UK residents and British expats in France could save thousands of pounds after the French government scrapped a post-Brexit rule.

The news means you’ll no longer have to pay French social charges at the full rate of 17.2% if you sell or rent a holiday home in France.

You can benefit from the rule change provided you’re already contributing to the UK’s social security system and are not dependent on France’s. The change also applies to existing and future S1 holders whose healthcare is paid for by the UK.

Reduced rate for social charges

After the UK left the European Union on 1 January 2021, UK residents were charged the full rate of France’s social surcharges (prélèvements sociaux).

But now French tax authorities have announced these Brits will only be liable for the 7.5% ‘solidarity tax’, the same charge that applied before Brexit. They will no longer be subject to the generalised social contribution (CSG) and social debt repayment contribution (CRDS), which help fund France’s social security system.

Rental savings

From 1 January 2021, if your French holiday home generated a net rental income of €5,000 (around £4,155)* per year, your social levy would have been €860 (around £715). But the rule change means you’ll now only need to pay €375 (around £310) – a saving of about €485 (around £405).

Sales savings

When you sell a second home or a rental property in France, you must pay France’s basic rate of capital gains tax (CGT), which is 19%.

But your bill gradually reduces after you’ve owned the property for six years, and you won’t owe any of this tax after 22 years.

If, after the reduction, you owe social charges on a gain of €50,000 (around £41,550), you would now be charged €3,750 (around £3,100), instead of €8,600 (around £7,150). That’s a saving of about €4,850 (around £4,050).

What are the conditions for the reduction?

To benefit from the reduced social charge of 7.5%, you must:

  • Be affiliated to the British social security system
  • Be a national or legal resident of France, the UK, or a member of the EU
  • Not be dependent on a French compulsory social security scheme

What income is covered by the ruling?

You can benefit from the change if you:

  • Live in the UK and have income from a rental property you own in France
  • Are a UK resident who is liable for capital gains on the sale of any French property
  • Are a British resident of France who holds an S1, and has income from dividends, interest, and capital gains on stocks and shares, as well as capital gains from selling property other than your main home, or income from renting it out

Can you get a refund?

If you believe you’ve wrongly paid taxes (such as social security contributions on capital gains from the sale of real estate in France), you can apply for a refund.

Our thoughts

The decision is good news for UK residents and British expats in France, who will make significant savings thanks to the ruling.

But it’s also worth remembering that as a non-EU resident, you must still appoint a French tax representative when you sell your second home in France, if the sale is more than €150,000.

This ‘représentant fiscal accrédité’ – who will typically charge between 0.7% and 1% of your property’s sale price – is responsible for calculating the capital gain and paying your tax.

*Based on the exchange rate on 14 April 2022 (please note, this rate fluctuates frequently).

For professional advice, call our team of UK tax specialists on 07813 434195 or email stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation