If you are a retired UK expat living in France, you will be used to not paying French social charges (CSG / CRDS) on your UK pensions, which is excellent news. This is courtesy of EU law, stating that these charges may not be taken on pensions where the beneficiary is under the cover of another country for its healthcare.
Social charges are also not applied to UK rental property, thanks to the UK / France tax treaty. The oddity is that there has been no such law covering the application of social charges for other income, such as from savings and investments, thus expat retirees are paying 15.5% of this income. This is now being put right.
On 26th February this year the European Court of Justice made a ruling, detailed in a communiqué de presse 22/15 623/13. This is being applied in law by a modification of European law 1408/71, dated 14th June 1971.
It essentially implies that where an individual is covered under the social security of another state, France may not collect the social charge on “revenus du patrimoine”, or savings and investment income.
All those who are of state retirement age and are in the French health system, through their S1, are under the cover of the UK system as the French authorities merely pass these costs on to the UK government who reimburse them. It is clear, therefore, that the payment of social charges offer no benefit, thus why should the French government charge for it when providing it costs them nothing?
Of course, life is never quite as simple as this. This was a preliminary decision and the French government responded via the “conseil d’Etat” that it would wait for a definitive decision and more precise rules before acting.
It seemed as though we were going to be in for a long wait, because this rule change will create several complications for the French state both fiscally and administration wise. Social charges from previous years may impact the level of income tax applied, creating headaches if people wish to claim for the last three years’ payments, which logically would be their right. Clearly it would also serve to widen the hole in the French budget, which is certainly not attractive for the French government, who have little interest in ensuring rapid compliance.
Interestingly, the “conseil d’Etat” has made an announcement (N° 334551 27th July 2015) that it is agreeing with the EU ruling.
We are not recommending that everyone immediately rush out and start demanding a refund on the last three years of payments.
The system in France is one of local tax offices, each making their own decisions in the absence of any guidance from central government. There is currently no guidance as to how this will work yet (only a review of jurisprudence), which will be published, most likely in the form of a BOI, or official tax bulletin and it is difficult to know how long this will take.
This means that the tax offices are unlikely to be up to date yet and may reject any claim. We have until 31st December to make a claim going back to 2012 and so there is no huge rush. If making a claim, it would be best to wait until nearer the end of the year. You could go to your tax office and discuss it, but if there is nothing in writing there is no record, so generally a letter by registered post, with proof of reception, is generally the best way.
HOWEVER, we would suggest caution when making any claims.
Anyone who requests a refund of historical social charge payments must expect a full tax investigation to be triggered. It is fairly common, for example, that early retirees have not been paying social charges on their pensions, for what could have been years, which could all be undone by requesting a refund on overpayments. Naturally, if you are confident that your tax affairs are in order, then you can make a claim without concern.
It is impossible to give a general view and each case must be decided on its merits.
Not requesting a refund for historical social charges does not mean, of course, that you must pay social charges going forward, as we would “hope” the mechanism to be clear and agreed for avoiding payment by next year.
I don’t expect the system to simply work, as we still have issues with tax offices applying social charges to UK rental property and even pensions, where the individual is of state retirement age, but problems should occur less often as the changes become more widely understood and acknowledged.
This is all good news and do enjoy it while it lasts. The French government has suffered many defeats over social charges, of late by the EU and is unlikely to take it lying down.
There have been many discussions over recent years about ending the social charge and integrating it into the income tax bands, thus ensuring that everyone pays. I expect that this idea will resurface soon and be seized with vigour, so watch this space.
This article was originally written by Kentingtons for the Connexion and has been reproduced here with their kind permission.