Income tax in France can be more complex than you might anticipate – for both residents and non-residents. From the different tax brackets to deductions and exemptions, navigating the rules and regulations can be challenging. Here, we provide a short breakdown of what you need to know.
May can be a lovely month in France; it’s not too hot or too cold, and it’s the perfect time to enjoy the wonderful outdoors. On the downside, it’s also tax return season, with the deadline falling around the end of the month, depending on your department.
Avoid leaving your tax declarations to the last minute since it can get complicated if you earn income from a variety of sources and/or abroad. You may have a number of supplementary forms to fill in, depending on where your income has come from, and you have to list all your non-French bank accounts, life insurance policies, etc, on CERFA 3916, even if you did not earn income or gains from them. If your property wealth exceeds the €1,300,000 threshold, you must also complete a real estate wealth tax return.
Since income tax is on our minds this month, it seems appropriate to look at how income is taxed in France. France may be next door to the UK, but its tax regime can feel rather foreign. There are some significant differences from the UK’s, even with something as basic as income tax.
The household/parts system
In France, income tax is levied on the total income of the household (including minors) rather than on individuals or spouses. This can prove very beneficial for families where one member earns a high income (within limits).
The family (or household) is divided into a number of parts familiales. The total income is then divided by the number of parts and the income tax rates applied to this lower figure. The computed income tax due is then multiplied by the parts to provide a larger number – a system which helps you avoid the higher tax rates.
The total number of parts depends on the family circumstances and number of dependent children. For example, a married couple’s income would be divided into two parts, with an additional half part for each of the first two children and a whole part for the third and subsequent children.
Income tax rates
The income tax rate bands and scale rates for this year’s tax return (so for income earned in 2023) are:
| NET INCOME SUBJECT TO TAX | TAX RATE |
| |
| Up to €11,294 | 0% |
| €11,295 to €28,797 | 11% |
| €28,798 to €82,341 | 30% |
| €82,342 to €177,106 | 41% |
| Over €177,106 | 45% |
Income above €250,000 and €500,000 can be liable to an extra 3% or 4% tax, depending on whether you are a single taxpayer or a family.
There are some allowances available, particularly if you are over 65 years of age, hold an invalidity card or receive a military pension. Additionally, while retirement and disability pensions, child support and alimony are taxed the same as salaries, the taxable base benefits from a 10% deduction each year, up to a limit.
Various tax credits are available, which are deductible against the actual tax payable (and not against the income). The rules are complicated so ask your tax accountant to determine which credits are available for your circumstances.
Social charges
Social charges (or contributions) – prélèvement social – are a second form of tax on income in France and levied in addition to the scale rates listed above. The funds collected from these charges are used to finance the French social security (hence the name), but they do not provide health benefits and are separate from social security contributions (also payable on employment income).
They are made up of six elements, which amount to the following charges:
- Earned income (salaries, unemployment benefits) – 9.7%.
- Pensions (retirement or disability) – 9.1% (or 7.4% for those on low incomes). Only payable if you are subject to the French health care system; UK retirees with Form S1, therefore, escape this charge.
- Unearned/investment income (interest, capital gains, annuities, rental income etc) – 17.2%. This is reduced to 7.5% if you are covered under the health system of another EU/EEA country (this includes UK nationals with Form S1 who were resident before Brexit).
Your social charges are usually calculated based on the income declared in your income tax return. The French authorities notify you of the amount payable in the autumn, along with your income tax liability demand. With some types of income/gain (assurance-vie under special rates, real estate capital gains, dividend/interest advance payment etc.), the charges are paid by the 15th of the following month.
Tax on investment income
Investment income, such as interest, dividends, capital gains, and gains from life insurance policies/non-French assurance-vie, is taxed at a fixed rate of 30% rather than the scale rates of income tax.
Called the Prélèvement Forfaitaire Unique (PFU), it importantly includes both tax and social charges, so is beneficial for those with higher investment income. If you are covered by Form S1 as mentioned above, your PFU rate reduces to 20.3%.
Households in low-income brackets can opt for the progressive income tax rates, with social charges paid separately.
Unless you are a low-income household, you need to declare interest payments or dividends received from abroad within 15 days of the month end and pay the 30% tax.
UK income
French tax residents are liable to local tax on worldwide income and gains, so you need to declare all earnings outside France. If you have assets in the UK, the France/UK double taxation treaty determines where you pay tax.
UK government service pension and rental income are only taxable in the UK. That said, you must still declare it on your French tax return (you’ll receive a credit equal to the French income tax and social charges). Real estate gains are liable to tax in both countries, with a credit in France for UK tax paid. Gains made on the disposal of capital investments are generally taxed in your country of residence.
Tax planning
France may only be a short hop away from the UK, but its taxation system can feel a world apart. The tax planning arrangements you had in the UK are unlikely to be effective in France, so you’ll need to start afresh there. There are some tax-efficient investment arrangements available in France that can provide benefits both for yourself today and your heirs in the future.
Take personalised, specialist cross-border advice with Blevins Franks to confirm your tax residence status and what taxes you are liable to in France. Getting it right early will give you peace of mind that you have declared everything you should. Our advisers can also guide you on the most tax-efficient way of holding your assets in France so that you do not pay any more tax than you need to.
Contact us today.
