Changes in Wealth Tax announced
Par Prof. Robert Anthony, Anthony & Cie
GGI Insider (n°59), mai 2012
The new president of France, François Hollande will take up his post as from May 15th, 2012. With his arrival, he will change legislation notably in the area of fiscal matters. One of his key measures is to return the current Wealth Tax schedule to that applied on 2010, effective for this year payments.
Last year, we have signaled to all our clients and partners, the need to refinance to avoid this eventuality together with protecting from previous changes.
The threshold risks to be lowered to €790,000 which will incur considerable more taxes.
The proposed rates are as follows:
|Wealth Tax Schedule|
|Thresholds for taxation||Rates|
|Not exceeding €790,000||0%|
|From €790,000 to €1,290,000||0.55%|
|From €1,290,000 to €2,530,000||0.75%|
|From €2,530,000 to €3,980,000||1%|
|From €3,980,000 to €7,600,000||1.3%|
|From €7,600,000 to €16,540,000||1.65%|
|Over to €16,540,000||1.80%|
The Equity Release’s offer could be a solution to the future changes in French tax legislation.
The simplest solution is to refinance 100% of market value and invest prudently the money raised. This also has the advantage of resolving for non-residents future estate planning issues. The maximum rates of estate duties for direct line beneficiaries in France have just been increased by 5% to 45%.
|Mortgage to the value of the property||€ 3,000,000|
|Equity release assuming no debt||€ 3,000,000|
|Interest rate of the loan||2.42% per annum (as per March 7th, 2012)|
|Guaranteed fund||3.5% per annum (as per March 7th, 2012)|
|Wealth Tax saved||0.5% per annum|
Most banks want a minimum of 50% of the value of the property in assets held in their books calculated by them as the lending value. Cash is valued at 100%. Bonds are worth 70% to 80% and equities 60% of their value as collateral for the loan.
They will not normally accept private equity as collateral. The greater the investment risk, the less money is available to be released to a client.
If the bank wants € 1,000,000 in assets and the investment is made in equities, this means € 1,666,666 worth of assets needs to be held in their books, representing 60% of the value of the equities as collateral for the loan.
For bonds, this is between € 1,250,000 and € 1,430,000 of money invested. Risk means values can go up or down so banks need protecting with higher collateral tolerance levels when taking their security. Generally, a provision of 6 months’ interest is required to be placed with the bank.
Euro value (cash) investment yields.
These are currently 3% – 3.5% net of annual fees capital and interest guaranteed as per March 7th, 2012. Other investments with higher risks give potential higher yields but less lending value.
Bank loan rates currently for Euribor 3 months were 0.92% as per March 7th, 2012.
A bank margin of around 1.5% will be added which can increase to circa 2% depending on the bank and the assets held as security. The total cost of lending today varies from 2.42% to 2.92%.
The use of an insurance policy depending on the residence of the client can be tax advantageous. Euro value (cash) investments have to be made through an insurance policy. Open architecture policies are dedicated policies and will increase the management fees but allow higher potential returns.
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