Tax on UK rental / investment property - help please !

[Manon]

Does anyone know the answer please ? Having decided to tackle my UK tax return today I have just been given conflicting advice by 2 HMRC technical experts .We have a property in the UK which is rented out and we receive the income gross and declare it on our French tax return. Expert No 1 said that I only needed to declare UK bank interest and dividends where tax had been deducted at source in order to reclaim that tax  but when I went back and said that I could just declare this in France and have the UK tax taken into account, Expert No 2 said that I also had to declare the rental income and that I would pay tax on anything over my personal allowance.

[idun]

As far as I was aware, and I had considered renting out a UK house before we moved back. The tax on the rental had to be paid in the UK, if it was over and above the personal allowance. Then I would assume that it would also be declared in France, along with tax paid.

The second doesn't sound wrong to me at all.

[Daft Doctor]

Yes, my understanding is that UK rental income is always taxed in the UK, less the prevailing personal allowance.  The rental income less expenses is declared in France as part of household income on the French return, but a full credit should be given for any French tax payable on it.  The net effect should be no French tax paid on the UK rental income itself, but it is taken into account in calculating which tax bands your income liable to French tax falls into.  Depending on how much the income is therefore, it may mean that you pay more tax in France.  Hope that makes sense, I'm sure the accountancy types would explain in much better jargon!    

[Benjamin]

My understanding is the same as D D's but what bothers me greatly, and should bother anyone who has dealings with HMRC, is that two "technical experts" don't appear to know the rules.

Are you absolutely certain that you weren't speaking to a call centre because you would have to be passed on to a "technical expert" if the call centre operative didn't know or was unsure of the answer?

[Manon]

Thank you all for the replies - I see from my ' Avis d'Impot '2012 that the rent is included for calculation purposes but how do I tell that I have not paid tax on it ? The amount received was below the UK personal allowance threshold. Also - are social contributions payable on it and again, how do I tell if they are / have been when I receive the demand ? Thank you so much for your patience and help - my French isn't bad but I do struggle with the tax forms ( I did in the UK too admittedly !).

[Manon]

Sorry Benjamin - in answer to your question - the first person I spoke to was consulting an expert and the second person passed me on to an expert.

[idun]

But Manon, as a french resident, it is income that is taxable in France. That is how I understood it. UK rules to leave it untaxed has nothing to do with french rules.

 

DD, how can a 'full credit' be given against a sum that is income. The only credit that can be given is against tax paid in the UK on this amount and if say the amount is below the personal allowance threshold, then it is 'pure' income in France to be added to the rest of someone's income.

 

That is how I understood it to work.

[Daft Doctor]

idun, what I actually said was, 'but a full credit should be given for any French tax payable on it'.  I didn't say full credit would be given for the income itself, and in addition the French tax credit given against that income has nothing to do with the amount or otherwise of UK tax paid on it.  The gross UK rental income is added in France, the tax on it calculated along with other household income, then a credit is given for the tax that would have been paid on it were irt taxable in France.  Net French tax paid on it is nil.  Hope that's cleared it up for you?

[idun]

Daft Doctor said:

then a credit is given for the tax that would have been paid on it were irt taxable in France

 

 

I don't understand that statement at all especially saying that french tax paid on it would be nil.......... Why not, what about the extra tax on the amount and the CSG etc?

 

 

[EuroTrash]

This thread has got very confusing. Does this help?

http://www.hmrc.gov.uk/international/tax-incomegains.htm

"Rental income from property in the UK

If you're not resident but still receive rental income from the UK, you will pay UK tax on that income.

This type of income is dealt with by HMRC Non-resident Landlords Scheme. The scheme requires either the tenant or your letting agent to deduct basic rate tax from the rental income they pay to you if your usual home is outside the UK. You may need to complete a tax return to tell HMRC about the rental income and the tax already paid. You can make an application to receive rental income with no tax deducted. Find out more in the guide below."

Does anyone actually do that?

As I understood it, the basic principle is that HMRC taxes all income generated within the UK, whether you are resident or not, but then having paid tax in the UK, the double taxation treaty ensures that you don't pay tax twice over.

But you have to declare it in France even though it isn't taxable, because all world-wide income has to be declared so that it can be included when calculating your revenu fiscal de référence.

[idun]

Yes, HMRC told me that the letting agent could collect the income tax if we had rented out, so it must happen.

AND please, where does this idea come from that there is no income tax paid on overseas earnings for french residents, the income being rent? I do not understand this at all. It would be like saying that the french wouldn't want to charge tax on british pensions in France that have to be declared....... they do.

I still do not get it. Why would UK rental income suddenly be exempt from french income tax, when it is income?????

