How to Easily Reduce Your Taxes?

How to legally reduce taxes in 2020? Most taxpayers feel they are paying “too much tax.” This feeling applies to both taxpayers in the lower tax brackets and those in the higher brackets. Moreover, paying less tax is a wish shared by most French people.

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Whether rightly or wrongly, and despite the government’s stated desire to lighten the tax burden, it is unlikely that this impression of overpaying taxes will fade in the coming years.

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However, there are several ways to legally reduce taxes. These are legislative provisions that grant, in exchange for an investment in a given sector, a tax reduction applicable for one or more years. Three main types of tax relief schemes are identified:

- Exemption from property tax
- Productive investment
- Reduction of income tax

Reduce taxes with property tax

In order to promote the introduction of rental housing into the market, successive governments have for years voted or extended tax incentives for real estate investment.

Overall, these property tax regimes all operate under similar rules: a taxpayer who makes a rental real estate investment in a given sector receives a tax saving representing a portion of their investment. In return, the investor commits to adhering to the constraints related to their investment: holding period, rental period, rent caps, or tenant resources…

Tax solutions for real estate exist for most types of real estate investment. Thus, new properties in the metropolitan area benefit from the Pinel law, while investing abroad can allow one to fall under the Pinel Overseas regime. For lovers of old stones, the Malraux and Historical Monuments laws allow for tax savings in exchange for investment in a renovated building. It is also possible to benefit from tax reductions by investing in managed real estate (student residences, nursing homes, etc.) under the Censi-Bouvard law. The Denormandie law and the property deficit regime allow for a tax reduction by investing in housing to be renovated. Furthermore, these various schemes are also offered in the form of SCPI (Civil Real Estate Investment), thus allowing one to bypass the minimum entry ticket for this type of investment.

The property tax systems allow you to reduce your taxes starting from €2000 per year and practically without a high limit for historical monuments in particular. They can therefore adapt to the tax issues of all households. The choice between the different schemes should therefore be made based on the desired objective (amount of tax exemption, profitability, wealth at the end,…) and the investor’s appetite for a particular type of real estate.

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Reduce taxes through productive investment

In order to encourage investments in businesses or stimulate certain territories, many tax-exempt investment schemes aim to encourage taxpayers to dedicate their savings to productive investments by granting them a tax saving.

Productive investments in the metropolitan area

In metropolitan France, there are vehicles that allocate to their subscribers a tax saving representing a portion of the investment.

Thus, the FIP (Proximity Investment Fund) and the FCPI (Mutual Fund for Investment in Innovation) are entitled, subject to certain ceilings, to an IR saving of 18% of the invested amount. Due to specific island characteristics, the FIP Corsica and the overseas FIP grant 38% tax savings.

On the other hand, SOFICA saves 36% by investing in a vehicle financing French film production.

Finally, investing in a Forestry Group (forest manager) entitles one to a tax saving of 18%.

With very low entry tickets, generally around €1000, these tax-exempt investment vehicles are accessible to a large majority of taxpayers. However, the liquidity of these products is never guaranteed, and the investor must also be aware of the risk of capital loss.

Productive investment abroad

Abroad, Article 199 undecies B of the CGI, commonly known as “Industrial Girardin,” grants taxpayers tax savings in exchange for investments in “production equipment” operated in an overseas department (DOM) or an overseas community (COM). Commonly financed equipment includes transport equipment, public works equipment, agricultural machinery, boats,… and social housing.

Through a co-financing agreement with the bank, it is possible to impose more than the invested amount, as long as the taxes relate to the year of subscription. Thus, the taxpayer will take the profitability of their investment immediately. These arrangements, also known as “single tax,” are not wealth creators but offer a powerful tax exemption accessible from €5000 in tax.

Our selection of tax placements

Reduce taxes by lowering taxable income

Beyond tax regimes, paying less tax can also be related to a decrease in taxable income. Of course, it is not about earning less, which would be contrary to any expected asset strategy, but about organizing one’s income in the best way so that it is taxed as little as possible.

Advance recognized income

Deferring income means postponing the payment of the corresponding tax and preparing additional income for the future, particularly for retirement. Many media allow for organizing this process.

Collective support, subscribed within the company, such as the EPE or PERCO, offers their subscribers the opportunity to save on social charges and income taxes.

The Retirement Savings Plan (RER), which replaces the REEP and Madelin starting at the end of 2020, is accessible to all taxpayers and allows for the creation of a pension or capital at retirement whose payments are taxable.

All these products are generally accessible without a minimum entry ticket, or symbolic. They are well suited to simultaneously achieving two objectives: retirement savings and tax exemption. However, it is necessary to know the conditions, as each product has its own functioning (blocking period, ceilings, exit conditions…).

Our selection of tax-exempt retirement placements

Transfer of income to children

Many parents finance their children’s studies with funds that have been subject to social security contributions or social levies and income tax. Another way to help one’s children may be to temporarily transfer part of one’s income to them. This transfer takes the form of a temporary gift of usufruct.

For example, parents can give their child the usufruct of a rental property during the duration of their studies. Thus, during this period, the child receives the income from the property directly (but is probably not taxed as a student), and the parents remove this income from their taxable base, achieving a variable tax saving (up to 60% of unreceived income) depending on their marginal tax bracket.

This solution is only possible for children who are detached from their parents’ tax household and with the help of a notary to set up the gift.