In a previous article, last year, I pondered upon the relative strength of France’s economy. For example, compared to Germany or the UK, France has certainly been less impacted by inflation. Furthermore, unemployment remains historically low. At 7.1%, unemployment is as low as it has been in 30 years and is threatening to dip under 7% for the first time since 1982. Why might that be?
There are undoubtedly multiple factors, including demographics and the social context globally. However, today, I will focus on arguably the most significant factor. Tax!
Taxes in France
President Macron has quietly been going about the job of making France more economically competitive. (I say quietly, but perhaps the gilets jaunes would disagree with that statement).
A significant move has been a gradual lowering of corporation tax, from 33% in 2017, to 25% in 2022. This is still above the European average; however, the realignment has surely contributed to French companies becoming more competitive and, hence, more likely to employ more people, boosting the overall economic vitality of the country.
Considering the overall tax burden, whilst companies have benefited from tax cuts, households have certainly not been forgotten.
Affluent French residents have welcomed the transformation of wealth tax to a property wealth tax; that is to say, property is the only asset to be concerned by wealth tax. (To be liable, your property estate would have to be worth over €1.3 million, whilst there is an allowance for the main home.)
Another of Macron’s new laws, when he came to power in 2017, was to introduce a flat tax of 30% on capital gains. This rate is still moderately high compared to European peers; however, it does cap the level for higher-rate taxpayers and hence encourages investment by these bigger hitters.
Since 2018, fewer French residents have had to pay the taxe d’habitation, one of two property taxes in France. Those on the lowest incomes were the first to be spared this tax, which, over time, was dropped progressively for more wealthy households until finally being scrapped for all residents this year. Note that non-residents still must pay this tax.
It has, however, been argued that taxe foncière, the other property tax, has been going up faster as a direct consequence of the scrapping of taxe d’habitation, as local communes try to raise money elsewhere. Still, for now, I believe that this definitely equates to a tax cut overall.
A final relief for households has been the regular raising of income tax bands. For example, for the 2022 declaration, compared to 2021, the bands have been raised by 5.4%, thus taking into account inflation, which otherwise would have pushed people increasingly into the higher tax bands. This is not a tax cut, as such, but it does very much protect households from higher rates, particularly during a time of high inflation.
It could be said that President Macron has simply “corrected” France’s tax rates, which were previously exceptionally high, to bring France back in line with its peers. Even so, these tax reductions will certainly have boosted the French economy, with France regaining its competitivity and vitality as a result.
UK Taxes Going Up
If the overall direction of taxes is currently down in France, the same cannot be said of the UK.
As a footer to this article, it is interesting to note the following:
- UK corporation tax was raised from 19% to 25% in April of this year.
- The UK is halving capital gains tax allowances from the 2023/24 tax year.
- The UK is freezing inheritance tax allowances until 2028.
Prior to the 2022 French election, there was talk of raising inheritance tax allowances in France. However, more recently, that idea appears to have been put on the back burner in favour of moderate tax cuts for middle-income earners, as announced by Macron in May of this year.
UK income tax bands are to be frozen until 2028. This is a horrible stealth tax, particularly with inflation running around 10%.
The point is, there is a notable trend here! Both in France (down) and in the UK (up).
A cynic might also add… and Labour are not even in power yet!
If you are thinking of moving to France, do make sure to seek qualified tax planning advice before leaving the UK. France may be more of a tax haven than you think, particularly if you are well prepared…
This article was first published in the Connexion August 2023