Going with the tax theme: a few questions

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Going with the tax theme: a few questions


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Old 18th April 2013, 02:49 PM
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Default Going with the tax theme: a few questions

Hi again. I'm in the process of calculating budgets for a planned retirement in France and would like to check with this group of very helpful and knowledgeable people about a few questions regarding taxes in France: the ISF, income tax, and "other" taxes that may be unexpected to a new expat. Time to share your experiences and frustrations, if you're willing!

1. ISF

When I originally reviewed the French government websites on the wealth tax, the tax table started at €800 000 at a tax of 0.5 percent. That led me to believe (mistakenly, I now think) that total worldwide assets above €800 000 would be subject to the tax. Upon further reading, I know understand that you have to have more than €1 300 000 to first fall under the reach of this tax, and that €800 000 is the amount not subject to tax, with the remainder above that taxed at varying rates depending on how much your assets total.

Is that consistent with your understanding?

2. Income Tax

Although I understand there is much complexity and I will have to contract with a tax expert in France to help me calculate taxes accurately, I'm trying to get a ballpark, but conservatively high, estimate of the likely taxes I'll be paying. When we retire, we'll have four sources of funds, the relative contribution from which will vary over time. These will be:
  1. Proceeds from the sale of our modest home in the USA
  2. Relatively small pensions from my wife's and my past employers
  3. U.S. Social Security retirement benefits upon reaching appropriate ages
  4. Assets currently in tax-advantaged retirement accounts (401(k) and a state employee retirement fund)

I understand that no. 1 is not taxable in France if it is from sale of a primary residence. Is that accurate?

Further, I understand that 2 and 3 will be taxed as ordinary income in France, with the capital gains from 4 also taxed as ordinary income (as of 2013), subject to adjustments. Is that understanding consistent with yours?

As for ordinary income tax, I have seen a table that provides a progressive scale of tax rates and a simple equation that takes into account the number of "parts" (2 for a married couple) and total taxable income, regardless of source. This is one line that would likely be the range into which we might initially fall:
For a total worldwide income between €26 420 and €70 830, the tax would be the total of: (income x 0.30 ) – (€5 566,33 x no. of "parts"). I understand that, as a married couple, we would have to go through the paperwork for a PACS to qualify as two parts.
Is that more or less consistent with your understanding? I'm not necessarily asking for comment on the specific values I've cited; rather, I am asking if the concept of what is treated as income is correct. Any suggested online resources (in French or English) would be appreciated.

As for capital gains, this is a very complex matter but my current understanding is that such gains would be taxed at:
  • As of 2013 going forward, capital gains are taxed as ordinary income using the progressive scale I noted above
  • On top of that, there's a 15.5 percent social services tax on gains (am I correct this does not apply to pension or Social Security income?)
  • There also is a variable rebate (ranging from 20 to 40 percent) on the taxable gain depending on how long the asset has been held

Does that sound as if I'm close to reality?

Lastly...

3. Other Taxes

The major "other" taxes I've read about in addition to those mentioned above are:
  • VAT -- ranges from 5.5 to 19.6 percent depending on the item purchased
  • Residence/Property tax -- for a renter, it looks as if I should expect something along the lines of 10 percent to 15 percent of rental cost to be added as a tax

I'm not concerned at this point about inheritance taxes.

Have I overlooked anything? Are there any other significant taxes I should keep in mind?

Thank you for reading this far. I hope I'm not imposing on this group by asking such detailed questions.


Last edited by Aloysius_; 18th April 2013 at 02:51 PM.
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Old 18th April 2013, 03:22 PM
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Hi,
If you want a rough guide to tax go to : Simulateur de calcul d'impôt sur le revenu - Démarches - Le Particulier

If you go in via Google.com or google.co.uk it will give you an interesting translation.

This guide does useful things like deduction the pensions allowance etc etc

Tank Johnson
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Old 18th April 2013, 03:40 PM
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Thanks for the suggestion. I'll take a look.

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Old 18th April 2013, 07:38 PM
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Quote:
Originally Posted by fils de l'Oregon View Post
1. ISF

When I originally reviewed the French government websites on the wealth tax, the tax table started at €800 000 at a tax of 0.5 percent. That led me to believe (mistakenly, I now think) that total worldwide assets above €800 000 would be subject to the tax. Upon further reading, I know understand that you have to have more than €1 300 000 to first fall under the reach of this tax, and that €800 000 is the amount not subject to tax, with the remainder above that taxed at varying rates depending on how much your assets total.

