We have received a large number of mails over the past few weeks from those of you who state that you have been incorrectly taxed this year.
In most cases it is the usual culprit - social charges have been applied on income that should be exempt, either on certain pensions or rental income.
The legal position on pension income is a complicated one, but broadly speaking, although all pension income is ordinarily liable to social charges at the rate of 7.1% (6.6% CSG, 0.5% CRDS), certain groups of persons are exempt.
The main exemptions are:
- Those who hold an S1 health certificate;
- Government service pensions;
- Those with a private health insurance policy;
There is also exemption or reduced rate for those on a low income.
In relation to the low income exemption, it applies if your net taxable income is below the level that would make you liable for the taxe d'habitation.
The reduced rate is 4.3% if you pay less than €61 in income tax.
Those holding an S1 certificate or private health policy need to bring it to the specific attention of the tax office or you will find that your exemption will not be taken into account. Some tax offices may demand a copy of the certificate/policy.
From what we have been able to establish from your mails, some incorrect assessments have occurred because the income tax return does not appear to have not been correctly completed, with readers having made use of templates for the completion of their income tax return that are out-of-date. The tax authorities have a habit of changing the forms each year, and not releasing the new forms until a month or so before the return is due to be completed.
Government service pensions should always be declared as 'Pensions étrangers imposables en France, ouvrant droit à un crédit d’impôt égal au montant de l’impôt français'.
This tax credit is independent of the amount of tax you pay in your home country, with the tax guidance stating emphatically: 'le montant de ce crédit d’impôt est indépendant du montant de l’impôt acquitté à l’étranger.'
Some tax offices also appear to have used the ‘taux effectif’ method for granting relief from income tax and social charges, rather than the use of a crédit d'impôt. This has been an incorrect interpretation of the UK-France tax treaty or incorrect completion of the tax return.
Some of you are also reporting high social charges on rental income. Here the rules are different.
Social charges are always payable on French rental income (for both residents and non-residents) and at the higher rate of 15.5%, with no exempted groups or reduced rates. The charge is on the net income, after deductible costs and allowances, or the fixed cost allowance that is available.
In some cases the correct fixed cost allowance and tax rate has not been applied, perhaps not surprising as the rules have become far more complex, although these changes have only been operational for 2017 income.
Nevertheless, only domestic rents are liable for these charges, for rental income from the UK is taxable in the UK, with elimination of double taxation in France applied through a tax credit (crédit d’impôt).
Once again, however, it is clear that the computation of this credit has not always been carried out correctly by the tax offices, as a number of you have reported to us that the social charges have been applied on your UK rental income. This is not correct; a 100% tax credit for social charges applies on all UK rental income. Once again, it should be declared as 'Revenus étrangers imposables en France, ouvrant droit à un crédit d’impôt égal au montant de l’impôt français'.
Challenging the Assessment
In the first instance, if you wish to challenge the assessment the best approach might be to simply make a visit to the local tax office to discuss the issue. A meeting with one of the tax officials might be all that is needed.
If they refuse to budge, you need to follow this up with a formal letter, contesting the assessment.
If the tax office continues to refuse your claim then you should appeal to the local tax ombudsman for your department, called the Conciliateur Fiscal. The tax office letter of refusal of your claim should provide their contact details.
A more complete explanation of the process can be found at Challenging Your French Income Tax Demand