French officials have made a new and favourable interpretation of the law on social charges and opted to maintain a low rate for people with British links.
The news comes a year after The Connexion asked them to review the rules and follows an initial announcement last year of an increased rate for residents of the UK, the same as that imposed on other residents abroad outside the EU.
It means that residents of the UK with French second homes will retain reduced French social charges on any rental income from the homes or capital gains from selling them.
UK S1 health form holders, such as British pensioners, living in France will benefit regarding capital gains on sales of property other than their main home, and rental income, as well as investment income.
Those concerned will continue to pay only the prélèvement de solidarité at 7.5% instead of the usual full social charges rate of 17.2% which includes the charges CSG and CRDS and is payable by most people in France (other than, for example, those with S1s from EU states) and by non-residents living in non-EU/EEA/Swiss states.
It had been feared that UK residents and S1 holders would all lose the benefit of this.
What income is covered by this new ruling?
The ruling relates to the following income
1: Capital gains on sale of any French property owned by UK residents
2: Rental income from property in France owned by people living in the UK
3: Dividends, interest, and capital gains on stocks and shares for British residents of France who hold an S1, as well as their capital gains from selling property other than their main home, or income from renting it out.
Here is an example of the difference this will make:
Property bought in 2012 for €250,000 and sold in 2022 for €350,000. The chargeable gain after an abatement for 10-years’ ownership is €91,750.
Charges at 17.2% = €15,781
Charges at 7.5% = €6,881
Saving on social charges: €8,900 (note this does not include actual capital gains tax)
The clarification comes one year after The Connexion asked the DGFiP national tax authorities to look into the issue of whether UK S1 holders in France (whose healthcare is paid for by the UK) may continue to benefit from the charges reduction, which up until now has been listed on French tax forms as being only for those attached to an EU/EEA/Swiss health regime and not a burden on the French social security regime.
The reduction originally derives from the European Court of Justice De Ruyter case (confirmed by French court rulings), which centred on the idea that ‘social security’ charges should not be payable in more than one EU state. As a result, courts have said French charges such as CSG and CRDS, which help fund French social security, should not be due by those attached to another state's social security system and not benefiting from France's.
The French had last year put out an initial Brexit tax update which stated that residents of the UK (such as those renting out French properties) could no longer benefit from reduced social charges as the UK was no longer subject to EU law on coordination of social security systems.
Arguments from lawyers over Brexit
We asked for clarification with regard to UK S1 holders and drew officials’ attention to arguments of certain lawyers who had suggested that the reduction should notably continue to apply to S1 Britons covered by the Brexit Withdrawal Agreement (WA).
The lawyers had argued that the WA, which protects Britons who were living in France before 2021, contains clauses maintaining similar social security coordination rules to those existing in the EU.
We were told in May 2021 that “your question is in the hands of the legal services of the DGFiP [section of the Finance Ministry in charge of tax] but it also comes under the responsibility of the Social Security Directorate, so it is taking some time, in view of two ministries being involved”.
Now the French have come to a favourable re-interpretation of the rules.
Taking account of both Brexit agreements, including the second, Trade and Cooperation agreement – which continues the S1 health forms system and key social security coordination rules for newcomer Britons to France – they have concluded that the pre-Brexit status quo may continue. This means that those benefiting may still include:
- Residents of the UK with French property
- Withdrawal agreement S1 holders, and
- Newcomers with British S1s.
The full conditions given are:
- Being attached to the UK social security system
- Being a citizen or legal resident of France, the UK or the EU
- Not being a burden on the French social security system.
Furthermore, the officials state that if you have already, wrongly, paid too much in social charges on your income (ie. in last year’s tax or on property capital gains) you may apply for a refund to your tax office within the usual periods.
The deadline is the end of the second year after the one in which the tax was paid.