Tax implications selling our house in UK

Legal Advice
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Here’s the UK-France Double Taxation Treaty (DTT) currently in force, attached.

It’s quite readable.
Remember if any tax or social charge, new or old, is not mentioned in this treaty, and is required in either or both countries, then you pay it. The DTT just names things the 2 countries have agreed should not be paid in both countries.

So, cleverly, when France introduced a “solidarity tax” paid on income this is treated as a separate tax not covered by the DTT so you have to pay it. Tax paid in the UK can’t be credited against the amount due to France for this. Even though it’s just another income tax
france_dtc_-_in_force.pdf (99.2 KB)

Beware that if tax is paid on an item in both the UK and France, and mentioned as covered by the DTT, sometimes that means you still pay the difference in the taxable amount to the other country as well if the other country’s tax payable is higher. Earlier tax treaties had protections limiting this which disappeared in this latest one.

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@AngelaR @KarenLot @JohnBoy

I agree and indeed have followed the thoughts of the recent comments posted here. I thought to sell my UK property when arrived in France however on reflection thought it better to keep it and rent it out. The rent would kind of or more than cover the extra CGT I would pay if I came to sell it.
@Pat99

I see why the area of confusion has arisen from the advisors statement. Boils down to 'may’and ‘may only’

Essentially the advisor is correct the UK may apply CGT, but incorrect that therefore France can’t. I think it is important to actually consider the DT treaty – going to the source avoids any confusion!

Firstly article 2 (b) of the UK / France DTT defines the France taxes – “in the case of France, all taxes imposed on behalf of the State … including taxes on gains from the alienation of movable or immovable property”

Then Article 4 defines your residence – I understand necessary as both UK and France will tax one’s worldwide income, so need to define which state has the taxing rights on your worldwide income.

The rest of the treaty then sets about specifying who gets what taxing rights and the exceptions to the worldwide tax right.

So article 6 states “1. Income derived from immovable property (including income from agriculture or forestry) situated in a Contracting State may be taxed in that State.”

In fact for CGT it is Article 14 which applies – “1. Gains derived from the alienation of immovable property referred to in Article 6 and situated in a Contracting State may be taxed in that State.”

That means the UK can apply CGT if it chooses to– but from articles 2 B and 4 (if deemed France resident) France has the CGT taxing right according to its CGT laws. Article 6 (and 14) does not exclude France – if it did it would be written as “Income … may only be taxed in that State “

By way of example, UK government pension income is only taxable in the UK – Article 19 (2) “Pensions and other similar remuneration paid by, or out of funds created by, a Contracting State or a local authority thereof … to an individual in respect of services rendered to that State, authority or statutory body shall be taxable only in that State."

The provisions in Articles 6 and 14 merely allow for the UK to make a CGT charge if it chooses to do so, which I understand it has so chosen from 2015 onwards.

Picking up on Angela’s rent comment, it is Article 6 item 3 which deals with rent “3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.”

So rent is taxable in UK. But, it is also taxable in France as worldwide income. It and CGT is dealt with in Article 24 “ELIMINATION OF DOUBLE TAXATION”.

Item 3 deals with France: "In the case of France, double taxation shall be avoided in the following manner: a) income which may be taxed or shall be taxable only in the United Kingdom in accordance with the provisions of this Convention shall be taken into account for the computation of the French tax.

The United Kingdom tax shall not be deductible from such income, but the resident of France shall be entitled to a tax credit against French tax."

The way the credit is given is different for different types of income –

For rent, and other income such as pensions – “in the case of income other than that mentioned in subparagraph (ii), to the amount of French tax attributable to such income” (this is subpara 1).

It is this income (well pensions taxed in the UK anyway- don’t know about declaring rent yet!) which is declared in Form 2042 line 1AH or line 1AL on the paper form. The treatment is all the worldwide income is added up and an overall tax % rate calculated. Then the tax due on the UK part is deducted – in effect you pay the overall %rate on the France taxable income. (This is item b (ii) of the Article)

For CGT the treaty states:

… in the case of income referred to in paragraphs 1 … of Article 14, [the tax credit is] to the amount of tax paid in the United Kingdom in accordance with the provisions of those Articles; however, such credit shall not exceed the amount of French tax attributable to such income. (sub para (ii) of item 3)

So you get a credit of the actual amount of UK CGT against the France CGT calculated (and no more).

So as I said the longer you rent, the less the France GCT and the more the UK CGT – it will balance at some point depending on the individual calculations of each state.

As there’s no France CGT or health charges after 30 years of owning the property the CGT is entirely the charge the UK would make.

If there’s no UK CGT paid, the CGT is entirely what the France charges are.

Of course, if one is hoping to request a favourable foreign CGT treatment from the Inspector, it might not be best to advance these arguments!

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@KarenLot

I see you beat me to it!

The solidarity tax is interesting - I presume being outside DTT a UK CGT credit can’t be applied to it - similarly for France CGT health charge element?

I think S1’s will only apply to pension income also, so no joy there?

