PAYE – Prélèvement à la source now in place
The first tax payments via the new system will be made in January 2019, either by direct debit or withheld at source from French salaries/pensions. No action should be required from the taxpayers if all is in order.
Taxpayers should receive a payment in January 2019 equaling 60% of their previous year’s tax credits (re household employee expenses, charity gifts etc. made in 2017). The tax credit calculated on 2018 eligible expenditure (to be declared in May/June 2019) will be paid as usual in September 2019 following the submission of a 2018 income tax return minus the advance payment.
The PAYE tax rates and/or payments on account will be automatically adjusted in September 2019 following the submission of a 2018 income declaration in May/June 2019.
Alternatively, taxpayers can request an increase or decrease in their payments on account if they are certain that there will be a significant change in their income between 2017 (the year of reference) and 2019 (the current year).
All payments made in 2019 will be credited towards the 2019 income tax liability, which will be regularised in September 2020 following the submission of a 2019 income declaration.
2018 income falling within the PAYE system will benefit from a tax credit (CIMR) cancelling double payment of tax during the year of transition (on both 2019 and 2018 income). Regular pensions and salaries received in 2018 should therefore be totally tax-free. However, for self-employed income (including gîte income), the CIMR will be calculated on the best of the previous three years instead of 2018 income if 2018 happens to be the best year. A supplementary tax credit will be granted next year if 2019 income is superior or if the increase in 2018 income can be justified.
For an unfurnished rental property, it should be noted that 2019 repair and maintenance expenses will only be tax deductible for the average of expenses made in 2018 and 2019 (thus if a landlord spent zero in 2018, only 50% of his 2019 expenses will be deductible). Landlords who made no repair works in 2018 may prefer to delay repairs until 2020 when they will be fully tax deductible again.
Flat-tax on investment income and capital gains
The new 30% flat tax on investment income and capital gains (which remain outside the prélèvement à la source system) has been in place since 1 January 2018. The flat tax is comprised of income tax of 12.8% and social contributions of 17.2%. The rate of social contributions should be reduced to 7.5% for taxpayers registered for healthcare in another EU/EEA country (see below).
Each year the taxpayer can choose whether or not the flat-tax is advantageous, compared to the calculation of income tax under the progressive scale and other related rules (re abatements and deductible CSG). This choice will be made via their income tax return and will apply to all of their investment income and capital gains for that given year.
The flat tax is payable at source on all dividend and interest income for households with a 2017 worldwide income above € 50,000 (single person)/€ 75,000 (couple) concerning dividends and € 25,000 (single person)/€ 50,000 (couple) concerning interest. It is normally retained at source by the financial institution/company paying the dividend. However, for foreign-source income in particular, it may be up to the taxpayer to declare and pay the flat tax via the declaration form n° 2778. This declaration must be submitted before the 15th of the month following receipt of income.
Social contributions for residents registered for healthcare in another EU/EEA country
Following the “Du Ruyter” ruling as well as the second wave of social contribution reclaims, the French government has decided to reform the social contributions levied on taxpayers registered for healthcare in another EU/EEA member state.
This will concern residents accessing French healthcare through EU regulations after having successfully submitted a S1/E121 form.
Social contributions on property, investment income and capital gains will fall from 17.2% to 7.5%. This new 7.5% contribution is known as the prélèvement de solidarité. This change concerns social contributions payable in 2019 by retention at source or via a 2019 assessment (on 2018 income).
Ongoing reduction of taxe d’habitation
Individuals with 2018 income below € 27,000 and couples below € 43,000 can expect to receive a 65% reduction in their 2019 taxe d’habitation assessment payable in November 2019. This concerns only the main residence and the TV licence remains payable.
The government has pledged to exempt 80% of taxpayers from taxe d’habitation by 2020.
Tax credits for energy efficient home improvements (CITE)
The CITE tax credit for energy saving improvement to your main residence will continue to apply for expenses paid in 2019. It is expected to be discontinued and replaced by subsidies subject to income limits.
The replacement of single glazed windows with energy efficient windows now qualifies for a reduced 15% tax credit.
Expenditure in 2019 on other home improvements will give rise to a 30% tax credit in the same way as previous years.
Exemption for capital gains on property by former French residents
Capital gains made by non-residents selling their former main residence in France after their departure but before the 31 December of the following year are exempt, provided the house was not rented out.
Example: A person leaves France permanently in May 2019. The sale of their French home (former principle residence) is exempt from capital gains tax as long as the sale is made before 31 December 2020.
If the sale is made after that date, a capital gain exemption of € 150,000 (€ 300,000 for a property jointly held by a couple) is available for EU/EEA nationals, provided that the taxpayer lived permanently in France for at least two consecutive years during the period of ownership. The exemption is not new and can be claimed up until 31 December of the tenth year following departure (instead of five previously).