Complex tax problem, probably a simple answer?

[Daft Doctor]

Hi, when I retire from the rat race and make my move to France (hopefully 2012), I will have income from a few sources.  I will have income from letting UK property (residential - students) and my NHS pension.  My understanding is that both of these income streams will be taxed in the UK but declared in France (with French tax partially/fully offset by that paid in the UK under the dual taxation treaty).  I will probably however have a third income stream, and I am not sure how this will be treated from the tax, cotisation and french health care point of view.

Basically I will remain as a non practicing partner in my GP partnership, taking my share of the profits which relates solely to the property owning part of the business (we get rent from the NHS, but also let space to pharmacy, optician and dentist).  As part of the GP partnership profits, this income would be taxed under Schedule D in the UK, and Class 2 and Class 4 NI contributions would be paid.  I would however be resident in France (effectively a sleeping partner), so this income I assume would be declared there rather than in the UK.  Question is, would self-employed income of this nature attract cotisations as well as tax (I suspect it would), and would I (in paying these cotisations) be entitled to entry to the french health care system once my relevant E form expires?  Would I require any special tax regime or status for this income?  I am already registered under BIC non professionels (loss making) for my leaseback apartment - which will be sold.  

Sorry to waffle on, probably too much detail, but any insights or thoughts much appreciated. 

 

 

[andyh4]

The simple rule (which may not apply in this case) is that you pay tax in the country in which you do the work.

A sleeping partner by definition does not do anything, so I see ne reason why you should pay tax in France - however like all other items you do need to declare the income in France.

 

Notwithstanding my personal take, I think this is a matter for professional accountants versed in Frénch and UK tax.

[PaulT]

Your NHS Pension will be taxed in France - it is not like civil service pensions as your employer is the Trust that you work for and not central government. You should be better off being taxed in France on it than in the UK.

Paul

[Hereford]

Are you  sure it (partnership income) would be taxed in the UK as if it was just the same as your income now? Could it not be said to be "property" income once you have retired?  We would suggest a word with your UK accountant on this point first.

H.

[parsnips]

Hi,

      First point; your NHS pension may or may not be taxable in the UK--if you were employed directly by the NHS, it's taxed in UK.  If ,on the other hand you were employed via a trust it will be taxable in France. You should clarify this with your pension payer and HMRC. Your rental income (student lets) will be taxable ONLY in the UK-it is declared in France only to calculate the so-called "taux-effectif"-a "virtual" tax rate calculated as if all your income was taxable in France but applied only to income taxable in France under the treaty.

      As regards your "sleeping partnership" ,it seems to me that you could declare this under the french category of "bénéfices non commerciaux" which is applied to revenues such as professional fees . Your income from the partnership could be regarded as "delayed fees" as a pension is regarded  as "delayed pay". If it did not exceed 32 000€ p.a. you could declare it under the "micro-BNC " scheme , a simplified process which gives a flat 34% tax free allowance ,and then taxed at your french marginal rate. You would also pay social contributions of 12.1% on the taxable part.(declare on form 2047 page 4 sec VII and 2042C sec E and F)

      For most people with moderate incomes , it is advantageous to have part taxed in France, as rates are generally lower for the same income. In your case , and particularly if your NHS pension is taxed in the UK (see above), it would almost certainly be better. However , no one can choose the jurisdiction for their taxation, so you must clarify with HMRC if they will demand the right to tax the partnership income ; If they do it will be treated in the same way as the rental income.

        The UK taxable income is declared on 2047 page 4 sec VII and 2042 page 4 box TI (after deducting UK tax paid and expenses).

     

[Daft Doctor]

Hi, thanks for the kind insight.  As a GP (self-employed contractor status) I am sure my NHS pension is paid from central funds via NHSPA.  As such I think it likely it will be taxed in the UK, but I can always clarify it with them/HMRC.

Would being a sleeping partner but paying tax/cotisations on my Partnership income in France have any deleterious effect on my rights to an E form (only available I know for max 2 years after leaving the UK), or would paying cotisations in France have any influence on my ability to qualify for access to the French health system?  

[parsnips]

[quote user="Daft Doctor"]

Hi, thanks for the kind insight.  As a GP (self-employed contractor status) I am sure my NHS pension is paid from central funds via NHSPA.  As such I think it likely it will be taxed in the UK, but I can always clarify it with them/HMRC.

Would being a sleeping partner but paying tax/cotisations on my Partnership income in France have any deleterious effect on my rights to an E form (only available I know for max 2 years after leaving the UK), or would paying cotisations in France have any influence on my ability to qualify for access to the French health system?  

