This Paris Life

Expert Insight, Breaking News, and Insider Stories on Real Estate in Paris

Higher tax bills coming: New law closes loop holes on French wealth tax

A new law enacted July 2011 significantly alters existing tax and trust rules in France. The new law affects the wealth tax, gifts and inheritances and trusts beginning in 2012, and in some cases is applied retroactively. Tax will now be imposed on all wealth in France over 1.3M euros, including real estate, with few exemptions, deductions or shelters. Currently the first 800K euros of value as well as properties held by SCI are exempt, however in 2012 this protection will be removed and the new law will apply retroactively on property already held in an SCI. Second homeowners with property in France will have to file a wealth tax return in France if their property is valued at more than 1.3M and pay wealth tax on the entire value.

As the new law leaves some issues unresolved, and some grey areas, there will be clarifying legislative decrees and rulings by the French Tax Department, and this information will continue to evolve.


Wealth Tax (ISF)


  • Beginning in 2011, if net wealth is less than €1.3m, a wealth tax return is not required to be filed.
  • If net wealth equals or exceeds €1.3m, then a wealth tax return is required.  For 2011 only, the first €800.000 of net wealth will nevertheless escape tax. But the €800.000 exemption disappears after 2011.  Beginning in 2012, if your net wealth exceeds €1.3m, the total value is subject to wealth tax.  To recap, as of 2012, no wealth tax reporting is required if your net wealth does not exceed €1.3m.
  • The 2011 wealth tax return is due on or before September 30, 2011.  Beginning in 2012, it is expected that the normal filing date of June 15th will be respected.
  • “Net wealth” is defined as total assets (using January 1, 2011 values) less total debts existing on that date.  One important change in the New Law is that in valuing the shares of a real estate holding company, such as an SCI, shareholder debt may no longer be taken into account.  This neutralizes a typical planning strategy, namely, designating a significant share of the cost of the real estate on the books of the SCI (or other form of holding company set up for that purpose, such as an LLC), as “shareholder loan”.  Before the advent of the New Law, the shareholder loan was considered debt in valuing the shares of the holding company, usually resulting in a negative value for the SCI shares and hence no wealth tax on those shares.  This strategy is no longer effective.  Only mortgage debt and presumably other valid third party debt may be taken into account in valuing the holding company shares.  This change is retroactive, so real estate holding companies (defined as companies whose assets consist predominantly of real estate) set up in prior years must be revalued when determining the value of the holding company for wealth tax purposes.

  • Beginning in 2012, the following rules apply:
  1. For French residents, the asset calculation is based on worldwide assets; for non-residents, only on assets located in France. As stated above, no wealth tax reporting for French residents if net global wealth is less than €1.3m.  Wealth tax is imposed only if net wealth equals or exceeds €1.3m.  However, no actual wealth tax return is required if net wealth does not equal or exceed €3m.  If less than €3m, there will be a special line on your French income tax form to declare your wealth, and you will receive a bill from the French Tax Department along with your income tax bill. So, to repeat, only if your net wealth equals or exceeds €3m must you file a wealth tax return.  (The New Law does not address the situation of a non-resident who normally does not file an income tax return.  Presumably, he or she would file a wealth tax return even if net wealth were less than €3m.)
  2. The previous progressive rates (0.55% to 1.8%), are applicable for 2011 ISF returns, but beginning in 2012, new rates—only two rates—will apply: 0.25% on net wealth valued at €1.3m – €3.m, and 0.5% on net wealth of €3m and above.  As already stated, beginning in 2012, the wealth tax is imposed from the first euro of wealth.  So, for example, if your wealth is €1.300.100, the 0.25% rate is imposed on that full amount.  To repeat, the €800.000 wealth tax exemption ends in 2011.
  3. As I mentioned above, beginning in 2012, if you are not required to file a wealth tax return (because your net wealth does not equal or exceed €3m) you will receive a tax bill from the Tax Department.  If you are required to file a wealth tax return (net wealth equals or exceeds €3m), then, as in prior years, payment must accompany the filing of the return.
  4. The French Tax Department may audit your wealth situation for a period of 6 years.  So, it is advisable to retain January 1st values for all assets during a rolling six year period.
  5. The 30% reduction for principal residence is retained, as are the full exemptions for artworks, antiques and business assets.
  6. The rule of the 2004 Poillot case, which has been an effective planning tool, will continue to stand, but with some modifications. Thus, a discretionary irrevocable trust, where the settlor (i.e., the creator of the trust) is a fiscal non-resident of France, will continue to shield the trust beneficiary(ies) from wealth tax on the trust assets.  However, consider the following:  As is discussed in the section below relating to Gifts and Bequests, the New Law provides that at the death of the settlor of a trust, the beneficiary or beneficiaries of the trust are deemed for purposes of the New Law to be settlor(s). What is the implication of this?  Assume a situation, as in the Poillot case, where the discretionary irrevocable trust in question was created by a non-resident of France for the benefit of an individual residing in France.   In that scenario, the assets within the trust are not required to be reported for wealth tax purposes.  But, if the settlor of the trust is already deceased when the beneficiary becomes a French fiscal resident, or the settlor dies some time after the beneficiary has acquired fiscal residence in France, a current beneficiary is deemed to be settlor.  The New Law also provides that the settlor is considered owner of all the assets of the trust.  So, by deeming the beneficiary to be settlor, the Poillot protection vanishes and the beneficiary must include all the assets of the trust as taxable wealth.  This is not good news, and thought must be given to whether and how the effect of this material change in the rules can be diminished or circumvented.
  • Note, the five year exemption rule existing prior to the change continues to apply.  So, new residents are exempt for 5 full taxable years from the wealth tax on assets other than French assets.  After the 5th year, global assets are taken into account.

