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Social Charges and an E121


Grecian
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Can anyone please shed any light on the situation regarding the payment of social charges, if we are in possession of an E121 through long-term incapacity benefit, and not retirement age.

My wife will be receiving incapacity benefit, and an ill health pension from her previous employer, I will be receiving a pension from my previous employer, which I have drawn early.

I accept that we will have to pay French income tax on all the above, but will the incapacity benefit and pension payments be liable to social charges?

Any feedback would be most appreciated.

 

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From what I could gather when this was last discussed, you will have to pay social charges (the amount towards paying off the French national debt) on unearned income (I can't remember the rate but somebody will know), plus 0.5% of your pension.  Social charges are in effect another form of income tax so yes, you pay.  I do not know about your incapacity benefit, however.
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Is this because they are in receipt of an ill-health pension?  We certainly pay social charges on our occupational pensions, although it isn't much (0.5%).

EDIT Ah, now I see LL.  They don't pay because they're on an E121! (Which I'm not).  All clear now. 

Sorry to mislead you o/p, LL is right.

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Thanks LesLauriers that is a very clear answer.

Following on from the original post, I have found on the French Entree.com website, the formula that is used to tax final salary pensions in France.

If your pension is a final salary scheme or is paid directly by an employer then it is likely to be taxed in France as a pension. You include the whole income from the pension as taxable income and then deduct an amount of 10% of the income subject to a minimum or euros 323 and a maximum of euros 3,160. From the net figure so calculated you then deduct a further 20% of that amount up to euros 111,900. As a very rough guide this usually results in only 80% of the pension actually being subject to French tax.

Can anybody in receipt of a final salary pension confirm that this is in fact correct.

Also on the same website, it states that the French authorities treat incapacity benefit as a private pension, again has anyone had any experience of this.


 

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[quote user="Grecian"]

Thanks LesLauriers that is a very clear answer.

Following on from the original post, I have found on the French Entree.com website, the formula that is used to tax final salary pensions in France.

If your pension is a final salary scheme or is paid directly by an employer then it is likely to be taxed in France as a pension. You include the whole income from the pension as taxable income and then deduct an amount of 10% of the income subject to a minimum or euros 323 and a maximum of euros 3,160. From the net figure so calculated you then deduct a further 20% of that amount up to euros 111,900. As a very rough guide this usually results in only 80% of the pension actually being subject to French tax.

Can anybody in receipt of a final salary pension confirm that this is in fact correct.

Also on the same website, it states that the French authorities treat incapacity benefit as a private pension, again has anyone had any experience of this.

[/quote]

No it is out of date. You enter the full amount of your pension, the system will then automatically deduct 10% subject to current limits. This figure is then divided by the number of "parts" your family are entitled to ( 1 per adult .5 for the first two children etc etc) and the resulting figure is then applied to the "tax bands" and the result of that is then mutiplied by the original number you divided by.

The 20% deduction applied to 2005 earnings, since when the bands have been revised to take account of the removal of the 20% deduction and therefore will not apply to earnings from 2006 onwards.

My view would be that incapacity benefit should be taxable as a pension on the basis that your incapacity will have to be agreed by COTOREP in France to qualify for any French benefits including an extra .5 part allowance for your tax return. What applied in UK will not usually apply here - as a rule of thumb!

That said if you ask 5 different functionaires at your tax office for their view you will get 5 different answers and you will be able to choose the appropriate one!

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My understanding from my French accountant, who has just completed our tax returns is slightly different to LesLauriers.  The income from Invalidity Benefit is taxed as that, an income not a pension as I'm not of pensionable age and is declared as such as a world wide income.

As for the .50 additional tax relief for being disabled, you have to be disabled - as I mentioned on another thread, in the UK I was registered as disabled but here in France, there is little chance of being registered disabled as I am fairly mobile most of the time and here disability usually - and as mentioned, 5 people, 5 opinions - means an ambulatory problem.

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[quote user="Tony F Dordogne"]

My understanding from my French accountant, who has just completed our tax returns is slightly different to LesLauriers.  The income from Invalidity Benefit is taxed as that, an income not a pension as I'm not of pensionable age and is declared as such as a world wide income.