[/quote]

Hi,

     The "social charge" paid on such income is not connected with access to the french health system, it is a tax by another name . Only if you registered and worked in France and paid full contributions, including for a pension, would this have a possible effect on your entitlement to an E form.( This is very much a grey area , much discussed on forums, with some saying they have been denied E121 as their UK/French combined pensions are paid via the french "caisse" and they also receive their health cover from France--the downside being that without an E121 they have to pay social contributions on all their french-taxed pensions -as the french do. Others have stated the opposite-- as often in France ,it seems to depend on local interpretation of complex rules).

      I think you will probably find that HMRC will want to continue to tax your partnership income , and it will probably be simpler for you if they do.

Even with all your income taxed in the UK you should still make a declaration in France as this may be useful in future if you need to establish a period of legal french residence for CGT if you sell your french house, or after 5 years LEGAL residence ,for entry to the french health system under EU residency rules.

[Daft Doctor]

If I had income from all sources taxed in the UK, and continued to pay NIC (the income levels would be over the threshold for paying NIC by some way), would I be entitled to an ongoing E form beyond the normal max 2 years for formerly self-employed retiree expats?  Effectively I wouldn't be retired (except from clinical medicine that is) 

[parsnips]

[quote user="Daft Doctor"]If I had income from all sources taxed in the UK, and continued to pay NIC (the income levels would be over the threshold for paying NIC by some way), would I be entitled to an ongoing E form beyond the normal max 2 years for formerly self-employed retiree expats?  Effectively I wouldn't be retired (except from clinical medicine that is) [/quote]

Hi,

      Where a person resident in France  is EMPLOYED in the UK and pays PAYE tax and NI in the UK, he continues to be covered by an E form which also covers his family living in France.

 I think you need to discuss your situation with the department of work and pensions and HMRC.

[Clarkkent]

I think that there are some misconceptions here.

My understanding is that when a pension is not funded and paid straight out of HM Treasury resources (as is the case with, for instance civil servants and teachers), HM Treasury - in accordance with the double taxation agreement between UK and France - reserves the right to tax at source. Hence people who receive unfunded Government pensions find they are taxed in the UK. I do not know whether NHS pensions are funded or not.

For any other sources of income you can decide where you want them to be taxed.

[johnnyboy]

Hi there, just spotted this post and would like to add our experience to the topic.

My wife and I were made redundant in April last year from the same company, this has had a serious effect on our circumstances. First we had to sell our UK property at the bottom of the market. Ouch!

We went through all the systems to retire here in France, albeit earlier than intended.

Imagine how pleased we were to find that due to the timing of our dismissal, we stand to lose just over 14 months from our E106 cover and will have to cover the gap through private health cover or take a chance and not pay insurance.

The point of this little diatribe is that it pays to plan the move carefully if at all possible. The loss wqs caused by not having paid enough in contributions in that tax year, so effectively not paying a couple of months contributions has lost us 14 months of cover. Yes, we did offer to pay the relevant contributions, but this was refused by NI office as "not allowable".

Do try to plan to avoid this if possible.

Hope this is of some use to you, assuming you need to follow this route and not going staight on to an E121.

Hope you enjoy it as much as we do in spite of  our slight hiccup!

Best regards,

Johnnyboy.(Slightly disgruntled)

[AnOther]

[quote user="Daft Doctor"]If I had income from all sources taxed in the UK, and continued to pay NIC (the income levels would be over the threshold for paying NIC by some way), would I be entitled to an ongoing E form beyond the normal max 2 years for formerly self-employed retiree expats?  Effectively I wouldn't be retired (except from clinical medicine that is) [/quote]I think it has already been pointed out that where you pay tax is not a matter of choice so you cannot choose to have 'income from all sources' taxed in UK.

Furthermore, it is my understanding that the self employed only qualify for 1 year of E106 cover and only employees who have paid sufficient Class1 NI qualify for up to 2.5 years.

Not sure of the implications which being self employed might introduce but for an employee what you propose would put you into the realms of a workers E106 which is issued by HMRC not DWP qualification for which, in part at least, is related to time you spend in and out of the UK.

You would have to speak to HMRC to determine any such entitlement but this is the form which you would fill in to apply.

http://www.hmrc.gov.uk/forms/ca8454.pdf

[PaulT]

[quote user="Clarkkent"]

I think that there are some misconceptions here.

