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The new
President’s tax reforms are now firmly underway
The tax
reforms proposed by Nicolas Sarkozy, the new President, are now firmly
underway after having been debated by the deputies in the National
Assembly. The measures were formally adopted by the National Assembly
at the beginning of last week during a night session on 16th
to 17th July 2007. The senators will debate the proposals
from 25th July 2007, after which the necessary legislation
will be instigated. Those which most interest prospective property
purchases, including those from abroad, are as follows:
Inheritance tax
Spousal exoneration from inheritance tax
The
surviving spouse, as well as partner of a PACS (civil solidarity pact –
contract between unmarried, including same-sex, couples), will be
totally exonerated from inheritance tax. This will be a substantial
advantage compared to the current situation where only married couples
under certain restrictive forms of arrangement can benefit from a total
exoneration from inheritance tax.
Increase in the tax free band for children
The tax
free band between parent and child will be increased to 150,000 Euros
(from 50,000 Euros currently). This tax free band applies for each
child and will substantially reduce, if not exonerate totally, many
successions. For example, if a couple has two children who inherit only
upon the death of the surviving spouse, tax will only be paid should the
value of the property exceed 300,000 Euros. If they inherit upon
the death of each spouse, thus benefiting from their tax free bands
twice, the value of the property would have to exceed at least
600,000 Euros for there to be any inheritance tax due. From a tax
planning perspective for many families, this reform is of major
interest.
Increase in the tax free band between siblings
The tax
free band between brothers and sisters will be increased to 15,000
Euros (from the current figure of 5,000 Euros).
Monetary gifts
It will
be possible to make monetary gifts which are exonerated up to a limit of
30,000 Euros.
Income
tax
Offsetting of mortgage interest
The
interest on mortgages for the purchase of the principal residence can be
offset against income tax for the first five years. There is a ceiling
of 3,750 Euros for a single person and 7,500 Euros for a couple, plus
500 Euros per dependent. Christine Lagarde, the minister for the
economy, has indicated that a single person who takes out a mortgage of
100,000 Euros over fifteen years at an interest rate of 4% will see the
total cost of their mortgage decrease by 10%.
Wealth
tax
Wealth tax – tax free allowance for the principal residence
The tax
free allowance for the principal residence for wealth tax (‘ISF’)
purposes will be increased to 30% of the value of that property
(from 20% currently).
N.B.
The precise details of the reforms can only be confirmed once the
relevant legislation has been produced – the above is a guide only and
may be subject to change/clarification.
24/07/2007
- Issue of the week
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