Brace for Brexit 20: Tax hike for French property owners
UK resident landlords of French properties will pay more tax on rental income and gains after the end of the transition period on 31 December 2020.
Virginie Deflassieux, French Tax Director, BDO Ltd (Guernsey), spoke to Rebecca Cave about the French tax and social security charges which UK-resident landlords will have to pay when letting or selling property in France from 2021.
RC: Why does the UK leaving the EU make a difference to the tax treatment of French properties held by UK residents?
VD: From 1 January 2021 British citizens won’t be shielded from certain tax discrimination in the French tax regime. Until that date the European Court of Justice has ruled against any tax practices or law contrary to EU regulations for EU citizens. As UK citizens are no longer EU citizens, those protections fall away at the end of the transition period.
RC: How much extra tax will UK landlords have to pay?
VD: The UK resident is primarily taxed in France on the profits from the French property, under the terms of the France-UK double taxation agreement (DTA). Also, under the DTA the UK landlord is entitled to a tax credit to set against their UK income tax in respect of the French tax charge, but not necessarily in respect of all the other social security and other charges payable.
The property income is taxed at 20% up to €25,710, and 30% thereafter in the hands of non-French residents (rates for 2020). However, these tax rates could be reduced if the landlord is prepared to make a full declaration of all their worldwide income and gains to the French tax authority.
In addition to income tax, landlords must pay the following social charges on rental income:
- contribution sociale généralisée (CSG): 9.2%
- contribution au remboursement de la dette sociale (CRDS):0.5%
- prélèvement social (PSOL): 7.5%.
The CSG and CRDS only apply to non-residents who are not affiliated to another European country’s social security regime (EEA countries plus Switzerland).
Thus, UK residents who have been contributing to the UK national insurance system have only been liable to pay the 7.5% PSOL on their rental profits. What’s more the entire amount, including the PSOL is now treated as tax and can be set-off as a tax credit against UK income tax on the French property income.
From 1 January 2021 UK residents will pay all three of those social charges on their property income profits, which amounts to an increase of 9.7%, from 27.5% to 37.2% (and from 37.5% to 47.2%). However, only tax charges equivalent 27.5% & 37.5% can be set against the UK income tax charged on that income, which may be at 40% or 45%.
RC: Do UK landlords have to complete any other new paperwork?
VD: Furnished letting is treated as a commercial activity and must be properly registered with a unique business reference number known as a SIRET. It is likely (but not certain) that UK citizens will have to obtain a special permit (Carte de Commerçant) to continue any business activity in France, which includes letting their property.
RC: Will UK residents be able to spend half the year at their properties in France?
VD: At the time of writing (11 December 2020) it seems that UK residents will be limited to spending 90 days in any 180-day period, in any EU country in the Schengen zone without applying for a visa. So prolonged stays of over 90 days will be precluded, unless the citizen has a residence visa or working visa. The 90-day period is the sum of all periods spent in all EU countries, not the period in each country.
RC: Should UK residents be advised to sell their French properties if they can?
VD: I can’t advise UK citizens on the wisdom of selling their French property or not. However, if they do decide to sell, and the proceeds exceed €150,000 per family (married couple/ civil partnership), they will probably need to appoint a fiscal representative in France to deal with the capital gains tax (CGT) computation. Having a fiscal representative will add costs of 0.7% to 1% of sale price.
RC: What taxes will a UK resident pay on selling their French property?
VD: If they have owned the property for more than 30 years the gain is fully exempt from CGT and social charges through the application of a taper relief.
In other cases, CGT will be payable at 19% plus social charges of 17.2% on the taxable gain, giving a total tax charge of 36.2%. In addition, a fiscal representative will need to be appointed to deal with the CGT filing. The social charges are made up of the CSG, CRDS and PSOL as set out above. For gains made before 2021, only the PSOL is payable by a UK resident who has UK NIC record.
Brexit will mean higher social charges for UK residents on their French rentals and gains made on French property, restrictions on time spent in France, increased costs and administration.