The United Kingdom Taxation and the Expatriate.

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Her Majesty’s Revenue and Customs [HMRC] have released a consultation document which would if implemented create financial hardship for quite a few British Citizens who live abroad.

It can be read at -  goo.gl/Jj5D2j

The thought behind this is to remove the tax-free personal allowances on income which arises in the United Kingdom paid to Citizens abroad.

It has two errors.

It assumes that  tax credits granted in any State of residency will completely offset the tax paid in the UK. It also seems to assume that the UK sourced income is not significant to the recipients.  How wrong they are.

The Double Taxation Conventions

Attention must be drawn  to the misleading wording in the paper .

Section  6.2  states : –

However most of these individuals would be able to claim relief overseas either in the form of a credit for tax paid in the UK or exemption from tax in their home state.# Therefore most individuals would not generally pay more tax overall than they do now***. However this will depend on the relative level of tax rates and allowances between the UK and their country of residence.

# if the taxpayer specifically claims under a double taxation treaty!

***This Statement is sending/implying false information-  Under the French/UK  Double Taxation Convention (and indeed most others) the tax relief on tax paid in the UK IS NOT the actual tax paid but the tax that would have been paid if the income had been taxed in France.  As it is, those who have their pensions taxed ‘only’ in the UK are quite clearly disadvantaged##.  Such disadvantage would be very greatly exaggerated for other recipients of private pensions, earned income, rents etc. from the UK  if the personal allowance were removed. It is extremely unlikely that the tax credit given against a French Tax demand on world-wide income, in respect of tax paid in the UK is ever equal to the tax paid in the UK.

Thereby any resident who pays tax which would fall under a Double Taxation Treaty would lose out, because of the different levels of tax regime. The removal of the Personal Allowances would exacerbate this.

##The elderly expatriate in France who receives all their income from the UK, the majority of which in taxed in the UK is currently disadvantaged because any tax credits achieved in France [e.g for home helps – charitable support] cannot be set against the taxes paid in the UK, but only against a minimal tax liability in France.  They therefore pay a bundle of tax to the UK , none to France, and overall far more than if they were only taxed in France on all the income.

The Nature of the Citizen Abroad and the importance of this income.

HMRC need awareness of the nature of the citizen abroad especially in the EU.

Many citizens who live in other States of the EU are ordinary folk.  They may have retired on little more than the State pension. Some (perhaps many) have retained a property in the UK and rented it out to get an income.  They retain the property just in case they need to return to the UK at a later stage in life.

This rent on their property is important to them.  It could well exceed 40% of their income Let us say that it brings in £10,000 a year.  If the tax-free personal allowance is removed the tax authority will take £2,000 and their income is reduced to £8,000.

These citizens are just ordinary folk who I fear do not understand the taxation system and its convolutions.  I am aware that many still have their State pensions taxed in the UK although they could get them ‘exported for tax purposes’.  The same is true of  Bank interest.  They could request the Bank to pay the interest gross so that it avoids UK tax.  Neither HMRC nor the Banks tell them how to do this.  Some Banks are reluctant or refuse to pay the interest gross.  The average taxpayer badly needs simplicity and guidance. It is already apparent that various non-residents have only a superficial grasp of where they should be paying tax and how to deal with the various tax forms from two State tax authorities.  The fact that HMRC says that 400,000 expatriate Citizens  ‘claim’ the  personal allowance on UK income reflects this confusion. Such insouciant citizens could well be in for a very great shock.  They are not evil people. They are just average people and not that aware of the financial complications  invented by the civil service.

Some private pensions have to be taxed in the UK.  These will also suffer from a greatly increased tax burden if these tax allowances are removed.  As said above  tax credits will not allay such taxation in the UK.

B Low Incomes  HMRC, I repeat, has not understood the varied lives of those British citizens resident in France who have low incomes emanating from the UK. 

There are those who earn income from the UK and are thereby taxed on that in the UK.  They may offer a service of some kind (e.g consultancy), or mark exam papers or sell goods which they make themselves. They may even ‘commute’ on occasions to perform some function.  There are those people  who ‘work from home’ and that home could easily be in France or elsewhere. They are non-UK-resident but otherwise are no different from a ‘home worker’ in the UK.

