Towards a Reform of France's ISF Wealth Tax and General Regime for the Taxation of Personal Estates

La Revue fiscale du patrimoine N°4, April 2016

8 Pages Posted: 4 May 2016

Date Written: April 1, 2016


French analyses of estate taxation often looks at the ISF wealth tax and nothing else. The initial idea of the lawmakers behind the ISF - implemented in 1981- was firstly to impose a levy on goods providing their owners with the wherewithal to pay more in tax, secondly to create a redistribution tool reducing inequalities in asset ownership and thirdly to respond to the perception that insufficient tax was being paid on estates in France. Now in the year 2016, the ISF wealth tax still suffers from the same two major deficiencies: the narrowness of the tax base; and exorbitant tax rates, especially compared to the very few countries who still have this kind of levy. In reality, when assessing the extent of estate taxation in a country, consideration must be given not only to wealth taxes but also to all kinds of property taxes, stamp duties, inheritance tax, taxes on donation, capital gains tax and tax on income from estates. That being the case, French estate taxation is the highest in the world's more affluent countries and has caused the offshoring of at least €200 billion.The associated loss in tax receipts has been assessed at a minimum of €7.5 billion per annum, to be compared with the €5.4 billion that France's ISF wealth tax yielded in 2015. The economic cost coming on top of this will have been of similar magnitude - explaining why estate tax reform is so necessary in France today. This might involve the outright elimination of the ISF wealth tax. If this solution is not socially acceptable, we need at least a diminution in its rates combined with a total exemption for any and all productive assets (inc. capital equipment and assets covered by the country's Dutreil law); and a strict cap on all direct taxes (such as the ISF wealth tax and the income tax) so they never exceed 50% of a taxpayer's total annual income. There is also a need to reform the full range of estate taxes, notably by copying what has been done in Scandinavia, where income from work continues to be subject to progressive taxation but income from an individual's estate is taxed at a flat rate, with the fixed rate at which income from capital is taxed being lower than the marginal rate levied on income from work. Following an approach that is diametrically opposed to what France implemented in 2012 will then make it possible to retain and indeed attract the capital that the country requires for its investment purposes.

Keywords: french wealth tax, ISF, taxation of personal estates

JEL Classification: E62, K34

Suggested Citation

Pichet, Eric, Towards a Reform of France's ISF Wealth Tax and General Regime for the Taxation of Personal Estates (April 1, 2016). La Revue fiscale du patrimoine N°4, April 2016, Available at SSRN:

Eric Pichet (Contact Author)

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288

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