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Taxation


Carina

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Please can anyone help!  I am currently totally bewildered (well I have today also done my car registration!).  I have also just phoned my tax office in the UK,  some 5 weeks ago I informed them that we were now  French residents and sent the neccessary forms (to each tax office) to do this.  I was then expecting to register with the relevent departments in France in order to do my duty and pay French taxation.  Then this week both my wife and I recieved coding notices from the UK tax offices!  On phoning them we have been told that as we are both in reciept of local authority pensions (County Council and Teacher) these pensions would be taxed in the UK.  However we would still have to declare them in France under the World income rule and they would be taken into consideration by the French tax authorities - whatever that may mean?  To make matters even more complicated I also recieve another company pension and also Incapacity Benefit.

Please can anyone make sense of this - maybe a retired Teacher or local Authority employee or someone that knows a lot more than me.  It seems that all the recearch I did before moving out to France is totally irelevent. 

Thanks for any help

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Steady Carina it's not as complicated as it may look.

For starters what your UK tax offices have told you about your County Council and Teacher pensions is correct. You pay your tax in the UK and when you come to make your first French tax return (if you became resident in 2007 then that will be approximately May 2008) you declare the gross amounts and also the tax you have already paid in the UK. That tax is then offset against any tax liability you have in France so you do not pay tax on those pensions twice. This is known as the Double Taxation agreement between the UK and France and one of it's intentions is specifically designed to ensure you do not pay tax twice on the same income.

I'm not currently upto date on the tax treatment of Incapacity Benefit but if you currently receive it gross you will continue to do so and declare the gross amount on your French tax return. The same applies to your company pension but to get the UK tax authorities to notify your former employer to pay you gross you will have to complete a form FD 5 and submit it with your first French tax return in May 2008. Until then your former employer must deduct tax but when form FD 5 eventually reaches the UK tax authorities you will be entitled to a tax refund of any UK tax paid since you became fiscally resident in France.

It may take some months for the various forms to reach the correct UK and French departments but I hope you can now see that you will not be paying tax twice on any of your different income streams.

As an aside you will need to contact your French tax office to get the relevant forms (2042,4047 and 3916) in early May 2008 to make your first declaration in France; in subsequent years they will be sent to you automatically.

Edit: that second form number should read 2047 and not 4047)

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[quote user="Benjamin"]For starters what your UK tax offices have told you about your County Council and Teacher pensions is correct. You pay your tax in the UK and when you come to make your first French tax return (if you became resident in 2007 then that will be approximately May 2008) you declare the gross amounts and also the tax you have already paid in the UK. That tax is then offset against any tax liability you have in France so you do not pay tax on those pensions twice.[/quote]I think this is incorrect.  It is true that under the treaty, this kind of pension is taxable in the UK and not in France: this is how the double taxation is avoided.  But if the British tax were offset against the tax payable in France, the total net tax payable on this income would be zero - which is not the intention of the treaty!

It is true that France requires you to report this income, because it is taken into account for the purpose of calculating the tax rate applied to the income that is taxable in France; so you probably pay a little bit more French tax because of it.  The treaty is not 100% perfect.  

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That is my understanding Alan. The income declared on which UK tax has already been paid does count towards total income and affects the rate of tax paid in France. For example if the tax threshold for paying tax at 20% was 10,000€ and above that it was 25%, assuming that the UK taxed pension was 10,000€ and in addition there was 5,000€ private pension this would be taxed in France at 25% not 20%.  The total income of all pensions is also used in assessing the amount of payment for health care if that were to continue, although I note that the OP is on IB so while that continues to be the case their healthcare will be paid by the UK under an E121.
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I think Benjamin was just trying to keep things simple. The effect of the double taxation agreement is that you declare your worldwide income in France, but income on which tax has already been paid in Britain is entered into a different box so that you don't pay tax again. In that respect the tax paid in Britain is indeed offset against French income. But, as the other replies have said, it is your total income (rather than just income which is taxed only in France) that determines the taxation rate in France. If you have little or no other income then you probably won't have any French tax liability. But if you do, then you could end up paying a bit more tax in France than you would if you were declaring just the income that has not been previously taxed, because your UK-taxed income (pension in your case) takes you into a higher tax band. But because you have already been taxed on this you won't pay tax again on that part of your income (so Benjamin is right in that respect). It sounds complicated, and it is - even our local French tax office seems to have difficulty with the concept so we are in good company. But it's only really worth bothering about if you have enough total income to move you to a higher tax bracket in France. And then it is probably well worth talking to an accountant - many people (French as well as British) use an expert comptable for their personal tax if it is anything other than really simple, and the fees need not be that great.
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OK - lets see if I hvae got this right then! 

