In the first of an occasional series, our resident financial correspondent Patrick Reynolds reviews the changes to tax for Brits who own property in France. We will update these guides periodically, if we are notified of changes.
- Do you own a house in France?
- Do you rent it out?
- Your personal bill is on its way!
Under EU regulations, a member state is not allowed to tax citizens of other member states more heavily than it taxes its own citizens. There must be a level playing field in the taxation of all EU citizens.
In addition, an EU member state is not permitted to levy social charges on a non-resident EU citizen who contributes to the social security scheme in their home country.
Third country changes
Now that you are no longer an EU citizen, you are not able to benefit from the protection that the European Court of Justice gave you against tax discrimination. The tax authorities in France can and will be removing the tax protection that you have had.
And your French tax bills will go up
An individual who is resident in the UK and who owns property, perhaps a holiday home, in France is – and always has been – liable to pay tax on any profits from letting that property. And under the UK-France Double Tax Agreement you can (within certain limits) deduct the French tax that you pay from your UK tax bill.
So what French taxes will be payable on your letting income?
In France (for 2020) the income of non-residents from property is taxed:
- on the first €25,710 at 20%
- above that figure at 30%
Although these rates may be reduced if a full declaration of all worldwide income and gains is made to the French Tax Authority. This has not changed.
And then there are the social charges:
- CSG 9.2% (contribution sociale généralisée)
- CRDS 0.5% (contribution au remboursement de la dette sociale)
- PSOL 7.5% (prélèvement social)
and unlike in the UK where NI is not charged on rental income, in France these charges are levied.
The CSG and CRDS do not apply to those not resident in France if they are subject to the social security regime of another EU country, or Iceland, Liechtenstein, Norway, or Switzerland.
Until 31 December 2020, that list would have included the UK and so the French authorities were not allowed to charge CSG and CRDS to UK residents, basically because they were already liable to National Insurance in the UK.
That is no longer the case and these charges now apply to UK residents – so that is another 9.7%.
The PSOL has previously been chargeable to UK Residents and this will continue.
This all adds up to a charge of 37.2% – or 47.2% if the income is more than €25,710 a year.
But there is some good news, in that the total of all of those tax and social charges is available for off-set against the UK tax payable on the income from the French property.
Why “available”? Because there are limitations. You can only offset the foreign tax against the UK tax on the same income; and of course you cannot offset more that than the amount of UK tax that you are liable to pay, again on that same income.
So an individual who pays UK tax at the basic rate of 20% will only be able to off-set the French tax up to a maximum of 20% of the income – and although this should reduce the UK tax on the property income to nil the French taxes of 37.2% will have been paid.
Similarly, a UK higher rate (40%) or additional rate (45%) taxpayer should have no UK tax to pay on this income but will have suffered French taxes at 47.2%.
And, be warned, the social charges apply not only to the income earned from letting your property but will also to any gain that you may make when the property is sold. But Capital Gains Tax is another whole area.
You will probably know that in France letting your property is considered a commercial activity and that you need to be registered and have a SIRET (Système d’identification du répertoire des établissements) reference, and that there are other registration requirements that may apply.
Perhaps you are holding your hands up in horror at all of this. Let us hope this is only because you are not happy it is going to cost you a bit more and not because you have let your property in France for many years and have no idea what any of this is about.
If that is the case go and find an accountant and get some proper professional help – and do it now.
But even if you have paid all your taxes in both the UK and France you should find out exactly how this will affect you in your particular circumstances.