Declaring income from UK Nationwide Building Society account

[sugarfree]

Hello.

I am resident in France but still have two savings accounts with the Nationwide back in the UK.

As some of you may know, the Nationwide does not accept the R105 form, so every year, the interest on the accounts is paid net of tax, and I then have to claim back the tax from HMRC, a rather long and laborious process. 

My question is, what figure should I enter in my French tax return:  the amount of interest paid by the Nationwide (i.e. the net interest) or the gross interest (net interest paid by the Nationwide + amount of tax refunded - eventually - by HMRC)?  I assume I should enter the gross figure.

If I have understood correctly, the French tax authorities will then charge me 11% of the declared income from my UK building society accounts by way of "prélèvements sociaux". 

I would be very grateful if somebody out there could confirm this for me.

 

 

 

 

 

[cooperlola]

You declare the total interest paid to you by the Nationwide, including the tax.  You should get all of the tax paid in Britain back from the tax man in the UK.

Yes, you pay social charges on the interest.

EDITed after Allan posted (below)

[gosub]

You enter the gross interest from Nationwide, as soon as you receive notification of your interest from NW use HM Revenue & Customs form R43 to reclaim tax paid in the UK it's quite straight forward and usually a reasonably quick repayment.

[allanb]

"You declare the interest paid by the Nationwide. Otherwise you're paying twice!"

Cooperlola: if you mean that only the net amount is to be declared, I think you're wrong. If the gross amount is £100 and the building society pays you £80 after deducting £20 tax, your taxable income is still £100, and it's taxable only in France.

I agree that you should be able to reclaim the UK tax, but it's no business of the French authorities whether you do or not.

[cooperlola]

Yes, you are quite right, Allan, thinking about this again.  You declare the amount of INTEREST and the tax is worked out from there.  Doh!  (I'll amend my post or the o-p will be as confuddled as me!)

[sugarfree]

OK, thanks very much.

Interestingly, a straw poll of all the Brits I know here in France (and Germany) revealed that none of them have declared income from UK bank/building society accounts in their tax returns and so far, nobody has been contacted about it by the French/German tax authorities.  So what's going on?  Are the UK banks not actually passing on the information or is it just that the amounts involved are small and the French/German tax authorities think it's not worth pursuing them?

 

[allanb]

"So what's going on? Are the UK banks not actually passing on the information or is it just that the amounts involved are small and the French/German tax authorities think it's not worth pursuing them?"

I don't know which of these is more likely, but they're taking a silly risk in my opinion. For obvious reasons, penalties are normally out of all proportion to the tax "saved".

I'm referring to the French residents, by the way. I don't know anything about the UK/Germany treaty.

[suein56]

[quote user="sugarfree"]

Interestingly, a straw poll of all the Brits I know here in France (and Germany) revealed that none of them have declared income from UK bank/building society accounts in their tax returns and so far, nobody has been contacted about it by the French/German tax authorities.[/quote]

Talking to French friends here it seems that the tax authorities believe you when you sign the tax form to say that you have declared your total global income. If during a 'contrôle' you are found to have underdeclared it is then that the s**t hits the fan.

I didn't much care for the description by someone I know of being subjected to 4 hours on a lone chair in the middle of a room facing a group of tax inspectors who asked in depth and penetrating questions - and seemed to know what the answers should be before she answered. She had only made 2 very small mistakes but was fined and told she would be controlled again in the future to make sure she didn't make the same errors again.

I declare everything as I am a scaredy cat.

Sue

[cooperlola]

Well, I guess it's up to their consciences.  However, having done this FHI thing and listened to so many people saying they don't mind paying for their healthcare then if they don't declare income to the French taxman then they are being hypocritical imo (I'm not saying that this applies to your friends, sugarfree.).  They live here, not in the UK, and use the services here, their healthcare contributions are calculated on the basis of their declared income.  The infrastructure for the country they live in is paid for out of their taxes, so they have a moral obligation, if nothing else, to pay what is due, imo.

[Sprogster]

The European Savings Tax directive under which EU countries now automatically exchange with each other details as to interest paid to each others EU residents was only implemented last year, so it will take a while for EU member countries to process the huge amounts of information being automatically exchanged on a year end basis. (There are a few exceptions like Luxembourg.)

If you have a bank account in the UK and your bank have a French mailing address then details of any interest paid on your accounts will end up with the French Fisc. However, if you have kept a UK mailing address the bank will presume you are UK tax resident and this information will end up with HMRC, who in turn will pass the details to the French Fisc if they are aware you are French resident. Likewise, if you have a French bank account and are UK tax resident details of any interest paid will be automatically passed to HMRC.

People may have got away with it in the past as there was no automatic exchange of information between EU tax authorities, now that there is, I would strongly recommend that they make full disclosure as they will be caught in due course and the penalties can be severe. Also don't rely on the fact that if the amounts are small the tax authorities will not bother, as the collection processes are becoming increasingly computerised and tax authorities often take a potential tip of the iceberg perspective!

[allanb]

It seems to me that the sort of people who don't declare parts of their income, and think that they won't get caught, are the same sort of people as those who don't declare their residence to their car insurers, and think that their insurance is valid. (See threads under "driving").

I prefer the "scaredy-cat" approach, but I call it "common sense".

[sugarfree]

Many thanks for that - I will warn all my friends pronto!

 

 

[Wendy]

Why are you bothering to declare it here when you would already have paid the tax in the UK?...and under which law do the Nationwide NOT accept this form?

Speaking as a Nationwide customer, resident in France, myself.

[allanb]

"Why are you bothering to declare it here when you would already have paid the tax in the UK?"

(a) French law says it must be declared in France, no matter where it is taxable.

