5. Calculating Your French Income Tax Liability

1. 5.1. Composition of Your Household
   5.2. French Income Tax Rates
   5.3. French Tax Allowances
   5.4. French Tax Credits

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5.3. French Income Tax Allowances

There are a number of tax breaks you may be able to use to reduce your liability to French income tax.

It may take the form of either tax relief (réduction d’impôt), or a tax credit (crédit d’impôt).

Accordingly, if are eligible to receive a greater sum than you actually pay in tax, then the taxman will send you a cheque for the balance.

A tax credit will, therefore, be important to you, even though you may pay little or no income tax in France.

The main tax allowances available are shown below. We consider tax credits in the next page.

1. 5.3.1. Salaries and Pensions
2. 5.3.2. Mortgage Tax Relief
3. 5.3.3. Child's Education
4. 5.3.4. Domestic Help
5. 5.3.5. Nursing/Residential Care
6. 5.3.6. Ailimony Payments
7. 5.3.7. Charitable Donations
8. 5.3.8. Investments in France
9. 5.3.9. Students and Apprentices

5.3.1. Salaries and Pensions

There is a general abatement of 10% for professional costs in relation to salaries up to a ceiling salary figure of €14,157 (2010 income). This abatement is calculated after the deduction of social security contributions.

Salaried employees can, alternatively, and within agreed limits, elect to deduct actual professional costs, including costs of travel to work, meals, tools and clothing. Social security contributions are also deductible.

If your pension is taxed in France (and all pensions are liable other than government service pensions), then there is a general 10% abatement, with a minimum of €374 and a ceiling of €3,660 (2010 income). The allowance is per taxpayer, although the maximum is per fiscal household. The allowance is increased each year in line with inflation.

In addition to the 10% allowance, for those aged over 65 years on 1st January of the tax year, a fixed sum is deducted from your total net income before you become liable to income tax.

These same deductions apply to someone who suffers from a high level of disability, irrespective of age, although the age and invalidity allowances are not cumulative.

With total net income per household of less than €14,220 the deduction is €2311; between €14,220 and less than €22,930 the deduction is €1156. With a net income €22,930+ no deduction is available (all 2010 income).

These allowances are doubled for a couple each aged over 65 years.

5.3.2. Mortgage Tax Relief

Mortgage tax relief is granted on the purchase or construction of a main home, over the first 5 years of the loan.

The relief is granted at the rate of 40% of interest incurred in the first year, followed by 20% of interest paid for the remaining four years.

The amount of relief is capped at €1500 per person in the first year, and €750 for the remaining four years, (amounts that are doubled where at least one of the mortgagees in the household is registered disabled).

Accordingly, a couple with no children are entitled to maximum tax relief of €3000 in year 1, with a cap of €7500 tax relief over five years.

If you do not pay income tax, then a tax credit is payable, in an equivalent sum to that you would otherwise have received in tax relief.

5.3.3. Child’s Education

A reduction in income tax towards the costs of a child’s education, called les frais de scolarité.

The reduction is €61 for a child at collège, €153 for a child at lycée and €183 for child at university.

5.3.4 Domestic Help

A tax allowance of 50% against the costs of assistance with domestic duties at your home, called l’emploi d’un salarie a domicile.

In the case of a single person living alone, or a couple both in employment/business, a tax credit of equal value is available if you are unable to take full benefit of the tax allowance. A tax credit is also available for those who have been registered unemployed for at least three months during the year.

Despite the name given to this tax concession, you are entitled to either employ someone direct, or use an accredited home services organisation.

The duties can include cleaning, gardening, driving, child care, health care, cooking etc.

An ‘au pair’ is not eligible and there are other exclusions and limitations. Thus, if you use an external organisation, there are ceiling limits on any particular type of work. Gardening costs are only eligible up to a maximum of €3000, whilst DIY work is only eligible up to €500.

There is also a basic cost ceiling of €12,000, giving a maximum allowance of €6000.

This cost ceiling is increased up to €15,000 where you are over 65 years old, or you have a dependant child, and to €20,000 in the case of those who have a serious incapacity.

The allowance is only available if you are tax resident in France.

5.3.5. Long Term Nursing/Residential Care

The costs of those receiving long term nursing or residential care are eligible for a tax allowance of 25% against maximum eligible costs of €10,000 ie €2500.

5.3.6. Alimony Payments

Payments to a former spouse, in cash or kind, within the first twelve months of the divorce settlement open access to an allowance of 25%, against a maximum eligible payment of €30,500. Accordingly, the maximum tax allowance is €7625.

5.3.7. Charitable Donations

An allowance of 75% up to a maximum tax reduction of €479.

Larger donations can be rolled over into later years.

5.3.8. Investments in France

There are a variety of tax concessions for those prepared to invest in innovative companies, woodland, tourism properties, special property letting schemes and in the dependant colonies. You will need to discuss with your financial advisors.

5.3.9. Students and Apprentices

A wage received by a pupil, or student under 26 years of age, is exempt from income tax, up to €4031 (2010 income). An apprentice is also exempt from income tax up to €16,125 per year (2010 income).

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