As for the .50 additional tax relief for being disabled, you have to be disabled - as I mentioned on another thread, in the UK I was registered as disabled but here in France, there is little chance of being registered disabled as I am fairly mobile most of the time and here disability usually - and as mentioned, 5 people, 5 opinions - means an ambulatory problem.

[/quote]

I may be wrong but as I couldn't find  place for incapacity benefit on the form I was going to include it under my govt pension income as both are taxed at source (IB received is used to reduce your UK tax free allowance and therefore you pay more tax on your pension).  If IB was also taxed in France would this not be contrary to the double taxation treaty?

 

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[quote user="David"]

I understand that Incapacity Benefit paid to French tax residents should be paid by the UK without deduction of UK tax, and then it is taxed in France.

Mine certainly is.

David.

[/quote]

You are probably right.  But at present our receipts of incapacity benefit are used by the UK revenue to reduce our UK tax free allowance and therefore we pay more tax on our UK govt medical retirement pensions.  Consequently our IB income is effectively taxed in the UK.  We received a form from HM revenue and customs, to be presented to the French tax authorities,  which will allow us to apply for relief from UK tax on our incapcity benefit.  However as this will be our first tax return in France we have yet to do this.  This being the case,  does anyone know where on the 2047/2042 forms we should detail our incapcity benefit income?

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Incapacity Benefit is entered on the front page of form 2047 in the section PENSIONS, RETRAITES, RENTES whether it be VOUS or CONJOINT with G-B being entered under NOM DU PAYS etc. Obviosly there may be other amounts for this line.

The total amount is then transferred to page 3 of form 2042 in box AS or BS as appropriate.

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[quote user="Benjamin"]Incapacity Benefit is entered on the front page of form 2047 in the section PENSIONS, RETRAITES, RENTES whether it be VOUS or CONJOINT with G-B being entered under NOM DU PAYS etc. Obviosly there may be other amounts for this line.

The total amount is then transferred to page 3 of form 2042 in box AS or BS as appropriate.



[/quote]

As stated above we already effectively pay tax on our Incapacity Benefit.  Would entering it here not make it liable for further tax?

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If you live in the UK and have been awarded Incapacity Benefit after 1995 then it is taxable.

As far as I am aware, if you do not live in the UK, i e you live in France now, then it is not taxable in the UK. It should therefore not be added into your UK taxable income, as you appear to be saying it is, to be set against your UK tax allowances to arrive at a net taxable income.

Have you informed/told HMRC Overseas branch that you are now living in France?

If, on the other hand,  you were awarded Incapacity Benefit before 1995, then this has never been taxable in the UK but is, again, taxable if you live in France. If this is the case with yourself you will often find that the person taking your call at HMRC is not aware of this slight distinction and you will need to speak to a supervisor who will look up the appropriate legislation.

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[quote user="Benjamin"]If you live in the UK and have been awarded Incapacity Benefit after 1995 then it is taxable.

As far as I am aware, if you do not live in the UK, i e you live in France now, then it is not taxable in the UK. It should therefore not be added into your UK taxable income, as you appear to be saying it is, to be set against your UK tax allowances to arrive at a net taxable income.

Have you informed/told HMRC Overseas branch that you are now living in France?

If, on the other hand,  you were awarded Incapacity Benefit before 1995, then this has never been taxable in the UK but is, again, taxable if you live in France. If this is the case with yourself you will often find that the person taking your call at HMRC is not aware of this slight distinction and you will need to speak to a supervisor who will look up the appropriate legislation.




[/quote]

Hi Benjamin.  We were both awarded IB after 1995.  We did of course inform the authorities of our move to France.  In fact the letter fron HM Revenue and Customs - Charity, Assets & Residence branch (received in August 2006 a few weeks after we arrived in France) started with "As you live outside the UK,  this office is now responsible for your UK tax affairs).  It then went on to state that "Relief from UK tax may be available for your Incapacity Benefit" and how to 'claim' this.  At the time we took the letter to the local (French) tax authorities who didn't want to know anything about it as we hadn't made a tax return.  Hence where we are now and why I don't wish to be taxed twice on IB.

Not sure if Revenue and Customs are mixed up or if this is a new protocol?

