1st year of French residency - tax confusion/query

[Daft Doctor]

Hi, just when I thought I understood how my first year of residency in France would be treated for tax purposes, my accountant has thrown me a curve ball which has confused me.  I am not sure she is correct, but don't want to challenge her if she is, therefore any insight would be appreciated!

We moved permanently to France in May 2012.  I thought from all the research I'd done (including some really helpful posts from this forum) that on our first french tax return (2013) we would only need to declare worldwide income (taxable in France or not) from the day we arrived in France.  I understood that we would not need to declare any income from before the date we arrived in France, as it has no bearing on our French income tax.  My accountant has now stated that ALL worldwide income received in 2012 needs to be declared, even though none of that received before the move is liable to tax in France.  Is she correct?

I know that our UK property income received after the move is taxed in the UK but still declared in France and is used to determine tax bands for income tax on that income (pensions and savings) which is taxable in France, but I am worried that the accountant has got it wrong.  As I was working as a GP in the UK before our move, I earned quite a bit in the period from 1st January - May 2012, so I am worried that if wrongly declared in France, that income could be used to push our French income tax for the year wrongly and significantly higher.  Thanks in advance.

[HoneySuckleDreams]

I moved in June of 2005 and in 2006 I had to supply details of everything I had earned in the UK up to that point. ( It gets a little complicated dealing with tax years as the UK does April-to-April, whereas France is Jan-Jan). I think it wasn't too difficult to sort it all out in the end and as long as you paid tax on the earnings in the UK you shouldn't be paying tax on it in France, so no effect on your French income tax

[AnOther]

I'm sure she's wrong and it makes no sense logically either.

Are you taking about a French accountant or UK one who professes to understand the French system ?

[AnOther]

[quote user="HoneySuckleDreams"]I moved in June of 2005 and in 2006 I had to supply details of everything I had earned in the UK up to that point.[/quote]That doesn't seem 100% clear to me.

Do you mean that you just declared income from June 2005 or also from before you moved and if so how far back, April or January ?

[Sprogster]

This is one of the reasons clients I have dealt with are usually advised if at all possible to move at the beginning of a new tax year to avoid complications, as I believe your accountant is correct in that you make full disclosure for the year, but are only taxed from the day of arrival in France.

[Patf]

Could be because the french tax year runs from Jan. 1st to Dec 31st.

[Antonia]

We moved in November and I foolishly thought it would be a good idea to "get into the system" as soon as possible so completed a tax return for the final 2 months of the year. Big mistake! Was called up by les impots and summoned for an interview where we were asked to provide details on everything we had earned in the UK for the ten months prior to the move. I couldn't remember off the top of my head so gave some approx figures which were added into the notes which we were then asked to initial. I was assured that this would not mean that we would be taxed twice and this turned out to be the case. However the UK income was used to calculate our revenue fiscal de reference which in turn was used to calculate our habitation tax and CMU contributions for the following year. Makes sense I suppose as otherwise our "annual income" would have been so small as to have exonerated us from either.

[Daft Doctor]

Hi and thanks for those thoughts.  Firstly, if the income earned in the UK (or elsewhere) in the period before the move has no bearing whatsoever on the amount of french income tax payable on income taxable in France after the move, then what (other than the reasons Antonia gives) is the purpose (from the impots point of view) to me declaring that income?  If declaring it will not affect my French income tax liability one iota, then declaring it doesn't bother me too much (apart from the extra work to cobble the figures together), but it seems as counter-intuitive as it would be to declare any earnings in France after May 2012 on my 2012-13 UK tax return (which I of course am not obliged to do).  Also, why have I seen it said a number of times that you do not need to declare any income received before you become fiscally resident in france, whatever time of the calendar year that date falls on? 

Sprogster, just a thought, but on the subject of moving at the beginning of a French tax year being preferable, that may or may not make the transition between the two fiscal systems easier, but moving at that time in my case (as formerly self-employed in the UK) would have reduced my entitlement to S1 French health cover by a whole year compared with an April-onwards move, and that is worth an awful lot if you are not state pension age in the UK or on a longterm S1 arrangement through ill-health.

Any further comments really appreciated.  

