France-UK tax treaty: what it means after Brexit and the end of the non-dom regime

The rules that come up in our files

• Residence (Article 4). A resident of a State is any person liable to tax there by reason of domicile, residence or any similar criterion, excluding a person taxed there only on locally sourced income. Where an individual is resident in both States, residence is allocated, in order, to the State of the permanent home, then of the centre of vital interests, of habitual abode and of nationality; failing that, the two administrations decide by mutual agreement.
• Taxes covered (Article 2). On the French side, income tax, corporate tax, payroll tax, CSG and CRDS; on the UK side, income tax, corporation tax and capital gains tax. The treaty does not cover inheritance tax or French succession duties, which fall under the convention of 21 June 1963.
• Income from immovable property (Article 6). Taxable in the State where the property is situated, without exclusivity. Rent from a London flat received by a French resident is taxed in the UK, then included in French income with a credit equal to the corresponding French tax: it is not taxed twice, but it counts towards the rate.
• Dividends (Article 11). The State of the company may levy at most 15% of the gross amount; dividends paid to a company subject to corporation tax holding at least 10% of the capital are exempt at source. The UK does not, in principle, withhold tax on ordinary dividends; France applies to a UK-resident individual its domestic withholding tax of 12.8%, which is below the treaty cap.
• Interest and royalties (Articles 12 and 13). Taxable only in the State of residence of the beneficial owner, unless attributable to a permanent establishment in the other State.
• Capital gains (Article 14). Gains on immovable property, on shares, other than shares regularly traded on a regulated market, deriving most of their value directly or indirectly from immovable property, or on interests in a property-rich partnership or trust, are taxable in the State where the property is situated. Other gains, including on securities, are taxable only in the State of residence of the seller. Paragraph 6 however preserves each State's right to tax, within the limits of its domestic law, the gains of a person who was its resident in the year of disposal or at any time during the six preceding tax years: the State that taxes only on that basis relieves double taxation itself (Article 24, paragraph 4).
• Employment income (Article 15). Taxable in the State where the employment is physically exercised, except for an assignment meeting three cumulative conditions: presence not exceeding 183 days in any twelve-month period, an employer not resident in the State of activity, and remuneration not borne by a permanent establishment there. Management functions in a company subject to French corporate tax follow this regime; directors' fees are taxable in the State of the company (Article 16).
• Pension contributions (Article 25, paragraph 6). An employee who comes to work in France and contributed to a tax-registered UK pension scheme before arriving may, under conditions, continue to deduct those contributions in France.
• Anti-abuse clause and exchange of information (MLI, Article 27). A treaty benefit is denied where obtaining it was one of the principal purposes of an arrangement. The two administrations exchange relevant information, including information held by banks and fiduciaries.

Five decisions on residence, the remittance basis and the tax credit

A treaty is read together with the decisions that have applied it. The first four were rendered under the 1968 treaty, whose Article 3, paragraph 1, is worded much like Article 4, paragraph 1, of the 2008 treaty; the last concerns the 2008 treaty. The decisions are in French.

• Remittance basis and residence. A taxpayer under the remittance basis who had not remitted French-source dividends remains a UK resident: the Conseil d'État sees deferred taxation, not an exemption, and grants the treaty rate of withholding tax, while refusing the refund of the avoir fiscal because the dividends were not included in the UK tax base (CE, 27 July 2012, nos. 337656 and 337810).
• The UK tax authority's certificate. A court that holds that a taxpayer was not UK resident without discussing the Inland Revenue certificate describing them as tax resident but not domiciled distorts the evidence in the file (CE, 7 May 2014, no. 360845).
• French residence despite a job in London. A couple renting a flat in London and occupying a flat in Paris have a permanent home in each State; their centre of vital interests is in France, where their assets, the wife's occupation and most of their income are located, even though the husband chairs a company in London (CE, 11 December 2009, no. 300733).
• French-source pension and UK residence. A salaried doctor in Great Britain, who rents a home there and whom the British tax authorities certify as tax resident, is a UK resident: that status prevents France from taxing the French-source pensions received (CAA Lyon, 20 October 2011, no. 10LY01157).
• The Article 24 tax credit. The credit equal to the corresponding French tax (Article 24, paragraph 3, a, i) is available for income included in the UK tax base, provided the taxpayer is not exempt from it by reason of status or activity and without a requirement that UK tax was actually paid; French social contributions are among the taxes that give rise to the credit (CE, opinion, 12 February 2020, no. 435907).

A pension follows residence, unless it is a government pension

• Private and social security pensions (Article 18). Pensions paid in consideration of past employment are taxable only in the State of residence of the recipient. Unlike some other treaties, Article 18 does not reserve social security pensions to the paying State. The UK State Pension and an occupational pension from a private employer received by a French resident are therefore taxable only in France; conversely, a French basic state pension and an Agirc-Arrco pension paid to a UK resident are taxable only in the UK. To stop UK tax being withheld at source, the French resident files form France-Individual with HMRC, certified by their French tax office.
• Government pensions (Article 19, paragraph 2). Pensions paid by a State or local authority for services rendered to it are taxable only in that State, unless the recipient is resident in, and a national of, the other State without also holding the nationality of the paying State. A UK civil service pension paid to a British national resident in France is taxed only in the UK; it is nevertheless included in French income with a credit equal to the corresponding French tax, and counts towards the rate. Paid to a French resident who holds only French nationality, it is taxable only in France.
• War and disability pensions (Article 19, paragraph 4). French pensions covered by Article 81, 4° of the French tax code are exempt in the UK if exempt in France; a closed list of UK military pensions, post-service benefits and injury or disability pensions is exempt in France if exempt in the UK, whatever the nationality of the pensioner.
• Worked example. A French resident receives €30,000 of French pension and the equivalent of €20,000 of UK civil service pension. If French tax computed on €50,000 amounts to €5,000, the credit for the UK pension is €2,000 (5,000 × 20,000 / 50,000) and the French tax actually due is €3,000. The UK pension is not taxed twice, but it has raised the rate on the French pension from the rate applicable to €30,000 to the rate applicable to €50,000.

The tax credit of a French resident

• Two separate calculations (Article 24, paragraph 3). For dividends, gains on immovable property and similar gains, gains taxed on the basis of former residence, directors' fees, the income of artistes and sportspersons, remuneration in international transport, and permanent establishment profits and gains subject to corporate tax, the credit equals the UK tax effectively and definitively borne, capped at the corresponding French tax. For other income, the credit equals the corresponding French tax.
• Income entering the UK tax base. The credit equal to French tax requires the French resident to be subject to UK tax on the income in question (Article 24, paragraph 3, a, i). Evidence of the UK treatment must be kept; according to the Conseil d'État it need not result in tax actually paid, provided the taxpayer is not exempt from it by reason of status or activity (opinion of 12 February 2020, no. 435907).
• The rate for other income. Where tax is progressive, the corresponding French tax is computed by applying to the UK income the ratio between the tax due on total income and that total income.
• Mutual agreement procedure (Article 26). A taxpayer who considers that they face taxation not in accordance with the treaty may present the case to the competent authority of either State, within three years of the first notification of the action or within six years from the end of the tax year concerned. If the two administrations do not agree within two years, unresolved issues are submitted to arbitration at the taxpayer's request, unless a court of either State has already ruled on them.
• Exchange of information (Article 27). It covers taxes of every kind and cannot be refused on the ground that the information is held by a bank. An undeclared UK account, trust or company is not out of reach of the French administration.