  • My wife and I pay tax in the UK after deduction of our personal allowances on our Local Authority pensions and probably on my Incapacity benefit as well.  Meanwhile my private pension will be paid to me gross with no deductions.
  • For the French taxation forms (does anyone know where I can get one - we live in Orne) all of our income is declared as our 'household' income, our French personal allowances will be deducted and our taxation calculated.  The tax paid in the UK will then be deducted from this figure and we will pay the balance.
  • I also understand that we will pay tax in France at the rate our 'total' income dictates as the rate - can anyone tell me the tax bands in France? However I don't think we will be high rate tax payers in France (we should be so lucky!)

And I thought the research I did in the UK was OK!  Little did I know I was expected to read section 19 of the Double Taxation Act between France and the UK!!!

Thanks again for all the help

Best regards

Paul

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Will has a good point.  It might well be worth using an accountant to begin with.  Then in subsequent years, once you've got the compicated bits sorted in your mind, you can give them up and do it yourself.  Worth a couple of hundred euros just to know you've done the right thing from day one imo.
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We moved to France in October 2005.  My husband receives an NHS Pension and also Incapacity Benefit.  Whilst we were in the UK he was taxed on the two combined.  When we came to France we informed the  Tax Office and the NHS Pensions who sent us forms to fill in regarding our move.  The NHS Pension was then payed in full into our French bank account.  We receive the Incapacity Benefit in full into our English bank account.

We declare both on our French Tax return and pay French tax on this income (considerably less than in the UK).

Hope this helps.

Patricia

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[quote user="Carina"]For the French taxation forms ... all of our income is declared as our 'household' income, our French personal allowances will be deducted and our taxation calculated.  The tax paid in the UK will then be deducted from this figure and we will pay the balance.[/quote](my italics)

I agree that this is the impression given by the word "offset" but it's just not true. 

You are talking about income that is taxable in the UK under the treaty.  It is classified separately in your French tax return, under the heading revenu exonéré, and is not taxed in France (except for the marginal effect on your tax rate).

I repeat: if the UK tax could be deducted from your French tax you wouldn't be suffering any tax at all on this income.  Are there really people who believe this to be true?

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Sorry Patricia this does not help "as you should not pay tax on an NHS pension in France, it is taxed in the UK" 

EDIT THAT STATEMENT IS INCORRECT NHS PENSIONS ARE NOT GOVt PENSIONS AND ARE TAXABLE IN FRANCE.  See later posts

 

AFAIK you will be taxed on your IB in France at a rate equivelant to the total of your declared income, see previous posts above on this.

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[quote user="Ron Avery"]Sorry Patricia this does not help as you should not pay tax on an NHS pension in France, it is taxed in the UK but declared as Alan has indicated on the French tax return...[/quote]

I'd better make it clear that I haven't stated any opinion about where an NHS pension should be reported or taxed. 

My comments referred to those kinds of pension income that are taxable in the UK under the France/UK treaty, which is what the OP was asking about.  I have no idea whether an NHS pension falls into that category; I would happily accept what SundayDriver wrote.
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I was referring to your indication of how a "government" pension should be declared and treated on the French tax form Allan, not indicating that you thought NHS pensions were taxable in France.  Apologies[:$] to Patricia, like Will I thought being National and government funded NHS pensions would be like the others that Will mentioned, teachers, police, local authotity etc. So Patricia's post did not really help the OP who has a pension taxed in the UK but we now know how NHS pensions are treated for tax purposes, so thanks for that Patricia[:D].
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...........Benjamin.....................simple................

Thank you for those two kind words Will [:D].

Whilst I have no knowledge of  government pensions I was trying to convey to Carina that they will not pay tax twice on the County Council and Teacher pensions as well as keeping the response fairly simplistic. In doing that I admit I have given misleading information on the treatment of tax paid on those pensions so my apologies.

As far as paying tax on Incapacity Benefit (unless anything has changed in the last two years) you should not be paying tax in the UK after you move to France but this should be declared, and is taxable, in France.

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