A very simple explanation please from someone.

[Manon]

But then it appears that I get a tax free allowance in the uK and presumably one in France as well - is this correct ?

[EuroTrash]

"I still do not get it. Why would UK rental income suddenly be exempt from french income tax, when it is income?????

A very simple explanation please from someone."

I think the answer you are looking for is 'double taxation treaty'. The income has (or should have) already been taxed in the UK. So it's not a case of 'there is no income tax paid on overseas earnings for french residents'. There is income tax on it, but in most cases, the income tax is payable in the country where it is earned. (If you live in the UK and rent out a gite in France, it's the same in reverse.)

[Daft Doctor]

idun, Eurotrash has explained this better than I did, the key is the double taxation treaty.  Tax is paid on UK rental income in the UK, so is exempt from double taxation in France.  The rental income (not the tax paid in the UK) is declared in France but French tax is not paid on it directly.  As part of worldwide income however it may influence the taxation on other forms of income which are taxable in France so still lead to a greater French tax bill (depending, as I said earlier, on the amounts involved).

Yes Manon, you get tax free allowances in both countries, one of the reasons why it is often said that having some UK taxed income (such as for UK rentals) and some French taxed income often yields a favourable overall tax result, compared to having a similar level of total income which is wholly taxed in France (or the UK for that matter). [:D] 

[parsnips]

[quote user="Daft Doctor"]Yes, my understanding is that UK rental income is always taxed in the UK, less the prevailing personal allowance.  The rental income less expenses is declared in France as part of household income on the French return, but a full credit should be given for any French tax payable on it.  The net effect should be no French tax paid on the UK rental income itself, but it is taken into account in calculating which tax bands your income liable to French tax falls into.  Depending on how much the income is therefore, it may mean that you pay more tax in France.  Hope that makes sense, I'm sure the accountancy types would explain in much better jargon!    [/quote]

Hi,

     DD has perfectly and succinctly described the system for UK rents , and in my opinion no further comment is needed.

[Manon]

Thank you everyone - I just find it quite astonishing that we will not be paying tax on the rental either in the UK or in France . I had no idea that one benefitted from a UK tax free allowance.

[idun]

I still do not get why the double taxation treaty is being quoted. I understand that french tax allowances will be given too, but that is income based.

 

Right, lets put this in figures please, I don't want to see what people get just make some up.

 

ie

Pension = €25000 per year for a married couple, ie 2 parts

 

Then UK rental income of €8000 less say insurance which I believe will have to be shown separately on the french tax form.

 

Someone who knows please show me where this goes on a french tax form.

 

 

You see, I reckon that the 25k and the 8k less say 500€ for insurance would all show on the tax form as would CGS etc and extra tax.

 

As people from the HMRC and the Impots have said to me in the past. Doesn't matter what other countries do, we tell you what is to be declared and then we will take into account tax paid in the other country, but you will then get a tax bill in line with the rules of 'this' country. And both have said this to me. And that does not sound unreasonable.

 

I do know that french income tax is less that UK income tax.Just as I know that non residents pay more than french residents and less than UK residents. I know lots of things, I do. I just don't get this, as I find it impossible that someone in receipt of living income, unless it was a very small amount, would not pay some tax on rental income in France.

[parsnips]

[quote user="idun"]

I still do not get why the double taxation treaty is being quoted. I understand that french tax allowances will be given too, but that is income based.

 

Right, lets put this in figures please, I don't want to see what people get just make some up.

 

ie

Pension = €25000 per year for a married couple, ie 2 parts;

Declare on 2047 page 1 pensions etc, then 2042 page 3, 1AS and 1BS

10% allowance = 2500€: taxable pensions................................................22500€

Then UK rental income of €8000 less say insurance which I believe will have to be shown separately on the french tax form.                                         Declare on 2047 page 1 , address of property.                                                                                                                                                             Then page 4 sec VI gross, deduct expenses and transfer to 2042 page 4 box 8TK...8000€ - 500....assessable rent (not taxable)........ 7500€

Global income ..............................................30000€..

 Notional tax on 30000€  (2 parts)..............................1522€

 Tax credit on rent (equal to extra tax assessed on rent) =1522  x   7500/30000 = 380€

 French tax due..........    Notional tax -  credit.........1522 - 380 =1142€

 CSG is dealt with as follows .............CSG etc due on 7500€  @ 15.5%  = 1162€ 

credit due 1162   CSG etc to pay.........NIL

 Someone who knows please show me where this goes on a french tax form.

 

You see, I reckon that the 25k and the 8k less say 500€ for insurance would all show on the tax form as would CGS etc and extra tax.

