PetersonSims and Aurecco (see Global Partners) are delighted to announce that, after a wait of almost 18 months, we have finally received an official reply from the French Tax Authorities on the issue of UK rental income received by a tax resident of France.
Article 6 of the UK-France Double Tax Agreement gives the taxing rights of UK sited rental income to the UK but, for residents of France, under domestic French law (Article 4A of French tax code), France will seek to tax the worldwide income of its resident. The elimination of double taxation on this income is achieved by France granting a tax credit equal to the French tax, provided that the income was subject to tax in the UK (article 24 3 a) (i) of the Treaty). The interpretation of the phrase “subject to tax” was a source of much controversy and divergence of interpretation between the professional tax advisers and the French Tax Administration.
The question addressed specifically to the Tax Administration concerned the fact that most UK expatriate taxpayers were not actually bearing any UK tax on UK rental income, because their UK taxable income was under the personal allowance threshold. In our first informal exchanges, the French Tax Administration seemed to consider this personal allowance system as an exemption of tax, whereas we were contending that it is a zero tax bracket, similar to that found in the French system.
Eventually, after several exchanges with the Tax Authorities when we asked for a further review of the position, we received an official reply. Now, the Tax Administration has conceded the point and has written (this is a direct translation of their letter) that “the fact that after the application of personal allowances related to income or age has the effect of reducing or cancelling all or part of the tax assessment in the UK, should not lead to refusal of the treaty tax credit to the French tax resident. This position is consistent with the French case law”.
So now, having correctly declared your rental income in UK and providing a copy of a UK self-assessment tax return showing this, you will get the tax credit on income tax and CSG/CRDS social contributions, regardless of whether or not you actually paid any income tax in the UK.
For those of you who are in receipt of UK rental income, we strongly recommend that you review past years’ avis des impots to ensure that you have received the correct French credit. Also, review carefully the avis which you will receive in August or September, relating to 2013 income declared this summer. If you have been charged income tax and/or CSG/CRDS social charges, then contact us for assistance in obtaining refunds of these amounts. It is possible to obtain corrected tax assessments for the past three years so there are potentially refunds awaiting!