Social Charges, S1s and Exemptions
10th Nov 2022
S1 holders and others are winning claims for exemption from social charges, but confusion about the rules continues to exist.
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We have received several mails recently from readers seeking guidance on their liability to social charges.
It seems that advice that has been posted on social media is leading to a misunderstanding of the rules as they apply to different types of income and to capital.
A summary of the rules for social charges for different types of income or capital is, therefore, set out below.
Pension Income
Holders of an S1 health certificate (an entirely European apparatus) are exempt from the social charges (prélèvements sociaux) on their pension income. This includes all pension income, of whatever source, public or private.
Neither are they liable for the solidarity tax (prélèvement de solidarité) on such income, a tax at the rate of 7.5% on capital income that was introduced in 2018 when the French government lost a legal battle in the European courts on the liability of EEA residents to the social charges.
The exemption also applies if you hold a private health policy to cover your health costs in France, and you do not have a French social security number.
Government service pensions are also exempt from the social charges and solidarity tax, irrespective of whether you hold an S1.
Double taxation treaties in other countries may also exclude pension income from taxation in France, as is the case for US pensions.
Rental Income
Rental income from France received by residents who hold an S1 is exempt from the social charges, although subject to the solidarity tax of 7.5%.
Non-residents in the EEA not in the French social security system are similarly only liable for the 7.5% solidarity tax.
Following a decision made by the French government in 2021, the same rule also applies to non-residents in the UK, who also only pay the solidarity tax on French sourced rental income.
All other non-EEA residents are liable for the social charges on French sourced income at the rate of 17.2%.
As a general rule, foreign based rental income earned by residents of France is entirely exempt from social charges under the terms of double taxation treaties, as is the case for the UK.
Investment Income
Investment income and savings are liable to the full panoply of social charges at 17.2%, except where you hold an S1 certificate or you are an EEA resident, not in the French social security system, when you merely pay the solidarity tax of 7.5%. The same concession is granted to UK non-residents.
Certain popular savings schemes are exempt from the charges, which you can read more about in Banking in France.
Capital Gains
Capital gains on the sale of property or other assets are liable to the full panoply of social charges at 17.2%, except where you hold an S1 certificate or you are an EEA resident, not in the French social security system, when you merely pay the solidarity tax of 7.5%. The same concession is granted to UK non-residents. There are also other exemptions and relief against capital gains tax, eg, principal residence.
Income Based Relief
Quite separately from the exemptions available under European law, there is also income-based relief or complete exemption from the social charges. Such relief is granted automatically on pension income only by the tax authority from your annual tax return. You can read more at Guide to Social Charges in France
Claims
As occurs each year in France, once again this year it seems hundreds of international property owners in France are incorrectly paying social charges, either when they might be exempt, or only be liable for the solidarity tax.
In most cases, the error is one that has been made by the French tax authority, but a not insubstantial number of cases are due to incorrect completion of the tax return. Notaires are also often reluctant to grant a reduced rate on property sales, in many cases because they are simply unaware of the rule. It is a similar story with banks and savings and investment income.
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