(b) The tax treaty (which is part of the law in both countries) says that it is taxable in France. If tax has been paid on it in the UK, it shouldn't have been, and it can be reclaimed.

"...and under which law do the Nationwide NOT accept this form?"

I don't think this is a matter of law. As far as I know, nothing prevents Nationwide from doing so except its own procedures.

[AnOther]

[quote user="allanb"]...and under which law do the Nationwide NOT accept this form?" I don't think this is a matter of law. As far as I know, nothing prevents Nationwide from doing so except its own procedures.[/quote]Quite right I think. Extract from the HMRC advice notes on form R105

"Building societies, banks and other deposit takers in the United Kingdom (UK) will normally deduct tax at the lower rate from interest paid or credited to your account. However, if each person beneficially entitled to the interest is an individual who is not ordinarily resident in the UK, you may be able to arrange for interest to be paid with no tax taken off. Not all building societies, banks and deposit-takers offer this facility"

[Ron Avery]

[quote user=Jura]

Why are you bothering to declare it here when you would already have paid the tax in the UK?...and under which law do the Nationwide NOT accept this form?

Speaking as a Nationwide customer, resident in France, myself.

If you are not declaring your interest to the authorities in France you are making a fraudulent tax return under French law.  UK institutions do not have to accept any forms, most now will not pay interest gross to non residents.

For the OP, many UK institutions do not pay interest gross as you have found out or use the R 105 form.  The R43 is not the form to use, that is only for claiming allowances if you are a non resident not tax already paid.  However, there is a simple and legitimate way HMRC recommend to claim back tax paid in the UK.  See my post here:

http://www.completefrance.com/cs/forums/742540/ShowPost.aspx

[Sprogster]

Jura,

Residents of France are required to disclose to the French Fisc their world wide gross income and gains. If part of that income has already been subject to witholding tax in the UK, upon evidence of the UK tax being provided the French Fisc will allow this as a tax credit against your French tax liability under the terms of the double tax treaty between the two countries.

Depending on your French marginal tax rate you still could have a net French tax liability if the UK witholding tax rate is lower.

[BJSLIV]

If part of that income has already been subject to witholding tax in the UK, upon evidence of the UK tax being provided the French Fisc will allow this as a tax credit against your French tax

However if, as in this case, there is no liability to UK tax, the French will charge the full amount of tax, giving no credit for tax paid in the UK. Its then up to you whether you reclaim the UK tax in the way posted by Ron.

[Sprogster]

Ron,

Increasingly,  UK banks and building societies are requiring their non UK resident clients to bank through their Isle of Man or Channel Islands branches or subsiduaries, as these are  their expatriate banking centres.  One of the main reasons are that banks and building societies in the UK are very reluctant to pay interest gross to non residents clients, as if it turns out a such a client is in fact UK tax resident then the bank is liable itself to pay the missing tax to HMRC. Not surprisingly banks are reluctant to take this risk, so are directing non resident clients to their offshore centres where interest can be paid gross without this liability exposure.

There are also other UK tax planning considerations that make it unadvisable to leave your bank accounts in the UK if you are leaving the country permanently. For example, if it still can be shown you have financial links to the UK it can be difficult to establish a domicile of choice abroad, which as I am sure you are aware is imprtant for IHT planning purposes.

 

[Sprogster]

BJSLIV,

It is a lot less work to get the interest paid gross than to deal with HMRC who are notoriously slow, especially where tax refunds are concerned!

[BJSLIV]

I agree. But you seemed to be saying that if you had already (incorrectly) paid withholding tax, then the French would allow you to offset this against your French liability.

[allanb]

[quote user="Sprogster"]If part of that income has already been subject to witholding tax in the UK, upon evidence of the UK tax being provided the French Fisc will allow this as a tax credit against your French tax liability under the terms of the double tax treaty between the two countries.[/quote]

Sorry, but I think this is a myth.

The treaty says pretty clearly that UK interest received by a resident of France is taxable only in France.  And if you look at the list of available tax credits, country by country, in form 2047-K (declaration of foreign income) you can see that for the UK no credit is available.

There is a possible tax credit for dividends - maybe this causes confusion.

[gosub]

"The R43 is not the form to use, that is only for

claiming allowances if you are a non resident not tax already paid. 

However, there is a simple and legitimate way HMRC recommend to claim

back tax paid in the UK."

Sorry Ron but I have been using this form R43 for 5 years and it works fine, I get my refund of Tax in about 6/8 weeks from posting it off to Nottingham. Simple and legitimate[:D]

[Ron Avery]

Only going by the HMRC site Les, if they accept an R43 from you then fine.

In the past you had to go through the PD 5 (is it?)  route on double taxation each year.  Then Bootle told me just to do a UK self assessment and you get it back if the amount paid is below your tax threshold.. for details see the post mentioned in my post above.

[Sprogster]

Whilst on the subject of non UK residents, as I am sure many of you are aware the UK government are changing the rules from the 6th April, 2008, in that days of arrival and departure will count towards your allowed ninety days per year. This will mean the UK will have one of the tightest tax residence tests in the world and the expectation is that HMRC will agressively use this. (After all the UK is running a record trade deficit and Brown and Darling need every penny they can get!)

Add to the equation that the UK government are resisting calls to introduce a statutory definition of residence, it will be possible for you to be caught even if you spend less than ninety days a year in the UK, if HMRC are of the view that the UK is still the centre of your financial activities and family ties. Hence not the best idea to maintain UK bank accounts as a non UK resident.

Those who live in France or elswhere abroad and travel to the UK on a regular basis, will have to be a lot more careful to avoid falling into the new UK residence trap.