My understanding is that when a pension is not funded and paid straight out of HM Treasury resources (as is the case with, for instance civil servants and teachers), HM Treasury - in accordance with the double taxation agreement between UK and France - reserves the right to tax at source. Hence people who receive unfunded Government pensions find they are taxed in the UK. I do not know whether NHS pensions are funded or not.

For any other sources of income you can decide where you want them to be taxed.

[/quote]

I am employed by an NHS Trust and I have looked in to this and when we relocate to France the pension is taxable in France and not the UK.

NHS pensions are funded - think I pay 6.5% and my employer 11%. However, from what I understand it is not then stashed away.

Paul

[parsnips]

[quote user="PaulT"][quote user="Clarkkent"]

I think that there are some misconceptions here.

My understanding is that when a pension is not funded and paid straight out of HM Treasury resources (as is the case with, for instance civil servants and teachers), HM Treasury - in accordance with the double taxation agreement between UK and France - reserves the right to tax at source. Hence people who receive unfunded Government pensions find they are taxed in the UK. I do not know whether NHS pensions are funded or not.

For any other sources of income you can decide where you want them to be taxed.

[/quote]

I am employed by an NHS Trust and I have looked in to this and when we relocate to France the pension is taxable in France and not the UK.

NHS pensions are funded - think I pay 6.5% and my employer 11%. However, from what I understand it is not then stashed away.

Paul

[/quote]

Hi,

      A pension is funded when the contributions are paid into a fund which invests them to generate income out of which to pay pensions. The NHS and ,in my case, fire service pensions , are unfunded , because the contributions are paid into the treasury and help serve,in the form of grants, to pay some of the current pension liabilities of their schemes.

[Araucaria]

[quote user="Clarkkent"]

I think that there are some misconceptions here.

My understanding is that when a pension is not funded and paid straight out of HM Treasury resources (as is the case with, for instance civil servants and teachers), HM Treasury - in accordance with the double taxation agreement between UK and France - reserves the right to tax at source. Hence people who receive unfunded Government pensions find they are taxed in the UK. I do not know whether NHS pensions are funded or not.

For any other sources of income you can decide where you want them to be taxed.

[/quote]

I think there are some more misconceptions in the reply (and I see AnOther has made a similar comment) .....

The laws in the two countries, and the double tax treaty, determine where income is taxed, whether in one country exclusively, or in both with a credit for the first country's tax. It is never a matter of the taxpayer deciding where he pays tax, except in the very broadest sense that he can take a decision to live permanently in one country or the other, and so make himself a resident of France or the UK (or both, yes, that's possible too).

Taxing income at source isn't necessarily an indication of the effect of the tax treaty. The income might not be taxed at source in the UK, but UK tax law and the treaty might make it taxable in the UK just the same.

However, there is one interesting point that Daft Doctor might like to consider. He describes himself as likely to become a sleeping partner in the former practice partnership. He might be able to simplify his tax affairs by arranging for the income he gets to come to him in the form of a partnership annuity (talk to a UK accountant/lawyer about this). This is because I don't think the French fiscal authorities are terribly comfortable with the idea that you can have ceased entirely to participate in a partnership but that you are still entitled to a share of that partnership's profits. HMRC in the UK wouldn't mind and would continue to tax your profit share as if it were income from an activity conducted in the UK. But an equivalent amount paid as a partnership annuity would leave your other partners in the UK in just the same position, but you would not have to pay UK tax on it if you were not resident in the UK - you'd pay French tax instead.

You might also pay a little less tax overall. Some of the luckiest UK ex-pats in France are those who manage to have income that is substantially split between a part that is taxable only in the UK and a part that is taxable only in France, though it will depend to a degree on how big the income is and on what your family circumstances might be.

[Daft Doctor]

Hi AnOther, I should have phrased my comment differently, I meant to say 'if all my income was taxable in the UK'. I realise that I have no choice over that matter, I was simply curious to know how that might affect me and particularly my position regarding ongoing access to French health care.

On that subject, and from posting on earlier threads, I was led to understand that even as a retired self-employed person, an E106 could be for up to 2 years depending on how soon in the calendar year one arrived in France. Perhaps those rules have also changed or I was mistaken all along?

[cooperlola]

The duration of the E106 is dependent upon when you stop work and has nothing to do with when you move.  The optimum time to give up is July 7th.  It can last anything from 6 to 18 months for the self-employed and 18 to 30 for employees.

[Mikep]

This might be a simple answer to a question you haven't asked, but here goes anyway. If you're approaching retirement, bear in mind that your wife (assuming!) becomes entitled to her state pension at her age 60, and therefore is also entitled to an E121 then. You are also then included as her dependant whatever your age, and entitled to standard french health cover without having to pay contributions. Of course this is only partial cover (70% normally) and you will probably want top-up insurance, but this is much cheaper than private health insurance.

