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French Household Tax Burden To Rise In 2014

by Ulrika Lomas, Tax-News.com, Brussels

25 December 2013


While undoubtedly less ambitious than the 2013 Budget, France's 2014 Finance Act nevertheless profoundly modifies and raises taxation for households in France, impacting on their purchasing power in particular. Older measures will further hike tax bills in 2014.

From January 1, 2014, the standard rate of value-added tax (VAT) in France will rise from 19.6 percent currently to 20 percent. The intermediate rate of VAT, benefiting a number of sectors, including the hotel and catering industry, will also increase, from 7 percent to 10 percent. However, the reduced rate of VAT, applicable to basic goods such as foodstuffs, will be maintained at 5.5 percent.

A number of exceptions have been allowed. For social housing and renovation works undertaken on social housing in France, the VAT rate will be lowered from 10 percent to 5.5 percent. For the construction of "intermediate" housing, the VAT rate will be lowered from 20 percent to 10 percent. Furthermore, the VAT rate applicable for home energy improvement works, as well as for "induced" or associated ancillary works carried out, is to be cut from 10 percent to 5.5 percent. For cinema tickets, the reduced rate of 5.5 percent will apply.

A number of fiscal measures will impact heavily on families next year. For example, from 2014, the "family quotient" (quotient familial) income tax break is to be lowered to EUR1,500 (USD2,503), from EUR2,000. The tax advantage accorded to families with children in secondary or higher education is to be retained, however.

Significantly affecting tax bills, income from life insurance contracts will be included in the calculation of the wealth tax (ISF) cap next year, fixed at 75 percent. Social levies imposed on certain life insurance contracts will also rise. Additionally, capital gains derived from the sale of securities will be subject to the country's income tax scale, although reductions will be introduced. A 50 percent tax reduction will be accorded in cases where the holding period is greater than two years, rising to 65 percent for a holding period in excess of 8 years, and to 85 percent for individuals investing in a small- and medium-sized enterprise for a period of up to ten years.

Next year, the 10 percent pension supplement accorded to pensioners with three children or more will become subject to income tax. In addition, tax breaks will be capped at EUR10,000, albeit with a number of exceptions. For investment in French overseas departments and territories, taxpayers will benefit from tax credits rather than from a tax exemption. Following a two-year freeze, the country's individual income tax scale will finally be re-indexed in line with inflation.

The introduction of a "carbon tax" will serve to increase existing taxes levied on the consumption of fuels and combustibles (TIC), taking into account carbon emissions. As a result, tariffs for natural gas, heavy oil, and coal will rise slightly next year. In 2015, the tax increase will affect diesel, petrol, and domestic heating oil prices.

In 2014, the tax credit accorded for sustainable development (CIDD), allowing households to deduct part of renovation costs from tax, is to be limited to major works and limited to modest-income households. Tax deductions for solar panels will cease to apply.

To stimulate the housing market, an exceptional 25 percent tax reduction for capital gains realized following the sale of a property or rights relating to that property between September 1, 2013, and August 31, 2014 will be granted. Similarly, from September 1, 2013, total capital gains tax exemption will be granted after a twenty-two year holding period, compared to 30 years as is currently the case. Finally, the transfer tax imposed following the acquisition of a property is set to rise in 2014. Next year, French departments will be able to apply a maximum transfer tax of 4.5 percent, compared to 3.8 percent currently.

TAGS: tax | pensions | European Commission | value added tax (VAT) | tax incentives | employees | retirement | legislation | tax rates | France | tax breaks | individual income tax | Europe

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