Is that consistent with your understanding?
Nope. They raised the threshold for payment of the ISF from about 800,000€ to the current 1.3M€ last year, I think it was. You do not need to file at all if your worldwide assets (by household, not individual) do not exceed 1.3M€

Quote:
2. Income Tax

Although I understand there is much complexity and I will have to contract with a tax expert in France to help me calculate taxes accurately, I'm trying to get a ballpark, but conservatively high, estimate of the likely taxes I'll be paying. When we retire, we'll have four sources of funds, the relative contribution from which will vary over time. These will be:
  1. Proceeds from the sale of our modest home in the USA
  2. Relatively small pensions from my wife's and my past employers
  3. U.S. Social Security retirement benefits upon reaching appropriate ages
  4. Assets currently in tax-advantaged retirement accounts (401(k) and a state employee retirement fund)

I understand that no. 1 is not taxable in France if it is from sale of a primary residence. Is that accurate?

Further, I understand that 2 and 3 will be taxed as ordinary income in France, with the capital gains from 4 also taxed as ordinary income (as of 2013), subject to adjustments. Is that understanding consistent with yours?
Once again, nope.
OK, if you sell your house in the US before you move to France, then fine. No need to declare in France. No tax implications. If you don't sell until after you are considered "tax resident" in France, it could get a bit more complicated.

Item 2 is probably subject to French taxes, but anything to pay to France is taken as a tax credit against any US tax liability on that income. (Don't forget, you must continue to file US taxes on your worldwide income no matter where in the world you live unless you renounce your US nationality - which is a serious step.) Download Pub 54 from the IRS website for a preview of your filing obligations from overseas.

Item 3 is taxed in the US and subject to the US-France social security treaty. You declare your US social security to both the French and the IRS. Whether it is taxed by the US depends on the US tax rules (i.e. how much other income you have, your filing status, etc.). The French seem to have a tendency to assess CSG/CRDS on US social security, but it's unclear (to me, at least) whether this is correct or not.

Item 4 is actually two different items. Your 401K withdrawals may actually be treated by the French fisc as transfers of capital (i.e. NOT income), which the state retirement pension may or may not fall under the treaty rules. You will pay regular US income taxes on all withdrawals from your 401K.

Quote:
As for ordinary income tax, I have seen a table that provides a progressive scale of tax rates and a simple equation that takes into account the number of "parts" (2 for a married couple) and total taxable income, regardless of source. This is one line that would likely be the range into which we might initially fall:
For a total worldwide income between €26 420 and €70 830, the tax would be the total of: (income x 0.30 ) – (€5 566,33 x no. of "parts"). I understand that, as a married couple, we would have to go through the paperwork for a PACS to qualify as two parts.
Is that more or less consistent with your understanding? I'm not necessarily asking for comment on the specific values I've cited; rather, I am asking if the concept of what is treated as income is correct. Any suggested online resources (in French or English) would be appreciated.
If you are married, you have 2 "parts" in France. Don't even think about getting PACS'd - you can't do it.

Quote:
As for capital gains, this is a very complex matter but my current understanding is that such gains would be taxed at:
  • As of 2013 going forward, capital gains are taxed as ordinary income using the progressive scale I noted above
  • On top of that, there's a 15.5 percent social services tax on gains (am I correct this does not apply to pension or Social Security income?)
  • There also is a variable rebate (ranging from 20 to 40 percent) on the taxable gain depending on how long the asset has been held

Does that sound as if I'm close to reality?
These are relatively new changes to the tax law here - and may change again before they come into effect. It is not uncommon here for the tax law to change in November or December with effect for the entire current tax year.



Quote:
3. Other Taxes

The major "other" taxes I've read about in addition to those mentioned above are:
  • VAT -- ranges from 5.5 to 19.6 percent depending on the item purchased
  • Figure 19.6% on most items. 5.5 or 7 (now - a new change) on food and some home repairs. But unlike in the US, this tax is included in the prices of things quoted to end users (i.e. consumers), not added on at the cash register like US sales tax.

    Quote:
  • Residence/Property tax -- for a renter, it looks as if I should expect something along the lines of 10 percent to 15 percent of rental cost to be added as a tax
For a renter, there is the taxe d'habitation, which varies by town and by your specific financial situation. Impossible to estimate this as a percentage of the rent you pay. It's based on the "calculated rental value" of the property (which is actually a function of the square meters of living space), with various adjustments based on your last French tax return.

Quote:
I'm not concerned at this point about inheritance taxes.
You will want to consider these as they are very different from those in the US. If either of you has been married before or have children from a prior relationship, things can get very tricky. If you're both in your first marriage, and all the kids are yours, and you want your estate divvied up equally between your kids, you have nothing to worry about, except perhaps purchasing a life insurance contract that will cover the inheritance taxes so your kids won't have to sell anything to pay the taxes.
Cheers,
Bev

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Old 18th April 2013, 08:16 PM
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Thanks for your responses.

I appreciate your expertise and responses, but you're awfully quick (and occasionally inaccurate) with your "nope."

