Would you be better off French?
Surely we’d be better off if we were French. There’s the good food, fine wine, and nice weather for a start. And wouldn’t we all be better off financially, too? The property’s cheaper, and the tax burden must be lighter across the Channel.
Many of us dream of quitting the UK – and more of us actually make the move. A recent study showed that 5.5 million people born in Britain now live permanently abroad. Tax and the high cost of living are the main reasons we set sail from these shores – and France is a popular destination. But are we right to hanker after la vie francaise?
Let’s talk about tax. The top rate of income tax in France is 40%, the same as in the UK. The bands are, however, different. There is no income tax on the first â‚¬5,614, which is about Â£4,000. Income tax is then levied on a sliding scale until you get to the top band of 40% on income above â‚¬66,679 – about Â£46,000.
The sliding scale of income tax means it often works out cheaper than the UK. The top rate also kicks in earlier in Britain – on income above Â£34,600. There is another potentially big advantage to the French system of income tax: it applies to the household not the individual. So, the more members of the household, the smaller the tax bill. Marjorie Mansfield of Siddalls, a specialist financial adviser, said: “The system can greatly reduce your income tax bill, particularly if you have children. In fact, almost half of French households pay no income tax at all.”
But before we all book our crossing, we should remember that there’s more to the French tax system than income tax. So-called social taxes are levied on all earned income at 8%. Plus, you have to pay for healthcare on top. We might envy the French their hospitals – but we probably won’t envy the cost. The typical contribution is about 20%-25% of your salary.
If you are a property owner you are liable for two types of property tax: taxe fonciere and taxe d’habitation. The rates of tax are determined locally, and vary from commune to commune, but they are usually pretty similar to our council tax.
Then there’s the wealth tax. The French – or at least some of them – are stung by the tax on all their assets above â‚¬760,000, or about Â£530,500. There is some relief for the main residence. Families with several children can also cut their bill. But it can still add up.
Nicolas Sarkozy, the president who was elected in May, has recently made some changes to the tax system in France to try to stimulate economic growth. You know that short working week we all aspire to? Well, it has arguably given the French economy a bad dose of sclerosis. Growth has been weak for the past few years and the OECD recently downgraded its forecast for the French economy to 1.8% this year.
Unemployment is also rising. There are 2.4 million unemployed in France out of a population of 63.3 million. Compare that with the 852,900 jobless in the UK, which has a similar population size.
Sarkozy has introduced radical measures to encourage people to work longer hours, including abolishing income tax for anyone who works more than the 35-hour week.
He is also tinkering with the top end of the tax system to persuade more wealthy people to keep their money in France rather than move it offshore.
Will the measures work? Does it really matter? Perhaps the nuts and bolts of the tax system are irrelevant. People just need to feel wealthier – and the French probably feel wealthier than the British.
Consumer goods are generally cheaper. Food and eating out can also seem relatively inexpensive, particularly if you are used to London prices.
Then there’s property. House prices have been rising in France, but property inflation is still running at only 3.2% according to the latest Knight Frank Global Price Index. Interest rates are also lower in the eurozone at 4%, compared with 5.75% here.
But perhaps the big attractions of France aren’t financial. When it comes down to it, we like the French way of life. Why? Because the French have managed to resist some of the more virulent strains of consumerism and capitalism to preserve more of their traditions, culture and national identity. And perhaps we secretly admire that.