French tax on NHS pension lump sum?

[Daft Doctor]

I will be retiring from the NHS on 2nd May and will become French resident for tax purposes on the 3rd May (I will be in France for 3 weeks before that but I will officially be on holiday). As a GP my pension is administered centrally rather than by a local NHS trust and as such I believe that it will be taxed at source in the UK and I will simply declare it on my French tax return but claim exemption from French tax under the dual taxation treaty.

As part of my normal pension rights, at retirement I will also receive a substantial lump sum of approx 3 x pension which is paid tax free in the UK. Am I right to presume that as I will accrue the right to this lump sum on 2nd May (i.e before I am French resident for tax purposes) and given its nature as part of my normal NHS pension (rather than a capitalisation of a right to further pension income), then even if it doesn't filter down to me for a few weeks due to administration delays or whatever, I should not be liable to pay tax in France on the lump sum despite the new law which came into effect in France on 1st January? Any insight gratefully received.

[suein56]

[quote user="Daft Doctor"]

As part of my normal pension rights, at retirement I will also receive a substantial lump sum of approx 3 x pension which is paid tax free in the UK. [/quote]

Can you not delay arriving to live in your French home until after you have received your lump sum in the UK?

That way there should be no problem; although some posters have found that their French tax offices insisted on a full year's revenue for the tax declaration, even though the people concerned might only have taken up residence in France part way through the year.

Tax avoidance, not evasion.

Sue

[FairyNuff]

I worked for the NHS up to July 2007, at that time I seem to remember that you could opt to take the lump sum as an increase in your monthly pension payment, thus negating the size of your annual income for that financial year. I'm afraid I don't have direct experience as I'm still too young to receive my superannuation.

FairyNuff

[NormanH]

There are other more expert posters on French tax law than I am (parsnips comes to mind, and SD).

I would be careful of the date of arriving in France.

I have an uneasy feeling that the tax people will want to take into account your income for the whole year from 1st January whatever date you received it, but I can't find a reference.

If nobody comes up with a definitive answer soon I will try to find out, but as there are chaps with good gen on here I'll let them have first whack.

To split hairs you are taxed a second time on your NHS pension, but then you get a credit to set against it.

tinabee and I made a spreadsheet which should enable you to calculate your income tax liability in France.

[parsnips]

Hi,

      First make absolutely sure that your pension is classed as government and so exempt, see this list;

www.hmrc.gov.uk/manuals/intmanual/INTM343040.htm

If it is exempt it still has to be declared (including the lump sum), , and although not taxed will, if big enough , have an effect on your french tax rate.

     The calculation should take account of the special method which reduces the tax bill for taxable lump sums , so the effect may not be too serious.

       If the lump sum is over 6000€ , 1/15th of the total sum is added to total household income and the additional tax due on the lump  calculated , this is then multiplied by 15 and added to the total tax bill --REMEMBER that in your case, a credit equal to the tax due on both the lump sum and your pension (if exempt-see above) should be given , and the higher tax rate which results from the calculation will only be applied to your french-taxable income.

       However, after the multiple c**k-ups this year over the new treaty, you should expect to have some longwinded negotiations with the tax office in order to get things done properly.

[Daft Doctor]

Hi Parsnips, thanks for the info. I'm now starting to get rather worried! On closer inspection via your link and info from the NHS pensions website it is clear that my pension is 'non-government' after all, as it will be paid by Xafinity Paymaster rather than a local authority. That will mean it will be taxed in France rather than in the UK. I have property income in the UK which will more than use up my UK personal allowance, so will still have some income taxed in the UK. I have read that paying some tax in each country is not necessarily so bad overall but things may have changed? Will I have to pay social charges in France on my NHS pension as well as income tax? How does the non-government pension status affect the lump sum? Does it still escape taxation if it is received prior to my becoming French tax resident, or is additional French taxation inevitable?

Norman raised the issue of potentially having a full years income taken into account in calculating French tax liability even though I won't be retiring until May. If this is true I will be absolutely and unfairly clobbered! I will be in my highly paid job as a GP partner until my retirement date but I will be taxed to the hilt in the UK on that income in the 2012-13 tax year (we pay tax under schedule D in the UK and have an April 30th year-end). I am hoping someone will reassure me that only income from the date of French residency will matter, otherwise I will be effectively taxed twice on 4 months GP income, and that means a lot of extra tax. As an extra bit in the mix, we have tax losses to carry forward in France on our leaseback of 5.6k euros and 13.7k euros for 'industriels et commerciaux non-professionnelles' and 'locations meublees non-professionnelles' respectively. Am I right that these losses can be offset against any French-taxable income once we are resident?

