REDUCED SOCIAL CHARGE FOR UK RESIDENTS SELLING THEIR FRENCH SECOND HOME POST BREXIT
UK residents looking to sell their French second home saw their tax exposure significantly increased by the end of the Brexit transition period on 31 December 2020 (from 7.5% to 17.2%).
In an unexpected move, the French Revenue is reverting back to its pre-Brexit position[1].
To recap
Social security contributions known as the contribution sociale généralisée (CSG) and the contribution au remboursement de la dette sociale (CRDS) were introduced in the 1990s in an attempt to reduce the deficit of the French National Insurance scheme covering illness, maternity and pension benefits.
Their legal nature (whether they are taxes or social charges) has never ceased to be debated. The Conseil constitutionnel and the two supreme jurisdictions of France, the Conseil d’Etat (administrative) and the Cour de cassation (civil) seemed to have different views on the matter.
Until 1 August 2012 non-residents were simply exempt from CSG/CRDS as these were supposedly covered by their own National Insurance schemes.
Consequently double tax treaties such as the UK/France Convention of 21 June 2008 excluded CSG/CRDS. HMRC confirmed the position on their website: these are not available for credit in the UK.
The French government resulting from the general elections of June 2012 (François Hollande) regarded this exemption as ‘unjustified’ and decided to apply the charges to residents and non-residents alike in the supplementary budget LFR 2012 of 31 July 2012.
The matter went before the Court of Justice of the European Union (CJEU) which, on 26 February 2015 (C-623/13 de Ruyter), confirmed that CSG/CRDS are social charges, directly connected to the French National Insurance and that charging CSG/CRDS to other EU residents was in breach of Regulation (EU) 1408/71. The sums retained were refunded with interest.
The French government reacted by reallocating the proceeds of CSG/CRDS to ‘non-contributory benefits’ (ie granted to French taxpayers and non-taxpayers alike) from 1 January 2016. The idea was to technically ‘disconnect’ the contribution from its benefit.
The Administrative jurisdiction was clearly not convinced and confirmed the principles set out by C-623/13 de Ruyter on 31 May 2018 (CAA Nancy 31-5-2018 17NCO2124) ruling the provision unlawful.
In the meantime in (C-45/17 18 January 2018 Jahin), the CJEU confirmed that treating EU and non-EU residents differently was not in breach of articles 63 and 65 TFUE (freedom of movement) paving the way for a post Brexit increase.
Within the EU the French Government appeared to have finally surrendered in National Insurance Budget 2019 which confirmed that CSG/CRDS should no longer be charged to EU residents. Once again, the sums unlawfully retained since 1 January 2018 were refunded.
Not entirely though, as the so-called prélèvement de solidarité (solidarity levy) funding the French universal credit remained due and was increased from 2% to 7.5% from 1 January 2019.
In any event this Franco-European debate became irrelevant post Brexit and UK residents again became subject to CSG/CRDS at the full rate of 17.2%.
The update
This was the case until the update of the French government’s ‘Brexit Frequently Asked Questions (FAQ) for individuals’ posted on the French Revenue’s website[2] on 14 January 2022 where the tax authority confirmed that the exemption from CSG/CRDS on income and gains derived from French property continues to apply to UK residents despite the United Kingdom’s exit from the European Union on 1 January 2021.
The post comments ‘in view of the agreements to leave the European Union signed on 12 November 2019 and 30 December 2020, this exemption is maintained for income from assets received from 1 January 2021 for taxpayers who meet the following conditions:
- they are affiliated with British social security;
- they are nationals or legal residents of France, the United Kingdom or another Member State of the European Union;
- they are not covered by a compulsory French social security scheme.
Consequently, income from French assets will not be subject to the CSG and the CRDS but will remain liable to the solidarity levy at the rate of 7.5% provided for in article 235 ter of the CGI’.
The provision applies retroactively from 1 January 2021 and taxpayers unlawfully charged are entitled to a refund within the general period of claim of Article R 196-1 LPF (expiring on 31 December of the second year of the chargeable event).
Even if the enforceability of a reply to a ‘Frequently Asked Questions’ document is debatable until the position has been confirmed in the Bulletin Officiel des Finances Publiques (BOFIP), the French Revenue seems to base its position on the Brexit agreements, suggesting that the exemption could automatically be applied where the conditions are met.
In this respect Article D. 136-4 of the Code de la Sécurité Sociale provides that, in order to benefit from the exemption from the CSG/CRDS, the taxpayer must produce the European forms S1 and A1 or any ‘equivalent certificate of affiliation […] issued by the institution with which the person is affiliated’.
Author: Patrick Delas, Russell-Cooke LLP, London
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About the author
Patrick Delas is a senior associate in the French law and property team at Russell-Cooke LLP. He can be contacted by email: Patrick.delas@russell-cooke.co.uk.
[1] https://www.impots.gouv.fr/portail/consequences-fiscales-du-brexit
[2] https://www.impots.gouv.fr/sites/default/files/media/1_metier/5_international/brexit/20220209_faq_brexit_particuliers_EN.pdf
