Where are UK pensions taxed?

Q. Do you have up-to-date information on taxation of British nationals in France in relation to EU regulations? My wife and I would prefer to be taxed in France on our government pensions but cannot as we were in local authority employment.

As we live permanently in France we think we should have the same right of choice as other UK citizens who were in non-government employment.
G.D.

A. The issue of which country taxes what income is never a question of choice but of fact, further to the provisions of the double tax treaties that have been signed between two countries - in your case, the one in which you live permanently (France) and the one from which your pensions are paid (the UK). Accordingly, and for the sake of clarity, pensioners of UK private or company pension schemes do not have any right of choice of which country will tax their pensions. No-one has any right to chose where their income is taxed as the rules are set out in the double tax treaties, as are the rules for defining in which country you are tax resident.

What are defined as ‘government’ pensions, however, will usually always be taxed firstly in the country from which they are paid, but this is something that is operated the world over, not just in the UK. ‘Firstly’ is used because the amount of this UK ‘government’ pension will nevertheless be taken into account by the French tax authorities in calculating your French tax liability, even though it has been taxed in the UK.

Why? Well, consider a British national, British born, working all their life in the UK and having only ever paid tax in the UK. As a result, they will have been entitled to only one income tax personal allowance, and one set of tapering tax bands and tax rates.

On the other hand, consider yourselves, resident in a different country and with some income taxed in the UK and some in France - you will be entitled to two income tax personal allowances (one in the UK and one in France) and two sets of tapering tax bands and tax rates (again one in the UK and one in France).

So, if you on one hand, and the British national and his wife on the other, both had exactly the same total amount of income, you would pay much less income tax because of your two allowances and two sets of tax bands and rates. The French tax authorities redress this unfairness and remove your advantage by first calculating your overall theoretical tax on all of your income, including the UK ‘government’ pension.

However, they do not ask you to pay this theoretical tax but only a proportion of it, the proportion being that part of your total income which can legitimately be taxed here in France - usually your total income less your UK ‘government’ pension.

Evidently as a result this will mean that you will probably pay more tax in France than would have been the case if only your French assessable income were taxed here, but the difference is the cost of removing your unfair advantage of having two lots of personal allowances, and two sets of tapering bands and tax rates, simply because your income is taxed in two countries.

However, with regard to your actual question, remember that no-one has the right to chose which country taxes their income as this is set out in the double tax treaties between the countries concerned.