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How not to Pay income tax in the UK


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I read many times in this forum people discussing living in France and also paying tax in the UK.

My experience with the UK Inland Revenue is as follows:-

I am resident in Luxembourg but this would equally apply if you are resident in any EU Country.

When you have proof of residency in you chosen Country (Residents Permit still very useful to have despite now not neccesary under EU law, add any other documents such as Local Tax bill, utility bill etc, etc.) Write to your UK tax office with copies of these documents together with a letter requested to be exempted from UK income tax. After filling in a further form, get that stamped by your local French Tax office (which also launches you into that system) return it to the UK and after everything is considered in order by them you will receive an official note from the UK tax people giving you exemption.

You can use this exemption to get any pension, interest or dividends paid gross without the deduction of the basic rate of income tax.

This is so straight forward that I am amazed this has not been covered many time before. Please forgive me if it has.

In addition you can move to any EU country, set up home, get your residents permit and submit your request a few months later and you will get all the tax repaid in that tax year. When you leave the UK there is a form (P85) you fill out that also gets your file sent to the Inland Revenue centre for nonresidents.

I found the revenue very helpful and many questions can be answered over the phone by them. They have many leaflets about this issue. (available also online)

 

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This is so straight forward that I am amazed this has not been covered many time before. Please forgive me if it has"

You are forgiven, yes this topic and process has been covered extensively on this Forum in the past 

However, a couple of points of clarification, you say "You can use this exemption to get any pension, interest or dividends paid gross without the deduction of the basic rate of income tax."   This is not correct

As Viva said some pensions are taxed in the UK and there is no choice. Also some UK institutions, Tesco Finance for one will not pay interest gross, it has to be claimed back from the UK tax people.

Local government and civil service pensions are taxed in the UK and there is no option to have these taxed in France, although they have be declared to the French in the same way as other UK derived pensions.  They are exempt from French tax as long as you have completed the double taxation process you described.  Usually after ratification by the local French tax office, they send he stamped forms off to Paris and Paris forward them to Nottingham who will arrange for a refund to be made.

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It does sound easy and many of us have done just as you say and have filled in the double taxation forms, have taken them to the French tax office to be stamped and are still waiting a year later for the French to pass them on to the UK.

I have been advised by a French person to fill another lot in and take them along with next year's income tax forms to the tax office for as I now have a tax number in France (from filling in last year's return)  they may be less likely to loose them.

How long did other people wait I wonder?

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"and are still waiting a year later for the French to pass them on to the UK" 

Not trying to defend the French tax office, but just how do you know this?  Have you been told this by the UK Non-residents office at Nottingham?

When you say "many are still waiting" Edyth, how many are you talking about? You and how many others?  It took about two weeks for my forms to get from my tax office to the UK

All that happens is that your local tax office stamp the forms when you have made a French tax return and sends them to Paris.  Paris record the details and send the forms to Nottingham, who notify your tax office that you have left the UK on the date that you told the French and instructs your tax office, normally Bootle for non-residents,  to stop taxing you on any UK generated income if that is possible (certain Govt. pensions etc are only taxed in the UK) and to refund any tax paid in the UK since you left the UK.  It really is that simple and I think many of us have found it to be the case.  If you have a problem, phone Nottingham, I have found them to be very helpful in the past.

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I know of two others (from other forums so I do not know them personally) so “many of us” was an exaggeration I should have said "some of us". One of them said she has been waiting over 2 years to sort it out.

I took my forms to the tax office in Carcassonne and actually handed them to the fonctionnaire who was explaining how to fill in my French tax form . After 3 months I had to ring Nottingham about reclaiming tax paid in the UK and I asked them if the exemption forms had turned up. They said there was no trace and that they may be still in Paris. Apparently they would be sent to Paris from Carcassonne and then on to Nottingham. I rang them again last week and still no trace so they suggested I chase up the French end. I have some new forms which I will fill in adding my husband's State pension which begins next January. (Last year there were only my pensions to put on the forms).

A French acquaintance said it would probably have been wiser to wait until I had a fiscal number before filling in the first ones so these new ones should have a better chance of succeeding. I am just hoping that the duplication will not cause a problem as we changed our address this year. I will of course explain all this at the Carcassonne office when I go in.

