PEL taxation: mistakes to avoid when declaring taxes

PEL taxation changes depending on the date the plan was opened and can have a considerable impact on your returns. The Housing Savings Plan (PEL) is a popular savings product in France. There were nearly 12 million of them in progress in 2023. They represented around 300 billion euros ( Banque de France ).

This system was created in 1969. It was a way to build up remunerated savings. They can also benefit from a property loan at a favorable rate, under certain conditions. However, the taxation associated with the PEL has changed over the years. This is what has made tax treatment sometimes difficult.

PELs opened since 2018 are subject to the single flat-rate deduction (PFU). Those opened before this date are exempt from income tax for their first twelve years. This divergence in tax regimes, as well as the lack of knowledge of certain principles, leads to frequent errors in tax returns. We can mention the omission of taxable interest or the failure to comply with the specific boxes to be filled in on the declaration.

What is the tax applicable to PEL? What are the common mistakes? How to avoid them? All the explanations are in this article.

PEL taxation: understanding the basic rules

The PEL has undergone several tax reforms . This has affected the management of interest and levies.

Before March 1, 2011, savers benefited from an exemption from social security contributions until the plan was closed or its 10th anniversary. This made it possible to capitalize the interest without immediate tax charges.

From March 2011, social security contributions were collected annually. PELs opened before this date remained exempt from income tax for 12 years.

In 2018, the reform introduced a single flat-rate levy (PFU) of 30% from the first year. The state bonus was abolished. The product then became less attractive.

Social security contributions (17.2%)

Social security contributions on PEL interest are 17.2% and vary depending on the date the plan was opened.

Prior to March 1, 2011, they were deferred until the plan closed or its 10th anniversary. This allowed for more favorable interest management.

Since 2011, they have been applied annually on interest generated each December 31, even in the absence of income tax.

Since 2018, social security contributions have been systematic from the first year of opening. This has simplified taxation but reduced tax benefits.

Income tax

The taxation of interest generated by the PEL varies according to the age and the date the plan was opened . Savers benefited from an income tax exemption for the first 12 years, before 2018.

This offered an advantage to those who opened their plan before this date. This scheme was very profitable, especially for those who wanted to use their PEL as a long-term savings product. They did not suffer immediate taxation.

Interest was subject to income tax from the 13th year of a PEL opened before 2018:

• either according to the progressive tax scale,

• either according to the single flat-rate deduction (PFU).

This choice offered some flexibility to taxpayers. They could choose the most advantageous mode of taxation depending on their tax situation.

PELs opened since January 1, 2018 are systematically subject to a single flat-rate deduction (PFU) from the first year. The overall rate is 30%. It includes 12.8% income tax and 17.2% social security contributions.

This change simplified the calculation of the tax. It also eliminated the income tax exemption for savers who opened their plan after this date. The tax advantages of the PEL were then reduced. Especially for those who sought to benefit from long-term savings with a low tax rate.

Period	Social security contributions	Income Tax	Single Flat-Rate Deduction (PFU)	Comments
Before March 1, 2011	Exemption until closing or 10th anniversary.	Income tax exemption for 12 years.	Not applicable	Interest is capitalized without immediate taxation.
From March 2011 to December 2017	Annual social security contributions on interest as of December 31.	Income tax exemption for 12 years.	Not applicable	The interest was subject to social security contributions each year.
Since January 2018	Social security contributions of 17.2%, applied each year.	Subject to income tax or PFU from the first year.	30% PFU: 12.8% income tax and 17.2% social security contributions	Simplification of the system, reduction of tax advantages for long-term savers.

 

Common mistakes to avoid

PEL holders often forget to declare taxable interest. This usually happens to those who opened their plan after January 1, 2018.

The interest generated on these PELs is immediately subject to income tax and social security contributions from the first year of opening. This has also happened since the introduction of the single flat-rate deduction (PFU).

This is not the case for older plans which benefited from a tax exemption during the early years.

