3. Liability to French Income Tax

1. 3.1 Basic Rules on Liability to Income Tax
2. 3.2 Are you Resident or Non-Resident?
3. 3.3 What is your Fiscal Household?
4. 3.4 What Income is Taxable in France?

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3.4. What Income is Taxable in France?

1. 3.4.1. Worldwide Income
2. 3.4.2. UK Pension Income
3. 3.4.3. Foreign Rental Income
4. 3.4.4. Foreign Savings Income
5. 3.4.5. French Rental Income
6. 3.4.6. French Business Income

3.4.1. 'Worldwide Income'

If you become resident in France you need to declare your worldwide income from all sources.

Accordingly, your personal income tax declaration needs to include salary, pension, rental income, investment income, interest on savings, and income from business activities, if not taxed through French company tax, called Impôts sur les Societiés.

Some income is excluded, notably some French social security payments, certain French bank savings schemes, and some concessions for apprentices.

In addition, income earned outside of France taxed in the country of origin should also get relief under tax treaty agreements.

Nevertheless, this foreign income will be added to your French earnings to form the base for calculating liability to income tax on your earnings in France. In short, it may increase the rate of taxation on your French earned income.

Since 2010 the elimination of double taxation on income taxable in the UK is made through a tax credit corresponding to the French tax that would have been paid. So you will need to declare your gross income before tax paid in the UK.

If you are based in France, but earn business or salaried income from both the UK (or other country) and France, then you will pay obligatory health insurance charges on the UK income, provided you pay income tax in the UK on this income and you are affiliated to the French social security system. You can read more at Resident or Non-Resident?

3.4.2. UK Pension Income

If you are resident in France and in receipt of a State retirement pension, private sector pension, or annuity from the UK, it is taxable in France.

Initially, when you relocate to France you will be taxed at source by HM Revenue, so you will later need to make an application to be taxed in France, and to receive a rebate of tax paid in the UK.

You can apply to the HM Revenue & Customs to obtain tax relief at source, which will be equal to the value of your UK personal tax allowances.

You can also contact their Centre for Non-Residents on 0044-151 210 2222 from outside the UK, or 0845 070 0040 from with the UK.

It is generally more beneficial to opt for your pension income to be taxed in France, as rates of income tax in France are lower than that of the UK.

Those in receipt of a government service pension from the UK have no choice in the matter, as the pension is taxed at source in the UK. Nevertheless, you will still need to declare the gross income on your French income tax return. The income will be added to any French taxable income, and when the tax liability is determined from this figure, you will get a credit equivalent to the additional French tax payable in your pension income.

You will receive your normal UK personal allowance against this government service pension; if you are also in receipt of a State retirement pension from the UK taxed in France, then you will also benefit from the allowances granted in France on this pension to someone who is retired.

Those in receipt of pension income should read our consideration of your potential liability to the social charges in France, as your liability to this tax will depend on your pensionable status. Government service pensions taxed in the UK are not liable to the social charges. Similarly, those in receipt of a State retirement penson are not liable for the social charges.

It has been a moot point for a long time, but since 2011 lump sums paid on retirement to expats living in France are now liable to French income tax.

You will pay income tax on any private pension lump payments over €6000. Although further clarification is needed, it seems that if the lump sum is over €6000, then the whole of the sum is taxable.

Government service pensions (ex government and local government employees) will continue to remain exempt, although they may also be bought into the tax net.

The basis on which private sector lump sums will be taxed is done by adding 1/15th of the lump sum you receive to your other taxable income in the year, and then multiplying the tax then payable by 15.

The lump sum figure used is after deduction of the usual 10% allowance for pension income.

Example: A two person household whose total income is €24,000, and who receive a pension lump sum of €30,000. Under the rules €2,000 (1/15th) of the lump sum would be added to their household income, less the 10% abatement. This would increase their tax liability by €252. So the additional tax on their lump sum would be €3,780 (€252 x 15).

Clearly, to avoid your pension lump sum being taxed, it pays to take it before you become resident in France, although we appreciate this is not an option that is suitable for everyone.

3.4.3. Foreign Rental Income

If you become resident, but continue to receive letting income from property remaining in the UK, then this income is ordinarily taxable by the UK authorities, to whom you will need to make a tax declaration.

You will of course also need to declare the gross income to the French tax authorities, but you will receive a tax credit equivalent to the tax you would have paid in France on the income.

However, you can make application to receive the income without tax deduction by HM Revenue and, depending on your circumstances, it may pay you to opt for this option.

More details on relief in the UK for non-resident landlords can be found by visiting Tax Relief for UK Landlords.

3.4.4. Foreign Savings Income

If you earn foreign savings or investment income, then this is entirely taxable in France, although you will get relief against any taxation paid elsewhere.

You can generally elect to have your foreign savings income paid gross to you by your UK or other overseas bank.

Indeed, the French tax return requires that you declare the gross level of interest earned, not the net amount, so it is far easier to elect to be taxed entirely in France, rather than having to reclaim from the UK (or elsewhere) the tax you may have already paid on the earned interest.

In July 2005 the European Tax Directive came into force, under which Member States agreed to exchange information about bank customers who earn interest in one country but live in another.

This means that if you hold savings in a bank account in the EU other than in France, the amount of interest earned on the account will be reported to the French tax authorities. Offshore accounts are shielded from this rule, but you are still legally required to declare the income.

Since 2007, France has also entered into separate tax exchange agreements with many so called 'tax haven' countries, so there is now a far greater chance of undeclared income in these countries being discovered, although you would normally need to be subject to a tax investigation for this to happen.

You can read more about these regulations in our pages at European Tax Directive.

You may find that your bank will ask you for your French income tax registration number.

3.4.5. French Rental Income

You will need to declare all rental income earned in France. The basis of taxation will depend on whether it is furnished or unfurnished rental income.

Information and advice and the taxation of rental profits can be found in our comprehensive guide to Taxation of Rental Income in France.

3.4.6. French Business Income

The taxation of business income is dealt with elsewhere in our Guides, but if you run a micro business in France you will need to declare the profits with your personal income tax return.

You can read more in our Guide to Micro-Entrepreneur Business in France.

If you run a limited company your company tax return is submitted separately from your personal income tax return.

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