The EU directive lowered the rate of social security contributions
Prior to Brexit, all UK resident taxpayers who owned property in France were generally liable to French National Insurance at a reduced rate of 7.5%. This concerned primarily the income of British taxpayers, which is obtained from the rental of French properties and capital gains from the sale of such properties. This is due to the EU directive on the coordination of social security systems, which mainly applies to persons who are tax resident outside France. However, these laws may also apply to French residents who are members of the NHS.
At this point, it is important to consider how Brexit affected this tax situation in the UK. After Brexit, the directive no longer applies to UK residents from 1 January 2021. As a result, UK residents are subject to the standard rate of French National Insurance Contribution of 17.2%. Unsurprisingly, this situation caused a strong reaction in the UK and many people with property located in France faced a significant increase in taxes.
On December 30, 2020, the EU and the UK announced the terms of a post-Brexit trade and cooperation agreement. This agreement contains new provisions on social security coordination between the EU and the UK.
French tax authorities go back to a lower rate
Surprisingly, the French tax authorities decided that the rules in the Trade and Cooperation Agreement essentially mirrored those of the EU Directive, and thus returned to a reduced National Insurance rate of 7.5% for UK taxpayers. French tax authorities released their administrative guidance last month to confirm these changes, which are highly sought after by UK residents.
British taxpayers who obtained income from renting a French property (or sold it during 2021) can now claim a tax refund for excess and unduly paid social contributions. Taxpayers who believe they are eligible to file for a tax refund have a deadline to do so by December 31, 2023 (or December 31, 2024 for rental income).