Gifts and Bequests

  • The New Law adopts the rule of the Tardieu case, decided by the French Supreme Court in 2007, which provides that no gift tax is due in a trust situation until the occurrence of a distribution of capital from the trust.  The distribution of capital is treated as a gift and, subject to treaty or other exemptions, the gift is taxable to the recipient beneficiary at the applicable rate based on the relationship between the settlor of the trust and the beneficiary.  However, the New Law goes further than Tardieu by providing that upon the death of the settlor, there is a deemed distribution of a beneficiary’s share, which is immediately subject to French inheritance tax.
  • Tax rates for gifts and bequests within the “ligne directe” (e.g., parent to child) are adjusted upwards by the New Law from 35% to 40% on gifts between €902.838 and €1.805.677, and from 40% to 45% on gifts in excess of €1.805.677.  The effective date of this provision is 31 July 2011.
  • The increase in rates between spouses and Pacs partners is effectively the same as for “ligne directe”.
  • The reduction in gift tax rates based on the age of the donor no longer applies.  Thus, there is no rate-based incentive to make gifts prior to reaching age 80, as there was under prior law.   The remaining incentive—to avoid inheritance tax on appreciation of the gifted asset after the date of the gift—obviously continues.
  • The exemption amounts for gifts and inheritances remain unchanged by the New Law, but rather than renewing every 6 years, the former rule of 10 years is reinstated.  This will put a crimp in lifetime giving.  The New Law creates a transition rule for gifts made within between 6 and 10 years prior to the effective date of the New Law.




The New Law rules with respect to trusts are complex and hamstringing.  Trusts have never been standard family estate planning tool in France as they are in the U.S. and other common law countries.  Although court-based law and tax rulings in France had to some extent clarified the tax rules pertaining to trusts, the French law, which is civil law, has never been at ease with the common law trust.  The purpose of this section of the New Law is to create more certainty in this area – for French residents and non-residents alike; but, evincing the French wariness toward trusts and their possible abuse, the new rules are quite harsh and even, in some cases, prohibitive.  The highlights listed below touch on the main points of the New Law.

