This month the Connexion asked us if we would like to do something related to tax declarations, that time being upon us. Usually, I decline the offer, since I am not in the business of tax administration; my expertise focused on counsel. A French accountant will offer you tax administration, however, they only offer service on calculating the bill and how to declare it, usually minus the absolutely vital financial / tax planning.
The reason, I have decided to make an exception this year (hoping that I avoid being inundated with tax form filling requests), is that declarations have become increasingly complicated and we are seeing some very costly french tax return mistakes and errors being made.
This is happening especially where investments are concerned, which is very much my area of expertise.
I spoke to someone the other day who confidently told me what they were doing regarding their declaration, each one being dangerously inaccurate, which left me thinking that many people could benefit from a steer away from the wrong direction. This then, is not a declaration guide, but more a list of what not to do.
Do not declare investment withdrawals as income
Although it may seem clear, it can be confusing. Some people have income from pensions in the form of “drawdown”, such as from a UK SIPP (Self Invested Personal pension). This is, however, just a pot of invested money, yet all of any withdrawal is deemed pension income and must be declared as such.
Even if you do not have a French tax friendly investment structure, if it is not regarded as a pension, it is only the gain / income that needs to be declared. If you have an assurance vie, thus something with extra tax advantages, then not even all the earnings need to be declared, as much of that income is deemed return of capital, thus not assessable to tax. Your provider will send you the information detailing the assessable figure that needs to be declared, usually around March / April.
Make sure that you do not pay social charges twice
With the advent of the fixed rates of tax under PFU (prélèvement forfaitaire unique), we have a set position, applied by default, which is 12.8% tax and 17.2% social charges, thus a total of 30%. We have seen people enter their investment income on their declaration, however, not mentioning that the social charges have already been paid at source, so they get applied a second time via the declaration.
If making both of the above mistakes in tandem, the tax bill is already going be astronomically higher than it should be.
Obtaining reduced social charges if not under the care of the French social system
Since 2019, those under the care of another state or otherwise not under the care of the French healthcare system may be exempted from paying both the CSG and the CRDS. On investment income this is 9.2% and 0.5% respectfully.
This means that social charges are reduced to 7.5%, paying just the prélèvement de solidarité. This is still, what can only be called, “messy”! Some financial institutions seem to be able to accept evidence of not being in the system and applying 7.5%, whilst others take the 17.2% as PFO (prélèvement forfaitaire obligatoire), suggesting that you reclaim it back from the tax office. Where the taxable value is low, a claim may not be worth the trouble, however, it is good to know the amount you are losing out on if doing so.
I mention this as one of my clients was very anxious about their claim, taking much time and effort, for me to tell them that of their €10,000 withdrawal only €800 was assessable and the extra 9.7% is just €77.60 (they visibly relaxed). Clearly for substantial withdrawals, especially if not in a French tax friendly structure, the claim is important.
Not declaring foreign accounts
I think that people who have been in France for a while know this one, however, even fairly new arrivals are still finding out the hard (expensive) way. It is the law that all accounts (of any nature) and life assurance investments abroad are declared each year. Failure to do so will result in a financial penalty of €1,500 per account / policy per year not declared to the French tax authorities or €10,000 if the account is situated in a country with which France has no information sharing agreement. A few years ago we did have someone contact us who had sixteen undeclared accounts in the UK and neglected to declare them … ouch!!
I think that the best solution is to keep as few accounts abroad as possible. This keeps administration down (someone with sixteen accounts must complete the 3916 form sixteen times) and reduces the risk of substantial financial penalties.
Final thoughts about these common french tax return mistakes
In conclusion, these are the main issues that we come across, however, we see many more. If you are new to France, it is very much worth having a French accountant complete your first declaration. If you have been here a while and have been doing them on your own, it is still worth checking in with a professional to ensure that your are not overpaying. In general you can go back and claim the last three years, meaning claims can be significant, so, potentially, more than the accountant’s bill.
This article was first published in the Connexion in Spring 2022
