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France – Higher threshold for wealth tax

December 8, 2010

French Budget Minister and government spokesman François Baroin has evoked the idea of increasing the threshold for wealth tax in France (l’impôt de solidarité sur la fortune – ISF) to reduce the number of taxpayers subject to the tax.

As the number of hypotheses for reforming taxation in France continues to rise, Baroin recently alluded to one suggestion currently being examined by the government, notably to increase the threshold from which taxpayers in France become subject to wealth tax.

Pointing out that over half of individuals in France are subject to wealth tax, Baroin explained that if the threshold for wealth tax is increased from EUR 790,000 to either EUR 1.2m or EUR 1.3m, between 250,000 and 300,000 taxpayers then no longer have to pay the tax.

Emphasizing the need to initiate a debate on the problem of wealth tax, including the issue of principal residence, and to also open a discussion on the problem of income from capital, Baroin confirmed that the problem of the French tax shield mechanism then arises. Now a symbol of fiscal injustice and a source of increasing embarrassment for the government, the highly controversial tax shield mechanism (le bouclier fiscal) currently limits direct taxes in France to 50% of income.

Nevertheless, Baroin reiterated that reform of taxation in France will be more comprehensive and not just limited to the issues of wealth tax and the tax shield. Indeed, French President Nicolas Sarkozy recently revealed his intention to create a new tax on income from assets in order to abolish both the tax shield and wealth tax. Any proposals to remove the wealth tax are, however, likely to provoke heated parliamentary debates and to meet with fierce opposition.

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