CGT and social charges applied to rental income and investments in France
By Amanda Johnson - Topics: Assurance Vie, France, Residency, Tax, Uncategorised
This article is published on: 14th September 2014
I often get asked to explain how French Capital Gains Tax is applied and when & if they can expect social charges to be levied on their investments. These are two very interesting areas for expats:
Capital Gains tax
A capital gain arises when an asset has been sold for more than it was originally bought for. For example if you originally invested £50,000 in a unit trust and now sell it for £75,000. Your gain is £25,000 and therefore has a potential liability for Capital Gains Tax. Different levels of relief apply depending on how long you have held this investment, so not all of the gain is subject to tax.
Capital Gains Tax is also due is when a house is sold for profit which isn’t your primary residence. You may live in France permanently in rental property however, if you have sold your UK home and made a profit, this profit is subject to Capital Gains Tax in France. This applies even if it is the only property you own. Again there are different levels of tax relief depending on how long you have owned the property.
There are tax efficient investments and savings for expats that shelter your liability to capital gains and now you are living in France you should be taking advantage of them.
Social Charges are applied to all income, irrespective of where it is earned. There are as several exceptions to this, namely Government & UK State Pensions. If you rent out property in the UK, although you may pay your income tax in the UK you will have to pay Social Charges on the income in France. Social Charges also apply if you receive an income from savings, investments or a private pension.
There is a double taxation treaty in place which means you won’t pay income tax twice when you complete your tax return here in France but income tax should not be confused with Social Charges.
Social Charges can also be charged on certain Assurance Vies’ and this depends on the type of fund that you are invested in. If your Assurance Vie is invested in a Fonds en Euros, where growth is physically applied periodically, social charges will be due. This is not the case on several other Assurance Vie options, where social charges are only levied once a withdrawal is made & only apply to the gain proportion of the withdrawn amount.
If you have existing investments whether in France or in the UK it is worth contacting me to chat about the most tax efficient way to hold your savings and keep the tax you pay to a minimum.
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Do you know which country you are resident in?
By Spectrum IFA - Topics: France, Residency, Tax, Uncategorised
This article is published on: 25th August 2014
In my travels I meet lots of people who claim not to know where they live. This isn’t an age or an alcohol problem, and to be fair it would be better to describe them as not knowing where they reside, or are resident. In many cases a few minutes explanation, or a paragraph in a report, does the trick. There are a number of die-hards however who really don’t want to recognise the obvious. And then sometimes it isn’t really all that obvious at all.
The problem is that the central argument is so convoluted that it is far too long to cover completely in this article, and of course we also need to look at what the French regard as the deciding factors in French residence. So what I’m going to do here is dip into both pools and see if I can point you in the right direction, with the clear risk that I might confuse you completely.
The French side of the equation is quite easy to understand (if you want to, that is).
You are resident in France if:
a) Your home is in France, which includes where your main home is or where your family lives.
b) Your principal place of residence is in France. This applies if you spend more than 183 days in France per year. Even if you spend less than 183 days per annum in France but have a permanent home available in France, you’re ‘in’.
c) Your business activities in France, whether salaried or otherwise, are managed from France unless you can show that this business activity is incidental to your main employment.
d) The centre of your economic interests is France, meaning that you have your main investments in France or they are managed from France or that you derive the majority of your income from French sources.
So many times I hear ‘but I have a UK address and no-one can tell how much time I spend in France’. A dead give-away in anyone’s language that. It’s nearly subtle, but really it’s the same as the difference between tax avoidance and tax evasion, and it’s the wrong side of the coin. In the modern days of passport scanning it is also plainly incorrect. If you really want to ignore all of the points above and claim to be non French resident, you must really be claiming to be UK resident, mustn’t you? So let’s look at how HMR&C have ‘clarified’ UK residence. Please note we are ignoring UK domicile here, That’s another can of worms altogether.
Here’s what it takes to be a guaranteed UK resident.
You need any of these factors:
a) You spend 183 days or more in the UK.
b) You have only one home and that is in the UK (or more than one home and all are in the UK).
c) You work full time in the UK, ie, a continuous period of 9 months and at least 75% of your duties are carried out in the UK.
