Question: My wife and I are tax residents of France. We are both of UK state retirement age and are receiving our state pensions. We both hold a current E121 form. On top of our state pensions we both receive annuity pensions and I receive a small company pension.
For 2005 and 2006 we completed our déclaration préremplie, blue French income tax forms 2042K – or rather, a nice lady at our hôtel des impôts did on our behalf – which shows our total state pensions income entered in box TI, our total annuity pensions and company pension entered in boxes AS (self) and BS (wife) with bank interest earned in box TR. We actually received the blue form and a pink form but the lady at the hôtel des impôts said the pink one was not necessary and destroyed it.
My query is on the subject of social contributions and there appears to be considerable confusion. Some say if you hold an E121 you are exempt from any social charges; others say everybody pays social contributions unless your income is considered too low. My question is, which is correct?
We are in receipt of our 2006 brown form 1533-CSG showing 8.2 per cent CSG on our bank interest, 0.5 per cent CRDS on company and annuity pension income (not state) and 2.3 per cent PS on the same bank interest. I do not want to simply pay this if I don’t have to so I’m trying to obtain a definitive answer.
In 2005 we did question our local hôtel des impôts, as best we could, as to whether we needed to pay this tax as we held E121. Their general answer was ‘everybody pays it’ so we did but since then I have seen numerous statements in the press and in forums that nobody on an E121 should pay it and is exempt from this tax.
If you can help me obtain an answer, either way, I will be very grateful.
C Blanch
Answer: There is a lot of confusion regarding payment of French social charges, which are another form of income tax in France, payable on all forms of income received, including pension income and income used to calculate the taux effectif (ie income not directly taxed in France, such as UK rental income, but which is taken into account to calculate your overall French effective tax rate). Social charges now raise more tax in France than income tax, and are paid in addition to the scale rates or fixed rates of income tax. They are not the same as French social security contributions which are payable on employment or self-employment income, and cover various aspects of social security such as pensions, health care and family allowances.
Social charges are made up of three elements: the CSG (contribution sociale généralisée), CRDS (contribution au remboursement de la dette sociale) and PS (prélèvement sociale).
Therefore the applicable rates of social charges are 11 per cent on investment income (including annuities, rental income and capital gains); 8 per cent on 97 per cent of gross earned income (salaries and unemployment benefits); and 7.1 per cent on 95 per cent of gross pension income (the 5 per cent is treated as a deduction in lieu of expenses). A proportion of the social charges paid on income taxed at the progressive scale rates are tax deductible, although in some cases can only be set against taxable income in the following year. Social charges on income taxed at the fixed rates (eg French bank interest and capital gains) are not tax deductible.
The income that you declare on your tax return will be the base on which social charges are calculated. A French tax return for 2007 needs to be submitted in 2008 – the submission date has not been announced as yet – and you will receive notification of the amount of social charges due in the autumn of that year.
Where an individual holds either Form E121 or E106 in their own name, any UK pension income received by that individual will be exempt from French social charges. For social charge purposes, this exemption only applies to the holder of the form, and not the household (unlike the health-care position). Social charges remain payable on all other income.
Forms E121 and E106 are available from the Department for Work & Pensions (DWP), The Pensions Service, International Pension Service, Tyneview Park, Newcastle upon Tyne, NE98 1BA. Tel: 0191 218 7777.
Form E121 is available to expatriates who are in receipt of their UK state retirement pension; Form E106 is available to those with recent employed or self-employed national insurance contributions and is valid for up to two and a half years.
Forms E121 or E106 also entitle the holder and their dependents to French state health care. Those without these forms have to take out private medical insurance so that they are not a burden on the state.
Thus, you should either approach the French tax authorities or a French accountant to reclaim the social charges erroneously paid on your UK pension incomes. You should also have completed pink forms 2047 (as that is how you report your foreign income in France) and a Form 3916 for each non-French bank account opened, closed or used during the year (failure to do so is penalised with a fine of €750 [£539] per undeclared account per year).