The taxpayer risks a tax adjustment if this declaration is neglected. The tax administration can recalculate the tax due on undeclared interest. It can be accompanied by late payment penalties of up to 40% if the omission is deliberate.

Late payment interest may also be added to the amount due. You will therefore need to clearly identify the taxable interest on your PEL and include it in your income tax return to avoid any penalties.

Confusing social security contributions and income tax

Social security contributions are automatically deducted each year from the interest generated by the PEL. Independently of the tax return.

Income tax (if applicable) is not collected directly by the bank. It must be declared separately in the annual income tax return.

If a saver does not correctly declare his taxable interest, he risks finding himself with a shortfall for the tax authorities. Taxpayers must also be careful not to declare the same amounts twice. It will be necessary to deduct the social security contributions already paid, to avoid any double taxation.

Wrong box in tax return

You should not make a mistake in the box when declaring income generated by the PEL. Some taxpayers may confuse the box for exempt products and the box for taxable products.

Interest generated by a PEL opened before 2018 is exempt from income tax for the first 12 years. However, it must be declared as taxable income if the PEL is opened after 2018.

The saver could wrongly indicate the interests in a box reserved for exempt products. This will cause a failure to declare and a potential tax adjustment. The declaration must therefore be made taking into account the specificities linked to the date of opening of the plan.

Do not adjust your declaration according to the opening date

The taxation applied to PEL interest is different if it was opened before or after January 1, 2018.

The taxation of new PELs (with the 30% PFU) is often wrongly applied to PELs opened before this date. The interest will be exempt from income tax for the first 12 years.

This can happen if the saver does not take into account the age of their PEL and its tax regime. In the event of an error, the tax authorities could tax interest that should be exempt. They can also do the opposite and exempt interest that should be taxed.

It will therefore be necessary to check the age of the PEL and to follow precisely the taxation which applies to its particular case.

Do not optimize for non-taxable

People whose income is below the tax threshold should opt for the progressive income tax scale. The single flat-rate deduction (PFU) is not recommended.

The progressive scale allows non-taxable taxpayers to be subject only to social security contributions of 17.2%. They will not be taxed at the rate of 12.8% of income tax.

Care should be taken to fill in the appropriate box for the progressive scale. And not automatically accept the PFU. This will save on the income tax portion. This can represent a significant saving for taxpayers who have no other sources of taxable income.

Best practices for optimizing the taxation of your PEL

Understand the rules according to age and opening date

Tax conditions have evolved over the years. Each plan is subject to specific rules based on these criteria. Here is a summary table of the main tax rules:

Opening date	PEL age	Social security contributions	Income tax
Before March 1, 2011	< 10 years	Collected at closing	Exempt up to 12 years
	> 10 years	Collected on the 10th anniversary, then every year	Exempt up to 12 years
	> 12 years old	Collected each year	Taxed from the 13th year
Between March 1, 2011 and 2017	All durations	Collected each year	Exempt up to 12 years
After January 1, 2018	All durations	Collected each year	Taxed from the first year (PFU 30%)

 

By knowing the rules, you will be able to:

• plan your tax strategy as best as possible,

• know when social security contributions are applied,

• predict the impact of tax on the interest generated by your PEL.

 

Check the information provided by your bank

Each year, the bank must provide you with a tax statement with the interest generated by your plan. Social security contributions already made must also be included. This statement is important for your income declaration and must be carefully examined.

Social security contributions are made automatically by the bank. However, you must check that the tax information transmitted is correct.

This will help you avoid mistakes, especially if your bank miscalculates interest or social security contributions. If in doubt, ask your bank advisor for explanations or adjustments.

If any anomalies are found, you can correct this information before filing your tax return. This will help you avoid tax adjustments.

The main figures on PEL taxation

The PEL is a very popular savings product in France. Especially because of its tax advantages and the security it offers to savers. To optimize these advantages, it will be necessary to understand the tax rules that apply. In particular with regard to:

• the single flat-rate deduction (PFU),

• social security contributions,

• the tax.

