Rent and pensions decision delayed

TAX officials have told Connexion they have yet to make a final decision concerning income tax and social contributions on UK rental income and UK government pension income for 2012.

Senior officials from the DGFiP (the body dealing with tax, attached to the Economy and Finance Ministry) had told us they would clarify uncertainties surrounding these income kinds by the start of this week; however this has not yet been possible, they say.

The issue surrounds whether or not French tax offices will consider that the above income kinds, which are assessed for tax in the UK, are potentially subject to French tax and social contributions if they have not – as a matter of fact – been taxed by the UK. For more on this problem see the previous article here: Clarity promised on tax rules

The problem revolves around interpretations of the UK/France double tax treaty rules.

In this year’s Connexion income tax guide (available via our website) we suggest declaring these kinds of income in the relevant sections of the main income tax form and foreign income form under “assessable income from a foreign source giving right to an income tax credit equal to the French tax”.

Officials have told us they agree that this is correct where the income was not taxed in the UK.
Furthermore we suggest putting a note about the precise nature of the income in the complementary information section on the main form, to help ensure that it does not end up attracting social contributions (it should not do, as the double tax treaty treats income tax and social contributions under the same rules as kinds of “French tax”).

Officials said they will take a final decision in about two weeks on whether this is also correct where the income was not taxed in the UK. However they said their investigations so far have shown that in similar situations the UK tax authorities treat income that was theoretically taxable (but not actually taxed) in the same way as income that was taxed. They may take inspiration from this, though are not obliged to, they said. If so, this would mean that the problem is resolved.

They added:

• If it turns out some income has been “wrongly” declared by some people because it is not in fact entitled to a tax credit, then the income will be treated as taxable income with no tax credit (ie. it will generate French social contributions, plus French income tax if you are above the French income tax allowance). As a general rule however there should not also be any penalties levied on top because of this “incorrect” declaration if it can be seen that it was made “in good faith” – which should be the case for any readers who followed our suggestions.

• However, to avoid any problems, the officials will aim to tell Connexion their final decision before the deadlines for tax declarations. Even if you have made a declaration already, up until the deadline you can replace it with another one with no penalty, the officials said.

• They will also communicate their decision to all of the local tax offices, giving priority to areas with a lot of British expats, they said.