Bienvenue à Londres
As we look to take on board changes to our income and corporation tax rates in April, spare a thought for those in France, where President Hollande is polarising opinions on the tax to be charged on the so-called super-rich.
Last year, prior to his election victory, President Hollande began talking about raising taxes on the wealthy to help cut the French deficit. There was wide support in France, with 16 business tycoons and other holders of French fortunes saying in an open letter to French weekly magazine Le Nouvel Observateur that they were willing to pay more in times of crisis.
Now that the talk about a tax rise is becoming closer to a reality, there is a rather different feel among some of those whom it would affect. Indeed, the proposal to introduce a 75 per cent rate of income tax has caused something of a media stir, and the press are now reporting that the rich in France are selling up and looking to move to ‘wealth-friendly’ cities such as London, Brussels, Geneva and even Moscow.
Before he was bizarrely granted Russian nationality, actor Gérard Depardieu was widely reported to have moved to the Belgian village of Nechin, following in the footsteps of Bernard Arnault (Europe’s richest man and the owner of Christian Dior), the Mulliez family (who own a supermarket chain in France) and Alain Afflelou, who all left France, supposedly to avoid tax.
So what exactly has President Hollande done? Well, he has tried to introduce a higher rate of income tax of 75 per cent, charged on an individual’s income over €1 million. It was meant to be a temporary measure, lasting approximately two years, and was initially thought to affect as few as 1,500 people.
Unconstitutional ruling
However, France’s Constitutional Court struck down the proposed tax rate rise on 30 December 2012, ruling that it was “unconstitutional” as it was to be applied to the income of an individual rather than that of a household (the usual way in which income taxes are applied in France).
Unsurprisingly, President Hollande’s socialist administration will now look for an alternative way to bring the tax rate into force. After the setback from the French Constitutional Court, the president said that the law would be redesigned but its objective would remain the same. No doubt an amended proposal will be published shortly.
At the same time as the arguments over the higher rate of income tax in France are raging, there have also been changes to the French wealth tax. This is a tapered rate of tax payable either by French residents on their worldwide assets, or by non-residents on their assets in France, where the net taxable estate is valued at over €1.3 million.
Former president Nicolas Sarkozy cut the rate of wealth tax for 2012, but President Hollande has since raised it back to 2011 levels, calling the difference a “contribution exceptionnelle sur la fortune” or outstanding contribution on capital. This may prove a shock for those who based their current tax planning on Sarkozy’s figures, and now find themselves required to pay the difference.
London benefits
While all this is happening across the Channel, London, which is already home to around 400,000 French nationals (more than the individual populations of Bordeaux, Nantes and Strasbourg), is seeing the benefit, as wealthy French individuals come to live and work in the city.
London is a European financial and legal hub. It is, as Mayor Boris Johnson described, “the global capital of finance”. The centre-right coalition in the UK has lowered the top rate of income tax at precisely the time when the left-wing French president is raising taxes on the wealthy. Alongside this is the British government’s attempt to encourage entrepreneurship through a decrease in bureaucracy and the rate of corporate tax.
So, as Depardieu and his friends are looking to leave France, the UK has become an even more attractive destination for the French. No wonder David Cameron and Boris Johnson seem to be rolling out the red carpet and declaring ‘Bienvenue à Londres’.
Chris Belcher is partner and head of private tax at Mills & Reeve LLP. Contact chris.belcher@mills-reeve.com
This blog was co-written by Shabana Sayeed, trainee solicitor at Mills & Reeve LLP