Tax Shock for Early Retirees (Guest Blog)

Blog
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Many early retirees face an increase in their French tax bill this year, while those of retirement age will also need to be more vigilant.


The increase in taxation comes about as a result of a change in tax collection procedures.


With effect from 1st January 2012, responsibility for the collection of the Contribution Sociale Généralisée (CSG) on overseas pension income has been transferred from the social security contributions collection agency 'URSSAF' to the French tax offices.


Until now most early retirees from abroad have escaped CSG on their pension income as they were simply not known to URSSAF, with whom there was no clear obligation to register.


It is has been a gaping hole in the process of tax collection that has been well known to the French authorities for years, but who until now have either chosen not to act, or been unable to do so.


So for the first time this year those liable to the CSG will face a charge on their early retirement pension, where previously this tax was not collected.



The charge is at the rate of 6.6%, unless you are eligible for the reduced or nil rate (see below).


The change in the collection procedures has been reflected in changes to the tax return where on the Form 2047 (Déclaration des revenus encaissés à l'étranger) specific provision has been made to record income that is liable to CSG.


Local tax offices are already responsible for collection of one other element of the social charges, the Contribution au Remboursement de la Dette Sociale (CRDS), on pension and other income, so they have some familiarity with the process and the regulations.


Exemptions


Not all early retirees will face the new charge, for you will continue to be exempt on your pension income (only) if one or more of the following conditions applies to you:


i. S1 (E106/E121) Health Certificate - You are covered by an S1 (formerly E106/E121) health certificate of entitlement from the UK (or other home European country);


ii. Private Health Insurance - You have been obliged to take out private health insurance as you have been refused access to the French health system;


iii. Low Income - If your income is below the level that would make you liable for the taxe d'habitation you are exempt from payment;


iv. Government Service Pension - If you receive a 'government service pension', which is by law taxable only in the United Kingdom, then you are not liable for the social charges on this income.


In addition, if you pay less than €61 in income tax (as is the case for many expats) then you pay a reduced rate of CSG of 3.8%.


However, Mervyn Simms of French financial advisors Siddalls considers that the change is likely to result in many incorrect assessments being made by local tax offices.


''The exemption from social charges for S1 holders, those with full private health insurance cover, or in receipt of a UK ‘government’ pension is not readily understood by every local tax office. So where your local office is not fully familiar with the rules you could find CSG/CRDS charges applied to your pension income in the 'Avis D’Impôt' assessment you receive after submission of your tax return.


If this happens we suggest you provide your tax office with a copy of your S1 Form or your private medical insurance certificate, to make it clear to them that you are not ‘a la charge’ of the French health system, and therefore not liable for payment of the CSG/CRDS charges,” he says.


If the tax office disputes any such exemption then you should refer them to a range of official regulations on this matter, about which you can read more in our Guide to Social Charges in France.


You may need to use the appeal system against any such decision to impose the charges as we have found some local tax offices can be very obdurate about the issue, despite having the regulations presented to them in black and white!


As well as early retirees, others affected by the change are those with income from overseas employment/business on which CSG is payable in France.


Retired Persons


Those of State Pension age and holding an S1 or E121 health certificate will continue to be exempt from the charges on their pension income in the normal manner.


However, we are already hearing reports of local tax offices having advised some S1 holders that they will still be taxed on their pension income, irrespective of their S1 status.


So we fully expect there to be many incorrect tax assessments this year, with many of you paying social charges on your pension when the regulations make it abundantly clear that such pension income is exempt.


Tax Merger


The new French President François Hollande is proposing to merge CSG with the income tax system, although early action to bring this about seems unlikely.


David Yeates


Editor at French News


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Yea and they said it wil come to pass, and surely it did come to pass. And there was a great wailing and knashing of teeth throughout the land. And the great el Hollande did smite the humble and there was darkness, misery and famine. And the people did gird their loins and rise, and some did make their exodus. Others did hide in their homes, and did not render unto Caesar all that was due, and did conceal in their washpots their gold and silver.

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The releveant official text can be found on the following page:

http://www.french-property.com/guides/france/finance-taxation/taxation/social-security/social-welfare-levy/

If the tax office are unwilling to change their view, then you need to appeal to the 'Conciliateur Fiscal' in your department, whose contact details the tax office are obliged to provide to you.

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Hi new to this site, I am one of those that has been assessed for the Social charges despite being over 65 and in receipt of an S1. I have never been a liability to the French social system having always paid my way since my Government pension was means tested to cover the Carte Vitale. Does anyone know how to go about writing to the tax office suggesting that they have it wrong without incurring legal bills. Thanks Richard

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There are early indications that the local tax offices are relishing their new found responsibilities, without a proper understanding of the exemption provisions for those on an S1 health exemption certificate or with a private health insurance policy.

As a result, we think that some in some departments a blanket approach may well be taken, with no exemptions being granted. A policy of 'shoot first and ask questions later'.

Indeed, we are already hearing reports of local offices having told even State retired expats (who are exempt) that they will face the new tax.

So although the rate of the tax is not high, and there are several exemptions, there is every prospect that many will find themselves being incorrectly taxed, particularly if they have not submitted accompanying paperwork and an explanatory letter.

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PLEASE do we really need such EMOTIVE shock tactic Headlines? I'm on Betablockers as it is...it is, after all... only money.

Pass me a tab!

