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Accountants advise to not declare UK rental income


chocolatefish
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Going round in circles here...

When we first arrived in France, the accountant at my DH's employment advised that we did not need to declare UK rental income on our French tax return, as it was all declared in the UK and taxe under the UK system. Since then, we have stuck with this.

Recently, while talking to a French friend who works in a bank, we were alerted to the possibility that we should be declaring everything in our French tax return, including all UK rental income. This led me to read further on the matter on this site and elsewhere, and the consensus seems to be that we should indeed be declaring everything including UK rental income that is taxed in the UK, and then receiving a tax / CSG credit to the effect that our French tax payments are unaffected.

So we went to see a different accountant, recommended by French friends, and he has - again - told us that No, we do not need to declare our UK rental income as it is already declared under the UK tax system.

Advice please. We don't know who to believe?
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See parsnips reply on page one of this link (kindly found by Norman previously):

http://services.completefrance.com/forums/completefrance/cs/forums/2904188/ShowPost.aspx

We have UK rental income and have always declared it here, though it's taxed in the UK. There was a small change in the way the french fisc deal with it ?2 years ago.

If the link doesn't work just type UK rents into the search engine and there's quite a lot about it.

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That link says

On page 3 sec B 1) b - it clearly states that the Royaume-Uni  is one of the states whose "revenus immobiliers"-rents- are exonerated by a credit equal to the french tax; in other words exactly as the guide  describes for  government pensions ; 2047 VI and 2042 8TK.

So yes you declare them and then get a credit back.

This is to fix where in the tax bands any income in which you do have to pay French tax should be taxed.

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Patf is right, there were some changes introduced which meant that income which previously could be omitted from a French tax return had to now be declared in order to arrive at a total tax liability against which credit was given for tax paid in UK.

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Thank you both for that link, I have already read that page in great detail, it is one of the ones that alerted me to this issue in the first place.

I guess my question is: why does the information given in the FAQs here directly contradict the advice given by 2 separate French accountants, both of whom have extensive experience of dealing with expats and their tax situations in France?

I'm also concerned that when we 'own up' to both the rental income and the nominal interest on accounts we have in the UK, we'll end up being fined for previous years non-declaring, which as I say was done on the advice of an accountant.

Deary deary me.
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So possibly this is a change that the accountants are not up to speed on?

DH is baulking at it, and really wants to believe the accountants, as the level of information / paperwork that the French tax forms demand is way in excess of the amount of money involved - we only really make a couple of grand a year, and the interest on the UK accounts is probably 20£!
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I know who I believe and its not the French accountants.

I know who I would choose to believe and it would be the French accountants [:-))].

Around here several comptable experts were still denying the existance of AE a couple of years after it had been launched.

Are you sure that these people really are accountants (comptable expert) and not just book-keepers (comptables)?

An easy life is what I look for.

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The background is that for a long time the way in which income taxed at source in the Uk was declared  was as being exempt from French tax.

The French tax people then twigged onto the fact that this meant that those with a small extra income which actually is taxable in France such as an OAP were effectively getting a double tax-free allowance, since the part taxed in France wasn't in the right part of the tax bands.

Most people were almost completely in the band under about 5000€ which is where tax cuts in, despit the fact that there overall income should have placed them in a higher bracket.

So a new way of declaring was brought in whereby all is declared, and the French take no notice of what was paid in the UK but give a tax credit back to represent that tax you would have paid it if it had been taxed in France.

The additional part is then taxed in the appropriate French band.

This came in about 3 years ago, but there was a period where it hadn't been taken on board even by some accountants.

I believe the Correction continued to give the wrong information about how to fill in the Déclaration for quite a while..

It has meant that some people who previously weren't paying tax  now are.  Most people who aren't are not paying because they haven't understood this, although there may be some so poor that their total worldwide income is under the level of the first Franch band ...[:-))]

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We have never been asked to give documentary evidence of the rents, tax paid etc.

I'm not an expert, but I think that as long as you keep sending a similar return each year, with no changes, they'll just give a cursory glance to your tax return. Especially if it's relatively small amounts, like ours.

If you introduce something new, they might decide to check. Maybe that's why your accountant says "say nowt!"

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The French accountants are wrong.

There has not been a change to require the declaration of UK rental, that was already the case.  What changed was the method of declaring it - whereas it used to go in one box now it goes in another - and the manner in which the tax relief was applied (ie: from the taux effectif methos to the tax and credit method).