There are those who have some form of investments which pay interest in the UK.

A number with low incomes have been informed by HMRC that they are ‘non taxable’ because of their low incomes and need no longer complete a tax return.

Their income is taxable also in France but the French tax system is favourable  and  they lie below the tax thresholds in France also.

It may be difficult for tax officials to understand  but many people are already in a state of confusion where what income should be declared to their national State or their State of Residence.  The Tax departments lay down rules which are difficult for the average person, especially the elderly, to understand and this policy consultation document is compounding this confusion of bureaucracy. Remember further that large numbers of people, especially the elderly,  do not have computers nor access to the internet and have little understanding of how tax laws operate across the State borders in Europe. It would be far wiser for tax departments in collaboration across the EU to simplify the rules rather than complicate them.

Complications  -- The ratio of income  arising in the UK and abroad

A suggestion is made (see section 5.2) that the expatriate tax payer might declare how much income is raised abroad and how much arises within the UK.  The reference to  %  of income received from here and there, UK or elsewhere, and minimal income limits  is frankly onerous.  It is a step into new territory and a step too far.  Consider a retired couple who let out part of their property  for holiday rental in France.  Why should they tell the UK tax authorities what income they receive from that minor income?   This is getting towards an expectation that all British expatriate citizens should disclose their world-wide income to the British tax authority. 

And if the ratio should be £1 either side of the threshold ratio it would mean a cliff   face in the amount of tax demanded.  i.e a difference of  possibly £2,000 or more.

***********************

One can write to HMRC to comment and protest..

 ( before the 9^th October 2014) to

nonresidentspersonalallowanceconsultation@hmtreasury.gsi.gov.uk

A draft letter  along with a repeat of the material here  (EXPANDED) can be read at
www.lefourquet.net/90Cdraft.doc

How do the British Pensioners live in France?

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UPDATE -  The posting 'Shopping in France' is a useful accompaniment to this post.  It compares a shopping list in the UK and France from time to time, and  gives figures for inflation and the effect of the exchange rates.  ***View it here***.   Last update June 2015

In 2012 I met a British pensioner of long acquaintance in our local supermarket at Gourdon, my home town in the Department of the Lot, France.  I had not met him for some years and at first did not recognise him.  He looked much older than I remembered and appeared distressed.   ‘We’re selling up’ said  Jerry ‘if we can find a buyer for our house’.  I knew he and his wife Anthea had been resident in France for at least 15 years and before that had owned a second home here during the time he was teaching in Britain. 

‘Why do you want to go back?’ I enquired.  ‘Its just too expensive here’, he said.  ‘We can’t manage any more’.

It is indeed expensive.  The food costs are more here than in the UK.   I keep a price comparison list.   You can easily view the prices in Tesco online and similarly discover the general price of petrol in the UK.

In March 2012 I began such a comparison –See the link above. The basket of goods cost the equivalent of 92.07 euros in Tescos, and the same list was 104.23 euros here in Gourdon. That is to say 13% more expensive compared to Britain.  Even four star petrol was fractionally higher in price in March than in Britain.  Fifteen years ago everything was so much cheaper in France. The repeated exercise in March 2013 was far worse.  The £ dropped in value by 10% since December 2012 and French inflation soared to 12% (on my figures). The same basket of goods cost 108 euros, which was 17% higher than in the UK. [ n.b. June 2015. The situation has improved since 2014 - but is still not equitable with UK prices.]

The difference in price is enough that many Britons living in France buy various large items, clothes and the like  via the internet from England,  Nowadays, Marks and Spencer’s, John Lewis,  and even much smaller stores will send goods to France and even with the delivery costs it is still cheaper to buy this way.(* see comment 5 below)

From personal knowledge I know that small pieces of machinery such as parts for a chain saw  can be purchased more cheaply from Britain than in the local shops.  Electric fencing and garden ‘seep’ hoses can be so purchased similarly from Britain at a cheaper price than locally. Clothes, china and so on are all frequently available more cheaply from the UK.

