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Giving it All Away - Taxation Changes

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PostPosted: Sat Sep 17, 2020 10:50 am    Post subject: Giving it All Away - Taxation Changes Reply with quote

Changes in Gift Tax Rules

Gifts of up to €50,000 made every six years will be tax free.

From 2006 the tax burden on those making cash gifts to children will become less onerous. The French government is sanctioning tax exempt giving every six years instead of every ten years as the rules stipulate at the moment. These measures will go some way to mitigate the effects of inheritance tax on the more well-off.

The French budget minister, Jean-François Copé, announced on 13th September that the legal time limit in between tax-exempt gifts would be reduced and that the measure would come in to force next year. The initiative will be outlined in the budget proposals for 2006.

Under current tax legislation, the French taxpayer can make a tax-exempt gift of up to €50,000 to each of his children or grand-children every ten years. By reducing the limit to every six years, the government’s draft proposals are aimed at speeding up the process thereby allowing a more tax-advantageous transfer of capital from one generation to the next.

Changing the tax rules on cash gifts is part of a recent trend aimed at going some way to alleviate the burden of inheritance tax on families. Nicolas Sarkozy brought in a measure as Minister for Finance which allowed from June 2004 a one-off tax-exempt cash gift of €20,000 made to children. For 2005, this was hiked to €30,000. His ministerial colleagues at Bercy have more recently shown support for further reform when, in the 2005 budget, the ceiling for gifts was raised from €46,000 to €50,000. This means that in 2005 a taxpayer could make a gift of €80,000 using the €30,000 one-off tax-exemption plus the €50,000 gift. If his wife uses her allowances, then the amount available is €160,000.

While this is good news for French taxpayers and second home-owners who are likely to be financially able to take advantage of the new rules, the overall effect on the economy is less clear and, according to some economists, likely to be of little impact in stimulating growth.

A cash gift of a substantial amount is, according to some at OFCE, the French economic watchdog, likely to be used by the more well-off to purchase buy-to-let property or make other capital investments. However the cash injected into the economy will not be will significant enough to make any tangible benefit. Analysis has shown that while “Sarko’s Gift” of 2004 was taken up by more than 800,000 taxpayers, any beneficial impact on economic growth was limited.

It could be argued that this type of measure gives a flexibility to the economy which should go some way to stimulating growth, but economists at Natexis Banques Populaires point out that the cash released makes not a lot of difference.

Any attempt to present changes in gift tax regulations as measures aimed at stimulating economic growth is somewhat inaccurate. The honest truth is that the new rules present a back-door attempt to reduce the inheritance tax burden which in France is onerous to say the least.

As an OFCE spokesman said of the inheritance tax issue, “The government daren’t tackle this head-on, they have to chip away at it”. Inheritance tax makes up a whopping 0.6% of GDP in France compared with 0.23% in the UK and 0.14% in Germany.

While political commentators and economists alike point out that the less well-off have nothing to give whether it’s every ten years or every six, these measures do go some way to encourage those of us who are rock stars or supermodels to remain in France by lightening the load when taken together with income tax reforms in the pipeline. For example, the proposed 60% ceiling on taxable household income should limit automatically the level of exposure to French Wealth Tax.

Keeping all of the people happy all of the time is the great political challenge. The majority of taxpayers will get little or no benefit from the tax reforms and there is a likelihood of discontent among the masses. Some commentators argue that a reduction in VAT would be more just and go some way to giving purchasing power back to those who need it most while at the same time giving a real boost to the economy. If Sarko tells us all to go and eat cake, I guess this would make it cheaper too.

©Lesley Jolly 2005
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