[HoneySuckleDreams]

[quote user="AnOther"][quote user="HoneySuckleDreams"]I moved in June of 2005 and in 2006 I had to supply details of everything I had earned in the UK up to that point.[/quote]That doesn't seem 100% clear to me.

Do you mean that you just declared income from June 2005 or also from before you moved and if so how far back, April or January ?

[/quote]

I declared all income earned in the UK from the 1st of January, as the french impot wanted to know how much my world-wide income is (was) for their tax year i.e. jan 1st to dec31st. I just had to work out how much tax I had paid in the two tax years (you can't use a P60, you have to go over your individual pay slips for each month). I can't remember exactly what the difficulty was but it was made easier in the end as I didn't have any french income for the 2005 tax year. I took everything in and they were quite happy to go over it and help me out.

Doesn't your total world-wide income get used to calculate the amount you owe for cotisisations?

[AnOther]

You haven't said whether it's a French or UK accountant telling you this but in any case what I would do is declare from when you moved and leave it at that.

If they have reason to question it they will politely write to you asking if you have made a mistake and invite you to correct it so you can never end up any worse off than if you had declared it in the first place.

I think declaring from the date of arrival is what virtually everybody does and this is the very first time I have heard of this issue, perhaps 'virtually everybody else' didn't use an accountant though [Www]

I wonder though if it's part of the new system of calculating peoples 'tax effectif' which mean that they have to declare items such as UK government pensions which previously the didn't have to. You don't get taxed on it but it's added to your annual income to arrive at a gross taxable income figure - and a tax sum due - then the tax you have already paid elsewhere is credited against that, or at least that's how I think it works. I'm not in that particular position so don't know for sure.

Actually depending on the level of income and number of  family members the tax burden can work out to be less in France than in UK. That would have been the case for me (just the two of us) if it had been possible to have my salary from working offshore paid gross but it wasn't and in fact for peripheral reasons, such as company pension contributions amongst others, overall it would not have been to my advantage to go down that road if it had been.

[NormanH]

If you look at it from the French tax people's point of view they want to give you an accurate RFR so they can situate you vis à vis certain things :

À quoi sert-il ?

Le revenu fiscal de référence sert de référence pour l'accès à certains dispositifs :

• sociaux (par exemple,
  la bourse des collèges),
   

• et fiscaux (par exemple,
  la prime pour l'emploi,
  certaines exonérations ou réductions en matière d'impôts locaux).

http://vosdroits.service-public.fr/F13216.xhtml

They don't know your situation in advance (for exemple you are in fact unlikely to  use any of the above) so they need to ask and calculate it.

It can be useful in some circumstances to have a reasonably high one as it is used as proof of income (although again you are unlikely to require a loan or want to rent somewhere)

I can't give any opinion on your main question about date.

[Pommier]

When we moved to France, the following year we declared our income for the whole of the previous year. It seems obvious to me because otherwise you could have a situation where someone earns up to their tax threshold in the UK, then moves to France and does the same and wouldn't be liable for any tax, plus, as has already been said the RFR would be erroneously low.

[Antonia]

Just to say, we moved 10 years ago so not exactly a new thing!

[AnOther]

You declared a full year then, I just declared the part year (August to December) on my 1st tax return in 2008 so who's to say who was right or wrong !

[HoneySuckleDreams]

[quote user="AnOther"]You declared a full year then, I just declared the part year (August to December) on my 1st tax return in 2008 so who's to say who was right or wrong !

[/quote]

I think we (on these forums) all agree that consistency is not a French strong point

 

[AnOther]

Ain't that the truth.

Makes giving advice a bit of a hit and miss affair though !

[Gardian]

[quote user="Daft Doctor"]

Also, why have I seen it said a number of times that you do not need to declare any income received before you become fiscally resident in france, whatever time of the calendar year that date falls on? 

[/quote]

Surely this is a classic case of how one Impots office and one Accountant chooses to apply their interpretation of the rules?  In this case of course, we don't know yet how DD's Impots will view things.

I can only speak personally: in my face-to-face discussion with our local Inspector, she was only interested in the last two months of the year (we moved at the end of Oct).  It was logical: you become imposable from the date of your arrival.

Given the potential financial impact of a full year declaration, if it was me, I'd insist (to my accountant) on a declaration of earnings starting from your date of arrival. It makes sense and most certainly isn't dodgy practice.   