In fact the French accountants misunderstand one of the basic principles of taxation, that a resident of France declares their worldwide income and is entitled to relief under tax treaties for that which is taxed outside of France (such as UK rental income).  This is the case in France and most other places.  The French accountants are in short, incompetent.  

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For what it's worth:- We own our UK property in joint names. It's rented out. Each year we each get a self assessment form from the UK which we fill in-split the rent down the middle,each declaring half. As it's lower than the UK personal allowance we have paid no tax on this in the 4 years we have been here. We also declare in on our French tax forms but pay no tax as it would be taxed in the UK- IF TAX WERE DUE. You do have to pay social charges on the rental incoms if you are in the french health system.

I don't know why you get a personal allowance if you live in France. I only know we get the correct forms and fill them in correctly (a very nice lady from the Tax Office in the UK told us which bits to fill in) and return them on time. And so far no tax demand.

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Hi, we are in the same position, being French tax residents having substantial UK rental income. This is indeed only taxed in the UK, but it is all declarable in France along with any other worldwide income. As others have said, this global income figure is then used to establish income tax you would pay in France were all this income taxable here, before a proportional rebate is given to reflect the fact that in the case of UK rental income, it is only taxable in the UK.

In case you might be thinking that it makes no difference to the final French tax bill so why declare it, declaring it does indeed make a significant difference. For example, lets say that as a couple without kids you earn 25k euros in France from pensions or employment, and 25k euros equivalent in UK property income. If you don't declare the UK property income in France, your French income tax bill would be approx. 437 euros. If however the UK rental income is declared, that figure becomes approx. 1,865 euros. This is because the rebate given against French tax in respect of the UK rental income is a proportion of the whole tax bill, calculated by reference to the proportion that the UK property income represents of the total income declared. It is not a rebate of tax paid at the highest marginal rates, which is the net effect of what happens if you do not declare UK property income at all.

It will be no surprise therefore to hear me say that as the French government loses out if you do not declare this UK property income on your French tax return, you risk considerable penalties if you are found out. Although not an accountant myself, I know this subject very well indeed, enough to say that the advice you have been given by these 2 French accountants is wrong. If however you are bona fide clients of a French accountant who has put this advice in writing for you and will underwrite any fines or penalties incurred in following their advice, I guess you have less to lose!
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Hi Mac, French tax residents do not pay social charges on UK property income, irrespective of whether or not you are in the French healthcare system 'à la charge' of the UK government. The dual tax treaty covers this issue, and if you have ever paid social charges on UK property income as a French tax resident you should appeal and seek a reimbursement.
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Patf wrote

We have never been asked to give documentary evidence of the rents, tax paid etc.

I'm not an expert, but I think that as long as you keep sending a similar return each year, with no changes, they'll just give a cursory glance to your tax return. Especially if it's relatively small amounts, like ours

If you introduce something new, they might decide to check. Maybe that's why your accountant says "say nowt!"

UNQUOTE

Pat

that is very dangerous advise.

I have dramatically had to change my tax return for the last 4 years, (working in Germany but domiciled in France, working in France but paid by the German company, then as per the first year, then retired) I have been up front, sent a short covering note and no questions asked. These had far more impact on French taxes than a couple of K in rental income earned abroad.

My advice to the OP is to now declare the income and only if there are questions about the past, to then answer honestly - including the fact that you were incorrectly advised by French accountants.
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[quote user="andyh4"]

My advice to the OP is to now declare the income and only if there are questions about the past, to then answer honestly - including the fact that you were incorrectly advised by French accountants.[/quote]

Can only endorse this advice. Since we arrived here 10 years ago none of our tax returns have been like any other - and there have been genuine reasons for this. Not that we have been asked any questions by the fisc. In my view it is honesty that counts.

Also since being here I have helped a couple of elderly friends who retired here a long time ago, when tax matters might have been regarded differently by their local tax offices. They had not declared UK taxed income as they were told not to when they arrived.

Since then the correct procedures have been followed and there have been no fines, no back taxes paid, nothing other than acceptance by the fisc that the correct declarations were now being made.

