Prélèvement Forfaitaire Unique – PFU

[Sparkle]

Could someone please explain in very simple terms the Prélèvement Forfaitaire Unique – PFU. Last year thinking I was doing the right thing I ticked box 2OP on my tax declaration. Some time later a letter came from the Impots saying it would benefit me more if I went back into the declaration and untick the 2OP box. That I did and found I would be getting a refund..........18 euros.

TBH it's all beyond my grey matter! Thanks in advance.

[elsie]

Prélèvement Forfaitaire Unique (PFU) is a flat rate of tax - income tax (12.8%) and social security contributions (17.2% or the reduced rate for those with an S1) for interest/capital gains/dividends. It is beneficial to those in the higher tax bands tax. If you do not tick 2OP your interest/capital gains/dividends taxed at the PFU flat rate.

If you tick 2OP your interest/capital gains/dividends is added to your other income and you are taxed on all income on the income tax scales - see below. So it depends on how your income falls in the scale tax bands (which is not necessarily very easy to calculate if you are a household of 2 or more parts)
Up to €11,294 0%
From €11,295 to €28,797 11%
From €28,798 to €82,341 30%
From €82,342 to €177,106 41%

[Sparkle]

@elsie Thanks for the info Elsie - I think I understand. We are a two person household each with private pensions although mine's a small amount and now we both get our OAP it's just pushed us into the 30% and the year before I had a few wins on premium bonds which was unusual but welcome

[Headers]

I tried ticking 2OP this time on a run through just to see what difference it would make. My tax went up 500 euros and an on screen message came up along the line. ‘It would seem that the 2OP option does not suit your position’ so I unticked it and my tax bill went down to where I thought it should be.

[Sparkle]

@Headers It's good that they're letting us know.

[leclairon]

I am also struggling with the PFU and wondering whether it is advantageous. I have ticked it in the past but now wonder if I should.
Those scales you mention, Elsie, is that the final RFR figure? The tax office has sent me a simulator which I haven't yet tried but I seem to remember someone saying it didn't work with UK Gov/military pensions.
Can I just clarify that the OAP pension and UK interest, and the UK govt pension at French rate (after box HK)is all taxed at 30% if you tick 2OP. If you don't tick 2OP what rates apply to the above?

[elsie]

leclairon, Those are the income tax bands and not related to the RFR. There is a different calculation for the RFR.

2OP only refers to the way unearned income, interest/capital gains/dividends, is taxed and has no effect on pensions or other earned income taxation.

I don't know of a free calculator available online for PFU and I don't know whether those which are available from some companies if you sign up, e.g. https://www.cacomptepourmoi.fr/blog/gui ... rogressif/ will include foreign income, etc?

The full calculation of income tax can get quite complicated as there are various allowances and additional charges which are made. Foreign government pensions/associated tax credits add other complications. I developed my own spreadsheet to check my tax, as I didn't find the annual statement very clear(!), but the spreadsheet only covers my income sources and isn't generally applicable. There is a full method of tax calculation in the last sections of the official guide which is published annually. The current guide is the Déclaration des revenus 2023 Brochure pratique brochure 2024 which is also downloadable as a 434 page PDF www.impots.gouv.fr/www2/fichiers/docume ... ccueil.htm

But, in the simplest form to understand, and excluding any of the allowances, etc., they add up the total household income and divide by the number of "parts" in the household, two for a couple. That figure is used to calculate the tax for that part according to the tax scale (for one person) and that tax is then doubled for the household. That means the overall tax can be at a lower rate than if just the tax band was use.
The scale is
Up to €11,294 0%
From €11,295 to €28,797 11%
From €28,798 to €82,341 30%
From €82,342 to €177,106 41%
More than €177,106: tax rate of 45%

This page gives various worked examples of the tax scales https://www.service-public.fr/particuli ... 19?lang=en

2OP only refers to the way unearned income, interest/capital gains/dividends, is taxed and not pensions or other earned income.
If you tick 2OP your interest/capital gains/dividends is just added in to your overall income figure and the tax calculated as above using the tax scales (and if you tick 2OP there are abattements for some forms of income).
If you do not tick 2OP your interest/capital gains/dividends are taxed at the flat rate of 12.8%.
If, when you do the above rough tax scales calculation, the figure for the total income (earned and unearned) for a single part in the household is still within the 0% or 11% tax bands you should tick 2OP. That is probably why many francophile web sites/guides recommend ticking as there is an assumption the total income is not likely to be high enough to be taxed in the 30% band.
Ticking 2OP may reduce the total tax bill if your unearned income, interest/capital gains/dividends, would take a single part into the 30% income tax band, but it becomes a complicated calculation unless a long way into the band.

[leclairon]

Thank you, Elsie, for such a comprehensive explanation. I hate not being able to totally understand it to sort out our own affairs to our best advantage! As a previous poster said, too much for our grey matter. I do have a copy of the Guide so will try and refer to that. After reading that the tax office had very kindly advised someone to untick the box, I did write to them to ask if they could advise me and they just referred me to the simulator so I guess some tax offices are more empathetic than others.

I appreciate the explanation of what 2OP covers - I hadn't really understood that at all.
Thank you for the links. I am going to try and check it all this weekend.

[BishyB]

leclairon - I found this helped me
https://www.corrigetonimpot.fr/declaration-impot.../