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December 2012
Currency Notes
Finance
Jeremy Cook, chief economist at foreign exchange company, World First, talks about the Euro and other currencies.
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www.worldfirst.com +44 20 7801 1050
Making early plans may give stability Recent suggestions that the Eurozone looks like it is finally beginning to climb out of its debt hole are greatly overstated. With Greece, Spain, Italy and all the rest still nowhere near the point of return, the fact is that a recession on the Continent is likely to extend into the mid-part of 2013. Unfortunately debt and GDP levels are only going one way: the wrong way, and this has clear implications for anyone who is looking to transfer money in or out of France as the euro continues to struggle as a consequence. To the south, Spain has continued to dither on requesting funds, and this in itself has caused problems. From a political point of view the Spanish prime minister has very little to gain from applying for an ECB bailout, but his reticence leaves him open to the accusation he has wilfully harmed the Spanish economy’s prospects, thus causing further market pressures, while the cost to the taxpayer and the size of the bailout increases. In Madrid’s corridors of power, the hope must therefore be that Spain eventually gets a bailout, after being told There is no clear to have one following total European political gridlock – path ahead as to i.e. a scenario that can be blamed on everyone else. The how much euros market reaction to a junking will be worth of the Spanish sovereign bonds will only lead to more Jeremy Cook bailout chatter but, at the time of writing, nothing has been agreed and the pressure continues to mount on the Eurozone countries and the single currency itself. Such problems in struggling Eurozone countries like Spain and Greece have caused the euro value to fluctuate fairly dramatically this year, and 2013 is not looking like it is going to be stable either. This will obviously present problems for anyone who needs to make international currency transfers and some careful forward planning is advisable. For French expats, it has been a challenging period and unfortunately there is no clear path ahead as to how much euros will be worth in the long term. There are ways of fixing exchange rates in advance to take volatility out of the equation and with the continuing economic uncertainty in the Eurozone, this is the kind of step those looking for financial confidence might want to pursue sooner rather than later.
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For more information about making international money transfers with World First visit the website www.worldfirst.com or call +44 20 7801 1050
How to reduce tax on home-letting
Legal Notes
Inheritance rules cause problems
Photo: © gcpics - Fotolia.com
Photo: © crimson - Fotolia.com
Recession on Continent is likely to extend into the mid-part of 2013
Money 19
I have heard that even as a second home owner I will be subject to CSG on my rental income for 2012 and that this will not be allowable against my self-assessment return in the UK. Do you have any tips on how I can reduce my tax exposure? Renting out your holiday home is a great way to make use of your second home, to generate an income which will help cover the fixed costs of running your property. However, it is important to be aware of the legal requirements, security and other issues before you get started. You will be taxed on the income in France, and, with the new higher taxes, it is even more important to make sure that you plan your tax declaration, taking full advantage of allowable deductions. Many people with second homes do not realise that they may be running a business that needs to be declared as an activity in France. Depending on the circumstances, it can either be declared to the French tax authorities, or if you are running the business at a “professional” level, it may also need to be registered with the chamber of commerce (chambre de commerce) Choices for the structure of your business include: n Entreprise individuelle This is a kind of self-employment registration, with an option known as the régime du bénéfice réel, which gives a business model that takes account of the actual income and expenses of the business - resulting in the equivalent of a standard profit-and-loss type account in the UK, with allowances for capital items (depreciation), mortage interest etc. If your business is registered with the chamber of commerce, there is an obligation to pay French social charges, calculated on the profit of the business – not normally applicable if you are not resident in France. n Micro-entreprise Another option, known as micro-entreprise, allows you to work out your profits by a specified deduction for expenses – this is 50% of your income in most cases. So, if you earned e10,000 in letting income, your “micro profits” would be e5,000. The micro system is useful as it offers a simplified accounting system, and, once the gite is up and running, a 50% deduction for expenses is quite generous. How will I be taxed? If you register as self-employed under one of the systems mentioned above, you will be taxed under either the micro regulations (a fixed deduction de 50% from your sales income) or the réel basis (actual income less actual business expenses). In the latter case, if you make a loss after allowing for capital expenses and other expenses, then there will be no income tax to pay from the gite rental business. The French income declaration is normally be made in May for French residents and at the end of June for non residents. If you do decide to opt for the réel registration, then you have to keep proper books and records and make an annual profit/loss declaration at the end of April each year in addition to making your personal declaration (although keeping records is recommended for any businesses). You have the advantage of depreciation of the building and fixtures and fittings if you opt to put the property in your books. Income tax is charged to non-residents at a flat rate of 20% (current rate on 2011 income). Social contributions (including CSG) are also applicable on this income at15.5% A credit for tax paid will then be available when you complete your UK self assessment return, but only for the 20% deduction, not the CSG which is considered by HMRC to be a social levy. The réel regime with depreciation and mortgage interest may give the best result , so it is worth checking with an accountant which is the best regime for you. Tax options for 2013 will have to be confirmed by 31/1/2013.
Why take a chance with your French tax affairs? Tax & leaseback returns S.A.R.L & S.C.I registrations
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Making a simple declaration can ease problems INHERITANCE is an issue that troubles clients as the French have a “reserve heir” system where offspring, generally, cannot be disinherited. One child can claim one half of his deceased parents’ estates, two children one third each and three or more can get their hands on 75% divided equally. The balance – the disposable quota – is generally free to be left to whoever you want. This can cause trouble: principally over what the surviving spouse can have (who is a reserve heir only in the absence of others, but still has rights, especially regarding the home), whether an ungrateful child can be disinherited and, in second marriages, where there are children from earlier relationships and the present one. Do these rules affect British citizens who have holiday homes in France or those who live here permanently? The answer to the last question is: Yes, quite a lot actually. Your French real estate, – land and anything built on it – must devolve according to French law even if you have never set foot in France. Your personal estate will also do so if you are “permanently or habitually” resident here. Your executors will have to deal with your affairs through two different legal systems. UK affairs will devolve according to UK law and French ones, or some of them, to French law. That is why the EU brought in new rules – which the UK, Ireland and Denmark have not signed up to – which mean those who have their final habitual residence in a signatory country can nominate which legal system will govern their estate’s devolution. An English person living in France can say the laws of England and Wales are to determine who is to inherit from him rather than the reserve heir rules briefly outlined above. How and when can it be done? Firstly, make a simple declaration (a professio juris) in your will saying you want your estate administered according to the laws of England and Wales (or wherever). This can be done immediately. However, the new rules do not come into force until August 17, 2015, and you must survive until after that date. Be aware that local inheritance tax laws still apply. In France, as in the UK, surviving spouses inheriting from their spouse pay no inheritance tax. But if you leave your estate to your children, each can have only e100,000 before tax starts at 5% increasing to 40%. Non-family are taxed at 60% with no reliefs. Step-children are taxed similarly unless you have adopted them. In France a Frenchman can adopt a “child” of any age, but UK nationals can only do so up to the age of 18, in line with the UK adoption age. France has two kinds of adoption: adoption simple, where it is done for inheritance tax and the “child” remains the offspring of the natural parents. In Adoption pleinière on the other hand the child and natural parents cease to have any legal relationship. Under adoption simple the child can inherit, and on a reduced tax basis, from four parents. It is possible for a reserve heir to renounce their entitlement by signing a document to that effect in the presence of two notaries before or after the death of the parent.