Sue

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Mac, sorry to disagree with you, but UK property income is never subject to French social charges. It is declarable in France as mentioned, but only taxable in the UK. For the purposes of the dual tax treaty with France relief is given against both French tax and social charges, since for the purposes of the treaty in this particular instance social charges are considered a form of taxation.

In our first year in France the tax authorities levied social charges against our UK property income, but a quick email from our accountant, quoting the relevant section of the dual tax treaty led to a speedy recalculation and removal of the said charges. We have not been levied social charges again, even though we are not benefitting from an S1. The following article explains the situation more clearly:

https://siddalls.wordpress.com/2015/01/22/renting-out-a-uk-property-as-a-french-resident/

It seems some French tax offices (such as ours in our first year) are incorrectly interpreting the rules, but as in our case have been successfully challenged.

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Thanks for that info Daft Doctor. I'm in the process of applying to join the health service here (I thought you had to be here 5 years but have heard that you should be allowed in earlier )so thst will come in useful.
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[quote user="chocolatefish"]Going round in circles here...

When we first arrived in France, the accountant at my DH's employment advised that we did not need to declare UK rental income on our French tax return, as it was all declared in the UK and taxe under the UK system. Since then, we have stuck with this.

Recently, while talking to a French friend who works in a bank, we were alerted to the possibility that we should be declaring everything in our French tax return, including all UK rental income. This led me to read further on the matter on this site and elsewhere, and the consensus seems to be that we should indeed be declaring everything including UK rental income that is taxed in the UK, and then receiving a tax / CSG credit to the effect that our French tax payments are unaffected.

So we went to see a different accountant, recommended by French friends, and he has - again - told us that No, we do not need to declare our UK rental income as it is already declared under the UK tax system.

Advice please. We don't know who to believe?[/quote]

Hi,

       The "accountants" were wrong , the bank friend is right.    I would just declare in your next declaration, with no explanations or notes, and the chances are they will just apply the correct procedure from this year onwards , with no questions asked about previous years.

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Andyh4-

It wasn't meant to be advice, I just gave it as a possible explanation for the accountant's advice.

And agree with others that the fisc don't seem to fine people often. When we first came we mistakenly didn't think we needed to make a tax return, until after 3 years we had a letter from them. There were no penalties. Since then we have filled them in honestly.

What I dread though is if we sell the UK house that will mean a big tax bill [:'(]

I have another question related to this - has anyone had to enter "no tax paid in the UK" after a bad year with the rental? There was a discussion about this on another forum and some said they were then charged tax on it in France, even though their UK rental income had been very low.

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[quote user="Patf"]Andyh4-

It wasn't meant to be advice, I just gave it as a possible explanation for the accountant's advice.

And agree with others that the fisc don't seem to fine people often. When we first came we mistakenly didn't think we needed to make a tax return, until after 3 years we had a letter from them. There were no penalties. Since then we have filled them in honestly.

What I dread though is if we sell the UK house that will mean a big tax bill [:'(]

I have another question related to this - has anyone had to enter "no tax paid in the UK" after a bad year with the rental? There was a discussion about this on another forum and some said they were then charged tax on it in France, even though their UK rental income had been very low.

[/quote]

Hi,

     The confusion over UK rents being wrongly taxed was entirely down to certain  french tax offices ,which were incapable of understanding the "new" double tax treaty which came into effect in 2010.    I am going to tempt fate now by saying that I think all the problems have been cleared up .

Regarding sale of a UK house , if you are , or can wait to be a UK state pensioner on S1, it appears from a recent ECJ case (see another thread on this forum  )  that you will not have to pay Social Charges on any gains - so best wait if you can.until you have S1 and the court decision works through into french law. .   French income tax at 19% is taken after allowance for any UK CGT paid.

     

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QUOTE PatF

" have another question related to this - has anyone had to enter "no tax paid in the UK" after a bad year with the rental? There was a discussion about this on another forum and some said they were then charged tax on it in France, even though their UK rental income had been very low."

END QUOTE

I have a feeling that the French base the tax demand on the income figures of the previous year. At least, years ago, when I had gite rental to declare in France, that is how it happened.

So the demand for the next-year-plus-one should reflect the income for the bad year.

Amgela
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I agree Hereford. We only have the one property (our former family home) and because we declare half the amount each it's well below limit so haven't paid tax in the UK. Always declared on our french forms though and so far (touch wood) never taken into account. Good job as we use it to pay our private health care whilst trying to get into the french health service.
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