 

As people from the HMRC and the Impots have said to me in the past. Doesn't matter what other countries do, we tell you what is to be declared and then we will take into account tax paid in the other country, but you will then get a tax bill in line with the rules of 'this' country. And both have said this to me. And that does not sound unreasonable.

 

I do know that french income tax is less that UK income tax.Just as I know that non residents pay more than french residents and less than UK residents. I know lots of things, I do. I just don't get this, as I find it impossible that someone in receipt of living income, unless it was a very small amount, would not pay some tax on rental income in France.

[/quote]

[Debra]

[quote user="Manon"]Thank you everyone - I just find it quite astonishing that we will not be paying tax on the rental either in the UK or in France . I had no idea that one benefitted from a UK tax free allowance.[/quote]Isn't there still an ongoing problem where only people who have actually paid tax on the income in the UK are getting the French tax credits for tax and CSG etc and otherwise they pay their French tax and social charges?  Or has this now been resolved?

Idun the rules work differently when you are a France resident and receiving UK rental income than they do when you are a UK resident and receiving French rental income.  In the UK you will pay UK tax on top of French tax if the French tax is less than the UK tax would be on the same income whereas in France you won't pay any taxes (including social charges) if the income has already been taxed, at all, in the UK.  Social charges are also treated differently in that the UK doesn't count them as a tax when working out their tax credit but France does.  

The ongoing problem is/was an argument over whether the fact that the rent is counted as taxable income in the UK (even if it doesn't actually get declared because it is below the tax allowance and no tax is actually paid) is enough to mean that French tax and social charges should be credited back in France.  Parsnips will know the latest on this problem - maybe it's resolved as he hasn't mentioned it.....

[parsnips]

[quote user="Debra"][quote user="Manon"]Thank you everyone - I just find it quite astonishing that we will not be paying tax on the rental either in the UK or in France . I had no idea that one benefitted from a UK tax free allowance.[/quote]Isn't there still an ongoing problem where only people who have actually paid tax on the income in the UK are getting the French tax credits for tax and CSG etc and otherwise they pay their French tax and social charges?  Or has this now been resolved?

Idun the rules work differently when you are a France resident and receiving UK rental income than they do when you are a UK resident and receiving French rental income.  In the UK you will pay UK tax on top of French tax if the French tax is less than the UK tax would be on the same income whereas in France you won't pay any taxes (including social charges) if the income has already been taxed, at all, in the UK.  Social charges are also treated differently in that the UK doesn't count them as a tax when working out their tax credit but France does.  

The ongoing problem is/was an argument over whether the fact that the rent is counted as taxable income in the UK (even if it doesn't actually get declared because it is below the tax allowance and no tax is actually paid) is enough to mean that French tax and social charges should be credited back in France.  Parsnips will know the latest on this problem - maybe it's resolved as he hasn't mentioned it.....

[/quote]

Hi,

   First , I apologise for quoting every time, but for some reason, I can't get a simple reply accepted on the reply page.

You are right that the last problem with the UK rents was the refusal of some tax agents to accept that "subject to UK tax" meant not "having paid UK tax" but " having been assessed for UK tax-whether tax paid or not".   As far as I can see this was limited to an (unknown) percentage of tax offices.

    This year the first CSG demands went out on 27/09/2012 and I have not received any calls or seen anything on the forums to indicate that this mistake is still being made.   There's still time though! 

[idun]

Well I sort of get this, but not quite. What I know is that the french hammered us when we left. We were not treat in any way what so ever like residents and the tax bill  more than doubled.

Now if we had moved somewhere with very low tax, this would have stung enormously, but we did not. We moved to the UK who have even higher taxes, so we could right off the french tax already paid against the UK tax bill. Still I would have rather paid the UK more, as this is where we live now.

I am now wondering how they would have treat us non residents with a salary from France, IF we had rented out our french property rather than sell it.

 

Something about this gens with me, as I said, I sort of get it, but will, when I get a moment ask the appropriate authorities about it too, as I am in touch with the french and uk tax authorities enough to ask an extra question. 

[Aly]

On Uk rental income, you declare the profit figure and the tax paid in the UK on the French return. You pay no tax on it in France and no social charges.Its used purely to determine your tax band.

Bank interest you pay tax in France but can claim source tax back in the UK. However there is a formula and if you claim then you loose your personal allowance in the rebate claim. So if the figure to be claimed is below your personal allowance its not worth claimimg.

You can also opt to pay income  tax on rental income from the UK  in France. You must apply to become a professional landlord. Sykes andersen did an article on this a while back. You would then pay social charges but would be exempt the wealth tax on the propety value.