Inheritance Tax from 2005

[Deleted User]

I have read the Agreement and feel that it states all taxes charged under the article are able to be offset for the purpose of preventing Double Taxation. Do you read it differently? Do you feel ‘Social Levies’ as taxed under Capital Gains, could be offset against UK Capital Gains?

Article 2 - Taxes Covered 

The Taxes which are subject to this :

1. (a) in the case of the United Kingdom

        (iii) the Capital Gains Tax

(b) in the case of France, ‘all’ taxes imposed on behalf of the State or of its Local Authorities irrespective of the manner in which they or levied on total income, or on elements of income, including taxes on gains, from the alienation of moveable or immovable property, taxes on the total amount of wages or salaries paid by enterprises, as well as taxes on capital appreciation, those taxes are in particular:

(iii) the “contribution sociales généralisées” (Generalised Social Contributions)

1. The Convention shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of the signing of this Convention in addition to, or in place of, the taxes referred to in Paragraph 1. 

Using the French Notaires de France Capital Gains calculation website it produces a one page Statement called:

“Outil dec Calcul des Plus-Value Immobilieres” which translates as “Real Estate Capital Gains Calculation tool”. 

Based on what I have read that ‘applies’ to the person I am asking for, it suggests that all French Capital gains taxes, however charged or levied, can be offset against the same or similar UK Capital Gains taxes as they are ‘billed’ or calculated under the title of “Real Estate Capital Gains’ tax. Social Levies (Prélèvements Sociaux) are billed on the same page as the “Real Estate Capital Gains” and the bill has one total charge. As the UK resident pays ‘similar’ or the same charges in the UK it would appear according to the Agreement that these can be offset for the purpose of and the prevention of ‘Double Taxation’. As the individual can also prove they have never lived in the property, it would seem unreasonable to tax them twice at the same time as creating an agreement and treaty for the purpose of preventing ‘Double Taxation’. 

Am I reading this incorrectly (too hopefully) and would this be a reasonable argument?

Thank you. 

Jeremy535897

I would certainly argue that it was able to be offset, but it may well be that the French taxes exceed the UK tax bill, in which case the set-off is of course limited to the UK tax payable on the gain. You would need to go to an international tax expert for a definitive answer, and it would be prohibitively expensive to do so.

[Deleted User]

Good morning Jeremy.

Yes I agree. It would be very expensive and probably be a waste of any thing the gentleman would save.

I have spent several hours reading articles over night on this France/UK Agreement and it turns out that several law suits have been one in both Brussels and France concerning this very matter. In the end the French capitulated and altered how they were spending the money which was a win for people being taxed this social charge. Sadly, as we left the EU and EEA on the 31st of January 2021, this closed the door to this possible argument based on Switzerland and Norway being exempt from these social charges as part of the EEA (not the EU) based on successful law suits in Brussels. As the wording of the agreement clearly states ‘all taxes’ named in the agreement and it states ‘no matter how they are raised’, if and when the time comes I comes, I will present the paperwork from the French as a total French Capital Gains tax and list the sections of the Agreement that you printed out plus the recent successful court cases as evidence of unreasonable Double Taxation contrary to the Agreement. That’s all I can do… then it’s in someone else’s hands. I’ll also write that so at some future date, if things change or a mistake is made on HMRCs behalf, it can be seen at the time that these points were clearly made. 

Thanks again Jeremy535897

Jeremy535897

I think that is a good strategy. I would be tempted, on the self assessment tax return, to explain the nature of the French taxes for which credit is claimed, but not the arguments for claiming them. That looks defensive. Keep those arguments in reserve in the unlikely event of a question.

[Deleted User]

yes… Good Strategy.  I’ll make a note now to keep this in mind when doing he paperwork.

Is this all ‘self declaration’? If this gentlemans property is sold next year does he simple write to HMRC and provide his bank statement and self calculated (Government website) Capital Gains bill calculation with an explanation and the French documents of course?

I believe the Capital Gains ‘annual allowance £12,300’ is different from the annual ‘personal allowance £12,570’ for income. Does this make an difference to some one on benefits? For myself I clearly understand it’s use and can use it to calculate my own tax but for someone who is on benefits can these allowances be used and can they make a difference. I ask as I’m not sure if Benefits are ‘Gross’ or ‘Net’ of taxes or if these allowance are already taken into account somewhere before hand in Government. 

Jeremy535897

If there are no other gains in the tax year, the full annual exemption of £12,300 is available to reduce the capital gain on the sale of the property, as are his share of any selling expenses. The income tax personal allowance is not. That is one reason why you may find the capital gains tax here is less than the French tax. If his income is low, he may find that quite a bit of the capital gain is taxed at 18% before getting into the 28% tax rate. See https://www.gov.uk/capital-gains-tax/rates.

Benefits do not affect the exemption, but any means tested benefits will have to take the net proceeds into account (and should have taken account of the value of the property, but that was arguably low if he had no power to sell it).

He will not be within the new 30 day reporting rule as that only applies to UK residential property. He will have to declare the capital gain and the French tax credit on his self assessment tax return. For a sale in the current tax year 2021/22, the tax will be payable by 31 January 2023.

[Deleted User]

The part where I am repeatedly getting stuck on is ‘taxable income’. If I look at my monthly salary pay slip it says ‘Gross’ and ‘Tax’ and ‘NI’ and ‘Net’. Really simple for me and most people. The issue I have is someone on Benefits just gets an amount paid into their bank account. It doesn’t say ‘Taxable’ like on a monthly pay slip. Let’s say Pensioner A gets £18,000 annual income (paid monthly) exactly from 1st April 2021 to 31st March 2022 as an annual income which is made up of State Pension, Pension Credit and PIP (not taking in to account Housing Benefit or Council Tax). Is that £18,000 ‘taxable’ or not for the understanding of this exercise? I only ask as people mention your ‘taxable income’ but if on benefits this makes little sense as people never talk about if their PIP is taxable or their ‘Gross State Pension’, if that makes sense? 

I would also suggest that an £18,000 annual income is in the low income tax band? but using the HMRC Capital Gains  tax assessment calculator and applying the CG annual allowance of £12,300 I still  end up with £30,909 in UK Capital Gains alone and I’ve done it four times now. I can only I surmise that as the taxable ‘Gain’ is large at £140,000 its having a greater impact on the calculation and negating the low income tax band. This £30,909 is actually higher than the French €28,000 CGT even considering I am using an Annual allowance for the UK and there is not one in France.

Also, self assessment tax forms. Again this is something alien to Pensioner A who has never filled in a Tax form. Would he just do this the once or would he have to do this every year as long as he has this Capital again? 

These seem like petit things but to Pensioner A who has never had to do a tax return and has help filling in paper work it would be a very daunting thought and frightening to think they will make a mistake or have to this every year.

Thank you

sheramber

https://www.gov.uk/income-tax/taxfree-and-taxable-state-benefits

[Deleted User]

Thanks sheramber… that’s very helpful. 

I noticed State Pension is in the ‘taxable’ list. Do you happen to know when a State Pension is taxed? 

Jeremy535897

The rate of tax rises once the basic rate of £37,700 in England and Wales in 2021/22 is exceeded. PIP and pension credit are not taxable, so guessing pension income of under £12,570 (so therefore no taxable income due to personal allowance) and £140,000 capital gain, which presumably falls to £127,700 net, tax will be payable on £37,700 at 18% = £6,786, and on £127,700-£37,700 = £90,000 at 28% = £25,200, so total tax of £31,986, less French tax £23,800 (at today's exchange rate).