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UK tax treatment of French TVA?


Daft Doctor

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Hi, I am UK resident and have a leaseback property in France.  I receive the rental payments for the apartment from Lagrange with 5.5% TVA added.  Part of the lease stipulated that I must be registered for TVA in France, so I am, and as such pay TVA over to the Impots on rent received and claim back TVA paid on any costs, e.g. accountancy bills, etc.

On my French tax return (completed by my english speaking French accountant) I declare the income and expenditure net of TVA, presumably as the TVA is dealt with separately.  I am not VAT registered in the UK and have no reason to be.  The question is, when I am declaring my French income and expenditure on my UK return, should I use figures net of TVA (as on my French return) or with TVA included?  I suspect it is the latter, but being VAT registered in one country and not the other makes the situation a little unusual.  If I must declare the income and expenditure to HMRC with TVA included, can I then offset any net TVA payments in France against UK income tax charged on my French profits?   

One final question, I know that regarding income received, you must use the exchange rate in force on the day you received payment to convert euros to pounds for tax purposes.  With expenditure, do you use the date on the bill, the date you make payment, or can you choose between them?  Sage advice would as always be most appreciated.  

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[quote user="Daft Doctor"]

Hi, I am UK resident and have a leaseback property in France.  I receive the rental payments for the apartment from Lagrange with 5.5% TVA added.  Part of the lease stipulated that I must be registered for TVA in France, so I am, and as such pay TVA over to the Impots on rent received and claim back TVA paid on any costs, e.g. accountancy bills, etc.

On my French tax return (completed by my english speaking French accountant) I declare the income and expenditure net of TVA, presumably as the TVA is dealt with separately.  I am not VAT registered in the UK and have no reason to be.  The question is, when I am declaring my French income and expenditure on my UK return, should I use figures net of TVA (as on my French return) or with TVA included?  I suspect it is the latter, but being VAT registered in one country and not the other makes the situation a little unusual.  If I must declare the income and expenditure to HMRC with TVA included, can I then offset any net TVA payments in France against UK income tax charged on my French profits?   

One final question, I know that regarding income received, you must use the exchange rate in force on the day you received payment to convert euros to pounds for tax purposes.  With expenditure, do you use the date on the bill, the date you make payment, or can you choose between them?  Sage advice would as always be most appreciated.  

[/quote]

Hi,

       I have no idea. Why don't you ask HMRC non-residents department ?

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As you are registered for TVA in France you have a French business. As such you declare your net business income from France (what you pay tax on in France) on your UK tax return, and claim tax relief on it, as it is already being taxed in France.

The TVA cannot be recovered in UK as your French business is not a part of any UK business activity.

Registering for VAT in UK would make no difference to this, as that activity would be a separate entity from the French one.

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Thanks for the useful advice.  The irritating thing is that in France the aquisition costs of a commercial property (legal fees, mortgage set up fees, stamp duty equivalent, etc)  are allowable against income tax, hence initially I made a significant loss to offset against future income.  I have only just started receiving income from the lease, so to date and for the foreseeable future I won't actually pay tax in France, merely reduce the loss to carry forward.  In the UK however, aquisition costs are only allowable against capital gains tax, so I will be hit for UK income tax against all net income from the french venture.  I won't have any french income tax to offset against it, even though the income has indeed been taken into account by the impots in France.  I will likely write to HMRC to clarify the position, but if anybody has any experience or knowledge of this type of situation I would be grateful for it.  Ultimately any liability is likely to be fairly small, but like everyone else, I don't want to pay any more than is necessary.  Also, has anyone got an answer regarding which exchange rate to use on expenditure in my original post?  Many thanks again.
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