In my dealings with prospective and actual clients, it is clear that there is some confusion and misconceptions out there regarding when you have to pay tax in France or UK. I am thinking in particular of people who fall into two broad groups:
- You have always lived in the UK and then subsequently move to France or are considering doing so.
- You live in the UK and rent out a second home in France.
These two groups represent the two main reasons why you may have to pay tax in either France or the UK; in a nutshell:
- Where you are resident for tax: In your country of residence, you will probably pay tax on your worldwide income.
- Where your income (or capital gains) come from: You may have to pay tax in the country where your income comes from (for example rental income from a property in that country).
I have used expressions like ‘probably’ and ‘may have to’; this is because in practice things are not always straightforward, for example:
- There is a double tax treaty in place between the countries. This can override the country’s own law.
- In the UK there is a concept called ‘domicile’ (different from residence), which can affect whether you pay tax or not. This will not be relevant to the vast majority of UK nationals who are also UK domiciled. In what follows, I will be assuming that you are UK domiciled.
Most just want to get things right and ensure that they do not have any nasty surprises. It is also clear that there are many who have strong opinions on what they should do, perhaps based on what they feel is common sense or fair. If you wish to stay on the right side of the law in both countries, it is important to put personal opinions aside and to follow the rules as they are written. In both countries, not declaring income you are supposed to is tax evasion and is considered a criminal offence. Getting it wrong may not only mean the hassle of trying to sort out a problem which may go back many years but you may also face fines. In clear cases of deception, it may lead to imprisonment.
Nationality does not feature in the definition of residence in either country. The main guiding principles are residence and the source of income. A British person who is living in France on a permanent basis (working or retired) is most likely resident in France. Normally such a person would be liable to French tax but also possibly liable to UK tax on UK source income such as rent from a UK property.
This is a common misconception. UK and France have a double tax agreement in place for income and capital gains tax which which means some income and gains can only be taxed in one country. A typical example is bank interest which is taxable only in the country of residence. Rental income is an example of income which is taxable in both countries; you avoid double taxation by claiming double tax relief in the country of residence.
In both countries, the onus is on the taxpayer to notify the authorities of income or gains that they need to declare.
Unfortunately, rightly or wrongly, ignorance of the law is no excuse. Even if your level of French means you struggle to deal with tax matters, you can still approach the tax authorities for assistance or seek independent professional advice.
As stated in no. 2 above, yes, there is a double tax agreement in place between the two countries, but there are some types of income (e.g. rent) which need to be declared in both countries. You are entitled to double tax relief in your country of residence.
Residence for tax purposes in both countries is determined by the facts of the situation. Of course you are free to arrange your affairs so that the facts suit your wish as regards residence. For example if you wish to be French resident, you can ‘choose’ to do so by moving permanently to France and set up home there with your family and return to the UK for no more than a total of 15 days in the tax year.
Both countries have different rules for determining whether you are resident there. It is entirely possible to satisfy the conditions for residency in both countries simultaneously. If this happens, there is a clause in the double tax agreement between the two countries which will determine which of the two countries will be the deemed country of residence based on the facts. This clause therefore will override one of the two countries.
This is something that happens often with pension income of retirees who have moved to France and are resident in France. Assuming it is not a UK government service pension, the double tax agreement states that it is taxable in your country of residence. If you are resident in France, then it is taxable in France, not the UK. There is a procedure in place for notifying the UK tax authorities who can issue an NT PAYE code (NT for ‘no tax’); the pension provider should not deduct tax at source thereafter. Failing that, you can file a UK tax return to claim back the tax that was deducted in the UK.
This is a dangerous line of thinking. As mentioned, deliberately not declaring income in both countries is tax evasion which carries stiff penalties. Firstly, whether you ‘get away with it’ is in a sense irrelevant; most people consider themselves to be law abiding and should therefore do things properly if they wish to stay on the right side of the law. Secondly, there are many ways the tax authorities can discover undeclared income: tip-offs from disgruntled neighbours, third-party information for example estate agents managing a rental property or marketing a property for sale, land registry data, obtaining information on social media and websites used for advertising rental property, cooperation with overseas tax authorities through formal agreements between countries.
This is now an old myth. It has been demonstrated through court cases that this will not always work if you leave the UK – it was only one of the factors used by HMRC to determine whether you still remained resident in the UK after leaving. More importantly, from 6 April 2013, new rules were introduced in the UK to determine residence essentially based on day counting and ties to the UK. Under the new rules, it is possible to be resident in the UK having only spent 16 days in the country in the whole tax year.