There have been numerous changes to the rules regarding the payment of social charges in France. Rob Kay explains the latest development and how it might affect you
Our tax expert explains social charges in France and the latest changes to the regulations
If you are thinking of moving to France or buying a property there, you need to know about social charges. If you already live in France or own a French property, you may be confused by all the recent changes. The French government has revised the rules yet again, so here is a recap of social charges before an explanation of the latest regulation to help guide you through these changes.
WHAT ARE SOCIAL CHARGES?
To all intents and purposes, social charges are another tax levied on most types of income in France, on top of income tax.
They are called social charges because the money is used to finance the French social security. However, these payments provide no health benefits and should not be confused with the charges sociales (the French version of National Insurance contributions) payable on earned income.
They are actually made up of six elements: the contribution sociale généralisée (CSG), contribution au remboursement de la dette sociale (CRDS), prélèvement social (PS), contribution additionnelle (CA), prélévement de solidarité (PdS) and the latest one, contribution additionnelle de solidarité pour l’autonomie (CASA).
HOW ARE THEY PAID?
Generally, social charges are paid in arrears, and they are calculated based on the income you declare in your tax return.
The French authorities calculate the amount due and send notification ( avis d’imposition) of the amount payable in the autumn following the submission of your tax return. So your tax return for 2015 income, for example, will be submitted in 2016 and you will receive your social charges bill sometime in the autumn.
However, different rules apply for certain types of income such as real estate capital gains, or in some cases assurance vie income where social charges are paid the month after the gains are realised.
WHO PAYS THEM?
Prior to 2012, only French residents had to pay social charges. Then in 2012 a very controversial decision was made: to start charging non-residents on capital gains made on the sale of a French property and the rental income generated from it. For the past couple of years, UK residents have had to pay social charges of 15.5%. This includes owners of holiday rental homes in France – who were already paying social security charges in the UK.
In terms of UK property, any rental income generated is liable for tax in the UK, whether you are resident there or not. However, you have an individual personal allowance of £11,000 (for the 2016/17 tax year). If you and your spouse have no other UK source income, and your rental income is below your combined allowance, then you will have no tax to pay in the UK.
The UK/France double tax treaty was designed to avoid double taxation. You receive credit in France for the equivalent amount of French tax and social charges.
WHAT CHANGED IN 2015?
In February 2015 the European Court of Justice (ECJ) ruled that France could not apply social charges on people who were subject to social security in another EU/EEA member state. This meant that non-residents should not be liable on French property income, and residents who are affiliated to the social security of another EU member state (generally individuals holding EU form S1) were exempt on unearned and investment income. The French government confirmed this in October.
So if you were resident in France and affiliated to the social security of another EU member state, you could claim repayment of social charges on capital gains on property and shares, dividends, interest, assurance vie, letting income etc, for income received in the years 2012 to 2015.
WHAT HAS CHANGED NOW?
The French government has fought back and has changed the rules once again in the social security budget for 2016. In essence, Article 24 says that social charges will now be paid to a non-contributing fund ( fond vieillesse).
This is outside the scope of the ECJ’s ruling and so for income received from this year onwards, social charges are again due on unearned and investment income (or on French real estate income for non-residents) – even if you have form S1.
There are rumours that there will be appeals, in which case could the law have to change yet again?
CAN I STILL CLAIM FOR PREVIOUS YEARS?
Yes. If you unduly paid social charges on unearned income in 2013, 2014 and 2015, you are entitled to a make a claim to recover the tax. The deadlines for the different incomes can vary, and it also depends on whether you are
resident or non-resident, so seek advice from a tax expert. You need to write to your local tax office, or ask your accountant to do so on your behalf, detailing exactly which payments you are reclaiming. You can also go online to the tax website impots.gouv.fr and look at the ‘ Particulier’ section.
Your claim must be accompanied by evidence of your affiliation to another country’s health system (such as your S1 form) and details of the social charges paid.
WHAT SOCIAL CHARGES DO I HAVE TO PAY FROM 2016?
These are listed in the table ( right). You can deduct a proportion of the social charges payable on income taxed at the scale rates against earned or pension income.
ARE THERE ANY GREY AREAS?
If you are a French resident, any UK pension income you receive is generally taxable in France and not the UK, with the exception of government service pensions. In this instance, only UK tax is payable regardless of the country of residence.
However, your government service pension is taken into account when determining the rate of tax payable on your other income, so you still need to declare it in France. Local tax offices also tend to include government service pension income when calculating your social charges. And although, according to the double tax treaty, social charges should strictly not be payable, some people are charged, others are not, some request and receive refunds, others are turned down.
In any case though, if you are not affiliated to the French healthcare system (which may be the case if you hold form S1) you are not liable for social charges on any of your UK pension income, including government pensions.
With social charges on top of income taxes, your tax bill in France can be high. However, there are compliant arrangements in France that can lower your tax liabilities on your savings and investments. You should always seek professional advice on tax in France, both to make sure you are aware of all the latest tax rules and that you hold your savings and assets in the most tax-efficient way.
Rob Kay is senior partner at Blevins Franks blevinsfranks.com The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
Social charges are paid in arrears and are calculated based on the income you declare in your tax return