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State vs govt pension confusion

Confusion has arisen over the difference between a 'state' and a 'government' pension for tax purposes.

I HAVE lived in France for over five years and have completed five French tax assessment forms.
My wife and I both have occupational pensions, my wife receives a UK state pension and I have just started one. We have always understood that all our pensions are taxable at source in the UK and that we have no choice about this.
After some difficulties, our tax office accepted this, and at one point referred to the double taxation agreement between the UK and France. Since then, each year, we have completed details of our pension income and the tax deducted at source in UK and have had no further demands.
What is more I have recently received at my French address, from the UK Inland Revenue, a new notice of tax coding, presumably to coincide with my official state retirement date. This would seem to indicate that they expect me to continue paying tax in UK.
I should point out that we would much prefer to have our pensions paid gross, and to pay French tax, as we are thoroughly committed to our life here. M.B.

Our finance expert Hugh MacDonald writes...

It seems some confusion has arisen over the difference between a “state” and a “government” pension.

A state pension is one which is paid to a taxpayer due to them having paid national insurance during their working life, or having been credited with such payments through, for example, having been registered unemployed.

The state pension has always been paid gross. It is always taxed in the country of residency of the taxpayer.

A government pension is one which is paid by the Paymaster General for work done as a government employee eg. the armed forces, emergency services, diplomatic service, civil service etc.

Government pensions are always taxed in the country which issues and pays them, irrespective of the country of residency of the taxpayer. It is then down to the country where the taxpayer is resident as to how they assess this income for tax.

France treats this income under the taux effectif system (it should be declared for purposes of assessing your worldwide income to see which tax band you fall into, but you are not taxed on it).

French tax offices do make mistakes and in M.B.’s case they have clearly made one.

Article 19 of the Double Tax Convention makes both your old age state pension and your corporate pensions taxable in France if you are a French fiscal resident. In addition, one of the requirements of French fiscal residency is to declare and be assessed on your worldwide income (see our tax guide and centre pages). The fact that you have received UK tax coding just goes to prove that things are being done incorrectly as, unfortunately, you have probably not completed the correct forms in order to transfer your fiscal affairs from the UK to France.

Completing them ensures that the international tax section of the Inland Revenue will confirm you as not resident in the UK and confirm this to your local UK tax office – the one issuing the coding notice – so that they cease dealing with your tax affairs.

This said, the UK Inland Revenue recently changed their computer system and this has generated a number of erroneous coding notices which are now being corrected. In this case the best thing to do would be to see a professional who is capable of dealing with international tax matters and who knows what they are doing, and ask them to sort the issue out for you, especially as you want to come under French tax laws.

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Income Tax in France 2023 (for 2022 income)*
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- Primarily aimed at Britons, covers pensions, rent, ISAs, shares, savings and interest - but also contains significant general information pertinent to readers of other nationalities - Overview of online declarations + step-by-step guide to the French printed forms - Includes updates given automatically after this year's site opened
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