MrK

 

 

 

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In fact the letter fron HM Revenue and Customs - Charity, Assets &

Residence branch (received in August 2006 a few weeks after we arrived

in France) started with "As you live outside the UK.........

I think you will find that most retired people here are under the Non residents HMRC at Bootle.  Try calling 0845 300 3939 and asking them, they are very helpful, of course as you came from NI and were civil servants, it may be that you are covered by a different tax office, but Bootle are the experts on non resident tax affairs in the UK

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ali-cat.

I am trying to think of a simple solution for your Incapacity Benefit problem, and to suggest a practical solution.  I am not financially or tax literate so some of my terms may not be exact, but I have been through the same problems, and I would like to explain how I resolved them.  I have to say that I took my problems to the local French tax office and they were extremely helpful.  I am also writing this to try to explain to other newcomers to France how I solved these problems, so I will try to be quite general in my approach.  I just hope that the experts do not castigate me too much and lose the thread of common sense.

Please correct me if I am wrong, but it seems to me that as you initially received your IB after 1995 then you are liable to pay tax on the benefit whether it be UK or French tax.  Ignoring the government pension, can you say from your IB notifications whether there is actually a UK tax deduction.  Are you being paid the full benefit tax free, or is there a tax deduction?

To keep things simple (I am a simple bloke), I will assume that you are paying UK tax on the IB, as well as UK tax on your government pension (GP).

Again to keep things simple, I see that you arrived permanently in France sometime during the summer of 2006, say July 2006.  This helps a great deal.  So let us look at the situation from the first of January 2007.

From that date you should be paying French tax on your IB, and UK tax on your GP.  I do not know if you will have to complete a UK tax form for your GP, but if you do the IB should not be included on it.  With respect to the IB, to avoid double taxation you should complete a UK form FD5 to exempt your IB payments from UK tax, and to reclaim any UK tax paid.  You should also do this on any other UK income sources such as bank interest etc.  You may find that some, banks particularly, refuse.  With these you then decide whether to keep paying UK tax and reclaim it every year (after paying French tax), or close the account and transfer to somewhere that will pay without deducting UK tax.  The reason for this is that, as you know, you have to declare all world wide income on French tax forms.

As you only arrived permanently in France in July 2006, in practice and with discussion with your local French tax office, you may have some flexibility for the 2006 tax payments.  You are only compulsorily considered tax resident in France once you have lived in France for more than six months, unless you have declared an earlier date.

The UK form FD5 asks your exact date of departure from the UK, and also the date on which you became resident in France for French tax purposes.  Thus, after you discuss this with your France tax office, you could for example choose the date 1st January 2007.  Then for the present French tax form for earnings in 2006 you could either not complete the form at all, or just fill in zeros everywhere and submit the form in order to register with the French tax system, and submit the UK form FD5.

This is essentally what I did.  I took the UK form FD5 to my local French tax office, asked for a French tax form, explained the problem, and they could not have been more helpful.  They filled the forms in for me, we chose suitable dates for the various incomes varying from the 1st January to the 5th April (in your case 2007), set up our French tax file, submitted the form FD5 for all income we could think of including banks, pensions, and IB, and all was well.  I did turn up with a suitcase full of documents, and a typed summary of UK income.  They looked through the summary, shuddered at the suitcase, and could not have been more helpful.  I am sure that some regulations were bent, and perhaps some were broken, but the French were happy, and I have had no problems for the last three years.  They seemed to take a pragmatic approach, and even though they might lose some tax in the early days, they were happy that the long term would be properly sorted.

If you have already declared a date, then again go to your local tax office, and agree with them a practical date of transfer for each item, and get them to accept the UK form FD5.

I hope this helps, and has not been too long winded.

I now wait for the experts wrath.

David

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No wrath David at all, you have had the experience that I had in my first year, a lot of flexibility and a certain amount of happiness from the French tax people that we were actually paying tax, knowing what I know now, we were quite probably unique in that respect amongst many already living here for some time, but that is another story.

There is only one flaw in your cunning plan and that is the date of French tax residency, it is not really negotiable, it is the day after you move here,  and even if it was, the date that you become liable to French tax has to be the date that you ceased to be liable for UK tax or the FD5 will not be accepted by the French or British. In other words if you do as you propose and ignore 2006 for French tax, you cannot claim back tax paid in the UK for 2006, to do so would be to make a fraudulent declaration.