Your first nope was incorrect, as your response essentially restated what I originally wrote. Unless I'm completely off, what I've read is that those above €1 300 000 in total assets fall into la deuxième tranche and owe ISF on those assets above €800 000:

Impots.gouv.fr - Comment est calcul l'impt ?


Your second nope was incorrect with respect to the home sale, as it is something that would occur prior to leaving the U.S., so my statement about that is correct.

And I appreciate the reminder of the treaty on taxes between the two countries. It will be interesting to see how that works out.

As for the 401(k) and state retirement, I need to do some research on periodic withdrawals versus l'assurance-vie. I'm hesitant to get into any annuity scheme as these have such a bad reputation in the U.S. However, things may well be different in France.

With respect to la taxe d'habitation, what I'm looking for is some guidance from folks who currently rent in France. The values I've seen from online sources typically fall within the range I've cited; but I can certainly understand how extraordinary properties in certain places (such as very expensive parts of Paris or perhaps along the coast) might be different.

What we'll probably target is an apartment or small house in a smaller town with monthly rents in the €900 to €1 300 range initially. Nothing fancy: not on the coast or with a pool or lots of land or anything out of the ordinary.

Are there any renters who would be willing to share their experience with la taxe d'habitation to provide a few more data points?

Thanks for your help!

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Old 18th April 2013, 08:42 PM
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Quote:
Originally Posted by fils de l'Oregon View Post

With respect to la taxe d'habitation, what I'm looking for is some guidance from folks who currently rent in France. The values I've seen from online sources typically fall within the range I've cited; but I can certainly understand how extraordinary properties in certain places (such as very expensive parts of Paris or perhaps along the coast) might be different.

What we'll probably target is an apartment or small house in a smaller town with monthly rents in the €900 to €1 300 range initially. Nothing fancy: not on the coast or with a pool or lots of land or anything out of the ordinary.

Are there any renters who would be willing to share their experience with la taxe d'habitation to provide a few more data points?

Thanks for your help!
The general rule of thumb is one month's rent.

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Old 18th April 2013, 09:19 PM
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The calculation of the ISF for 2013 is a new wrinkle. My apologies for an overly hasty response - but we've been cut off from phone and Internet service for most of the day and I was dealing with a rather large backlog of posts on this and other forums.

But my statement about the home sale was correct - if you sell before you become tax resident in France, it's a matter between you and the IRS. With no involvement from the French fisc.

The 401K is tricky, because if you choose to put your lump sum withdrawal into a French annuity (which is how most retirement "savings" plans here in France work), you will owe regular income taxes on the lump sum withdrawal - and then the annuity proceeds will be taxed by the French under their rules (and will be subject to reporting and potential taxation by the IRS). I looked into this a couple years ago, and it seems to almost guarantee a sort of double taxation if you transfer the balance from the US to France. Proceed with extreme caution here.

The taxe d'hab rates are set by the towns based on their costs and services. You may want to take a look at this website: Le Réseau ProXiti - Premier Réseau d'Informations Locales de France where they indicate the local taxes by town. While this also includes the taxe fonciere, which you won't pay as a renter, it does demonstrate the variance in local rates from one town to the next. My husband found this site and was interested to see that the tax rate for the town next to ours (roughly 300 meters from our house, in fact) is half that of what we pay where we live.
Cheers,
Bev

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Old 19th April 2013, 12:25 AM
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And don't forget cotisations if you're intending to (are eligible to) become part of the French healthcare system. Last time I looked it ran at about 8% of your annual taxable income, but someone else will have a better handle on that than me.

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Old 19th April 2013, 06:24 AM
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Originally Posted by NewMexicanMove View Post
And don't forget cotisations if you're intending to (are eligible to) become part of the French healthcare system. Last time I looked it ran at about 8% of your annual taxable income, but someone else will have a better handle on that than me.
The 8% cotisation covers only the CSG/CRDS, which is a tax designed to pay off the old deficits of the health care system. Paying the 8% on non-employment income does not give you any rights in the French social security system.

If you are going to retire in France, you will need to show proof of private health coverage, first to get your visa, and thereafter in order to renew your carte de séjour. The US expat group, AARO, offers its members health insurance that meets all the requirements and they publish their schedule of charges for all to see: AARO?s Health Care Program for Expatriate America You may want to take a look at their literature to get an idea of the costs. (And if you are covered by French health insurance, they do offer a "mutuelle" coverage, too.)
Cheers,
Bev

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Old 12th August 2013, 11:15 PM
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Bev, I am trying to get a handle on this double taxation question between US and France. If I sell my house in US, pay taxes on the profit, and then put it in an assurance de vie, what taxes would I pay? Later am I paying tax on the income from that annuity in both France and the US?
Thanks for your opinion.

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