There is confusion over plans by the French government to impose social charges on the rents and capital gains of those with second homes in France.

Many of you will by no doubt have read or heard of plans by the French government to impose 'social charges' on the rents and capital gains of non-residents with homes in France.

The rate of the social charges will be 15.5%, in line with the level of such charges on other investment income and capital gains for those who are resident in France.

This proposal was included with a package of cost saving and revenue generating measures in a new Finance Bill.

The idea chimes very well with the main thrust of that these measures, which is to increase taxes on the rich.

However, during a press conference with David Cameron, the British Prime Minister, held on 10th July President Hollande seemed to suggest that they were not, after all, going to go ahead with this proposal.

Since this time there has been no further information from a tight lipped Ministry of Finance, and the clause did recently pass through the French Assembly.

The difficulty for the French governement is that no matter how enticing is the prospect of increased taxation of those who live outside of France, the proposal is contrary to European law ( EEC Directive No 1408-71 14 June 1971).

Indeed, not only is it contrary to EU law, but existing French law also confirms that those who are neither resident in France or in the French health system are not liable for the social charges.

Thus Article L 136-1 de la code de la sécurité sociale states:

'Il est institué une contribution sociale sur les revenus d'activité et sur les revenus de remplacement à laquelle sont assujettis......Les personnes physiques qui sont à la fois considérées comme domiciliées en France pour l'établissement de l'impôt sur le revenu et à la charge, à quelque titre que ce soit, d'un régime obligatoire français d'assurance maladie;'

The rules are given further elaboration in Circulaire DSS/SDFSS/5B No2001-350, 17 juillet 2001, where it states: 'Sont exemptés du paiement de la CSG, les titulaires de revenus de remplacement visés à l'article L. 136-2 du code de la sécurité sociale résidant en France et qui ne sont pas à la charge, à quelque titre que ce soit, d'un régime obligatoire français d'assurance maladie.'

The law is similarly reiterated in Circulaire n° 2002/4 du 25 janvier 2002 of the Caisse nationale d'assurance vieillesse, where it states 'Seuls les pensionnés de vieillesse domiciliés fiscalement en France ET à la charge à quelque titre que ce soit, d'un régime obligatoire français d'assurance maladie, peuvent faire l'objet d'un précompte CSG/CRDS.'

The circular adds: ne sont pas soumis au prélèvement de la CSG et de la CRDS.......les pensionnés domiciliés fiscalement en France mais dont la charge des prestations en nature de l'assurance maladie incombe à un régime obligatoire d'assurance maladie autre que français.'

So it remains to be seen if the proposed changes to the law are actually enacted and implemented. There are bound to be legal challenges, and it may even be thrown out by the French Constitutional Council.