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Hi Ron,

I agree with all you say.

You are quite correct about the date of French tax residency, but I found that my local tax office were very flexible.  I said that up to that time we had not finally decided to settle in France, but that after six months we had decided to stay, and so we wanted to do everything correctly - all perfectly true.  This was accepted.  Then in essence we settled for a particular date, say the 1st of January for this thread, (that was not our actual date) to start paying French tax, although we had lived in France for about 6 months (bending rules?).  I thought this was the reason for the different dates on the UK form FD5.  I have just checked my FD5, and the date of becoming resident in France for French tax purposes was several months after our exact date of departure from the UK.  This was accepted by both authorities.  We were then flexible about some of the dates of other investments.  Basically closing UK bank accounts - less paper work?  The tax office took notes of the agreements, and were very firm that there would be no more flexibility.  This was purely a change over flexibility, and as you say there was a certain amount of happiness about actually paying French tax.

In retrospect, I think the French lost out a bit on tax, as all flexible dates were after the official date, but they were prepared to accept this in order to save paper work and to ensure that all was done properly for the long term.  Being in posession of all paperwork, they could be sure that tax had been paid, whether in UK or France, and that no tax had been improperly reclaimed.

Having chosen, say, the 1st of January 2007 to become liable for French tax, we did not try to claim UK tax back for 2006, but concentrated on reclaiming UK 2007 tax already paid (filling out French forms in May), and having things paid UK tax free after that date.

Just seen the time!  Good night,

David

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Thanks David and Ron for all the thought and time you have put into this,  especially so late at night.

What you are proposing seems sensible.  I will probably have a preliminary chat with the tax authorities rather than present them with a full draft of the tax returns as I had hoped to do.  Might there be an easier way however.  Given that,  as far a we and the UK tax authorities are concerned we are currently paying UK tax on our incapacity benefit (by way of a corresponding reduction in our UK tax free allowance),  for this tax return - we treat IB like the Govt Pension (as revenues exoneres),  return the form to Customs and Revenue applying for IB to be exempt from UK tax and then declare IB for French tax for 2007?  He says hopefully.

MrK

 

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Quick update.

Decided to speak to Customs and Revenue in the UK about this.  They were very helpful (although not very confidence inspiring as they initially didn't seem to know the difference between our medical retirement pensions and incapacity benefit).  However the bottom line is that IB should be declared as taxable in France and form FD5 returned to them requesting that IB is exempt from UK and tax and that any UK tax paid for 2006 'may be' refunded.

Thanks everyone for your help and apologies to Grecian for hi-jacking his thread.

Mrk

 

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[quote user="ali-cat"]

Quick update.

Decided to speak to Customs and Revenue in the UK about this.  They were very helpful (although not very confidence inspiring as they initially didn't seem to know the difference between our medical retirement pensions and incapacity benefit).  However the bottom line is that IB should be declared as taxable in France and form FD5 returned to them requesting that IB is exempt from UK and tax and that any UK tax paid for 2006 'may be' refunded.

Thanks everyone for your help and apologies to Grecian for hi-jacking his thread.

Mrk

 

[/quote]

I'm pleased that HMRC have confirmed what I told you yesterday. [:D]

In your earlier posts you appeared to be confusing the UK and French tax regimes. If a source of income is taxable in France then you enter it as such on your French tax return irrespective of how it has been treated by the UK tax authorities. If it has been treated wrongly by the UK tax authorities then that is nothing whatsoever to do with the French tax authorities.

As you have now discovered the simplest way of informing the UK tax authorities that you are now paying tax in France is to complete an FD5. You state that you will be returning the FD5 to "them" i e HMRC, which is not correct. You should complete both the English and French language versions and hand them into you local French tax office. In the fulness of time the English version will find it's way to HMRC Nottingham.

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Hi David.

No wrath from me either but then I'm no tax expert, just relating my experience with our local French tax office.

Your posting however could give people the wrong impression on what's allowable or not in declaring income in France.

In your post you state

I am sure that some regulations were bent, and perhaps some were

broken, but the French were happy, and I have had no problems for the

last three years.

...........that as far as I am concerned says it all.  [8-|]

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