Tax credits for foreign income
The aim is to prevent you benefiting from two countries' tax allowances
Certain non-French income, notably UK 'government' pensions (see earlier in this chapter, 'Income to be declared', for a list of these) all US pensions, and US and UK rental income attracts a tax credit from France.
This income must still be declared on your French tax declaration, even if it has already been assessed for tax elsewhere (eg. the UK or US).
The tax credit is given as a result of the French authorities taking this income into account in the tax calculation.
It negates the French tax that would have been paid on this income if it had been ordinary French-taxable income.
The result is that it can cause the tax on your French-taxable income to rise due to it entering a higher tax band or more of it being in your highest band. The aim is to prevent you benefiting from two countries' tax allowances (ie. the 'zero %' first bands).
The tax credit lowers the final tax bill in proportion to the relationship of foreign income to total income.
The amount of the tax credit is worked out as follows:
1. Calculate tax bill for worldwide income
2. Calculate amount of 'tax credit' income divided by total income
3. Multiply these two figures to obtain the tax credit.
The credit is then deducted from the total tax liability in order to leave the actual tax
payable.
Read to the end of this chapter for an example of a family’s tax, including using the tax credit for non-taxable overseas income.