How does France treat a life annuity?

How is income from a life annuity treated by French tax rules? In the UK, part of the payout is considered a return of capital and thus is not subject to tax, while the balance is interest and subject to tax. I live in France. J.H.

28 August 2019
By Hugh MacDonald

If you are referring to a pension life annuity, the answer is simple: the taxable element only is declared as pension income (on the foreign income box and in the main 2042 at 1AM/1BM).

If the life annuity is a “purchased” life annuity, then these are different from French contracts and the net (after tax) income received should be declared as investment income (as interest, in box 2TS).

You will also be liable to the social charges at 17.2% in addition to income tax on the net amount. So if you are taxed at source in the UK, there is an element of double taxation unless you are able to reclaim the UK tax paid.

Many people seem to think that a French rente is the same as a UK annuity, but France has two definitions of a rente:

  • Rente à titre gratuit: a payment that is not connected to alienation (transfer of ownership) of capital or property;
  • Rente à titre onéreux: a payment that is made in consequence of alienation of capital or property.

A life annuity, where the capital is repaid along with the income, is a contract where the “income” paid is not in consequence of the alienation of capital or property and so could be seen to be a rente à titre gratuit where the taxation in France is on the gross income, subject eventually to the 10% abatement given to pensions.

The problem in treating a UK annuity as such a rente is the Fisc know a UK life annuity income is treated as interest in the UK, and so they would seek to apply the same designation to the income here in France, and tax the income as interest. 

Furthermore, if the UK annuity is taxed in the UK, there is a fiscal issue since annuities are not mentioned in the UK/France double tax treaty, so rules as to the provision of tax credits (whether on the basis of the UK income tax paid, or French income tax eventually due) cannot apply. 

Consequently, it is always the net (after income tax deduction) figure that has to be declared, which the French will tax and make liable to the social charges, irrespective of any UK income tax paid.

This means that any UK income tax paid can only be refunded by HMRC after making a claim to them that taxation has occurred in France.

 

Reader's query answered by Hugh MacDonald

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