Brexit impact on owning a UK property
I am British and live in France and am considering investing in property in the UK. One favourable element is that, based on the existing UK France tax treaty, UK rental income is taxed in the UK (including a UK tax free allowance) rather than in France. I understand that the UK France double tax treaty is outside of the Europe and Brexit scope. However I was wondering based on recent events, if you thought there is an increased risk of losing this benefit at some point in the future? A.C.
You are correct in that article 6 of the double tax treaty states that the rental income is taxable in the UK, however article 23 also applies. This article enables the French to take the UK rental income into account so as to push up the tax rate that will be applied on the income that the French can tax.
Here is an example:
If you have French taxable income of, say, €26,818 (excluding any 10% abatement that may be applied, for simplicity), €9,710 of your income will be taxed at 0%, and the balance of €17,108 will be taxed at 14%.
If you then add into this UK rental income of €10,000, while it is true that in the UK this will not be taxable since it will fall under the personal tax allowance, the French will take it into account to compute the French tax. As a result, total tax due (after deduction of a tax credit for the UK income) will be €3,930 as opposed to €2,395 without the UK income.
You might think it is unfair but in fact it is correct, since this measure removes the advantage that you would otherwise have had of benefiting from two sets of personal allowances and two sets of tax bands and rates.
As such, therefore, it is not really an advantage, and since the double tax conventions are outside of the scope of the EU, the measure as stated above will remain after Brexit.
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