Why is this?  The exchange rate has much to do with it.  We hear so often through the British radio and television that the Euro is in dire trouble.  My inkling is that we should pay more attention to the markets than to the economic soothsayers of the press and the somewhat biased pronouncements from any Government voice.   The undoubted fact is that the Euro has stayed strong against the pound although since 2014 the rate has improved  The £ stood in 2012 any where between 0.87 (April 2012!) (as in the price comparison linked above) to about 0.83 pence to the euro.  In 2015 it has been about 0.73.  It would be more equable in buying power today at about 0.67 - 0.70 pence.  The more the UK Government go on ‘printing’ money the more it will stay weak and even get worse.  [update note- on May 26th 2012 - From April, to July the £  climbed dramatically .  From July to December it fell back again.  Can we be sure of anything in this world?]

My acquaintance and his wife were teachers.   Because of the extraordinary law on taxation this means that they are taxed on their pensions by the United Kingdom.  The law is most decidedly an ‘ass’.  My enquiries to the HMRC as to why this should be so, get the answer ‘Because the pension comes from public funds.’  This is an absolute bananas of a reply.  The Old Age State pension quite transparently comes from public funds, yet that is not, for the British pensioner living in France – I repeat is not - taxed in the UK but is exportable for taxation to France! 

The utter stupidity of the laws on taxation of pensions is repeated elsewhere in Europe.  Would you not agree that the pensions of nurses comes via the public purse?  Yet those nurses who retire to France and Spain can have it taxed in France or Spain.  Those who retire to Germany must by law have it taxed in the U.K. 

The consequence for my acquaintance is that they pay far more income tax to the UK than they would if they were taxed in France.  Moreover as they are clearly of advanced years and I know that Anthea suffers severely from arthritis, they need the aid of a ‘home-help’.   In France the costs of this employment are 50% deductible against tax.  Since their income tax is collected by the UK, this relief is not possible for them.   To add extra absurdity the French take the teachers pensions into consideration when viewing their liability to taxation on their State Pension and their local property taxes.

So, through the complexity of archaic laws which derive from the United Kingdom they get a double whammy of an artificially distorted exchange rate and the hard luck of being suspended between two different sets of laws on taxation.

Because they have been non-resident in the UK since before 1998 they had not received the Winter Fuel Payment {see note at end].

Then again, our two aged people have to subscribe to their health care in France.  This will cost them more than 1500 euros a year and possibly 2,000 (about £1650).  I am convinced that this is because of a misinterpretation of European law.   The EU regulations on health say that the British pensioners should receive health care in France as any French person should receive it and that the cost should be borne by the U.K. Now the exact wording of the law on costs says and I quote……  

“ For the purposes of applying Article 35 and Article 41 of the basic Regulation, the actual amount of the expenses for benefits in kind, as shown in the accounts of the institution that provided them, shall be reimbursed to that institution by the competent institution.”  [EU Regulation 987-2004, Article 62]

The competent institution is the U.K. Department of Health.  The U.K. is responsible under EU law for the Social Security costs of all British Pensioners living in the EU who have never paid into any social security of their host country but only into the British system.   It is beyond belief that the precise wording of this regulation can be so ignored. (*The EU Regs need examination by a trained legal mind, especially 987-2004 Article 24 - residence in a State )

Here is part of an email, written on the 10^th February, from another acquaintance. “Just as I was yesterday, I am typing Emails sitting up in bed. I am  fully clothed in three jumpers, two pairs of trousers and a track suit. 
My dear husband, similarly dressed, is tucked up beside me.  He is eighty-six, and suffers from epilepsy and  a certain amount of mental confusion.
Outside the temperature is minus 2 degrees, and is expected to fall to minus 10 degrees tonight - a big improvement on the  minus 14 degrees we had last night.”

And another (let’s call her Ethel) who wrote to me about the non-receipt of the Winter Fuel Payment.  I know that their health insurance costs them over 2,000 euros a year.

