French tax returns for second homeowners living in Channel Islands

Monday 14 June 2010

Channel Islanders with second homes in France need to start thinking about their French Income Tax returns.

One French tax specialist is warning those people with property on the continent that failure to file the relevant returns by the June deadline can lead to penalties and assessment in arrears.

“The filing deadline for their 2009 French income tax return is fixed at 30 June 2010,’ said senior manager of PKF (Guernsey) Limited’s French Tax Service, Virginie Deflassieux.

“It is a legal requirement for anyone with a second home or homes in France, whether it is for rental purposes or not, to file tax forms every year before 30 June.

“The absence of any full-blown double tax treaty between France and the Channel Islands means that islanders are liable to pay French income tax in respect of their French property.”

Taxable income in France is calculated as three times the annual unfurnished rental value of the property, and the tax is due whether the property is rented out or not.

This is the result of Article 164C of the Code Général des Impôts. Notional income taxation applies only if the taxable basis is greater than any real French rental income received, which is generally the case.

The tax charge applies whether the property is owned directly or indirectly. It is possible to obtain an exemption from this but only if the following conditions are fulfilled:

a) The taxpayers are nationals of a double tax treaty partner country, and
b) They file the necessary information to prove that their personal income tax liability in Guernsey or Jersey is at least two thirds of what it would have been if they were registered as full-time French taxpayers.

“To establish their individual tax position, those people in this situation need to disclose all their worldwide sources of income and calculate the French income tax liability as if they were full-time residents of France.

“This can be a time-consuming exercise and taxpayers will not know whether it has been worthwhile until they have completed the whole process. This has to be done every year,” said Ms Deflassieux.

Whilst Guernsey and Jersey signed Tax Information Exchange Agreements with France last year, they are still not in force.

Unfortunately as these agreements are not full-blown double tax treaties they do not eliminate the effects of notional taxation but they will nevertheless extend the possible exemption claims to Guernsey and Jersey nationals.

PKF’s French Tax Service provides those making a permanent move to France, or purchasing a holiday home on the continent, with advice on all the main French taxes, estate planning and the preparation and submission of French income tax, wealth tax and certain company returns.

With many people choosing France as the destination for their second home, this specialist service has witnessed a significant increase in business recently.