It’s May again, which means the deadline for submitting our annual tax return is fast approaching.
Avoid sticking to the last minute – if you are earning income from various sources and/or from abroad, it can sometimes get a bit complicated.
This is therefore an opportunity to look at the taxation of income in France.
While the UK and France impose income tax, they do not operate in the same way.
Carefully follow local rules and the France/UK double tax treaty, both when submitting your tax returns and for your tax planning arrangements in general.
There are three forms of income tax:
- Scale income tax (on earnings, pension income, rental income)
- Social charges
- A fixed rate on investment income and gains
Income tax rate
The tax brackets and scales of net income collected in 2021 are as follows:
Up to €10,225 – none;
€10,226 to €26,070 – 11%;
€26,071 to €74,545 – 30%;
€74,546 to €160,336 – 41%;
Over €160,336 – 45%.
Incomes above €250,000 and €500,000 may be subject to a 3% or 4% supplement, depending on whether you are a single taxpayer or a family.
Tax allowances and credits
People aged over 65, or holders of a disability card, or holders of a military pension or an accident at work (minimum 40%) are entitled to an allowance of €2,484 for income up to €15,560, and €1,242 for income between €15,561 and €25,040.
While retirement and disability pensions, alimony and alimony are taxed like wages, the taxable base benefits from a 10% allowance, with a minimum of €400 and a maximum of €3,912 per home for 2021 income.
Various tax credits are available which are deductible from actual tax payable (not income).
The rules can be complicated, so ask your accountant to determine what credits are available for your situation.
The French pay-as-you-go system only started in 2019 and was a complex tax reform.
Income subject to PAYE includes employment income; taxable state benefits; pensions and life annuities; non-French income taxable in France; rental income; and business profits.
Income excluded from the PAYE system includes investment income; capital gains from disposal of property and capital investments; and non-French income subject to French tax credit under a double tax treaty.
Household/parts system in France
That’s a big difference with the UK.
In France, income tax is levied on all household income (including minors), and not on individuals or spouses.
This can be very beneficial for some families with a member earning a high income (within certain limits).
To avoid higher tax rates, the family is divided into several family rooms.
The total income is then divided by the number of shares and the income tax rates applied to this lower figure.
The calculated income tax due is then multiplied by the parts to provide a larger number.
The number of shares depends on the family situation and dependent children.
For example, a married couple’s income would be divided into two parts, with an additional half part for each of the first two children and a full part for the third and subsequent children.
This is another big change from the UK.
Social charges are levied on all forms of income and are in addition to income tax or social contributions paid by the self-employed for their health care, retirement, etc.
They are composed of six elements, which amount to the following charges:
Income from work (salaries, unemployment benefits) – 9.7%;
Pensions (retirement or invalidity) – up to 9.1% (only on foreign pensions if you are subject to the French health system. British pensioners with the S1 form for their health care therefore escape this charge);
Unearned/investment income (interest, capital gains, annuities, rental income, etc.) – 17.2% (this is reduced to 7.5% if you are covered by another country’s healthcare system from the EU/EEA or the UK, eg UK pensioners with an S1).
Your payroll taxes are usually calculated based on the income reported on your tax return.
The French authorities will notify you of the amount due in the fall, as well as your request for income tax liability.
Investment income tax
Investment income is currently taxed at a flat rate of 30% rather than the income tax schedule rates.
This includes both tax and social charges, which is advantageous for higher investment income.
Low-income households can opt for the progressive scale of income tax (plus social charges).
Unless you are a low-income household, you must declare interest or dividends received from abroad within 15 days of the end of the month and pay the 30% tax.
French tax residents are subject to local tax on worldwide income and gains, so you must declare all income outside of France.
However, you do not pay double tax on income taxed in the UK.
Under the terms of the Double Taxation Treaty, pension and rental income from UK utilities are only taxable in the UK.
However, you must still declare this income on your French income tax return (you will benefit from a credit equal to the French income tax and social charges on income).
France may be only a step away from the UK, but its tax system may seem a world apart.
You need to understand how it works and follow the rules correctly, so take professional advice.
Tax rates, coverage and reliefs may change. All statements regarding taxation are based on our, Blevins Franks, understanding of current tax laws and practices which are subject to change. Tax information has been summarized; an individual is advised to seek personalized advice.
Checklist: Income tax in France 2022 (for 2021 income)
Do I have to file a French tax return if I only receive a British police pension?
How to find and download the French income tax declaration form?