Sorry this is rather longwinded, and I am shamelessly fishing for expertise. Just thought you might have some insight on the overall situation. Many thanks in anticipation.

[Lespearsons]

I don't think you can decide that you arrived on the 3rd May 'for tax purpose's'. The day you set foot in France with the intention of becoming resident is the day you are liable for French Tax.

My tax office (I know they all seem to have their own rules) only took into account the part of the first year we lived here and that was a face to face declaration.

Best of luck.

[tinabee]

I would double check again (specifically with Xafinity Paymaster) whether your pension is Government or not. I am pretty sure that Xafinity paymaster pay Government pensions on behalf of local authorities for other services. AFAIK, Xafinity Paymaster is not the same as the Paymaster General's Office.

[parsnips]

[quote user="tinabee"]

I would double check again (specifically with Xafinity Paymaster) whether your pension is Government or not. I am pretty sure that Xafinity paymaster pay Government pensions on behalf of local authorities for other services. AFAIK, Xafinity Paymaster is not the same as the Paymaster General's Office.

[/quote]

Hi,

     That's right , my Local Authority Fire Service pension, which is definitely exempt, is now paid by Xafinity.   It is paymaster general pensions which are non-government.

You become french resident on the first day (and if you are a frequent visitor you can in fact choose your date--confirm it by completing HMRC form P85 ).

You are not liable to french tax on any UK earnings before that date; if some tax offices have been taking the whole year into account they must give credit for extra french tax calculated on UK -taxed earnings. 

[Daft Doctor]

Hi thanks tinabee, I have emailed them to get it from the horses mouth. I have also asked them when I might expect to receive the lump sum element of my pension relative to my retirement date, as this may influence which date I choose to go.

Norman mentioned an excel spreadsheet that you and he put together but I can't find a link to it on the forum. Can you help?

As far as the date of residency in France goes, what is to stop us converting our holiday time there to a permanent stay from my official retirement date 'because we loved it so much and couldn't bear to leave'? There must be numerous people who say they are going out for less than 6 months initially then 'change their minds' and remain to become tax resident at a time that suits them?

[parsnips]

[quote user="Daft Doctor"]Hi thanks tinabee, I have emailed them to get it from the horses mouth. I have also asked them when I might expect to receive the lump sum element of my pension relative to my retirement date, as this may influence which date I choose to go.

Norman mentioned an excel spreadsheet that you and he put together but I can't find a link to it on the forum. Can you help?

As far as the date of residency in France goes, what is to stop us converting our holiday time there to a permanent stay from my official retirement date 'because we loved it so much and couldn't bear to leave'? There must be numerous people who say they are going out for less than 6 months initially then 'change their minds' and remain to become tax resident at a time that suits them?[/quote]

Hi,

      Regarding residency , you are right, but I know of no-one who has ever been interrogated about their arrival date.   For your other questions , best wait until you are absolutely certain about the status of your pension.

[EmilyA]

I think the important date for your official arrival would be the one you put on your form for leaving the UK for tax (sorry can't remember the number) and the start of your E106 (if that is what you are using for health cover). You could also choose a date to go to the Mairie and say that you are in permanent residence - this is not required, but may be helpful for establishing the date with the French authorities later on. Nobody ever questioned our arrival date here, but you do get asked for the date (whatever it might be) by the UK tax and pensions people as a security question.

We moved in mid-December and were told not to bother filling in a French tax form for that year, but it may be different for May / June.

I would have thought it might be helpful to have a bit more of a gap between the lump sum and the official arrival date...

[NormanH]

https://docs.google.com/spreadsheet/ccc?key=0AuTBbphDzPcwdDNLVDJUd2VNSVU5Q3p0RERTdlpUOHc

is the spreadsheet updated to 2012

I think EmilyA is talking about the P 85 as it was when I left the UK

Sorry if I mislead you about the principle of the starting date for liability to French tax.

[AnOther]

I think in reality the French taxman will be happy enough that you have declared yourself and not be overly bothered about the day you entered the country intending to stay which is pretty much a moving target anyway.

[Daft Doctor]

Hi, Just a quick update on the question of whether a GP NHS pension is Government or Non-Government. Xafinity don't know, NHS pensions agency said initially that all NHS pensions were Government (but then simply equated 'Government' to 'public sector'!!), HMRC didn't know either, they've promised to get someone to ring me sometime.....aarrgghhh!

[datz]

Hi

Is it possible to change the defaults in the spreadsheet it seems locked when I tried to put my own details in?

