Taxation of annuities

[parsnips]

Hi,

      A recurring subject ,which generates much heat but less light on this and other forums ,is the taxation of annuities of various types. I have just come across this explanation in a "Le Particulier" issue on supplementary pensions. The section on rentes viagères says that where the rente results from a retirement product where tax allowance was given for the contributions while they were being paid,it should be taxed as a normal pension with 10% abattement, and then taxed at the marginal rate.

     Where the rente is paid in return for a one off deposit of a capital sum, or as the return from a life assurance plan, or following the sale ("en viager") of a house, then it is taxed under the special age-related abattement system(and subject to social cotisations).

      This seems to say that UK annuities ,whether totally personal, or resulting from a works scheme, are taxable as ordinary pensions provided tax relief was given for the contributions, which I believe is the case in the UK.

      Comments invited.

[lacote0_0]

Do they give a source for this statement?

[Anton Redman]

Page 263 of 25.1.1.1.b Taxation in France 2004 by Charles Parkinson gives the impression that they should be taxed as pensions but in some cases the French authorities are content to tax them in the same way as French annuities.

My understanding is that the sliding scale relief on annutity income in UK wherby part of the income is treated as repayment of capital remais in place for  annuities purchased from taxed income.

[parsnips]

[quote user="lacote0_0"]Do they give a source for this statement?

[/quote]

Hi,

     They don't give a reference for this article, but elsewhere they quote the fisc's definition of the" rente viagère à titre onéreux" (to which the special age-related regime applies ),and the 

"rente viagère à titre gratuit" which is taxed as a normal pension, giving the reference (DA 5 F61264,N°3 et4).

[lacote0_0]

The

definition of rente viagere a titre onereux here: http://doc.impots.gouv.fr/aida/brochures_ir2008/ud_028.html includes

Les

rentes viagères perçues en contrepartie :

• du versement d'une somme
  d'argent,

and

• les rentes constituées auprès
  de compagnies d'assurances moyennant le versement d'un capital en espèces.

A purchased life annuity appears to fall fair

and square within both tests; it is bought with a sum of money from an

insurance company (and not limited to the insurance company administering the original

“retirement” policy).

[parsnips]

Hi,

 In the article I quoted they make a distinction between A. annuities paid as a consequence of a "one-off" lump sum contribution of capital (taxed under the age related rules) and B. those which are paid as the result of contributions spread over time for which tax allowance has been granted,(taxed as a "normal" pension).

     You would probably say that as the private pension pot is used to purchase an annuity it falls under  A. , I would argue that as the french have no direct equivalent of UK private pensions , and tax allowance is given for periodic payments into such schemes they fall, like the french "Madelin", or" Prefon" schemes under B.  The key phrase in the referenced item you quote is a "CAPITAL en ESPECES"

       As I have said before the subject is so complex and open to so many interpretations people should work out the most favourable (for them) way to declare, and await possible correction by the tax office --this will cost them nothing.

[lacote0_0]

I do not read versement of a capital en especes as meaning any more than payment in money or money's worth at the term of a contract, by whatsoever means and to whomsoever the policyholder may direct, in which case the proceeds of a UK policy which has matured or been cashed in would fall within the term.

Even if I were wrong and the "periodicite" of payments under regular

premium policies meant that they fell under B, and annuities purchased

with them were taxable as salaires de retraite, not rentes viageres a

titre onereux, nevertheless annuities purchased with the proceeds of

single premium policies (as were Equitable Life's policies, for

example) would presumably still fall within A.

There is a very

fine line to be drawn here between arguing that annuities should both benefit from the allowances against income tax of rentes viageres a titre onereux and be exempt from ISF under the rather convoluted terms of article 885j of the CGI.