With French tax notices starting to drop through letter boxes some tax offices are continuing again this year to incorrectly tax UK government pensions and rental income.
A trickle of mails has started to arrive into the office from readers resident in France who have a received an unexpected tax bill on their UK pension income and/or UK rental income.
It is clear that in some cases this has occurred as tax returns have been incorrectly completed. In particular, government service pensions and rental income from outside of France should always be declared in Section 8 of the tax return as 'Revenus étrangers imposables en France, ouvrant droit à un crédit d’impôt égal au montant de l’impôt français'. If the income is entered elsewhere and not in this section, it will be taxed.
The bill may also seem larger this year because of the merger of the collection of the social charges with income tax, where previously the the bill for prélèvements sociaux did not arrive until November.
In other cases it is equally clear that tax offices have simply not correctly applied the taxation rules set out in the 2008 Double Tax Convention (DTC) between the UK and France.There are similar treaties for other countries.
Under the DTC, UK government service pensions and UK rental income are only taxable in the UK. The government service pension is, however, taxable in France if you are a French national, or you also have French as well as UK nationality.
By contrast, State retirement pensions, and early retirement pensions other than government pensions are entirely taxable in France, although if you hold an S1 health exemption certificate you are not liable for social charges on your pension income.
Similarly, early retirees who are outside the French health system and insured for health through a private health insurance policy are not liable to the payment of social charges on their early retirement pension.
Article 19 of the DTC covers government pensions, whilst rental income is covered in Article 6.
The full English language version of the Convention can be found at UK/France Double Taxation Convention, while the French version is at Convention Fiscale avec Royaume-Uni.
In relation to such income, Article 24 of the DTC sets out the way in which double taxation is avoided. It says, 'the United Kingdom tax shall not be deductible from such income, but the resident of France shall, ........ be entitled to a tax credit against French tax.'
The tax treaty goes on to say that 'such tax credit shall be equal to the amount of French tax attributable to such income.' This tax credit method does sometimes mean that you will pay some French tax on such income due to the effect of other income in the overall calculation.
The question sometimes then arises as to whether these rules apply if you do not pay income tax on the income in the UK due to the fact that you benefit from the personal allowances available to you.
The guidance notes on this point are clear, for those which accompany Form 2047, Déclaration des revenus encaissés à l'étranger, which you submit each year to the French tax office with information on your foreign income, states: 'le montant de ce crédit d’impôt est indépendant du montant de l’impôt acquitté à l’étranger.'
However, as clear as that may seem, there remains some uncertainty about income that is potentially exempt from UK income tax, such as tax free lump sums, for here the wording of the DTC is a little ambiguous, as it says income has to be 'subject to (UK) tax' to be benefit from the tax credit in France.
Under the guidance notes issued by the UK HM Customs and Revenue the words 'subject to tax' includes allowances and reliefs.
Although the French tax authorities do not appear to have a governing central interpretation, in our communications with them they seem to accept that even if no tax is payable in the UK due to exemptions etc, the tax credit still applies.
If your local French tax office demand to see evidence of tax paid in the UK, then you should point them to the F2047 guidance notes above.
Indeed, in practice, most expatriates seem to be granted exemption on such income, but this has not always occurred and we have received different professional opinion on this point.
Richard Hatt, an independent French tax analyst, says, "It is now over 3 years since the current Double Tax Treaty came into force and there are still a number of areas where there is no definitive interpretation of the treaty rules by the central French tax authority, and inconsistent application at local tax office level. Given the continuing changes to French and UK tax legislation and the differences in tax terminology between the two countries the search for clarity in application of the treaty is becoming something of a Holy Grail quest."
In order to seek redress against an incorrect assessment, in the first instance you should visit your local tax office to discuss it with them. If you decide instead to write to them, make sure it is sent recorded delivery.
If you consider to consider you have been incorrectly taxed, and officials will not budge, you should appeal to the Conciliateur Fiscal whose contact details you can obtain from the local tax office. You also have recourse to the Médiateur des ministères économiques et financiers.
Ultimately, you can also take the matter to a local tribunal administratif.