Treatment of French Social Charges

What is the correct treatment of French Social charges incurred on rental income?

Didn't find your answer?

UK resident individual has a rental property in France. She has suffered French tax and social charges on this income, what is the correct treatment of the social charges? Can it be deducted from her UK tax bill? Or is it a deductible expenses? Or neither and you can't claim it at all. 

Replies (4)

Please login or register to join the discussion.

avatar
By John R
23rd Jan 2020 13:14

As the social charges are not recognised as a tax on income under the double taxation agreement and as they are levied directly as a result of owning the property, there is an argument that they are similar to rates or council tax in the UK. I would therefore suggest that under normal wholly and exclusively principles, they are allowable as a deduction from the rents in arriving at the property profit. However, I know that there was a similar question a couple of years ago and the consensus then was that the social charges are not deductible.

Thanks (0)
avatar
By David Heaton
24th Jan 2020 17:59

Until 31 January 2020, if your client is affiliated to the UK social security system, she should have no liability to French 'prélèvements sociaux', so she should apply for a refund if she has paid. EU social security regulations mean that she can't be socially insured in France and in the UK at the same time.
I understand that 2019 legislation recognised the EU/EEA problem and abolished the social security charges for anyone in France or in the EEA who is not affiliated to the French regime. Instead, there's to be a 7.5% 'prélèvement de solidarité', which is a tax rather than a social security contribution, so isn't covered by EU regulations on social security. I've also seen news of the flat rate of income tax being increased for non-residents, so it should be creditable against UK tax in the usual way. Post-Brexit, who knows how the new rules will apply to UK owners of let property in France? I'd guess at a 30% flat tax rate.

Thanks (4)
Replying to David Heaton:
avatar
By pjhorn
27th Jan 2020 10:51

This has been a contentious area for years and while bowing to David Heaton's expertise on the application in practice of the social charges, there is a wrinkle in the DTA that denies relief if whatever is charged is viewed as 'substantially similar' the mainstream social charges known as the CSG and the CRDS (Art 2(1)(b)(v)&(vi) below:

Art 2 'Taxes covered' says:

(b)in the case of France, all taxes imposed on behalf of the State or of its local authorities irrespective of the manner in which they are levied on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property, taxes on the total amount of wages or salaries paid by enterprises, as well as taxes on capital appreciation; those taxes are in particular:

(i)the income tax (l'impôt sur le revenu);

(ii)the corporation tax (l'impôt sur les sociétés);

(iii)the social contribution on corporation tax (la contribution sociale sur l'impôt sur les sociétés);

(iv)the tax on salaries (la taxe sur les salaires);

(v)the “contributions sociales généralisées”;

(vi)the “contributions pour le remboursement de la dette sociale”;

(hereinafter referred to as “French tax”).

2(2) This Convention shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of this Convention in addition to, or in place of, the taxes referred to in paragraph 1. The competent authorities of the Contracting States shall notify each other of any substantial changes which have been made in their respective taxation laws.

And then at Art 25 'Elimination of double taxation':

24(1) Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof):

(a)French tax payable under the laws of France and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within France (excluding in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which French tax is computed;

...............

BUT

24(2) For the purposes of paragraph 1:

(a)..............
(b)..............
(c)the taxes referred to in clauses (i) to (iv) of subparagraph (b) of paragraph 1 of Article 2 and, in respect of the taxes mentioned in those clauses, in paragraph 2 of Article 2, shall be considered French tax.

So, I read that the taxes referred to in Art 2(1)(b)(v)&(vi) and any 'substantially similar taxes' are not counted as tax for double tax credit relief.

Thanks (1)
avatar
By pjhorn
27th Jan 2020 10:54

Sorry - I meant to reply generally and not directly to David......

Thanks (0)