Now for most of the people I meet this presents a bit of a problem. Ever helpful though, HMR&C do recognise that there can be people who qualify for UK residence that can’t claim any of the above, so to help them they have come up with a list of ‘connecting factors’. I call them ‘back door passes’.
- If you have family in the UK – spouse/civil partner and/or minor children.
- Whether there is available accommodation in the UK.
- Substantive employment in the UK (40 or more days).
- UK presence in previous years – if you have been UK resident for more than 90 days in either of the previous two UK tax years.
- More time spent in the UK in the tax year than any other single country.
Pay attention here, – it’s getting complicated! To be counted as UK resident, and therefore not French resident, you need to combine days spent in the UK with the connecting factors as shown below:
| Number of days that make you UK resident
|| Connecting Factors
| 16 – 45
|| 4 factors
| 46 – 90
|| 3 factors
| 91 – 120
|| 2 factors
| 121 – 182
|| 1 factor
| 183 or more
|| Always resident
There, easy isn’t it? Alternatively of course, one could take one’s head out of the sand and go legal as a French resident…
If you have any questions on this, or any other subject, please don’t hesitate to contact me.
The Spectrum IFA Group advisers do not charge any fees for their time or for advice given, as can be seen from our Client Charter.
Rental Income from properties overseas and how to declare it in Italy
By Gareth Horsfall - Topics: Italy, Property, Residency, tax advice, taxation of rental property, UK property
This article is published on: 25th January 2014
One of the questions I am asked regularly is how income from property held overseas is taxed in Italy. Is it exempt from Italian tax because tax has been paid on it overseas first and is it subject to the same taxes as Italian rental income?
I would like to dispel any myth and confirm that you do have to pay Italian tax on the profit from any rental income on properties held overseas as a resident in Italy. (if it was really ever in doubt. Out of interest the arrangement is reciprocal, and any if you were resident in another country with rental property in Italy then it need to be declared as well).
The best way to organise your rental income
The law for Italian tax residents states clearly that the net profit (after expenses) from property overseas, must be declared in the Italian end of year tax return. The net profit is then assessed as income, added to the rest of your income for the year and tax paid at your highest rate of income tax (that could be as high as 43%).
Let’s not forget the IVIE tax as well which is 0.76% of the property council/cadastrale/rateable income (whatever you choose to call it) value of the property.
If tax has been applied in the country of origin, it is the law in Italy to declare the funds here as well and so annual declarations need to be made.
As an aside, it is relevant to note that in 2012 I received a deluge of enquiries from people who had been contacted by the Guardia di Finanza who had obtained information from HMRC (UK tax authorities) about people who have/had rental properties in the UK, were legitimately declaring tax in the UK, but who had failed to then declare that income in Italy. In some cases they were fined substantial amounts for merely this simple mistake.
However, all is not lost because there is a way to limit your Italian tax liabilties. If the property income is declared in the country of origin and all the costs are deducted from the income, still within the country of origin, then ONLY the net profit needs to be declared in Italy. In some cases it might also be necessary to declare the rental income in the country of origin even when that country no longer requires you to, for example the UK. If you have rental income under the basic allowance of approx the first GBP 10500 of income and therefore the UK no longer requires a declaration, it may still be wise to insist on making a declaration because the UK allow for multiple expense offsets for tax purposes. By following this process you are showing the Italian authorities your expense declarations and therefore it is acceptable for Italian tax purposes.
You may in some cases be able to reduce your net profit to zero.
To clarify, any rental income from properties held overseas must be declared in Italy, for Italian tax residents. This is the NET income (after expenses). And this net figure is added to your other income to determine at which rate of income tax it is assessed in Italy.
Depending on why you are investing in property overseas the advantages/disadvantages can work in 2 ways: .
- If you have high expenses for the property then it can work in your favour as a capital appreciation investment. (assuming the value of the property goes up). Less income means less tax.
- The downside of this arrangement is that someone with low expenses and high net income (maybe living from the income in retirement) will be assesed at their income tax rates in Italy (IRPEF) which could go as high as 43%
If you are concerned about your tax situation in Italy and would like an initial meeting to assess your liability then we are here to help. In addition, there might be other more tax efficient and less costly ways to produce income and grow your money. If you are interested in exploring these then you can contact me on email@example.com or on cell 333 6492356