[suein56]

[quote user="Gardian"]... on a declaration of earnings starting from your date of arrival. It makes sense and most certainly isn't dodgy practice.   [/quote]

This what we were advised by a Tax official when we arrived half way through the French tax year.

Sue

[CeeJay]

Eventually decided to enter the French Tax system in a September, very arbitrary date,  and declared from then, no problems at all, in fact because the income was quite low I got the following years Taxe Habitation for nothing!

In passing I would like to say that even from the very first year's return I followed the guidance given on this Forum by Cat's FAQ's and I have never had a problem even with the confusion of wife's Teachers pension!!

[Daft Doctor]

Thanks again to all.  Firstly, to answer AnOther's question, it is a french accountant but she is english-speaking.  TBF I only use her for my tax return because I have a leaseback holiday apartment and the tax regime requires an annual balance sheet, etc which is quite (IMHO unnecessarily) detailed, I would normally do it all myself, as was the case in the UK.  Secondly, from other forum users' experiences, it seems a full year declaration of income in the first year of residency has not been asked for by the impots, and part year declarations have not been questioned, all in keeping with my original thoughts on the matter.  If a full year declaration is indeed only used for calculating the RFR, even this would be to our significant disadvantage.  Aside from any other negative effects of our French income tax burden in year one ( I am uncertain whether or not a full year RFR would affect which french income tax bands our imposable income would fall into), my wife currently pays a flat 1% income tax on her turnover as an AE.  On a part year basis, our RFR would be under the threshold beyond which the flat rate would cease to apply.  If full year declaration is used to produce an RFR, the tax on her AE earnings would be calculated on an assumed 29% profit and would of course be at our highest rate.  This would add approx 1000 euros to the tax burden for 2013, something clearly to be avoided if at all legally possible.

Having read all the useful input on this thread, I think the choices are simple enough.  I generally play very much straight by the rules, but if it would not be deemed illegal or tax evasion to exclude from our 2013 French tax return any income earned in 2012 before our move to France in May, then we would be fools to include it.  I need to try to find out if possible exactly what that legal position is.  I may ask the accountant only to prepare the figures for the pages of the return relevant to the apartment lettings and then fill in the rest myself.  Alternatively, I can challenge her regarding the reasons and need for a whole year declaration quoting others' experiences and as Guardian suggested tell her that we do not want to declare on a full year basis.  If anyone has any further points or views to offer, please do! [:)]

 

[Hereford]

The most important thing surely is to make it clear on the return what dates are covered then the tax office cannot say that you have hidden anything.

[AnOther]

For my 1st tax return in 2008 my Impots wanted a 'Certificat de Domicile' which I got from my Mairie dated from when we moved which was in August 2007. I declared my income from that date, end of................!

I wonder if your situation is complicated by your leaseback property though which I believe you owned before you moved ?

[idun]

[quote user="Pommier"]When we moved to France, the following year we declared our income for the whole of the previous year. It seems obvious to me because otherwise you could have a situation where someone earns up to their tax threshold in the UK, then moves to France and does the same and wouldn't be liable for any tax, plus, as has already been said the RFR would be erroneously low.[/quote]

 

Well we arrived on the 1st of February, so that really was not a problem and I remember that we only declared income in France, I know as I still have the tax return.

When we left France, we left at the end of February. Pommier, there were two months french salary before we left, and then in our case, 10 months as  non residents being hammered, by french standards. The two were kept quite apart and we had two declarations to do, and we had not got to declare the other months on either declaration. In consequence, the first two months were not taxed. [:D] However, as I indicated, as non residents we were stung badly for tax, we still ended up paying more than we had ever paid.

[Pommier]

The only way to get a definitive answer is to ask the tax office in writing.

[idun]

I don't believe the french tax people should be asking what is earned elsewhere before becoming  a french  resident. Cheek actually, and none of their business is it? They cannot tax on earnings by non residents earned hors de France, so why ask? That some offices ask is quite another thing, yes I can imagine some jumped up fontionnaire deciding that it is their business, but I wouldn't give them the info.

Over the years we were asked for quite a few things that 'we had to give' and we did not, because when it boiled down to it, we should never have been asked.