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French Taxation

Social Charges Increase in 2018

Tuesday 13 June 2017

Social charges on pension income, investment income and capital gains are set to increase, although not everyone is destined to pay more.

An increase in social charges by 1.7 percentage points was one of the central pillars of the election manifesto of the now President of France, Emmanuel Macron.

The main aim of the measure is to permit a reduction in social security contributions on employees, in the hope this will boost employment and economic activity.

Specifically, the President is proposing to change the basis on which unemployment benefits and health cover for employees are funded, by abolishing the social security contributions imposed on salaried income for these benefits and transferring funding to the social charges.

As part of this measure which he also is proposing that the right to unemployment benefits is extended to self-employed business owners.

Although salaried employees will benefit from an overall reduction in social taxes, it will impact negatively on pension income, investment and rental income and on capital gains.

President Macron makes no apology for this change, as he has stated that he wishes to improve the level of economic competitiveness of France by a gradual transfer of taxes away from economic activity towards 'unearned' income and capital.

Under the plan, it is proposed to increase the rate of the Contribution Sociale Généralisée (CSG) by 1.7 percentage points. The CSG is one of five social charges (prélèvements sociaux).

Specifically, the programme states:

'Nous le financerons par une augmentation de la CSG, de l’ordre de 1,7 points, qui ne touchera pas les retraités modestes (ceux exonérés de CSG ou soumis à la CSG à taux réduit, c’est-à-dire 40% environ des retraités) ni les indemnités chômage, mais concernera en revanche les revenus du capital. '

If the plan is implemented in this form, the implications for different sources of income is shown below, although this is only a provisional assessment until the proposals have been published and converted into law.

  • Pensions
  • The rate of CSG that applies on pension income is currently 6.60%, which will increase to 8.30%.

    However, those whose pension income is taxed at the reduced rate of 3.80% will face no increase, as will be the case for those who are entirely exempt from social charges on their pension income.

    You can read more about the thresholds that apply to obtain the lower rate or complete exemption in our article Social Charges Income Thresholds.

  • Rental Income
  • Landlords will see the total rate of social charges they pay increase from 15.5% to 17.20%, although it is not yet certain it will apply to rental income.

  • Savings and Investment Income
  • The same rate will apply to savings and investment income, such as dividends, increasing from 15.5% to 17.20%.

  • Capital Gains
  • Once again, the total rate of social charges will increase from 15.50% to 17.20%.

However, as grim as all this sounds, it is also planned to a fixed rate income tax on 'revenus du capital / revenus du patrimoine' of 12.80%, meaning such income would be face total tax rate of 30.0% (12.80% + 17.20%). Currently, savers and investors pay income tax at their marginal rate (up to 45%), so many can expect to be, at least, no worse off, and, potentially, gainers from the change. Those who pay no income tax on such income would remain exempt from income tax.

Just how broad will be the definition of revenus du capital / revenus du patrimoine remains to be seen, but it can be expected to include savings and investment income, including dividends.

Social charges are partially deductible against income tax, but it remains unclear whether the current rates of deduction will increase.

The planned implementation date for the measure is 1st January 2018, but whether on 2018 or 2017 income is also yet unclear.

Taxe d'Habitation

As a completely separate measure Macron is proposing to abolish taxe d'habitation for around 80% of households.

President Macron claims the tax is unfair, and based on obsolete rental values, although the same arguments could be employed against the taxe foncière, yet there is no proposal for reform of this tax.

Those who will be exempt are households with a net taxable income under €20,000 for each 'part' of the household.

Thus, a couple with a joint income of €40,000 pa would be exempt, as would a couple with two children earning no more than €60,000 pa.

Councils will be compensated for the loss in income by a direct grant from central government, but they are putting up stiff resistance to the change.

The implementation date for this measure is planned to be between 2018 and 2020, on a phased basis.

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