This column is by Rob Kay, regional director at Blevins Franks financial advice group (blevinsfranks.com). Rob has decades of experience advising UK nationals in France and features regularly in the media discussing the issues affecting expatriates here.
Are you fulfilling a dream of enjoying your retirement years in France?
Whether you are at the planning stages and looking forward to the day you can finally move, or have recently arrived and are familiarising yourself with life in France, there are various financial planning points to work through.
Your financial journey starts with researching the move, and while it continues throughout your life in France, you can take many of the steps early on. A
fter that you will no longer need to worry about your financial and estate planning, other than some regular maintenance.
Read more: You must declare for tax in France even if nothing to pay
1) Understand the tax implications
Once you are a tax resident in France, you become liable to French tax on your worldwide income, gains and real estate wealth.
You are considered a tax resident if your main residence/home is in France, you spend more than 183 days here a year (it is your principal place of abode), your principal activity is in France, or it is the country of your most substantial assets.
France uses the split-year approach; you become resident from the day you arrive if you intend to live here indefinitely.
If you live in France and earn income in another country, a double taxation treaty, such as exists between France and the UK, can determine where you pay tax.
2) Timing your move to save tax
The French tax year runs from January to December. Other countries may have a different system – the UK’s, for example, is from April to April, with different capital gains tax rules and rates.
In this case it is worth weighing up whether it is more tax efficient to sell your UK assets while still a UK resident, or wait until you are resident in France, then time your move accordingly.
3) Structure your assets to minimise French taxes
A potentially costly mistake is assuming that what was tax-efficient in your native country is the same in France. Tax regimes differ and existing tax planning arrangements are unlikely to provide the same benefits here (ISAs, for example, are fully taxable in France).
While the headline rates of tax can look high, the tax regime presents attractive tax mitigation opportunities. How you hold your assets can make a significant difference to your tax liabilities.
4) Research how pensions are taxed in France
For residents of France, UK state pensions, occupational and personal pensions, and annuities are taxable in France, not the UK. Government service pension income remains liable to UK tax and is not directly taxable in France (you still include it with your taxable income but receive a tax credit).
Pension lump sums are taxable in France, normally at the scale rates of income tax plus 9.1% social charges if applicable.
However, if you take your whole pension fund at once and the pension contributions were made into a contributory scheme, you may be eligible for a special 7.5% rate (excluding social charges).
You do not pay social charges on pension income if you are not subject to the French healthcare system and/or have Form S1.
5) The QROPS option
It may be possible to transfer certain UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS).
These can provide flexibility to take income in euros, more freedom to pass benefits to chosen heirs, and protection from future adverse UK pension reforms.
UK pension rules frequently change so you need to keep up to date. In any case, always take regulated advice before making pension decisions to protect your benefits.
Read more: 'France does not recognise QROPS as a pension - beware 60% tax'
6) Reviewing your savings and investments
Once you are retired and living in France, your circumstances and objectives completely change from your working days in your native country.
This is the perfect time for a completely fresh review of your savings and investments.
Ensure your overall portfolio is suitable for you today, designed to meet your aims and current risk appetite, and has adequate diversification to reduce risk.
Another important element is currency – keeping savings in Sterling, for example, puts you at the mercy of conversion costs and negative exchange rate movements. It may be sensible to have a mix, so look for investment structures that allow flexibility.
And of course, you may want to move your investments into tax-efficient arrangements for France to improve your real returns.
It is not advisable to make investment decisions without taking the tax implications and opportunities into account.
7) Do not forget estate planning
French inheritance tax is assessed on each beneficiary, with large disparities between rates and allowances for different levels of kinship.
Couples who are not married/in a civil partnership and/or with children from previous relationships need to be particularly careful.
Be aware too that France also imposes forced heirship. You can plan to get round this but there are limitations for your French assets.
It is essential to review and adjust your succession planning to be effective and achieve your wishes under the French system.
Read more: What notaire fees are due on an inheritance in France?
8) Returning to the UK?
There may come a point in your retirement journey when you move back to your native country.
Early planning helps make your move as seamless and tax efficient as possible. Allow enough time to reorganise your financial affairs in advance.
With your tax and estate planning structured around being a French resident, these need to be modified accordingly when you leave.
If you transferred UK pensions into a QROPS or made pension decisions based on French taxation, for example, you need to establish the best way forward.
9) A helping hand
Cross-border wealth management is complex, with all the various elements potentially having an impact on the others.
For example, how you own assets can have repercussions on what tax you pay and your estate planning options. S
peak to a specialist adviser who can provide a strategic financial plan for your whole journey, from your planning stages through to your retirement years in France and even a potential return home in future.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our, Blevins Franks, understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
