French Wealth Tax Yields Surprising Revenues

by Ulrika Lomas, Tax-News.com, Brussels

26 January 2012

France’s solidarity tax on wealth (l’impôt de solidarité sur la fortune – ISF), which was radically reformed by the government in June last year, has served to yield much greater fiscal revenues for the state than initially predicted.

In the summer of 2011, the government united on plans within the framework of the country’s 2011 supplementary finance bill, providing for the reform of the taxation of wealth in France, to simplify the system and to adapt it to economic realities.

At the time, the government agreed that the solidarity tax on wealth would in future comprise of only two tax brackets: a 0.25% tax rate imposed on individuals with net taxable wealth in excess of EUR1.3m (USD1.7m), and a 0.5% tax rate levied on individuals with net taxable assets above EUR3m. Previously, the entry threshold at which wealth tax was applied was EUR800,000, with the rates varying between 0.55% and 1.8%.

To alleviate any threshold effects, a discount mechanism was also instated applicable to wealth of between EUR1.3m and EUR1.4m, as well as to wealth of between EUR3m and EUR3.2m.

Although the new provisions provide for lower tax rates and for the abolition of the first tax bracket, effectively exempting around 300,000 taxpayers from the tax, according to latest government figures, the tax yielded around EUR4.3bn in 2011, almost EUR60m more than originally forecast in the collective budget.

The continuing increase in property prices, coupled with tighter and more effective controls by the country’s tax administration (regularization of assets), might account for the higher than expected revenues.