The Connexion outlines the differences between the UK and French tax systems including rates and how to send in your income tax returns.
French income tax is generally reasonably benign compared to UK income tax and, therefore, is not generally something to be overly concerned about.
The tax year
This runs concurrently with the calendar year – January 1 to December 31, as opposed to the UK tax year which runs from April to April.
Income tax returns are now issued annually at the end of April and need to be returned by May 31, which does not leave much time for their preparation.
Fortunately, most information is available in advance to enable the relevant information to be collated and compiled in anticipation of the forms’ distribution.
The assessments are then generally issued at the end of August depending on the regions.
Tax is normally paid in three installments: the first two being on-account payments of the expected annual liability, in February and May, the third payment being due 28 days after the issue of the assessment, the avis d’imposition, which is the last payment to reconcile your account. Once income tax has been assessed and paid for two years under this method, it is then possible to pay by installments over ten months, with the reconciliation payments in the 11th and 12th months if necessary.
The amount of the ‘on-account’ payments is based on the previous year’s tax liability and is the reason why tax has to have previously been paid before you can apply to pay by installments.
Income tax forms
These are the main forms currently in use:
• 2042 – the main declaration
• 2042c – for furnished rental income
• 2044 – for unfurnished rental income
• 2047 – for income that arises outside of France
• 3916 – for detailing bank accounts outside of France
Income tax rates for 2006 income
€0 - € 5,614: 0%
€ 5,615 - € 11,198: 5.5%
€ 11,199 - € 24,874: 14%
€ 24,873 - € 66,679: 30%
€ 66,680: 40%
The French do not operate separate taxation of husband and wife but due to the structure of the tax system this results in there being no fiscal disadvantage. The assessment is on the income of the household.
These do not exist in France in the way that they do in the UK but the effect of the personal allowances is nonetheless given in two ways:
• Assessable income is divided by the number of parts representing the ‘family quotient’ so as to reduce the actual amount on which tax is then finally calculated.
As a result, the income is taxed overall at lower tax rates than would otherwise have been the case. It therefore follows that even though the resultant tax is then multiplied up by the number of parts of the ‘family quotient’, the resultant tax due is less than would have been the case if it had all been taxed, in its entirety, without fractioning.
• The first tax band, at 0% rate of tax is quite large.
Each person forming part of a household, and therefore of the assessment, is entitled to a ‘part’, these ‘parts’ being collectively referred to as the ‘family quotient.’
Each single adult is entitled to one full part, there being one part each for each spouse and certain other members of the family are potentially entitled to a part if they are being supported financially by those being assessed.
The first two children are generally entitled to a half part each, the third child onwards being entitled to one entire part. Therefore, a couple with two children would be entitled to three parts, while a couple with three children to four parts.
All worldwide income is assessable in France, irrespective of the country in which it arises and has to be declared for assessment in France. While it is the rule that the income actually received in the tax year is that which needs to be declared, further to studies effected by the French Fisc (the equivalent of the British Inland Revenue), an increasing number of French tax offices are instead accepting official confirmation issued for use in the UK, when assessing UK income. Indeed, the French have discovered that in constantly declaring annual income, the amount of income that is declared between January and December is, year-on-year and over time, the same as the income that would be declared April to April.
As a result, it seems that the Fisc have an increasing preference to rely on documents such as P.60s and the annual Certificate of Interest paid rather than have masses of paper and schedules proving income received in the actual calendar year, being the French tax year.
From the total assessable income, the French tax authorities will determine what it is that they can tax, whether by virtue of the nature of the income, or after giving
due allowances and it is this resultant taxable income that is then liable to taxation.
Income Assessable vs. Income Taxable
Most assessable income is also directly taxable in France. However, due to the terms of the double tax treaty certain income still remains taxable in the UK, such as military or civil service pensions, UK property rental and UK earned income. But despite the fact that these pensions are taxed in the UK they are still assessable here in France although they will not be taxed here again.
The French tax system has many other attributes including the possibility of opting for tax deduction at source on certain investment income, at set rates of taxation rather than the marginal tax rate. In addition, French rental income, for example, can benefit from the profit assessable being computed effectively at a forfeit rate, avoiding the need to prepare accounts as in the UK.
There are other allowances where, some are given against the income taxable and some against the tax liability itself, but there are unfortunately too many of these to list them in this introductory guide.