only reach 1% at €2.3m. So your liability is likely to be low. But consider that (a) it's an annual liability; (b) property prices are continuing to rise but the thresholds have not changed appreciably in 5 years; (c) that you have to itemise your assets thus giving the French taxman a lot of useful information which he may later use against you; and (d) this return is more bureaucracy than you probably need (and/or you may have to pay someone to complete it for you); and in total you have a compelling case for avoiding wealth tax.
Ugh. If I want to avoid wealth tax, am I too late?
Not necessarily. The key is to make sure that your relevant property is worth well less than €770,000 on 1st January. This may mean postponing a purchase of more relevant property until after this date, or somehow reducing the taxable value of whatever you do already own. I'm not going to give away how this can be done, but there are ways.
How quickly can you do this?
We can't make any promises in respect of 2005, but if you contact us soon we may be able to put something in place which mitigates or reduces to nil your potential wealth tax liability for 2005.
Does it really matter ? Can't I just remain "under the radar"?
This is unadvisable. It may work for a while, but when you come to sell your French property - possibly at a price over the €770,000 threshold - the notaire (wearing his tax-collector hat) may be obliged to deduct all of your unpaid tax liabilities, assessed if necessary on a summary basis, from your sale proceeds. In principal, no French property sale can be completed without the notaire's intervention and the money passing through his account. We have heard of a case where ten years' wealth tax, plus interest and penalties have been demanded. In an event, there is no need to evade when it is often simple to avoid.
Sykes Anderson LLP advises on all aspects of French and UK tax including how to fully or partially mitigate French wealth tax liability.