French officials have made a new and favorable interpretation of the Social Tax Act and have chosen to maintain a low rate for people with British connections.
The news comes a year later The connection asked them to review the rules and follow 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.
This means that residents of the United Kingdom with French holiday homes will retain reduced French social security contributions on any rental income from the homes or capital gains by selling them.
UK S1 health form holders, such as UK pensioners residing in France, will benefit from capital gains on the sale of property other than their main residence and rental income as well as investment income.
Those concerned will continue to pay only demonstration of solidarity to 7.5% instead of the usual full social security rate of 17.2%, which includes the CSG and CRDS fees and is paid by most people in France (except for those with S1s from EU states) and by non-residents residing in non-EU / EEA / Swiss states.
It had been feared that residents of the UK and S1 holders would all lose the benefit of this.
What income is covered by this new judgment?
The ruling concerns the following income
1: Capital gains on the sale of any French property owned by residents of the United Kingdom
2: Rental income from property in France owned by persons resident in the United Kingdom
3: Dividends, interest and capital gains on shares and shares of British residents of France who have an S1, as well as their capital gains by selling property other than their main residence or income by 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 taxable gain after a reduction for 10 years of ownership is € 91,750.
Taxes of 17.2% = € 15,781
Taxes of 7.5% = € 6,881
Savings on social security contributions: € 8,900 (note that this does not include actual capital gains tax)
The clarification comes a year later The connection asked the national tax authorities of the DGFiP to examine the question of whether British S1 holders in France (whose healthcare is paid for by the United Kingdom) can continue to benefit from the tax reduction, which until now has been recorded on French tax forms as being for them only, linked to an EU / EEA / Swiss healthcare system and not a burden on the French social security system.
The reduction comes from the European Court of Justice’s De Ruyter case, which focused on the idea that “social security contributions” should not be paid in more than one EU state.
The French had issued an initial Brexit tax update last year, which said residents of the UK (such as those renting French property) could no longer benefit from reduced social security contributions as the UK was no longer subject to EU co-ordination legislation of social security systems.
Arguments from lawyers over Brexit
We asked for clarification regarding UK S1 holders and drew officials’ attention to arguments from certain lawyers who had suggested that the reduction should continue to apply in particular to S1 Britons covered by the Brexit Withdrawal Agreement (WA).
The lawyers had argued that the WA, which protects Britons living in France before 2021, contains clauses that maintain the same rules of social security as those found in the EU.
We were told in May 2021 that “your question is in the hands of the legal services of DGFiP [section of the Finance Ministry in charge of tax] but it also belongs to the Directorate of Social Affairs, so it takes some time, given that two ministries are involved ”.
Now the French have come to one favorable reinterpretation of the rules.
Taking into account both Brexit agreements, including the second trade and cooperation agreement – which continues the S1 health form system and important social security coordination rules for newly arrived Britons to France – they have concluded that the status quo before Brexit can continue. This means that those who benefit can still include:
- Residents of the United Kingdom with French property
- Withdrawal agreement S1 holders, and
- Newcomers with British S1s.
The full conditions are:
- To be linked to the British social security system
- To be a citizen or legally resident of France, the United Kingdom or the European Union
- Not to be a burden on the French social security system.
Furthermore, the officials state that if you have already mistakenly paid too much in social security contributions on your income (ie in last year’s tax or on property profits), you may. apply for a refund to your tax office within the usual periods.
The deadline is the end of the second year after that in which the tax is paid.