Incidentally I tried to have our savings account paid gross but the Nationwide will not do this – I will have to reclaim the tax at the end of the tax year and am informed I can only do this after the double taxation forms are sorted out. Also my local government pension must be taxed in the UK so things are not as straight forward as I thought.

As has been stated on this forum many times things vary from one département to the next and from one person to the next. But hopefully it will turn out OK in the end and I will be able to reclaim anything due.

 

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[quote]I did all of that before even coming over to France. Filled in a p-85(I think it was a p-85), sent them a letter, and after a few weeks was sent confirmation that I would not be liable to uk income ta...[/quote]

How can you do this in the UK when your local French tax office has to stamp the form? 

The idea is that what you tell the French is the same amount as you declare to the UK.  You sure you are not talking about the R85 forms to have tax paid gross?  These are not the same thing as the double tacation exemption forms.  And, as Edyth and  have found, not all UK institutions wiill accept a R85.

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"Incidentally I tried to have our savings account paid gross but the Nationwide will not do this – I will have to reclaim the tax at the end of the tax year". 

 Edyth, this bit would have been easy except your pension is taxed in he UK, if it wasn't, you do not have to actually claim it back on a double taxation form  All you do, and this is as instructed to me by Bootle, is to complete a UK self assessment form and declare the interest and tax paid.  As the tax paid is below your personal allowance, as French declared and taxed income is exempt after the double taxation forms are completed, you automatically get the tax deducted on the interest paid back to you.

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I experienced exactly the same problem as Edyth - arrived late 2001, local office wouldn't take any interest in me until Feb 2003 (i.e. after one whole tax year in France), then the forms which should have gone to Nottingham never arrived, despite me handing them personally to manager here and explaining what needed doing....... Finally repeated whole process in Feb 2004 and got exemption from as much UK tax as poss from that year.  Very confusing changeover period.

Not helped by Barclays who run an excellent online banking service but still refuse to pay my interest gross, saying they will only do this for offshore accounts.  As I wish to preserve a UK-based account I am stuck with declaring tax paid of pathetic sums such as £4.73 in a year!  Were it not for the fact that my husband's income is taxed in the UK, I wouldn't bother declaring/claiming this.

Chrissie (81)

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I filled in a P85 before I left the UK. I don't know what a R85 is.

The P85 was just to let the Inland Revenue know that I was leaving the UK, it also sets the ball in motion for any Tax rebate due and like Edyth I later received a letter informing me of my UK tax status. I don't think its compulsory to fill one of these in but it's useful if you think you may be owed a rebate and it just ties up any loose ends with the Inland Revenue.

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The form to send to the bank to request interest to be paid tax free, because you are not resident in the UK, is the R105, not the R85. This request can then, if necessary, be traced back to  the form you send to the IR (the FD5), which Ron refers to above,  which lets the Revenue know that you are out of the country.

A problem is that some institutions may ask you to close the account altogether once they know that you are no-longer UK resident.

The link to the IR website gives a pretty clear rundown of how the two systems interact.

http://www.hmrc.gov.uk/pdfs/ir138.htm

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wow such a lot of different ideas. Perhaps it is different for France than Luxembourg. I can only refer people to my original post. However I have the following to add.

Someone has suggested that some types of pensions can ONLY be paid gross. I can only say that my understanding that once the pension provider receives notification FROM the UK IR they will pay the pension gross.

I quote from IR 138 Living or retiring abroad:-

"You will not, however, be liable to UK tax on your UK pension if you live in a country which has a double taxation agreement with the UK which exempts UK pensions from UK tax. Where that is the case, and you make a claim for relief, the Inland Revenue will authorise payment of your pension without deduction of tax."

Note no mention that some pensions are exempt.

 

I also still believe that you are better acting directly with the IR in the UK and getting payments gross then paying your tax in you new adopted country.

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Someone has suggested that some types of pensions can ONLY be paid gross. I can only say that my understanding that once the pension provider receives notification FROM the UK IR they will pay the pension gross.

