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Why some Brits in France are facing bigger tax bills since Brexit

Over the summer people living in France have received their tax bills, and some Brits who are residents here will have noticed that their bill is larger than usual - here's why.

Why some Brits in France are facing bigger tax bills since Brexit

Brits who live in France and make a tax declaration here, but have income from the UK, may have noticed that their tax bill has increased this year – here’s why and whether you can challenge the increase. 

Brexit

Yes, this is Brexit related and it refers to social charges on non-French income. The standard rate for these charges are 7.5 percent for income from an EU country and 17.2 percent for income from a non-EU country.

The tax bills received over the summer relate to the annual French tax declaration filed in April 2022, covering the 2021 tax year. In other words, the first year after the end of the Brexit transition period.

Social charges

Social charges are levies with a social purpose introduced in France in the 1990s to finance the country’s complex social security system.

If you have a French payslip you will already be familiar with them, and they actually make up the bulk of deductions from salaries, significantly more than income tax.

READ ALSO How to understand your French payslip

One of the big questions is whether France’s social charges are actually a ‘tax’ – the government repeatedly insists they’re not, for all that they look like a tax and are paid like a tax. 

The position on French social charges has changed several times in recent years, sometimes in response to court action all centred on whether this money that government deducts from your income can be called a ‘tax’ or not.

Katey Murray, at The Spectrum IFA Group, explained: “Article 29 of the amended Finance law of 2012 extended social charges to rental income from French properties and capital gains on properties for people who are not French tax resident.

“In 2015, a Dutch national challenged the fact that he was paying social charges in France and social security contributions in the Netherlands. The case went before the ECJ, which ruled these levies were similar to social security contributions and therefore contrary to European law.”

France’s highest administrative court, the Conseil d’Etat, confirmed the ECJ’s ruling. “French tax offices then, if a claim was made to them, reimbursed undue social charges,” Murray said.

“However, the French Government stated that these claims could only be made by someone covered for their healthcare by the system of another European country (EU, EEA or Switzerland) and not someone covered by a non-European health system. 

“This was confirmed by the ECJ for a French national living in China in a case in January 2018.”

Foreigners in France

And it’s this ‘healthcare system’ distinction that has become the key detail for Brits in France, clarified by a court ruling from March 2022 on the details of the Brexit Withdrawal Agreement. 

Social charges are currently set at 7.5 percent for income from an EU country, or 17.2 percent for income from a non-EU country. So income from the UK jumped to the higher rate at the end of the Brexit transition period.

However the ECJ ruling on healthcare cover is the key bit – essentially if you are already contributing to another European country’s social security system, you benefit from the lower rate.

This mainly affects two groups – Brits living in the UK (and therefore covered by the NHS) who have income in France, and Brits who are living in France and who have an S1, which states that their healthcare costs are covered by the NHS.

S1 holders are mainly British pensioners living in France, but the scheme can also apply to other groups including students and posted workers. 

Brits who are living in France and are covered by the French health system pay the higher rate on income from the UK. 

Technically the 7.5 percent rate is a ‘social levy’ rather than the prélèvements sociaux.

The ‘social levy’ is not charged on pensions, so if you are an S1 holder who receives a British pension, you will not have to pay any social charges at all, while certain types of property income may also be exempt from social charges.

Tax

As we stated above, social charges are not a tax (although they are deducted from your income by the tax office).

Taxes on income from the UK is covered by the bilateral dual-taxation treaty between France and the UK, which states that you don’t have to pay tax in France on income that you have already paid tax on in the UK. 

So the first thing to check on your tax bill is whether deductions relate to impôt (tax) or prélèvements sociaux (social charges).

Challenge your tax bill

So what to do if you think you have been incorrectly charged on income from the UK?

If you are an S1 holder, it’s a case of telling the tax office that you benefit from the lower 7.5 percent social levy, rather than the 17.2 percent social charge.

Murray said: “You can state that you are not subject to social charges by ticking boxes 8SH/8SI on your tax form (2042 form) or, if you have been charged at the higher rate, you can claim them back on your personal page on the impots.gouv.fr website.”

If the over-charge relates to a different issue – for example you have been charged both tax and the social charge or charged on exempt income – your first step is talking to the tax office, either in person or over the phone.

READ ALSO How to challenge your French tax bill

This article is a general overview of the tax rules and is not intended as a substitute for financial advice, if your financial affairs are complicated you are always better off getting professional help from an accountant who specialises in international taxation.

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PROPERTY

What to expect from your 2023 French property tax bills

The annual demands for property taxes have begun arriving at households across France - and many people will notice quite a difference to last year's bill.

What to expect from your 2023 French property tax bills

Every year in September and October the French tax office sends out bills to households across France relating to property taxes – these are separate to income tax bills, which arrive over the summer.

The autumn bills are usually made up of three parts; taxe foncière, taxe d’habitation and the redevance audiovisuelle.

However, system changes to all three parts mean that for some people bills will be be much lower than last year, while others will have nothing at all to pay.

Here’s what changes;

Redevance audiovisuelle – this was the TV licence and was charged at €138 per household, with some exceptions for pensioners or people who had no TV.

This year, it has been scrapped for everyone (including second-home owners) so most people’s bills are €138 less than last year.

Taxe d’habitation – this is the householder’s tax, paid by the inhabitant of the property – whether you rent it or own it. This is gradually being phased out, a process that started in 2019. It has been done based on income, with those on lower incomes having the charge scrapped first until it is gradually scrapped for everyone – with the exception of very high earners and second home owners.

So depending on your income level, you may have already had the tax phased out, or it may be phased out for you this year, or you may be paying a reduced rate this year.

These two changes are part of a tax giveaway from president Emmanuel Macron, and at the bottom of your tax bill you will find a note explaining how the charges have changed this year, and what you would have paid without the reductions.

It will look something like this;

Taxe foncière – this is the property owners’ tax and is paid on any property that you own – if you own the home you live in you may need to pay both taxe d’habitation and taxe foncière and if you are a second-home owner you will also pay both.

In contrast to the other two taxes, however, this one has been going up in many areas.

In fact, it’s connected to the taxe d’habitation cut – local authorities used to benefit from taxe d’habitation, so the phasing out has left many of them short of money. In some areas, they have reacted by raising taxe foncière.

This tax is calculated based partly on the size and value of the property you own (which is why if you do any major renovations or add a swimming pool you need to tell the tax office) and partly on the tax level decided by your local authority. 

This means that the actual rate varies quite widely between different parts of France, but in some areas it has gone up by 20 percent.

You can find more about how the tax is calculated, and how to challenge your bill if you think it is excessive, HERE.

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