WITH an amendment to the French Finance Act 2011, the French Parliament voted for an increase of the duties paid on partition of assets, droits de partage, from 1.1% to 2.5% to be effective from 1 January 2012, writes Guillaume Barlet.
But this measure may now be overturned and the rush to process divorce procedures before that date may be brought to a halt.
Partition is an operation by which owners holding assets in undivided ownership, which can be likened to a joint ownership, terminate such a situation and divide, or partition, the assets between them.
This occurs in a succession procedure for transfers between heirs and beneficiaries or following a divorce procedure to transfer certain assets to one of the spouses. Such transfers trigger a fixed-rate tax, so-called partition duties.
Following the information report published on behalf of the Finance Committee of the French Senate on domestic taxes and their evolution, an amendment was proposed to the French Finance Act 2012 which will be voted at the end of the year.
This amendment aims to maintain the partition duties rate to its current level of 1.1% "considering it is totally inappropriate to overtax people at a difficult time in their lives, during which they objectively get poorer, and when the beneficial triple declaration of income tax has just be withdrawn (1)".
Before appearing in its final form in the first French Finance Act 2011, the increase of the partition duties rate has been carried out in three steps:
- The French MPs, upon proposal of the government, submitted a Bill to double the duties from 1.1% to 2.2%
- Then, during the Bill’s discussion, the French Senators increased the 2.2% rate by 0.3 points reaching 2.5%
- The Act, enforced on 29 July 2011, provided that the measure would be immediately applicable but a Parliament commission decided that the effect would be postponed to 1 January 2012
Even if the amendment to the French Finance Act 2012 is, to date, not finally adopted, the government is already under pressure and has been criticised for certain planned tax changes such as an increase in the reduced VAT rate, and so may be forced to backtrack on this point.
In addition, the Senate recently swerved left and as a result, there is limited leeway for Mr. Fillon’s government.
By putting an end to a frantic race to divorce before 31 December 2011, the Finance Committee could be considered as a mass marriage counsellor and it may not take much more for a birth peak to be observed in nine months.
Unfortunately, as this measure may only be confirmed at the last minute, some may not wish to risk an increase and will prefer to pursue procedures as fast as possible.
(1) Until recently marriage allowed couples to file two individual income tax returns to cover the tax year up to the date of the marriage and a joint one to cover the rest of the tax year from the date of the marriage, or one joint and two individual
ones in case of divorce, allowing to benefit twice from the nil rate and lower income tax rate bands.
Guillaume Barlet is a French lawyer specialising in French assets and wealth management issues for Bank House Investment Management Limited. Guillaume can be contacted by e-mail or by telephone on 01242 545 971.
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