Element	Details
Overall rate of the Single Flat-Rate Deduction (PFU)	30% : Composed of 12.8% income tax and 17.2% social security contributions. Applied to interest on PELs opened after January 1, 2018.
Social security contributions	17.2% : Social security contributions are applied to the interest generated by the PEL, in addition to income tax.
Income tax	12.8% : Component of the PFU, it is taken from the interest generated by the PEL opened after 2018.
Distribution of households with a PEL	30% of French households had a PEL in 2022, according to an INSEE study.
Using the PEL	Mainly used to build up a personal contribution with a view to purchasing real estate, with an attractive return in periods of low rates.
Evolution of the number of PELs	The number of new PELs decreased after the introduction of the PFU, but remains a popular product due to its security and tax advantages.
Average amount of a PEL (2022)	€10,500 : The average amount of a PEL remains stable, with an annual interest rate of between 1% and 2%.
Monthly deposit ceiling for a PEL	€540 per month maximum : Maximum amount that can be paid each month into a PEL.
Average return on a PEL	1% to 2% : Interest yield generated by a PEL, which is relatively modest but attractive for safe savings.
Taxation according to the opening date	Interest is taxed differently depending on the date the PEL was opened. Social security contributions and income tax apply differently after January 1, 2018.

Frequently asked questions and practical cases

How to correct an error on the PEL tax return?

First, the anomaly must be identified. This could be forgetting the interest or incorrectly applying the collection rates.

You can make corrections via the "Correct my declaration" service on impots.gouv.fr, if the declaration was made online. It is accessible for 3 years after the filing deadline.

In case of paper declaration, send an explanatory letter to your tax center. You must attach the necessary supporting documents.

If an error resulted in higher tax, penalties may apply. These will be reduced if the correction is prompt.

Practical case: choosing between PFU and progressive scale

A non-taxable saver with a PEL opened before 2018 and generating €1,000 in interest must choose between the 30% PFU or the progressive scale.

If he chooses the PFU, €300 (30%) will be taken from the interest. If he opts for the progressive scale, the saver will only pay social security contributions (17.2%), i.e. €172.

The progressive scale is more advantageous for a non-taxable saver. It avoids income tax and is limited to social security contributions.

PEL taxation and inheritance: what happens in the event of inheritance?

The taxation of the PEL in the event of inheritance is based on several elements:

Transmission of the PEL

Following death, the PEL is transferred to the heirs . They can keep it or close it. The interest generated before death remains acquired, but the taxation applicable to this interest varies according to the seniority of the PEL.

Interest taxation 

PELs opened before 2018: tax exemption on interest if the plan is held for 12 years. Social security contributions (17.2%) remain due.

PELs opened after 2018: interest is subject to the Single Flat-Rate Deduction (PFU) of 30% from the first year.

Inheritance rights

The capital of the PEL is subject to inheritance tax, with deductions depending on the family relationship.

A reduction of €100,000 applies for transfer between parents and children.

Options for heirs: they can choose to close the PEL or keep it. If closed before 12 years, the interest is subject to the applicable tax (PFU or tax and social security contributions), and inheritance tax applies to the capital.

Optimization strategies: to reduce taxes, it may be advantageous to keep the PEL for up to 12 years. It is also possible to open a PEL in the name of each child to benefit from tax deductions.

Key points to remember

To avoid mistakes when declaring your PEL, you will need to understand specific tax rules. They relate to the date your plan was opened and its age. Check the information provided by your bank, especially the amount of interest and social security contributions applied. This will help you avoid any confusion.

It is also essential to differentiate social security contributions from income tax and to declare them correctly in the appropriate boxes of your declaration. In case of doubt or complex situations, it is advisable to consult a tax expert. This will ensure that you comply with the rules and optimize your tax declarations.