UK government pensions, US pensions, foreign rentals

UK government pension income, US pensions, and UK/US rental income are assessable only in the UK or US and should therefore be exempt from French social charges (see earlier sections in this chapter). It is important to ensure that these incomes are properly declared so that their nature is clear to the tax office. You should check your tax statement and report any issues to the tax office.

These incomes must be declared in France, but not in order to be taxed again. 

The purpose of France “taking the income into account” is to prevent a declarant from benefiting from personal tax allowances in more than one country. Essentially, their inclusion increases the tax rate applied to French-taxable income.

For those with UK incomes, the UK personal allowance has been frozen at £12,570 for several years. In the past, problems have arisen where people were charged French tax and/or social charges when they had not paid UK tax because their income fell within the UK personal allowance.

However, the central French tax authority, the DGFiP, confirmed to The Connexion that income assessed for tax in the UK (and not considered tax-exempt by the UK) qualifies for a French tax credit even if no UK tax was actually payable due to the personal allowance. It also confirmed that no social charges should be levied on such income.

The tax treaty states that the credit applies “provided the resident of France is subject to UK tax in respect of such income” (note that the US tax treaty does not include this condition for similar credits). The key issue was whether this meant “income that has actually been taxed” or simply “income of a type that is assessable to tax”. Officials confirmed that the latter interpretation applies.

UK government service pensions must be declared gross and entered in Section 6 of form 2047 (online or paper), for income attracting a “tax credit equivalent to French tax”. Income from renting out UK property is also declared in this section. When declaring online, you must select the 2047 foreign income annex at stage 3.

To calculate the tax credit, tax offices ask that these amounts, in addition to being declared on form 2047, are also entered in the standard boxes for the corresponding income categories (pensions and rental income). Therefore, when selecting the relevant sections in the main declaration, you should tick the appropriate boxes, such as pensions, micro-foncier, or locations meublées non-professionnelles. On paper forms, these appear in the earlier parts of form 2047 and in forms 2042 (pensions and unfurnished rentals) or 2042C PRO (furnished rentals).

The DGFiP told The Connexion that tax offices take into account that income declared in these sections corresponds to tax-credit income already reported on form 2047. This is used solely to calculate the tax credit and does not result in additional tax or social charges.

One result of declaring UK government pensions in the standard pension section is that they benefit from the 10% pension allowance, like other pensions. On the one hand, this may slightly reduce the tax credit calculated on this UK-assessable income. On the other hand, it may prevent your overall income from moving into a higher tax band. The effect depends on how close your income is to tax band thresholds.

If you wish to draw the tax office’s attention to this point (although this is not compulsory), you may add a mention expresse note at the end of your declaration or send a private message through your online account. If filing on paper, you can also add a note in the comments section on page 2 of form 2042, reminding the tax office that part of the income declared in the ordinary pension or rental boxes is foreign income eligible for a tax credit and not subject to social charges.

Some boxes on the online declaration (and on paper forms 2042 and 2042C PRO) are specifically designed for foreign income eligible for a tax credit, which should help avoid confusion. See chapter 10 onwards for further guidance on how to declare this income.