I HOLD a “wrapper” portfolio of Managed Funds only, held in the UK. (I am from this year French resident). Do I have to declare the gain or loss for each fund every year even if I have not realised the gain/loss? Or do I only declare any gain if money is switched from one fund to another, or the gain realised? How does one fill in the tax form for more than one fund? Do you total it together? R. C.
I am not quite sure which type of wrapper you have. ISA and life assurance are the two main wrappers, so I’ll deal with these. ISA: Very simply, France does not recognise the wrapper! Investments within an ISA (or PEP) are treated as separate investments. The issues that create liabilities to taxation and which need to be declared in France are, firstly, the income and, secondly, the profits arising from a sale.
However, as France does not see the “wrapper”, what to you might be a switch within the ISA, is in fact a sale and a purchase. So, as it is the actual income and capital gains that are declarable and taxable, what you actually take from the ‘wrapper’, is not declared to the tax authorities.
Income, and gains, are declared in separate boxes on the tax forms – as our new tax guide is now out, it is best to see this for details. Life Assurance/Assurance Vie: The only issue with these “wrappers” that creates any need for you to declare something, and suffer direct taxation, and contrary to the ISAs, is the act of a withdrawal of funds, whether as a partial surrender or a full encashment of the contract.
It is here the gain on the contract – irrespective of which or how many funds are involved – is reported to you by the UK provider, and which is declared on your French tax return. The tax form contains a box in which is declared the total gain.
The UK provider will send you a statement of the assessable gain to declare and, as I say, it is for the contract, not for the individual funds held within. Switches within the contract are not liable to taxation, nor are the annual gains on the funds. It is best to consider that it is the contract that is of interest to the taxman, and then, as a result, only the withdrawals from this contract.
However, there are two issues with regard to UK life assurance contracts, which are applicable only to the UK mainland Life Investment Bond since, firstly, in the event of withdrawals, there is an annual tax concession exempting you from taxation on 5% of the original investment, any excess gain over this 5% being liable to taxation.
Secondly, these contracts suffer an annual notional rate of taxation deducted at source within the contract. As a UK tax resident, further to any withdrawal, any tax assessable gain over the 5% is only liable to additional tax if you fall in the higher tax bands, and then at a rate being the difference between the higher tax and the notional tax rate of 20% deducted at source.
The problem is that, in France, the annually cumulative 5% is not recognised as it is a UK, not French, tax concession. You will be assessed on every GBP of gain you make, without any allowances: effectively meaning you are not only paying tax on the gain, but also paying on your original capital as well.
Tax deducted at source in the UK is accounted to you at a notional rate of 20%, but the reason it is a notional rate is that the tax is in fact not personal tax. As it is not a personal tax, French tax does not allow the UK tax as a credit against your French assessment: effectively making you suffer not only the 20% tax in the UK, but also the tax liability in France – ie. double taxation.
The double tax treaty does not mention investment bonds. It states that any credit given for taxes paid in the UK is given in accordance with the manner in which France would tax the income/gain – and as France does not have income tax deduction at source on these contracts, there is no credit calculation.
One practice has already taken this issue up with the tax authorities and has several cases being dealt with by a tax barrister.
If you have a UK mainland investment bond, and obtained it through a UK financial adviser who knew you were coming to France, I suggest you lay a complaint against the validity of the advice given and seek recompense. As to how to declare the income, see our Tax Helpguide.