French Income Tax 2012
Siddalls provides an update on taxation in France
In common with all member countries of the Eurozone France has been engaged in developing and implementing an extensive austerity programme of public finance cuts and tax increases to address its sizeable budget deficit. Following the election of new president Fran�ois Hollande it remains to be seen to what extent this programme will be modified.
However, despite recent austerity measures French income tax need not hold fears for new residents to France as its impact can still be greatly mitigated by taking sound independent advice.
Furthermore, for a married couple, (or those with a Pacte Civil de Solidarite - PACS, a form of civil partnership, available to both opposite sex and same sex couples), the French ‘household’ system of taxation has the effect of ‘averaging out’ combined joint income subject to tax. This often results in couples paying less income tax in France than under the UK system of independent self-assessment.
UK expatriates resident in France are assessed to income tax on their worldwide income, which includes earned income, pensions and savings and investment income.
Some types of income, such as UK ‘government pensions’, (eg civil service and teacher’s pensions), and rental income from UK property remain taxable in the UK although the income is taken into account to determine the rate of tax payable on other income received in France.
The current tax rates and income bands are shown below:
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Up to €5,963 = 0%
€5,964 to €11,896 = 5.5%
€11,897 to €26,420 = 14%
€26,421 to €70,830 = 30%
Over €70,830 = 41%*
*Note: Additional income tax of 3% is payable on annual income exceeding €250,000 for an individual or €500,000 for a couple. For annual income over €500,000 for an individual or €1,000,000 for a couple the additional rate is 4%.
These income bands are those applying to income received in the 2012 tax year, (the tax year in France running from 1 January to 31 December).
French social charges are also payable on most forms of income. The top rate of 15.5% applies to investment income.
UK expatriates resident in France escape social charges on pension income from the UK if they are over UK state pension age and hold an S1 form, (formerly E121), issued by the UK Department of Work & Pensions. For a married couple, or PACs partners, only one partner needs to hold the form as the other is covered as a dependant.
Under the new UK / France Double Tax Treaty, which came into effect at the start of 2010, social charges should also not be payable on UK ‘government pensions’, (such as civil service or teachers pensions), even where the pensioner is below UK state pension age. Similarly the charges should not be applied to income from the rental of UK property. However, this new treatment is taking some time to ‘bed-in’ and there continue to be examples of local French tax offices seeking to apply social charges to this income.
Given the fast moving and evolving programme of tax changes it is more important than ever for those planning a move to France to take professional advice; not only to be up to date with the latest changes but to make full use of all available financial planning measures and legitimate tax-breaks to keep the impact on personal finances as low as possible.
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Siddalls is authorised and regulated by the Financial Services Authority.