“As you can imagine, this past year has been extremely hard on both of us and it is only with the support of the excellent French health professionals as well as the kindness of our friends and neighbours (both French and British) that we have managed to cope.   We live on a joint pension income of 12,000 pounds sterling per annum and have to draw on our very modest savings to supplement this.   Because of our low income, we downsized seven years ago to a tiny, one-bedroomed house which my husband converted from a carpenter's workshop but his illness and treatment cause him to feel the cold in the extreme and, in spite of the size of our house, I dread to think what our heating bill will be this Winter.  It is so dreadfully unfair that we and others in our situation are not allowed to receive the Winter Fuel Payment [see note at end] from the British government when our compatriots do!  And, of course, there is nothing we can do about it as, having lived in France for more than fifteen years, we are now disenfranchised as well!”

This letter from Ethel, just about sums up the predicament.  The EU is supposed to allow free movement of people, with neither loss of privileges nor obstructions placed in one’s path.   Yet the British Governments since 1973 have not considered in any manner at all how the diaspora of British folk are faring in the wider Europe.  Most of the pensioners are ordinary folk, some rich, some poor, but mostly in the middle income brackets.  Most moved to the continent because housing was cheaper and they felt sure that the pound would stay strong.. But the fact is that they are treated as non-existent citizens by their own country.   The UK Governments still tax many of them. The Government ignores it responsibility towards their health care. The Governments have disallowed  the Winter Fuel Payment [see note at end] to the most elderly.  And to cap it all the Governments have not allowed them to be appropriately represented in Parliament [see note at end].  

And now some are forced because of financial difficulties to attempt to return to the UK where no doubt they will add to the population pressure on the health service and the local social security departments.
 [The Winter Fuel Payment - AUGUST 2012 -- Because of pressure from the EU helped along by certain knowledgeable expatriates - the Government DWP has caved in and accepts that the WFP is payable to all those in the EU/EEA who would receive it if their residence were otherwise in the UK.]
BUT----
[Further note  on the WFP - January 2014- The Government has decided that France is a HOT country and on that basis will not pay the WFP to those of us living in France - But Italy is defined as 'not hot' -
View a relevant link here!] 
[The disenfranchisement is being strongly fought -- 
visit and comment www.votes-for-expat-brits.com ]

Unfair Taxation.

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The effect of the Double Taxation Convention France/UK

The example below illustrates the gross unfairness of the imposition of the Double Taxation Convention on many British expatriates in France.

------

Mr. and Mrs Smith are OAPs resident in France.
Let us suppose that they jointly have a global income of 32000 euros, all of it originating from the UK.
It originates from two sources. A Government service pension, and the joint Old Age Pensions (full for Mr. Smith, and Mrs. Smith has a reduced pension as a wife on her husband’s contributions).
The Government pension is £17715/year and the joint OAPs are £10125/year.
In Euros this is 20362 € and 11638€ respectively
These together are £27840 which at 1€= £0.87 is 32000 euros

The £17715 is taxable in the UK. Tax claimed is £820
The 11638 euros of OAP are taxable in France. Tax claimed on this is zero.
---------------
A home help is employed which costs 2000 euros/year (less than three hours/week). This, in France, attracts a 50% tax abatement of 1000 euros.
-----

If the whole 32000€ were taxable in France, then only 354€ (£307) tax would be payable.
As it is Mr. Smith is taxed £820 in the UK.
It is patently clear that the DTC is discriminatory against Mr. Smith.
It is clear that Mr. Smith pays more tax than a French National in exactly the same circumstances.
It is clear that Article 25 of the Double Taxation Treaty is infringed.
Article 25 states that no-one should suffer a greater tax load compared with a French National as a result of the operation of the Double Taxation Convention.
Article 26 requires that the HMRC should take action if article 25 is infringed.  They refuse to do so!

Calculation of French Tax

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UPDATED in September 1214  for the tax returns for 2013.

The spreadsheet for the calculation of Tax in France has been updated fro the tax year 2013 payable in 2014
It is viewable here.

This is designed particularly to inform those British pensioners who are in receipt of a Government linked pension (ex- teachers, police, fire service, military and local government workers).  It demonstrates that if you were taxed in France, then your tax load could well be less.  If you need home-helps, or help with your garden or you support French based charities or organisations them you lose out because of the workings of the anglo-french double taxation convention.