Finance act for 2021: Personal taxes

We will present below the most important provisions of the finance law for 2021 concerning:

• Personal taxation,
• Local taxes and various other measures.

We will complete our presentation of this finance law through our next article in which we will outline the provisions concerning companies:

• Determination of tax results and corporation tax calculation,
• VAT,
• Local taxes,
• Various measures.

I – Personal taxation

1. Calculation of income tax

• For the income tax on revenues realized in 2020, the limits of the scale brackets have been raised by 0.20%,
• Deduction of the contribution towards marriage expenses paid by the separated spouse: this contribution is deductible from the taxable income of the spouse who pays it even when its amount is not fixed or approved by the judge; these sums will obviously be taxable in the hands of the beneficiary spouse. This measure applies from the calculation of the 2020 tax.

2. Tax credits

• Tax credit for energy transition (CITE)
  The finance law for 2020 provides for:
  • The most modest households, an energy transition premium, used to finance work and expenditure in favor of the energy renovation of housing. In principle allocated under means-tested conditions, it can, until December 31^st 2022, be distributed without means-tested conditions, depending on the nature of the work and expenditure financed.
  • Other households, extended the CITE by reserving it for owners of their main home, subject to means-tested conditions.

    Transitional measures had been planned. These transitional measures have just been extended as follows:
    The transitional provision allowing the application of the CITE in its version prior to the 2020 finance law to expenditure incurred in 2019 and paid in 2020 is extended to expenditure incurred in 2018 and paid in 2020.

    Concerning the CITE version 2020, it applies to expenses paid in 2020 except for transitional measures in favor of expenses incurred in 2018 and 2019. The finance law for 2021 opens the benefit of the CITE to expenses paid in 2021.

    Thus, the CITE planned for 2020 may, at the taxpayer’s request, continue to apply to expenses paid in 2021, provided that he can justify the acceptance of an estimate and the payment of a deposit between January 1^st 2019 and December 31^st 2020.

• Tax credit for the acquisition and installation of charging systems for electric vehicles
  The finance law for 2021 creates a new tax credit for the acquisition and installation of such charging systems for electric vehicles, open to all households without means test.
• Tax credit for capital expenditures for the main dwelling
  • Equipment for the elderly or disabled: this system is extended for three years.
  • Expenditure on the protection of the main dwelling against technological risks: taxpayers who own dwellings located in France, completed before the approval of the technological risk prevention plan (PPRT), which they allocate to their main dwelling or which they rent out or undertake to rent for a minimum period of 5 years as a principal dwelling to persons other than their spouse or a member of their fiscal household may benefit from a 40% tax credit, for expenses paid by December 31^st 2023 at the latest for carrying out diagnostics as well as work prescribed to homeowners.
• Tax credit for landlords waiving their rents
  This measure will be presented in the chapter on tax credits for businesses.

3. Tax reductions

• Tax reduction in favor of “Pinel intermediate rental investment”
  This system is extended for three years and applies to taxpayers domiciled in France who acquire or have new housing built or who subscribe to the capital of real estate investment companies (SCPI) making such investments, until December 31^st 2024.
  The investments must be made in a collective residential building and the tax reduction rates will be gradually reduced for the years 2023 and 2024. For example, the rate will be fixed, for a rental commitment period of 6 years, at 10.5% in 2023 and 9% in 2024.
• Subscription to PME, ESUS, FCPI and FIP shares
  Temporarily, the rate of the tax reduction has been increased from 18% to 25% for payments made between August 10^th 2020 and December 31^st 2020. This rate is maintained for payments made until December 31th 2021.
• Investments made overseas
  The finance law for 2021 extends the tax reduction for the subscription of FIP-DOM shares to all sectors of activity and extends this tax reduction for 3 years (see chapter “various provisions”).

4. Salaries and wages

Increase in the tax exemption ceiling for the sustainable mobility package: since January 1^st 2020, optional coverage by the employer of all or part of the fuel and supply costs for electric, plug-in hybrid or hydrogen vehicles or the payment of the sustainable mobility package are subject to a common limit of exemption of € 400 per year, including a maximum of € 200 for fuel costs. The finance law for 2021 increases the amount from € 400 to € 500.

5. Capital gains on real estates

New conditions about the exemption upon transfer to an organization responsible for social housing:

• As of January 1^st 2021, social housing organizations must undertake, by means of a statement made in the authentic deed of acquisition, to build and complete social housing within 10 years from the date of acquisition (or 4 years if it is a private purchaser).
• The exemption is calculated in proportion to the living area of social housing that the transferee has undertaken to build and complete in relation to the total area of the constructions mentioned on the building permit. Unless this proportion is 80% or more, in this case the exemption is total.

We also inform you that an allowance on capital gains has just been introduced for demolition operations followed by reconstruction located in certain urban redevelopment areas.

6. Income from movable capital

• A request for an exemption from the 12.8% levy can be made by the taxpayer at the latest when collecting the income for PER.
• The gross amount of certain income from movable capital deemed to be distributed is multiplied by a coefficient of 1.25 to calculate the single flat-rate levy (PFU) of 12.8%. This increase of 1.25 applies to income tax due for 2020 and subsequent years.

  This mainly concerns:

  • Remuneration and hidden advantages,
  • Fraction of remunerations which do not correspond to actual work or which are excessive,
  • Expenses and sumptuary charges not deductible from the result of the company,
  • Income deemed to have been distributed following a correction of the results,
  • Income or profits from direct or indirect participations in foreign entities subject to a privileged tax regime.

II – Local taxes and various other measures

In this chapter, which does not include relevant measures, we simply cite the main provisions. We will provide you with the details if you request them by contacting us!

1. Property taxes

• Modulation of the allowance within the framework of a real solidarity lease: local authorities and EPCI may, by deliberation, allow the application of an allowance on the tax base for the property tax of housing occupied as main residence subject to a real solidarity lease.
• Simplification of the reporting obligations for the abatement on polluted properties within the perimeter of a P.I.G.
• Exemption of buildings made available to public higher education establishments.

2. Various provisions

• Wills received by notaries
  They must be registered within 3 months from the date of the testator’s death.

• Exemption from free transfer duties
  Donations and bequests made to all recognized public utility organizations whose resources are allocated to aid and charitable works, the defense of the natural environment or the protection of animals as well as to simply declared associations which pursue an exclusive aim of assistance and charity are exempt.

• Tax reduction for investments in overseas housing
  Certain works carried out in old housing (over 20 years old) give rise to a reduction in income tax.

• Tax reduction for the subscription of “FIP-DOM” shares
  Taxpayers domiciled in France can benefit from an income tax reduction when subscribing to such shares. From 2021 it is possible to invest in all sectors of activity. Only the condition of geographical area remains in force to benefit from the tax reduction.