If you have moved from the UK to France, and now reside in the latter country, you will need to be aware of matters concerning taxation – including whether your circumstances necessitate you completing a French tax return, and whether you may also still be liable for tax in the UK.
This brings us onto the subject of the double taxation convention that has existed between the UK and France for more than a decade. But what do you need to know about this treaty, and what implications will it likely have for you?
What is double taxation?
The term ‘double taxation’ refers to the situation of potentially being liable to tax in two countries on the same income. This is obviously undesirable for the person who would be subject to such tax, but it does not automatically follow that being required to pay tax in one country means you will not be liable for tax in another part of the world.
Common circumstances in which someone may be affected by double taxation, include if they are simultaneously residing in two countries, or are resident in a territory that taxes their worldwide income, and they have income and gains from another territory (and the given territory taxes such income on the basis that it is sourced in that territory).
What are double taxation agreements?
‘Double taxation agreements’ are arrangements that may be reached between two countries, in order to avoid situations where people are required to pay tax twice on the same income.
The UK has various such double taxation agreements – which are also sometimes referred to as ‘double tax conventions’ or ‘double tax treaties’ – with countries around the world. So, if you are in the process of – for example – relocating from the UK to another country, you are advised to familiarise yourself with the situation on double taxation, including whether any relevant double tax treaty exists, and what it stipulates.
Double taxation conventions often set out which country covered by the given agreement has the right to collect tax on different types of income.
Does the UK have a double taxation treaty with France?
The current Double Taxation Convention that applies between the UK and France was signed in London in 2008, by the then-UK Chancellor of the Exchequer Alistair Darling, and the then-Finance Minister in the French Government, Christine Lagarde. It replaced the original treaty signed between the two countries in 1968.
This new treaty took effect in France from 1st January 2010. It was effective in the UK from 1st April 2010 for corporation tax, and from 6th April 2010 for income tax and capital gains tax.
What is covered by the UK/France double taxation treaty?
The text of the most recent double taxation treaty between the UK and France reads that the agreement applies “to persons who are residents of one or both of the Contracting States.”
The following taxes are covered by the convention:
- In the case of the United Kingdom, the income tax, the corporate tax, and the capital gains tax
- In the case of France, the income tax, the corporate tax, the social contribution on corporation tax, the tax on salaries, and social security contributions
The convention also applies to any “identical or substantially similar taxes” to the aforementioned taxes, which either the UK or France imposes in the future. The relevant authorities in each state are also required to notify the other in the event of any alterations to their taxation system.
What are the most relevant points of the treaty for those moving from the UK to France?
One of the most important elements of the convention was that, in the right circumstances, a non-UK resident selling UK property would not usually be liable for UK capital gains tax.
Furthermore, in the case of property owned at departure, to avoid UK Capital Gains Tax, it is crucial that the sale occurs during a period when the individual is ultimately non-UK resident for a minimum of five complete and consecutive UK tax years in total. Such a gain will, however, be assessable to tax in France with a credit for any tax paid in the UK.
Also significant about the latest version of the UK-France double taxation agreement is that it retains the property wealth tax “holiday” for UK nationals relocating to France. For a British national’s first five full French tax years after they become a resident of France, their wealth tax liability will only be based on French assets, with all other assets being ignored. From the sixth year of residence, however, the affected individual will need to pay wealth tax on worldwide property as normal.
In the event of an individual who has been a French resident becoming non-resident for a period of at least three years, followed by them becoming a resident of France again, the five-year exemption period will begin again.
How can we assist you at Kentingtons?
If your only home is in France or you are spending more time in France than anywhere else (so potentially less than 183 days) – it is crucial that you are well-informed on what difference the double taxation agreement makes to your situation.
For more information on how our team at Kentingtons could help you with highly relevant and informed financial advice for your needs as a British expatriate in France, please feel free to reach out to us via phone or email.