Refund of Social Charges supported on real estate capital gains (CGT) in France
Whether you are a UK tax resident individual in your own name, or through a French SCI, you may be affected by this tax news. If you have sold a property in France, you may be able to claim a refund of social security contributions. The claim filed with the tax authorities by the tax lawyer aims to obtain a refund of social charges paid in 2021 on a property capital gain.
You will be aware that UK tax residents who have sold a property in France in 2021 have incurred a 17.2% social charges on the gross capital gain. Today, part of these social security contributions can be refunded to the UK taxpayer.
Why did the UK tax resident pay Social Charges?
The United Kingdom has gradually left the European Union (EU). Between 1st January 2020 and 31st December 2020 there was a transitional tax period. Until Brexit consequences became effective, UK residents used to pay Social Charges on CGT at a favourable rate (7,5% instead of 17,2%), as a former member of EU.
As such, for property sales occurring during 2020, UK tax residents benefited from a total exemption from the CSG and CRDS.
In other words, a UK taxpayer would only be liable for social security contributions up to the level of the solidarity levy, i.e. 7.5% (incurred by all taxpayers, whether in France, within EU or outside EU).
Moreover, before Brexit, there were no need for a UK resident selling a property in France to appoint an Accredited Fiscal Representative.
We remind you that a resident outside of EU (which is now the case for UK residents, since Brexit) must appoint such a professional to calculate his capital gains an ensure its payment to the FTA.
How Brexit has affected Social Charges on property gains?
As of 1st January 2021, the full tax effect of Brexit has been triggered. A UK resident who sells a property in France must therefore comply with two (new) tax obligations.
On the one hand, they must appoint an accredited tax representative in order to sign the deed of sale before a Notary Public.
On the other hand, they become liable for social charges at the full rate (17.2%). This rate includes three kinds of taxes:
- CSG at a rate of 9.2%;
- CRDS at a rate of 0.5%;
- Solidarity levy at a rate of 7.5%.
The 1st January 2021 was therefore a triggering event for any UK tax resident selling a property in France. Since then, the taxation of a property sale has increased from 26.5% to 36.2%. This is an almost 10 % tax increase on the capital gain.
The extent of this increase depends in particular on the length of time the property has been held. Properties held for more than 22 years benefit from a total exemption from capital gain tax. On the other hand, to obtain total exemption from social charges, the property must be held for at least 30 years.
The system of deductions for length of ownership works progressively over the years.
For instance, at the beginning of the holding period, the tax allowances are quite low. On the other hand, at the end of the holding period, the allowance is very high. Thus, the last two years of ownership before the 30th year have a strong impact on the social charges’ calculation. In other words, tax impacts must be strongly different between a sale in year 27 and a sale in year 30.
What position has the French Tax Administration (FTA) adopted for UK tax residents?
During the calendar year 2021, each UK tax resident selling a property in France was subject to high capital gain tax.
Any tax lawyer would have recommended to his clients to pay the social charges at the full rate (17,2%), without claiming any refund. Indeed, French Tax Administration public and legal position was that the reduced social charges rate (7,5%) was only applicable to EU members.
In respect of this legal position, your accredited fiscal representative has certainly applied the full rate of social charges on your property sale in 2021, and filled the 2048-IMM-SD form accordingly.
However, this position has very recently been revised by the tax authorities.
Can a UK resident claim back social charges paid on property gains?
If you have sold a property in France during 2021, you may have realised a capital gain. If so, this capital gain has most likely been subject to social charges at the full rate of 17.2%.
You may then be eligible to obtain a refund of part of this amount by having your tax lawyer file a claim.
By publishing a frequently asked questions (FAQ) on its online website, the tax authorities have indicated since the beginning of February 2022 that the refund of CSG and CRDS can be claimed by a UK tax resident.
The use of frequently asked questions (FAQ) has been widespread in France for some years. However, it is not easy to understand the legal scope of this document.
Let us simply recall that French case law considers that, in principle, the FAQ does not contain mandatory provisions of a general nature. This means that its content does not differ from, for example, a notice attached to tax returns.
On the other hand, in the event that an FAQ reveals in itself a decision of the administration, it must be considered as containing mandatory statements of a general nature.
This means that these FAQs must allow the UK taxpayers concerned to file a claim for reimbursement of the social charges incurred.
Which tax lawyer to file a tax claim for social charges reimbursement?
AGBC AVOCATS is a tax law firm that has decided from its creation, to specialize in real estate taxation. Some claims are already pending before the administration and are subject to analysis by the tax authorities.
As tax lawyers, we collect the client’s information regarding their property sale and draw up the claim to the administration. This claim must comply with all the rules of form and substance laid down by French tax regulations.
On the one hand, the deadline for filing a claim is subject to a legal framework. However, we advise you not to wait until the end of this period to file your claim.
On the other hand, the claim must be sufficiently motivated and supported by documentary evidence in order to trigger a positive result.
From our experience, we are perfectly aware of the list of legal and accounting documents that the tax authorities expect before they grant a refund.
Once the claim has been drawn up, the administration usually responds fairly quickly to our requests for reimbursement.
The claim for refund relates exclusively to the CSG and CRDS paid by UK residents. This represents 9.7% out of the 17.2% paid.
Contact our tax lawyers to file your claim on your behalf: guillaume.allegre@agbc-avocats.fr