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Frankly I am sick to death of providing France with large amounts of money! I have mentioned...(more than once or a dozen times!) a French, Italian, German etc in the UK doesnt get penalised the way other Europeans seem to in France...! we have just been presented with a bill for tax not much under 20k euros...we earnt around 12k euros on our French apartment last year..the rest is we assume tax on my husbands pension...which he already pays UK tax on...we have decided to withdraw from our French connections...and will make sure we spend most of our year in the UK and give the UK our full tax committment...a country we grew up in...worked in for 40 years..that seems to offer Europeans a fair deal unlike France....!

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I nearly didn't read this because of the 'Early Retirees' title..however it kind of explains why the local tax office, who are usually so amenable every year around the end of May when I go in with me old Mum (84), sent us away with a flea in our ears this time. We were told not to come back until we had a piece of paper from the UK stating whether my Mum pays tax on her pension in the UK, and whether she has a state or private pension - although I think the French definition of 'state' pension is totally different from the UK meaning. In UK terms she has a state pension. So I'm pretty much in the dark. I phoned up DWP International who said they don't deal with tax and gave me the number for the International Tax Office...who were obviously all having a party in the office last Friday afternoon since I waited for about half an hour on the end of the line..and then gave up. No point trying again until Wednesday now.

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You're welcome Maria, it remains to be seen what he is actually going to do though...!

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Yep, not dreaming I heard him say it on TF1 and France 2/3 etc and here are a few articles from early on, since he's come to power he hasn't said anything but there's a lot of pressure on him to do something as so many are losing business to AEs, especially in the artisant secteur - I've heard it from the "horses mouth" and people don't like AEs in general. I can understand why, we pay next to nothing compared to the rest, and nothing at all if we have no turnover, before the scheme came into existance I was looking at a predicted 500€ a month cotisations under the normal scheme, and didn't go self employed until the AE scheme was introduced.

http://blog.lefigaro.fr/legales/2012/02/francois-hollande-et-francois-bayrou-veulent-supprimer-le-regime-de-lauto-entreprene.html

http://lentreprise.lexpress.fr/creation-entreprise/francois-hollande-rassure-les-auto-entrepreneurs_32440.html

http://www.latribune.fr/actualites/economie/france/20120426trib000695630/face-aux-menaces-de-hollande-les-auto-entrepreneurs-se-prennent-en-main.html

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Hi Maria, it's what he said early on in his campaign - I'll try and find some sources ;-)

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I just got a tax reminder from Switzerland a few minutes ago to tell me that if I return there to live I shall have lots of SFr to give them on the basis of my earnings abroad. OK, apart from not being Swiss although espoused to one, I have stayed in Geneva for a few weeks, Fribourg likewise but not as long and have been around two weeks maximum many times at the in-laws. So I have never lived there. Now, those of us based here in France are a bit worried (with good reason) but that just reminded me that there are far worse places to be. No wonder my OH has no enthusiasm for ever returning to live there!

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100% agreed ;-)

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Wherever the drink there MUST be laughter.

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Ha - it hurt writing it out as I realised that trips to those places are what started me off in languages and now I hardly travel at all! Best of luck for your OH's search, hope she finds something that suits - I quite understand, it's difficult for all of us at the moment especially for those of us who need to clothe and feed kids etc. I wonder where that drink will be in 5 years time...

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You should not have done that list, you've made me lick my lips... As it is, in desperation my OH is looking for a university job just about anywhere in Europe and is off to Paris in a few minutes to a SciencePo network thing as part of that. I like being where I am and have a settled feeling for the first time in years, but if the game gets tough going and too expensive here I'll join the French diaspora...

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ouh, you're giving me some real food for thought Brian, love Firenze, Prato, Pistoia, Lucca, Pisa (the town not the tower!), Siena (who doesn't) and then up to La Spezia and le Cinque Terre...

Hold on a minute, I'm in the process of sinking everything I've got (plus borrowing a few hundred thousand €) in a corner shop in Carmaux with pretty much all the family within 45 minutes, Albi just down the road (architecture is just so Toscana), Corde sur ciel is sort of like a Tarn version of San Gimignano (pushing it a bit!) Well if all else fails, Carmaux has an Italian association which is twinned with Porcari just outside Lucca so perhaps I'll just have to settle for that for the moment (or use it as a springboard...!)

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Wise man Andrew - I've noticed some fabulous houses quite cheap in Toscana within reasonable reach of Firenze which is a place I do like myself - plus the fact UNICEF Italy is based there and used to be a good client, perhaps time to renew that relationship.

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Hi Brian, yes I'll start giving OH and kids italian lessons sooner rather than later if things go the way we fear...!

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I have already been asked for a copy of my E121 (giving my age away) by our local tax office in Jonzac. When I commented that I had a Carte Vitale and that the CPAM had my E121, I was told that it was no use asking the CPAM as they would not send out a copy and I had to provide it.

On another forum I read that the British Authorities are not able to supply a copy of the E121, if required, either.

Fortunately I had retained a copy (training not genius) so was able to send it off the day I received the letter.

There have been a string of questions from the tax office this year (starting in January) and I feel that "etrangers" are in the firing line in particular.

So, keep records of your dates in and out of France (for tax eligability) if you do not pay tax here and keep copies of ALL documents to do with the French system.

Better a lot of files than a lot of big bills.