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The only thing I would add to your excellent exposition @larkswood12 is that, in normal parlance, a capital gain is different from income and taxed differently in both countries. My understanding was that the double taxation treaty ONLY applies to income and not to capital gains and therefore capital gains can be taxed (fully) twice if the authorities are so minded. Am I wrong about this?

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I don’t think you are wrong Angela. I know of someone who has lived in France for some years (remarried) and the old (prior) UK matrimonial home was sold generating a sizeable bill from the French state. The position on the UK CGT bill is unknown but would have met UK requirements at the time (~8 years ago). AFAIK in the previous marriage, they were joint owners of the property.

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The DTT has a specific article, 14 entitled ‘capital gains’, and includes property, shares, property companies and ships! :slight_smile:

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Exactly Angela. If it’s not covered in the DTT then you are most likely liable to pay each country’s full tax with no offset/excuse/mitigation.

S1 does exempt from all social charges if called social charges and not, say, solidarity tax (ahem).

Tory’s materials were excellent as kindly provided to the OP.

As I see it the OP should consider

(1) delay becoming resident in France till property sold. not much lost by this unless OP qualified for residence under Withdrawal Agreement.

(2) only 1 becomes resident now and the other joins later as a family member, especially if using/qualified for residence under WA. Person remaining in UK owns then sells. Prob incurs stamp duty on the half transferred to the one remaining btw

(3) put property into new ltd co and manage it as an investment. It’s a flexible solution especially if long term renting and especially if other income. Needs financial adviser or good small business accountant in UK to set up right and eventually plan the most protective exit option well ahead.

(4) pay lots of tax, some of which unnecessary. not just CGT

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BTW is it just me - everyones ‘real’ names have disappeared from view. If it’s not just me, do you think it’s because of the ‘trolling’ bit over on the ducks in a row thread?

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@larkswood12 There’s a topic on it here

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S1 applies to working income too. You can only get S1 pre-UK retirement age now, if resident in France before 01Jan2021 and working as frontalier or posted worker. Note working for a UK company remotely from France means you won’t qualify as a person working in UK. I was also told 25% tolerance for that but best to make it accidental/occasional or incidental and keep it low. They ‘will’ know, if they want to.

Otherwise you can only get S1 as qualified retired for UK retirement when you reach UK state pension age

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many thanks - didn’t see that! Poor guy, hope he made it.

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Surely only on pension income? We pay social charges on everything else (and are still trying to get back overpaid social charges from 2017 post the De Ruyter judgement).

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or have a partner who has

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I agree - hence me wittering on about the difference between income and other forms of gain. I’m exempt on my pension income but not on the “massive” amount of interest on my savings each year (:wry-smile:)

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on everything / social charges so far as I understand it.

Anecdotally others here will know better than me but it seems tax overpaid or anything taken that wasn’t due is practically impossible to get them to pay you back here

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Social charges are definitely payable by S1 holders on what would be called “unearned income” in the UK

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This is me! Arrived December and frontaliering away - just without the frontier as we’re all locked down!

I keep checking and France has extended the suspension of the 25% teleworking’ limit to end September. Might be extended further the way ‘opening up’ is going!

I read you were trying to go to UK for an interview? I hope you are not too impacted by all the UK shenanigans over vaccine / beta variants etc? The boss has booked us all in for a team meeting / meal in London in October - I have no idea how that, or my getting to it, will pan out.

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I would consider that unfair as the UK pays our social charges by way of us having an S1. Not the case on earned income in the UK which is all I have

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I don’t agree. Social charges aren’t just for health care, which is what the UK pays for as I understand it. Perhaps I’ve got that wrong but I’m just grateful that I have any form of exemption. There was a time not so long back when it looked like no-one was going to get their healthcare fnded by the UK :scream:

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I got the contract - highly suitable on both sides. But had to turn it down. Gutted as it’s been a very long time since my last contract. Surviving on a few hundred furlough each month and less before, is a strain on the nerves.

The maniac decisions to lift restrictions in the UK too soon were a factor in having to turn down the offer. As I would have had to be in the UK fulltime in the working week. Even vaccinated it’s going to be highly risky August-September. I would have had to start next week. Unnecessary deaths are definitely going to be caused by this UK precipitation to remove restrictions too soon

Employer started being an idiot trying to say, after the contract was offered and accepted, I couldn’t go home weekends (on my own time) except very limitedly. They’d taken some poor or irrelevant advice in another case and wanting to apply incorrect restrictions.

I had Pfizer upset stomach and inflamed lymph glands, was melting days in 32 degrees, being messed about here by a local on something needing to sort in order to depart, had always told them my track record is fulltime in the UK but I do return weekends from the start. Originally I’d refused to apply until that was accepted as OK by employer, when I’d detected some unease of the agent when he’d approached me.

Looking at the disease danger in the UK as well, I didn’t have the energy to set them right when they started this rubbish. Gutted I had to turn it down. Glad not to be forced to be in UK August-September though while the infection rips through the population killing vulnerable people. Due to having so many young unvaccinated people to give it life and development.