  • The New Law affects non-residents of France as well as residents.
  • Not only tax rules but also rigorous trustee reporting requirements are created.
  • Unlike the U.S. law, which may trigger taxation upon the creation of a trust, French gift and inheritance tax consequences occur only when distributions are made or at the death of the settlor.
  • Important highlight, which will require rethinking of trust planning and even amending existing trusts, if possible.  Referring back to some of the discussion above, including paragraph “g” of the last bullet point in the section discussing the Wealth Tax, the New Law provides that the death of the settlor triggers a deemed distribution of the beneficiary’s share of the trust assets, which is then subject to French inheritance tax.   The trust beneficiary will thereafter be considered,  i.e., deemed, to be settlor of that trust.  If the deemed settlor subsequently dies, the next beneficiary in line will be liable for inheritance tax on his or her share of the same trust, and that next beneficiary will then be deemed a settlor.  So, in the case of a dynasty trust, there may very well be successive taxes on the same or roughly the same assets at each successive death of a deemed settlor, whether or not the settlor is a fiscal resident of France, so long as the beneficiary next in line is a fiscal resident of France.  Likewise, if, at the time a beneficiary becomes a French fiscal resident, the settlor has already deceased, the current beneficiary(ies) will be deemed settlors.  To take an extreme example, if the trust beneficiaries are unrelated to the settlor (or the deemed settlor), and the deaths of the settlor and deemed settlor are relatively close in time, there is potentially a 120% total tax payable on the same assets.  Under the New Law as it reads, there is no credit provided for the first tax against the second tax.  These potentially serious consequences will impact on how trusts are structured (or amended).  Though this unfair result may have resulted from the workings of the New Law not being well thought out in the drafting stage, it is oddly consistent with the French wariness of Anglo-Saxon trusts.  This glaring problem should be addressed by the legislature.      
  • Applicable estate and gift tax treaties, such as that between France and the U.S., may offer some protection, but a careful analysis of each situation must be made.
  • A French tax resident who receives a gift or bequest from a non-resident is not subject to tax on the gift or bequest if the recipient has not been a tax resident in France for at least 6 of the 10 years preceding the date of the gift or bequest.
  • Tax Rates: If at the death of the settlor (including a deemed settlor, the trust beneficiary can be identified, the normal inheritance rates, up to 45% rate, will apply in the case of descendants, or the higher rate in the case of others (siblings, third parties, etc.). In other words, the inheritance tax imposed is at the normal inheritance tax rate based on the relationship between the beneficiary and the settlor.  Charitable beneficiaries are not subject to any tax.  (However, the New Law impacts on Charitable Remainder Trusts, effectively eviscerating them as a tax-planning tool.)  One of the grey areas is whether a spouse or Pacs partner is included in this group.  This important point must be clarified.  Bequests outside of trust to a spouse or Pacs partner is tax-free in France, so there seems no reason why the result should be different if the bequest is via a trust.
  • If at the time of death of the settlor, the trust beneficiaries (assuming all of them are descendants of the settlor) the amount bequeathed to each beneficiary cannot be determined, the 45% rate will be apportioned among them.
  • For others, the tax rate is 60%.  As stated above, as the New Law seems to read, this would include distributions to a spouse, Pacs partner, or to a parent or grand-parent.
  • Distributions or deemed distributions from a trust created in a jurisdiction that is “non-cooperative” in its willingness to provide information to the French government, then the tax rate is 60% in all cases.
  • The 60% rate applies to distributions from trusts created by residents of France after 11 May 2011.  This too is a highly important consideration for those whose stay in France is unlimited or uncertain in time.
  • Failure to include trust assets for ISF purposes will trigger a 0.5% tax to be levied on those assets. This is a “sui generis” tax, which effectively subjects those assets to a tax equal to the highest wealth tax rate. In certain cases, this could lead to double taxation (sui generis tax + wealth tax):   If there had been no wealth tax reporting and as a result of a subsequent French tax audit, trust assets are added to wealth, pushing the taxpayer over the wealth tax threshold, the wealth tax (assume 0.5%) will be added to the sui generis tax, resulting in total tax on the trust assets of 1.0%.   Note, if despite the inclusion of trust assets no wealth tax is due (i.e., value of net assets less than €1.3m of total value, including trust assets), then the sui generis tax does not apply.
  • Where trust assets were not included in a wealth tax return, the trustee is required to file a statement with the French Tax Authorities by June 15th of the year involved, disclosing the contents of the trust and their value. If the value exceeds €1.3m, payment of the sui generis tax must accompany the statement.  If payment is not made by the trustee, the settlor and beneficiaries are considered liable for the tax.  This rule will encourage those liable to wealth tax on trust assets to report them in a wealth tax return.  Doing so will also avoid double tax (sui generis + wealth tax) on those assets.  This provision of the New Law takes effect 1 January 2012.
  • Notwithstanding the above information reporting rule, a trustee of a trust that has a French resident settlor and/or a French resident beneficiary and/or French-based property (real estate or corporate shares), is required under another provision of the New Law to make a separate declaration to the tax authorities.   The declaration must indicate whether a trust was created, modified or terminated during the tax period in question; must fully describe the terms of the trust; and give the fair market value of the trust assets as of January 1st of the year in question.  This rule will be further elaborated by a forthcoming tax ruling.  Failure to file this declaration will cause a penalty of the higher of €10.000 or 5% of the trust assets.  Just as with the sui generis tax, the settlor and beneficiaries share the liability for payment of this tax.  This rule comes into effect on 1 January 2012.
  • As regards trust income, income retained and reinvested by the trustee will not be subject to French income tax.


For more info contact: The Okoshken Law Firm at

Note: This memo highlights the basic rules affecting the wealth tax, gifts and inheritances and trusts.  It does not cover other changes in the law, life insurance, the “exit tax,” or other features of the New Law.   



Contact Paris Property Group to learn more about buying or selling property in Paris.

Find us on
Get the PPG Monthly newsletter

Contact us
By phone
In France +33 (0)9 75 18 18 99
From the US (917) 779-9950
By email
Stay current on the Paris real estate market:
Sign up for our newsletter
Thank you and welcome aboard!
* Required fileds