Taxation of NS&I Premium Bond winnings
Posted: Thu Jun 27, 2024 4:09 pm
There are usually queries at French tax form filling time about the declaration of premium bond winnings. Although most agreed they were just taxed in France as another form of interest, there were some doubters. A few months ago, I decided to get a definitive ruling and contacted my local tax office. As I understand the subsequent correspondence, they discussed it with the Ministry of Economics and Finance situated in Bercy.
In summary, the conclusion is
Income received from prizes won by drawing lots for premium bonds invested in the UK is only taxable in France.
As the UK exempts income from the premium bond lottery, there is no double taxation.
The prizes are treated as "other income" relating to bond income, and taxed as interest.
This is a full DeepleTrans of the reply:
You would like to know whether the winnings from the monthly lottery organized for holders of British Premium Bonds should be considered as lottery prizes or as interest, and whether they are taxable in France for French residents.
Your request brings into play the provisions of articles 118, 119 and 120 of the French General Tax Code (CGI), the Bulletin officiel des finances publiques-impôts, extracts referenced BOI-RPPM-RCM-10-10-19/06/2023 and the Convention between France and the United Kingdom for the avoidance of double taxation and the prevention of fiscal evasion and avoidance with respect to taxes on income and capital gains signed on June 19, 2008.
I. Applicable provisions of domestic law
Subject to international tax treaties, article 4 A of the French General Tax Code (CGI) provides that persons whose tax domicile is in France are liable to income tax on all their income.
Article 120 of the CGI stipulates that redemption premiums and lots paid to holders of bonds issued by public or private entities located abroad are subject to income tax when received by a person liable for such tax.
This income is classified as interest income. It must be declared in 2 TRs on the 2042 tax return.
In addition, in the case of foreign-source income received by a person domiciled in France for tax purposes, it is necessary to examine the tax treaty between France and the country in which the income is received in order to determine :
- whether the income is taxable or exempt in France,
- if the income is taxable in France and in the source country, the mechanism for eliminating double taxation must be carried out in the individual's country of residence.
The treaties provide for two types of arrangements to avoid double taxation:
- exemption: France exempts income taxable in the other state, but takes it into account when setting the applicable rate for taxing income taxable in France (effective rate);
- imputation: France taxes all income, but grants a tax credit, the amount of which varies according to the nature of the income, equal to
- the tax paid in the source country (up to the limit of the corresponding French tax) ;
- or the tax paid in France.
The procedures for eliminating double taxation laid down in tax treaties apply under the conditions of ordinary law, when double taxation is involved, i.e. when the same person is taxed on the same income by more than one state.
In this case, where France is the state of residence, the tax paid abroad is deductible up to the limit of the tax due in France, as stipulated in the bilateral agreement. It is the taxpayer's responsibility to provide proof of actual payment of the foreign tax.
II. Treaty law
In accordance with § 1 and 2 of article 12 "Interest" of the treaty, interest arising in a contracting state (the United Kingdom) and whose beneficial owner is a resident of the other contracting state (France) is taxable only in that other state (France). The term "interest" used in this article refers to income from debt-claims of any kind, whether or not secured by mortgage or whether or not carrying a right to participate in the debtor's profits, and in particular to income from government securities and bonds.
III. Application to the case in point
You are a French tax resident living at ………….... You are therefore subject to unlimited tax liability on all your income from French and foreign sources.
Income received from prizes won by drawing lots for premium bonds invested in the UK is only taxable in France.
As the UK exempts income from the premium bond lottery, there is no double taxation.
The prizes are treated as "other income" relating to bond income, and taxed as interest.
In summary, the conclusion is
Income received from prizes won by drawing lots for premium bonds invested in the UK is only taxable in France.
As the UK exempts income from the premium bond lottery, there is no double taxation.
The prizes are treated as "other income" relating to bond income, and taxed as interest.
This is a full DeepleTrans of the reply:
You would like to know whether the winnings from the monthly lottery organized for holders of British Premium Bonds should be considered as lottery prizes or as interest, and whether they are taxable in France for French residents.
Your request brings into play the provisions of articles 118, 119 and 120 of the French General Tax Code (CGI), the Bulletin officiel des finances publiques-impôts, extracts referenced BOI-RPPM-RCM-10-10-19/06/2023 and the Convention between France and the United Kingdom for the avoidance of double taxation and the prevention of fiscal evasion and avoidance with respect to taxes on income and capital gains signed on June 19, 2008.
I. Applicable provisions of domestic law
Subject to international tax treaties, article 4 A of the French General Tax Code (CGI) provides that persons whose tax domicile is in France are liable to income tax on all their income.
Article 120 of the CGI stipulates that redemption premiums and lots paid to holders of bonds issued by public or private entities located abroad are subject to income tax when received by a person liable for such tax.
This income is classified as interest income. It must be declared in 2 TRs on the 2042 tax return.
In addition, in the case of foreign-source income received by a person domiciled in France for tax purposes, it is necessary to examine the tax treaty between France and the country in which the income is received in order to determine :
- whether the income is taxable or exempt in France,
- if the income is taxable in France and in the source country, the mechanism for eliminating double taxation must be carried out in the individual's country of residence.
The treaties provide for two types of arrangements to avoid double taxation:
- exemption: France exempts income taxable in the other state, but takes it into account when setting the applicable rate for taxing income taxable in France (effective rate);
- imputation: France taxes all income, but grants a tax credit, the amount of which varies according to the nature of the income, equal to
- the tax paid in the source country (up to the limit of the corresponding French tax) ;
- or the tax paid in France.
The procedures for eliminating double taxation laid down in tax treaties apply under the conditions of ordinary law, when double taxation is involved, i.e. when the same person is taxed on the same income by more than one state.
In this case, where France is the state of residence, the tax paid abroad is deductible up to the limit of the tax due in France, as stipulated in the bilateral agreement. It is the taxpayer's responsibility to provide proof of actual payment of the foreign tax.
II. Treaty law
In accordance with § 1 and 2 of article 12 "Interest" of the treaty, interest arising in a contracting state (the United Kingdom) and whose beneficial owner is a resident of the other contracting state (France) is taxable only in that other state (France). The term "interest" used in this article refers to income from debt-claims of any kind, whether or not secured by mortgage or whether or not carrying a right to participate in the debtor's profits, and in particular to income from government securities and bonds.
III. Application to the case in point
You are a French tax resident living at ………….... You are therefore subject to unlimited tax liability on all your income from French and foreign sources.
Income received from prizes won by drawing lots for premium bonds invested in the UK is only taxable in France.
As the UK exempts income from the premium bond lottery, there is no double taxation.
The prizes are treated as "other income" relating to bond income, and taxed as interest.
