Social charges, which are not to be confused with social security contributions, are effectively another form of income tax in France, payable on all forms of income and capital gains received by French residents, including pension income.

Some kinds of income are not directly taxed in France, such as UK Government Service pensions (eg armed forces, police, civil service, teachers’ and local authority pensions), but are still subject to French social charges.

The rates of social charges are: 7.1 per cent on 95 per cent of gross pension income, 8 per cent on 97 per cent of earned (employment or self-employment) income, and 11 per cent on all unearned income (eg interest, dividends and rental income) and capital gains.

A proportion – approximately half – of social charges payable may be tax-deductible, but it depends on the type of income. Social charges on income taxed at the fixed rates (eg French bank interest and capital gains) are not tax deductible at all, whereas those paid on income which has been taxed at the progressive scale rates are tax-deductible.

For social charges on earned income, a proportion of the social charges are tax-deductible against income earned in that year; however, for passive (investment) income, the tax-deductible element is applied in the following year. Any social charges not off-set against income in either the current or following year can be carried forward against future income.

Social charges are calculated based on the income declared in your tax return. The French authorities will send notification (avis d’imposition) of the amount payable in the autumn following the submission of your tax return. For example, a tax return for the French tax year 2007 will usually be submitted in March 2008 (although the submission dates for French tax returns have been extended in recent years), and you will receive notification of the social charges due in the autumn of 2008. The deductible portion of the social charges will be deducted from your earned taxable income for 2008 when the form is submitted in 2009 or from your unearned taxable income in 2009 when the tax return is submitted in 2010.

Social charges are made up of three elements: the CSG, CRDS and PS. The amounts are different for each type of income, and the position can be summarised below:

UK nationals moving to France may be exempt from paying French social charges on their UK pension income if they hold Form E106 or E121, both available from the UK Department for Work & Pensions. Only the holder’s pension income is exempt from social charges, unlike the healthcare position (see below).

Form E106 is available to those who have a recent UK Class 1 (employed) or 2 (self-employed) National Insurance Contributions record, and is valid for a maximum period of two and a half years. Form E121 is available to those in receipt of their UK state retirement pension and is ongoing until either death or repatriation of the holder.

Therefore, if you retire at say 55, cease work, draw a pension and move to France, your pension income may be exempt from social charges until you are around 57 or 58, and after 65 (or between 60 and 65 for women born after 6 April 1950), but in the interim will be subject to social charges.

Forms E106 and E121 also provide the household of the holder (ie the holder and their dependents) with French state healthcare cover. Alternatively, if you are paying French security contributions on an employment or self-employment income (or UK National Insurance Contributions on a UK employment or self-employment income) you and your dependents will also be entitled to French state healthcare.

If you don’t hold either of these forms, or are not paying social security anywhere, you are obliged to contribute 8 per cent of your taxable income (and any taxable capital gains) in excess of ?7,083(£4,768) – for 2007 – to the French healthcare system known as CMU (Couverture Maladie Universelle) on net taxable income.

These contributions are compulsory for all tax residents in France so they are not a burden on the state. It doesn’t matter if you have private health insurance, you still have to pay the health charges. The CMU charge is calculated on the household as a whole rather than on an individual basis. It is administered by the CPAM (Caisse Primaire d’ Assurance Maladie) but paid to the URSSAF (Unions de Recouvrement de Cotisations de Sécurité Sociale et d’Allocations Familiales), the umbrella social security body.

Contributions are paid quarterly in arrears over the year from 1 October to 30 September, based upon the taxable income (revenue fiscal de référence) for the preceding tax year, which you have to declare to the CPAM before 15 September – hence the contributions for October 2007 to September 2008 look to the income for 2006. This would normally be the income figure certified on your tax notice for the year issued by your tax office.

If there was no French income tax return for the reference year (for example you were not yet resident), and you are not exempt from contributing, then you declare your income for that year on the CMU return form so that the contributions can be calculated. You would include all your net income for the tax year of reference calculated in accordance with the CMU form.

If you do not complete the declaration, the CPAM will set your income base to calculate the contributions due based on what information they hold. The income base set by the CPAM can be up to five times the annual social security threshold.

It is a legal requirement to register with the CPAM once you have lived in France for three months.

Whatever form of healthcare cover you have in France (social security contributions, Form E106 or E121, or you pay contributions to the CMU), you will generally only be covered for around 70 per cent of the cost of your healthcare, and you will either have to fund the rest directly or through one of the top-up insurance schemes available. Those with around 30 serious conditions, such as heart conditions, diabetes and multiple sclerosis, are entitled to 100 per cent cover.

Full private health cover can provide poor cover and service compared with the French state service. Private healthcare cover often excludes pre-existing conditions, imposes excesses on claims and the claims settlement lags behind the French system that pays out within hours direct to the patient’s bank.

You should note that once you have left the UK, you are no longer entitled to healthcare under the NHS. Thus, for return visits, you should take out private medical or travel insurance, or apply for the European Health Insurance Card (formerly the E111) from France.

Bill Blevins is Managing Director of Blevins Franks International, one of the largest independent financial advisers, which specialises in advising retired  expatriates in southern Europe