By the way, you might need to change your nom de plume - your questions (and answers) are a long way from daft - I wish all UK immigrants were as well clued up!

[Russethouse]

 

 I think I'm right in saying that women now or in the very near future will not get their pension at 60 but a little older....

[Daft Doctor]

Hi Mikep, thanks for your lateral thinking. Sadly, not only would I be a very early retiree from the NHS, but even worse, Mrs DD has only just turned 40, hence no sniff of an E121 for several years!

I thought I had the E106 situation for self-employed retirees sussed, but now I am confused again after Coop's post above. I was sure from previous threads that as long as you had a good enough NIC record in the previous fiscal year, if you arrived in France as soon as possible after the first Saturday in January, your E106 could last up to 103 weeks. In other words January was best time to move and December the worst. Have things changed since 2008?

[cooperlola]

No things haven't changed but the info' you have is not what the evidence shows.  Self- employed people (as I was) get anything between 6 and 18 months  depending when they stop work (NOT when you move.) 

The E106 always ends on Jan 6th of the year following the one you gave up work.  Thus if you stop work in Jan, you get 12 months; Feb, 11months, March -10, April 9, May 8, June 7, up to July 6th.  From July 7th you get 18 months, August 17, Spt 16, Oct 15, Nov 14, Dec 13 and back again to the beginning.   Add a year for employees.

NOTE : I've gleaned this from info' gathered from people who have received E106s - I've never seen this on a UK government website.  But give it a try - phone the DWP and tell them when you gave up work and ask them.  I'll bet I'm not more than a month out!

[AnOther]

Not definitive but have a read here, 3rd from last paragraph:

http://www.french-property.com/guides/france/public-services/health/getting-health-cover/

Also from another forum:

'I rang Newcastle recently to check my own situation, thinking that I'd get virtually the full 2 years from end Feb 2007 to end Dec 2008, but because I've been self-employed apparently I'd only get a year, as I wouldn't have completed a full year of contributions this tax year. But my very helpful adviser said that if I could change my dates slightly so that my E106 could start on the first day of the next tax year (ie 6 April), and if I carried on paying Class 2 contributions until then, I'd get the rest of 2007 plus 2008.'

As Coops says, and as did I earlier, phone them and ask is the only way to be certain.

[Daft Doctor]

I will indeed phone them for advice.  I live less than 400 yards from the offices in Newcastle (used to be bothered to death by DWP & HMRC workers parking all over our narrow estate road until they put single yellow lines on it - Ha!), so it may even be possible to visit personally. 

The link above mentions contributions in the preceding 3 full tax years before departure.  I am planning an April departure as it happens, which means I will at least have full contributions until 5th April of the year in question.  The interesting additional thing is that we have an April 30th accounting year end, and the annual profits are taxable (and Class 4 NIC paid)  in the tax year ending 5th April following, ie if I stopped work and moved April 2012, tax and NIC on profits assessed in tax year 2012-2013.  Not sure if the Class 4's paid (assuming they would still be paid in UK rather than France) to HMRC would prolong entitlement to E106.  Will ask that question too!  

[cooperlola]

Paying voluntary contributions once you give up work does not prolong your entitlement. The only argument for paying these once you have left work is if you have not paid enough years to get a full state old aged pension.  If you're moving abroad, it's pointless to pay them otherwise.

My bet is that your E106 will run out on 6th Jan in the year after you retire(2012 if you retire in 2011); hang on until the middle of July in the same year and it will last until Jan 6th of the year after (2013).   

[Daft Doctor]

Hi Coops, not sure what you mean. Class 4 NIC is certainly not voluntary, it is based on business profit. I will be paying it on those profits earned up to the time I stop work, but paid in the tax year containing the accounting year end, i.e 2012-2013 for profits earned to 30 April 2012. I don't know whether this confers any prolonged benefits to an E form or not, but I can ask the question.

I don't quite understand why July 6th is so important. I think I understand that employed people can pay enough qualifying Class 1 NIC in the first three months to confer an extra years E form cover, but how does this affect the self-employed, who, as I said above pay flat rate Class 2's (a pittance) and profit-based Class 4's (paid much later). The poster above was told to pay class 2's until the end of the tax year and delay his departure until after 6th April, then getting 21 months cover. The latter scenario seems intuitively correct, but am I missing something?

Thanks again, as usual all your views are very useful.