OVERVIEW OF THE MAIN FRENCH TAX IMPLICATIONS OF BREXIT FOR INDIVIDUALS
Since January 1st, 2021, UK has officially and definitively exited from the UE putting an end to the application of EU regulations governing taxation between France, as member of the EU, and the UK.
Although Double Tax Treaty (“DTT”) entered between France and the UK remains applicable (tax situation of individuals will continue to be governed by the DTT rules), Brexit affects some French specific tax regimes.
In order to lessen the impact for both individuals and companies, French Government took some measures explained by the French tax authorities who have recently published guidelines of the consequences of the Brexit (i.e BOFIP) dated March 13th, 2021.
We have tried to summarize hereinafter an overview of the main consequences of the Brexit for French and UK residents.
If Brexit has not radically changed the international taxation rules between France and the UK (no impact regarding applicable DTT), it may still have tax consequences that must be anticipated whether (i) as French residents or (ii) as British residents holding assets in France.
Stock savings plans (PEA)
Stock savings plans allow French tax residents to invest in securities while benefiting from French income tax exemption (only socials contributions are paid). Among other requirements, this exemption is granted to individuals who invest in EU and EEA based companies’ securities or into units in collective investment undertaking (mutual funds and SICAVs) that are more than 75 % invested in EU’s securities companies.
As of January 1st, 2021, the United Kingdom is no longer part of the EU and EEA. As a result, the detention of securities in UK-based-companies would no longer meet the conditions of the French Tax Code (FTC).
To avoid massive termination of such plans, the French government has implemented transitional measures to extend PEA eligibility (French ordinance of December 16th, 2020 and implementation order of December 22 th, 2020).
Among these measures, for British securities which were already under the stock savings plan on December 31 th2020, investors will have an extra nine months, that is to say until September 30 th 2021, to take them out of the plan, either by trading them or withdrawing them from the plan by a cash payment as a compensation.
British and EU-based UCITS (“OPCVM” funds) also benefit from the same extra nine-months period to adjust their 75% minimum investment in EU financial and trade their British financial instruments to remain eligible.
Both measures only apply to securities bought before January 1st, 2021. As from this date, investors should no longer buy securities from British companies or UK based UCITS.
If you want to know more about those two measures, they have been deeply commented by the French Tax authorities in its public documentation (BOI-INT-DG-15-10 11/03/2021).
Income tax credit (and Wealth tax credit) for subscriptions to capital of SME’s
Subscription to capital of SME’s gives right, under certain conditions, to an income tax reduction of 18 % of the payments made.
To benefit from this tax reduction, the beneficiary company must be based in the UE or in a country that is part of the EEA and must have entered into an agreement with France containing an administrative assistance clause against fraud and tax evasion.
As of January 1st, 2021 subscription to British SME’s will no longer be eligible for this tax reduction.
In order to smooth transition, French Tax Authorities provides that the tax reduction for subscription to the capital of SMEs remains in effect when securities in British companies subscribed before the end of the transition period have been held during a five-year period (BOI-INT-DG10-10-11/03/2021 n° 300).
The same measure applies to the Wealth Tax reduction (no more reduction since the implementation of the IFI in 2018), as Wealth tax reduction for subscription to the capital of British’ SME’s will not be challenged if taxpayers meet all other conditions stated by the FTC, and in particular the five-year detention period of the securities.
Other French tax regimes for individuals that can be affected by Brexit
It comes to our attention that some French tax regimes have not yet been commented by the French Tax Authorities in its publication of March 13th 2021 but can still be affected by Brexit, mainly because the beneficiary should have a EU, or EEA’s headquarter.
As a non-exhaustive list, the following tax measures should no longer apply, as long as they involve securities of a UK-based entity:
– Fixed allowance on capital gain for retiring executives;
– Increased allowance, in case of subscription to the capital of SME’s (in case of subscription in the first 10 years);
– Reinvestment in an “economic activity” located in the UK, in case of tax deferral regime under the provision of article 150 à B ter of the FTC;
– Income tax and “Wealth Tax” reductions in case of gift to charities or organizations.
Social Security contributions
Since January 1st, 2019 non-resident individuals covered by a social security scheme in an EU or in a country that is part of the EEA or in Switzerland are exempt from French “CSG” and “CRDS” on capital income derived from French real estate assets. They are only liable to a 7.5% levy.
Following Brexit, individuals covered by the UK social security system no longer benefit from this exemption as from January 1st 2021. They are thus subject to the standard French social charges (CSG and CRDS), i.e. a global rate of 17.2%.
Second Home Owners / French Tax Representative Appointment
Since January 1st, 2021, UK residents who own a second home in France can no longer benefit from the EU exemptions. Among other, they will thus be required to use a French Tax Representative should they sell a French property. This will surely represent a non-negligible additional cost (often based on a percentage of the transaction) which will have to be anticipated in the transaction.