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French Taxation

French Social Charges and UK Pensions

Tuesday 17 November 2009

Early retirees in France continue to benefit from an administrative loophole in the taxation of their pensions, but it may not last.

As we have pointed out previously in this Newsletter, private sector early retirement pensions are subject to French social charges, but in practice most early retirees from the EU currently escape the full force of these charges.

The ‘social charges’ is in fact a collective term that actually refers to three different taxes:

  • Contribution Sociale Généralisée (CSG)
  • Contribution au Remboursement de la Dette Sociale (CRDS)
  • Prélèvement Social (PS)

The charges are not part of the income tax system, but they are imposed on most sources of revenue in France.

The rate at which they are applied differs by type of income. They are currently payable at the rate of 7.1% on early retirement pensions, and at the rate of 12.1% on rental, investment and savings income.

If you are an EU national of retirement age (or on long-term invalidity benefit), you are not liable for the charge on your pensions, provided you have health cover through an E121.

Private sector early retirement pensions are liable, but in practice only the CRDS element of the charge is collected, at the rate of 0.5%.

This is mainly because of a loophole in the method of the collection of the social charges in France.

While the CRDS is collected by the French tax authority (Impots), the CSG element is collected by the French social security collections agency, called URSSAF.

As most early retirees will not be registered with URSSAF, and therefore not known to them, they will not be sent a bill each year for CSG on their early retirement pension.

As Virginie Deflassieux, of French tax consultants PKF Guernsey points out to us: ‘The French authorities are well aware that certain foreign retirement pensions have been escaping the charges, largely because of the inconsistent collection method in place as described by you. However, we believe this situation is changing.'

'Technically, a retiree who lives full time in France and is covered under a French social security regime (including the CMU) should declare their early pension payments to the URSSAF. The onus is on the taxpayer to declare their pension to the relevant department', says Virginie.

Widespread Confusion

The confusion in the taxation of social charges is clearly widespread, as we have received a considerable number of e-mail enquiries in the past few weeks from expats querying the level of social charges on their pension or savings income.

Most of you have not picked up that you are getting away with not paying the full social charge on your pension, while others query why they are paying the charges at all.

Some of you have queried why you are paying social charges on savings income, despite a low income.

Sadly, the liability of savings income to social charges takes no account of your annual income on charging against interest earned, one of the great injustices of this tax, which is not a progressive form of taxation, in the same way as French income tax.

Other readers of state retirement age have also commented to us that they are being charged the 0.5% CRDS on their pension. As those of the age of retirement and covered by an E121 escape the payment of all social charges on their pensions, you are not liable for this charge, and you should take it up with your local tax office, producing a copy of your E121.

In yet other cases, readers have stated the social charges are being imposed on their private annuity, despite the fact that they are of pensionable age, granting them exemption from the social charges on pensions. In fact, purchased annuities are not recognised in France as pension income, and you will be liable for the social charges on this income, irrespective of your age. 'The only way around this is to declare the annuities as pension income, which is in fact the correct way to report this income', advises Virginie Deflassieux.

Government service pensions escape liability to the social charges, whether or not you are of the age of retirement, and as far as we are aware, there are no signs that things will change for them.

Those of you seeking a detailed review of their French tax affairs can contact Virginie Deflassieux at french.tax@pkfguernsey.com

You can read more in our guide to French Social Charges.

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