Your understanding is incorrect in so far as UK government employee pensions and similar pensions (eg teachers) are concerned. Such pensions are not funded and are paid directly from Treasury sources. The Treasury effectively withholds the appropriate amount of income tax at the point of payment. No other arrangement is permitted.

 

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[quote]wow such a lot of different ideas. Perhaps it is different for France than Luxembourg. I can only refer people to my original post. However I have the following to add. Someone has suggested that som...[/quote]

No, not a lot of different ideas, just facts and correct statements. Nobody here has suggested that some types of pensions can ONLY be paid gross,

In fact viva, clark kent and I have said exactly the opposite. "Local government and civil service pensions are taxed in the UK and there is no option to have these taxed in France"   FACT FACT, FACT, whatever country you live in including Luxembourg

"I also still believe that you are better acting directly with the IR in the UK and getting payments gross then paying your tax in you new adopted country" 

Sorry, but this is another load of ill informed tosh,  Yes, it is better to get your interest and/or pension paid gross, but even if you do this, it does not exempt that income from being declared in your country of residence, in our case France.  You cannot just choose which country you pay your taxes in To quote the UK Inland Revenue.

"I would advise that your do NOT have a choice in the country to which you must pay tax.  You will be liable to tax in your country of residence, and failure to apply for exemption from UK tax may result in your being liable in both countries.

 

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gplux

you quote from ir138 and say that no mention is made of pensions being taxable in the UK if the recipient is living abroad.

If you read the paragraphs entitled

UK pensions and annuities

Tax position for non-residents of the UK

you will find

Under most double taxation agreements pensions are only taxed in the country where you are resident. There are, however, some exceptions to this. In particular, under many agreements pensions paid for Government service (including, for example, service in the armed forces) are taxed only in the country which is paying the pension.

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Debra - there is a space on the French tax return where you put any pensions received and taxed in another country. As I receive my tiny pension, which is taxed in the UK, quarterly, I just attach photo copies of the payment slip showing the tax paid. You have to declare worldwide income from whatever source on the French tax return but for pensions, and other income taxed in the UK, you do not pay another lot of tax on it here.
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Debra, as a French resident you have to declare world-wide income. You will find there is a section of the form for income from outside France. Make sure you put any income that has already been taxed in Britain in the part for 'revenus non imposables en France' (I think that's what it's called). Due to double taxation agreements these will not be taxed in France, but will count towards your total income so may put you in a different tax band in France, meaning that although you don't pay again what has already been deducted in UK, you may have to pay a bit more French tax as a result. It sounds complicated, but you will find the local tax office is willing to help you with the form, particularly if you don't go at a really busy time.
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Will said "You will find there is a section of the form for income from outside France..............taxed in Britain in the part for 'revenus non imposables en France" 

Not quite how it works Will, There are two forms to be completed in Debra's case.  It is Section 8 on the Declaration des Revenus" (2042) form that needs to be completed and Section 8 is headed  "Autres imputations ( sounds painful ) , Reprises de deductions d'impot, conventions internationale, divers"

BUT you also have to complete the 2047 form, Declaration des revenus encaisses a l'etranger"   You will not normally be sent this form, you have to ask for it or download on line.  You put your UK taxed income in section Vl, its headed "Revenue imosable de source etrangere ouvrant droit a un credit d'impot egal ou montant den l'impot Francais correspondent a ces revenus"

and the total from here goes into box TK in section 8 on the 2042 form.

Please note that you cannot use the 2042(s) form you may be sent, if you are declaring anything other than wages earned in France.

EDIT Form colours removed to avoid confusion

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Thanks for the clarification. If I may add further to the confusion the forms were indeed blue and pink for declarations relating to 2004 but they may be different colours for the 2005 declaration (I seem to recall ours were for 2003). The form numbers and box references should stay the same though.

Having once filled in the 'étranger' form we tend to get one automatically from our centre des impôts, even though we don't at present need it. Confusingly it is sent separately, last year's arrived after we had sent in the main forms.

 

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[quote]Thanks for the clarification. If I may add further to the confusion the forms were indeed blue and pink for declarations relating to 2004 but they may be different colours for the 2005 declaration (I ...[/quote]

Yes you are right Will, the 2042 was pink in 2003 the same colour as the 2047, I have editted out the colours.
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