Income tax on interest gained in France, double taxation applies?

Hi, Trying to help someone complete a tax return and I'm struggling with the section where they have to declare any foreign income. They have a savings account in France that returns some interest annually that the French authorities tax at 12.8%. My understanding is that when declaring this on the self-assessment form, because 12.8% is under the 15% that the UK has a negotiated with France in the double treaty, they can offset all of it (i.e. they can claim foreign tax relief on the full amount). However, an accountant they have spoken with says the double taxation agreement between the UK and France means the relief does not apply here. To illustrate this with more concrete sums, suppose this account returns £3000 in interest which we declare as foreign income. The French tax it at 12.8% (or £384) and they also apply a social contribution levy at 17.2% (or £516), meaning the net amount my friend receives is £3000 - £384 - £516 = £2100. I believe my friend can offset all of the paid tax, meaning the amount that goes in the "Foreign Tax Credit Relief" section is £384 (and so the pay whatever final amount of tax gets calculated, minus £384). Is this correct?

Hi,
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Not HMRC, Article 12 of the DTA is clear, it is liable in one country only, which means you cannot claim tax credit in the other (and you wouldnt advise the other of the amounts)...see the double taxation treaty. If your friend is tax resident in France then it doesnt go on the UK form, if your friend is tax resident in the UK, France should not be taxing it and you need to apply for exemption there, if your friend is tax resident in both then you need to determine treaty residence as to who should tax it...but whichever it is no claim can be made in the other country for FTC.

Hi Clive, thanks very much for your comment. So that was the accounts' view too but then I came across this post that raised a similar point and the HMRC admin person there appeared to suggest we can in fact claim tax relief in the UK on money taxed at source in France: https://community.hmrc.gov.uk/customerforums/sa/52f29f3a-d127-ee11-a81c-000d3a8751e3 Did they mean to imply the relief needs to be claimed in France? The wording of the reply seems to suggest relief can be claimed in the UK on the income tax charged only. Thank you

Not sure what they meant...when this happens (regularly, all countries, all income types etc) the position is clear, the country that shouldnt have taxed it needs to repay it and the country that can tax it taxes it...have clients/cases ongoing at all times in such situations who assume that because something has been taxed in one country thats right and credit can be claimed...wrong...you have to go with what the DTA says regardless of whats happened (and its what HMRC do when they raise compliance checks)...it seems harsh/silly sometimes, but thats the way it is...

So my partner contacted HMRC via the online chat service and got transferred to an adviser who specialises in double taxation. Here is a short excerpt from their conversation that I paraphrase: Me: Hi I'm resident in the UK but I receive interest on a bank account in France that's taxable. I get taxed by the French authorities and I was wondering if I can get tax relief on the amount that the French have taxed me in the UK. According to this thread in your community forum: https://community.hmrc.gov.uk/ customerforums/sa/52f29f3a-d127-ee11- a81c-000d3a8751e3 I am able to claim relief on my self- assessment form for the amount of tax the French have applied. Is this correct? Agent: Yes you may declare the foreign interest and tax paid on the foreign income page. You may then claim foreign tax credit relief. Me: Ah, so I don't need to claim that tax relief from the French authorities but I can claim it here in the UK? Agent: That's correct if you have already paid the tax in France then you will claim the relief here. Me: ok, that's very helpful, when I explain my situation on the self-assessment form, is it possible to link to our conversation or just something that indicates that I have followed official hmrc advice in preparing the tax return? i don't know if our conversation has an internal id that your colleagues can reference? Agent: If you give me your details I can leave a note on the record regarding the advice I have given you. So it very much sounds like my partner won't need to claim the tax back in France but is able to claim it as relief here in the UK. She's going to do that and I will report here if all successful for future reference.

I understand, but, the advice you have been given is incorrect, the dta is clear, doesnt matter who the member of staff within HMRC is, they cant override the dta.If selected for compliance check (more likely as you will be claiming something that will trigger a "high risk" signal as it is unusal for such a situation to be allowable, it wont matter the advice youve received, or from whom, the officer undertaking the check will just follow the dta and say something along the lines of "it is always the taxpayers responsibility to adhere to the legistlation (in this case the dta)"...they may apologise for adivisng you incorrectly but incorrectly advised is what you have been...deal with this stuff day in day out, can only speak from experience...the French tax credit is NOT allowable in the UK, claiming it will make the return "high risk" and if a compliance check is issued the credit will be disallowed...phone them again and quote this...youll get a different answer.

...will HMRC please comment, as a member of staff within HMRC has just given the taxpayer incorrect advice (based on an incorrect previous forum post), which has caused them to submit an incorrect return...the FTC is NOT claimable, and yet it has been claimed as the taxpayer is under the impression its ok to so having spoken to HMRC...the DTA is 100% clear, it in not claimable, the interest is assessable in one country ONLY...can HMRC advise them what to do next please.

n.b. See https://community.hmrc.gov.uk/customerforums/sa/7f01148d-d0b6-ef11-95f6-0022481b5b6f

Hi Clive, thanks very much for your comments, hmmm, we will contact their helpline directly in this case. We have not submitted the return yet, as we're waiting for HMRC to send my partner her paye coding notice, and we won't do so until we've spoken with someone. In any case, it sounds simplest if we just take the tax hit and ask for reimbursement in France, but I'm wondering why HMRC takes this interpretation in this case. I do suspect the advice we were given must be based on a prior precedent or perhaps updated guidance, but perhaps not in the case of France as the other country.

Hi
The original question related to income tax on a French savings account.  Article 12 of the tax treaty covers interest and advises that interest arising in France and is owned by a resident of the UK, is only taxable in the UK.  (UK/FRANCE DOUBLE TAXATION CONVENTION ).  If the individual is a UK resident, they should request a certificate of residence (How to apply for a certificate of residence to claim tax relief abroad) which they can use to claim the tax back from the French tax authorities.  The UK resident should declare the gross interest in the self assessment tax return, but cannot claim a foreign tax credit, as tax is not payable in France on the interest.