5. Calculating Your French Income Tax Liability
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).
A réduction d’impôt offers an allowance against the amount of income tax payable, whilst a crédit d’impôt is a payment to you by the tax authority.
Accordingly, if are eligible to receive a greater sum than you actually pay in tax, then the tax authority 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 or reductions available are shown below. We consider tax credits in the next page.
5.3.2. Salaries, Business Earnings and Pensions
There is a general abatement of 10% for professional costs in relation to salaries and business earnings (with the régime réel) up to a maximum of €12,652 (2020 income). This abatement is calculated after the deduction of social security contributions.The minimum abatement is €442 (2020 income).
Alternatively, and within agreed limits, it is possible to elect to deduct actual professional costs, including costs of travel to work, meals, tools and clothing. You will need to retain invoices and there are rules that govern the deductibility of these costs.
If your pension is taxed in France (and all pensions are liable other than government service pensions), there is a general 10% abatement, with a minimum of €394 and a ceiling of €3,858 (2020 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 level of disability of at least 40%, irrespective of age, although the age and invalidity allowances are not cumulative.
With total net income per household of less than €15,340 the deduction is €2,446; between €15,340 and less than €24,690 the deduction is €1,224. With a net income €24,690+ no deduction is available. These allowances are doubled for a couple each aged over 65 years. (2020 income)
5.3.3. Mortgage Tax Relief
Mortgage tax relief has been abolished from 2011, although existing recipients will continue to obtain the relief. These notes only apply to such recipients.
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.
5.3.4. 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 (2019 income)
5.3.5. Adult Children/Dependants
The system also allows parents to provide direct financial or equivalent support to their adult children or other dependant, which they can they charge against their income tax.
This support is called a pension alimentaire, which may be provided either in cash or kind.
Now, in the case of children who live with you under 21, or aged less than 25 years but in education, you can either:
- Either opt to attach them to your fiscal household or;
- Charge the support you provide to them against your liability to income tax.
Under no circumstances can you obtain both fiscal attachment and the pension alimentaire.
In such cases, the support you provide to them is tax deductible, subject to particular conditions.
This tax deduction is available whether or not the child(ren) lives with you, and irrespective of their age, activity, marital status or place of residence, including outside of France.
The amount of the maximum deduction varies according to the circumstances of your child. The figures are for 2020 income, taxed in 2021.
- For a child who is single the deduction cannot exceed €5,959 per year per child per year.
- Where your have a child, and are single, divorced or widowed, then the maximum deduction increases to €11,918.
- Where you are married or in a civil partnership the maximum deduction is €11,918, although only provided they are not supported by both sets of parents.
Where the child does not live with you, you may be required to demonstrate to the tax office the payments or other forms of support you have given with them.
Where they live with you then the need for supporting documentation only applies where the level of the support exceeds €3,542, a threshold that is assumed to cover the normal costs of board and lodging.
It does not matter that the child may not live in France; provided you can demonstrate you are supporting them it is deductible.
In addition, the support is deductible on the French sourced income of non-residents, on condition that the support is to someone who is resident in France.
However, it is only deductible on the understanding that such support is needed by your child, not merely a way of you obtaining tax relief!
The test is not automatically carried out, but if your circumstances are examined by the tax authority it can be safely said that if your child lives away from home and their income does not exceed the French minimum wage (€1,521 gross per month - 2020) it will be accepted.
Even if it does exceed this sum, if they have a family to support it is likely it will be accepted, within reasonable limits.
You also need to be aware that the pension alimentaire you declare will also need to be declared by your child if they are resident in France, which could well mean that they themselves become liable for income tax, or the level of their income tax payable increases.
You need to do the sums to see if if works for both of you. In the vast majority of cases it should be beneficial, as the pension alimentaire only qualifies as such for children who are incapable of properly providing for themselves. You are not entitled to provide support where the child does not need it, merely as a tax dodge.
The same rules apply to support granted to ascendants where, for instance, you may be supporting a parent in a retirement home. However, where a parent over 75 years is living with you and you seek a tax reduction, it is conditional on their maximum income being no greater than €10,838 (2020).
5.3.6. 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. You can read more on the issue in our Newsletter article The Costs of Residential Care in France.
5.3.7. 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 €7,625.
5.3.8. Charitable Donations
An allowance of 75% up to a maximum tax reduction of €479.
Larger donations can be rolled over into later years.
Since Brexit, donations to UK registered charities are no longer tax deductible.
5.3.9. Investments in France
There are a variety of tax concessions for those prepared to invest in innovative companies, woodland, tourism properties, certain property investment schemes and in the colonies. You will need to discuss with your financial advisors.
5.3.10. Students and Apprentices
A wage received by a pupil or student under 26 years of age is exempt from income tax up €4,618 (2019 income).
An apprentice with a contrat d’apprentissage is also exempt from income tax up to €18,255 (2019 income).
If they earn more than this amount they only need declare the excess sum.
The limit for an apprentice is determined on a pro-rata basis to the duration of employment in the year.
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