[tinabee]

[quote user="datz"]Hi Is it possible to change the defaults in the spreadsheet it seems locked when I tried to put my own details in?[/quote]

Hi

you need to download a copy  - if you click on File then Download as - you can select the spreadsheet programme you use.

 

[Sprogster]

daft doctor, I cannot stress strongly enough the need for you to obtain professional French tax advice, from a suitably qualified French tax lawyer. Especially, as I assume the amounts involved with a retiring partner of a GP practice, are substantial and probably far greater than most members of this forum would be familiar with.

My understanding is that the situation for GP's in the UK is very different, in that you are not individually employed by the UK government, but the medical practices are independent private contractors. Although, for historical and contractual reasons you still have the benefit of an NHS pension.

A posters opinion, or experience, should never be relied on where tax issues are concerned, because the tax authorities and governments constantly move the goal posts if they believe it can earn additional revenue.

[NormanH]

I fully agree with Sprogster.

[Daft Doctor]

Hi Sprogster & Norman, you are of course absolutely right, and although I have always appreciated any advice and insight from fellow forum members, I don't regard it as gospel, if not simply because as you have said my position is quite unique.

At the moment, after a further phone call to HMRC my case has been passed on to a department in Bootle who will contact me once they have formed an opinion at to whether my particular NHS pension is 'Government' or 'non-Government'. Once I have that determination all else will flow from it. At that point I will certainly take further professional advice, though I already have both a French and UK accountant to help out. I of course want to avoid paying tax unnecessarily, but only when and where it is legal to do so.

[AnOther]

On the sole question of a pension commencement lump sum (PCLS), I see no logical reason for the French to differentiate between it being derived from public or private employment.

Also, just as for any other income, surely it can only be the actual date of receipt of the money which determines the point of tax liability.

Example: if you were in line for a guaranteed bonus from work, let's say at the end of the UK tax year in April 2012, but knew about it now, would you logically declare it on your 2011-2012 tax return ?

The answer to that has to be no so why would you or could you declare an anticipated PCLS ?

TBH I don't think the French have even got themselves really sorted on this one and in practice it may come down to a simple personal choice, to declare it or not.

I'm sure you are not the first to have wrestled with this decision !

[Daft Doctor]

Hi AnOther, I am sure you are right on all the counts mentioned. What I am unsure about is whether if in the case that my NHS pension IS deemed 'Government', the tax status of the PCLS would be the same as that of the pension. If so, as with the pension, the lump would only be taxable in the UK and would be safe from any French taxation. As such lumps are still tax free in the UK, any issues regarding the timing of my move to France and therefore French tax residency would cease to be an issue. On the other hand if PCLS are stand-alone for tax purposes whatever the status of the NHS pension, then the timing of any move may still be an issue. I would just have to make sure I wasn't tax resident in France before I received the money.

The only other remaining tax issue to resolve will be if my NHS pension would be taxed in the UK or in France. Personally I hope it is deemed non-Government and taxed in France, as I would pay a bit less overall ongoing income tax that way.

[parsnips]

[quote user="Daft Doctor"]Hi Sprogster & Norman, you are of course absolutely right, and although I have always appreciated any advice and insight from fellow forum members, I don't regard it as gospel, if not simply because as you have said my position is quite unique.

At the moment, after a further phone call to HMRC my case has been passed on to a department in Bootle who will contact me once they have formed an opinion at to whether my particular NHS pension is 'Government' or 'non-Government'. Once I have that determination all else will flow from it. At that point I will certainly take further professional advice, though I already have both a French and UK accountant to help out. I of course want to avoid paying tax unnecessarily, but only when and where it is legal to do so.[/quote]

Hi,

The point about public sector pensions is that if

they are exempted under Article 19 of the treaty , such pensions are

taxable ONLY in the country which pays them , so it is logical that any

lump sum paid under the same pension scheme is tax-free in France.

When lump sums form part of other pensions , which ARE taxable in

France under the treaty, then it is logical, if not generous, that they

be taxed .

[HoneySuckleDreams]

Don't you have to declare anything you receive as part of your world-wide "income" so that you pay cotisisations on the amount? Like premium bond winnings [Www]

[suein56]

[quote user="HoneySuckleDreams"]Don't you have to declare anything you receive as part of your world-wide "income" so that you pay cotisisations on the amount? Like premium bond winnings [/quote]

Yes but a lump sum is not 'income' in the sense it is not part of an income stream. Premium bond wins - which I declare - are classed as interest - which is part of an income stream and therefore taxable income.

Sue