When filing your French tax return ensure you declare your UK pensions, ISAs, premium bonds, capital gains and rental income correctly.
Now PAYE has begun in France some 2018 income tax is neutralised by the CIMR credit but you must declare all income as usual before the relevant May/June deadline.
It’s that time of year again for completing and submitting French income tax returns. The introduction of the new pay-as-you-earn (PAYE) system changes the payment of tax this year, but you need to declare all your income as usual.
As always, take care to include all your worldwide income as required by French tax legislation. This is more important than ever with automatic exchange of information now taking place under the Common Reporting Standard.
Income tax return deadlines
Tax returns should now be submitted online, with dates varying according to where you live.
- Departments 01-19: 21 May
- Departments 20-49: 28 May
- Departments 50-976: 4 June
Paper returns (for those without internet access) need to be received by 16 May.
Income tax rates
Income tax is payable on earnings, pensions and rental income, and you are taxed as a household rather than an individual – the parts familiales system.
The 2019 income tax rates (payable on 2018 income) are as follows:
| Up to €9,964
| €9,964 to €27,519
| €27,519 to €73,779
| €73,779 to €156,244
| Over €156,244
There is an additional 3% for a single person where income is between €250,000 and €500,000 per part (nothing is due from a family) and 4% for income exceeding €500,000 per part for an individual, reduced to 3% for a family (up to a limit).
Various deductions are available, so make sure you are using all the ones you are entitled to.
New PAYE system
Under the previous system, French taxpayers would this year be paying their 2018 tax (in three or ten instalments). However, the implementation of PAYE, which started in January, means that in 2019 they are paying tax on 2019 income.
To prevent taxpayers from paying two years’ worth of tax in one year, 2018 income will be neutralised by the CIMR tax credit – “Crédit d’Impôt de Modernisation du Recouvrement”.
Exceptional income and excessive increases in current income, however, will not be neutralised by the CIMR and will be taxed. For example, pension benefits paid in the form of capital; sums withdrawn on a Salary Savings Plan; severance pay, and other income which is not collected annually.
Note that PAYE only applies to certain income, such as employment, retirement (pensions, lifetime annuities) and rental income; non-French income taxable in France and business profits.
See more about French tax changes in 2019
Tax on investment income
Investment income – interest, dividends, capital gains and gains from life insurance policies/non-French assurance-vie – is excluded from PAYE, so tax will be payable this year for 2018 income.
Investment income earned from January 2018 onwards is taxed at a special fixed rate of 30%, (the Prélèvement Forfaitaire Unique/PFU) instead of the normal income tax rates.
Lower earners can however opt to apply the scale income tax rates, plus social charges.
Income to be declared
Although the CIMR credit means you may escape tax on some 2018 income, you are still obliged to submit your tax return and a full tax assessment will be carried out as normal.
Many British expatriates with UK source income get confused over where they should declare and pay tax. Note that you need to declare all your UK source income in France, even if you pay tax in the UK.
See why you need to take care disclosing non-French accounts
Thanks to the Common Reporting Standard, French tax authorities now receive information on their taxpayers’ overseas assets and income. The first exchange was in 2017 and we are already seeing evidence of French tax offices calling British expatriates in for interviews to ask why they have not declared foreign income.
- UK government service income: This remains taxable in the UK. But although it is not taxed directly in France, you must still include it as part of your taxable income and a credit equal to French income tax and social charges is given.
- UK rental income: Again, this is taxed in the UK, not France, but must be included on your French declaration.
- Capital gains on UK assets: French residents need to declare and pay tax on gains made on the sale of UK property and moveable assets (shares etc). Real estate gains are liable to tax in both countries but you receive a credit in France for UK tax paid. Moveable assets, however, are generally taxed in the country where the seller is resident.
- ISAs and Premium Bonds: ISAs are fully taxable in France in the hands of French residents. Premium Bond winnings also need to be declared and taxed in France.
- Interest and dividends: Interest or dividends from the UK must be declared within 15 days of the month end and 30% tax paid. This is then offset against the tax due on your tax return.
You want to make sure you get all this right, as you will be penalised for failing to declare income.
Where the omission was in “good faith” (not deliberate), late payment interest at a rate of 0.38% per month is charged on the underpaid tax.
For “bad faith” (deliberate) omissions, besides the interest, a penalty of 40% of the tax is added. This increases to 80% if the taxpayer is found to have acted fraudulently. There can be additional very high fines and prison sentences in some circumstances.
When converting your Sterling 2018 income to Euros for your tax return, you can use the rate from the Banque de France, which is £1 = €1.13.
Informing the tax authorities that your health cover is paid for by another EU member state
If this is your case (usually by virtue of possessing an “S1” form, due to being in receipt of UK state pension income) and you are therefore not a “burden” on the French state with respect to your health cover, you should tick the new boxes 8SH and/or 8SI. They can be found on the paper 2042 “complémentaire” form and should also be visible if you are declaring online. This will mean individuals covered under the health system of another EU/EEA country will no longer be subject to CSG or CRDS on their French source investment income/capital gains. Instead, the new “prélèvement de solidarité” will apply at a flat rate of 7.5%.
This article is a brief summary covering the basic elements of income tax in France. It is important to seek personalised, professional advice. For questions about completing your tax return, speak to a tax accountant.
For advice on effective tax planning in France, to lower liabilities on savings, investments and pensions, speak to a cross-border tax and wealth management specialist like Blevins Franks.
Arrange a review with your local Blevins Franks adviser
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.