Q: My wife and I are in our late seventies, our only home is in France.
We each receive British government occupational (former civil service) pensions (taxed in the UK) and British state pensions (taxable in France). Each January we meet with our local tax inspector to go through our tax forms but we always seem to receive either contradictory advice/instructions or a total inability to help at all. That part of our income that is taxable in France amounts to less than the 'low income' limit but when our occupational pensions are included, we exceed that limit.
1. In the circumstance set out above would you confirm that we are not eligible for age allowances on Taxe Foncière, Taxe d'Habitation, Television License etc? In other words it is the 'worldwide income' which is set against the low income ceiling and not the 'income taxable in France' only?
2. On March 27, 2006, my wife received a Carte d'Invalidité with 'taux en pourcentage de l'incapacité' of 80%. Does this entitle us to an extra 'demi-part?'
3. I qualify in terms of age and army service for an extra 'demi-part' allowance. Can you tell me to whom I should apply for the appropriate certificate which would entitle me to claim on my tax return? I hold documentary evidence of service in the British Army.
4. If the UK refunds all medical costs incurred in France to the French Health Service, why does France make us contribute to their social security costs by taxing income from bank interest at 11%? Has this subject been raised and ruled upon?
5. Can you advise just where our income from pensions taxable and non-taxable should be entered on forms 2047K and 2042K?
6. Do you know the official exchange rate for 2006 to be applied to the tax return?
Name withheld on request
A: It might be an idea to correct what perhaps seems to be a misunderstanding of the manner in which the French tax system works as it is not the case that because your civil service pensions are taxed in the UK they have no impact on your French tax.
In essence, the quantum of such UK ‘government’ income (the Civil Service pensions) is nonetheless taken into account by the French - along with all your other taxable income - to assess the tax rate at which only that part of your income which is taxable in France will, indeed, itself be taxed.
In other words, the UK 'government' pension is used to push up the French tax rate at which your other French assessable income will be taxed at. This is quite normal and is also quite correct as otherwise the effect would be that you would be benefiting from two sets of personal allowances and two sets of tax bands, one in the UK and one in France. As to your specific questions:
1. Unfortunately it is not possible to answer this question as the exemption from these taxes is means tested and we have no idea of the quantum of your income.
However, in general terms, the exemption would not apply to a couple with income over around €14,000, which is presumably below your joint assessable incomes.
It is ‘worldwide income’ which is used to establish whether or not the age allowance is due.
2. It is our understanding that an 80% invalidity assessment would qualify you for another half part of the 'family quotient.'
3. The allowance for the additional half-part for service in the armed forces would logically be a French tax concession for the French military, therefore, it would not be logical for it to be available to those having served in the military forces of another country. Not withstanding this, the allowance is in any event not cumulative, and therefore it cannot be given in addition to other 'family quotient' additions such as, for example, the invalidity extra half-part. Accordingly, the maximum number of parts to which you would be entitled to would be 2.5 parts.
4. With regard to the French health service, it seems that you are confusing this with the Social Security costs, collectively covering the contribution sociale généralisée, Contribution au remboursement de la dette sociale and the Prélèvement Social.
The health service costs are not the same as the social charges but even the French government do not know how to classify the social charges as they frequently refer to them as either being part of the tax system or not depending on when it suits them. However, the direct answer to your question is that they are not the same thing but two separate costs.
5. UK non-civil service pensions go in section 1, page 1 of the 2047, and again in box AS/BS, page 3, of the 2042. UK civil service pensions go in section VII, page 4, of the 2047 and again in section 8, box TL, page 4 of the 2042.
However, you need to be careful as most French tax offices do not seem to be aware that if you are in receipt of the UK Old Age State pensions and have an E121 then no Social Charges are applicable to pension income - in other words, with the E121 it is all your pension income, and only this pension income which is exempt.
6. For UK income paid directly by the source to a UK bank account, and irrespective of whether this is transferred to France or not, the exchange rate to use for 2006 is that of December 31: 1,48250€ to the £GBP. Where, however, income is paid directly by the source to a French bank account then you should be aware that different rules can apply.
As always, though, please note that you would be best advised to always see a professional as frequently it is the case that these can identify other areas where tax savings can be obtained.
