This column is by Rob Kay, a senior partner 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.
You have come to the end of your working life and chosen to make the most of your retirement years by spending them in France. You’ve left the UK, but what about your savings and pensions? Have you left them behind or moved them out too?
Much depends on your plans and type of pension, but if you intend to live in France indefinitely, does it make sense to leave such a valuable asset as a pension fund behind, exposed to UK taxes and future negative reforms? Or is it time to find a new tax-efficient home for your retirement savings, one that provides advantages for French residents?
Read more: Stay up-to-date: 20 recent and upcoming changes in France
UK fund or French assurance-vie?
Income from UK private pension funds and Qualifying Recognised Overseas Pensions Schemes (QROPS) are taxed at the scale rates of income tax in France plus 9.1% social charges, though Form S1 holders are exempt from the latter.
If you take the alternative route of reinvesting pension funds into an assurance-vie, you could benefit from tax advantages in France.
You also need to consider what happens on death, as here there could be double taxation. When your family inherits your UK pension, in many cases they’ll pay UK income tax on the receipt as well as French succession tax.
Spouses are exempt from succession tax and children receive an allowance, but distant and non-relatives (including stepchildren) could find most of their inheritance goes to the taxman.
UK pensions are notoriously complicated and the frequent changes make them a minefield – just look at the latest allowances the government introduced. Specialist, UK-regulated pensions advice is essential to protect your pensions but, once you’ve left the UK, where do you get that from?
UK financial advisers and pension companies lost their ‘passporting’ rights with Brexit, so your UK pensions broker or company is no longer able to advise you as a resident of France. If they do, you may not be covered by the professional indemnity (PI) insurance. There are few financial advisory companies that can provide regulated advice in both the UK and France.
End of the Lifetime allowance charge
For those with larger pensions, the past two years have seen significant changes. From April 2023, the lifetime allowance (LTA) charge was reduced to 0%, then fully abolished this April. But now three new allowances have come into effect, impacting pension funds over the old LTA limit of £1,073,100 (unless you have lifetime allowance protection in place).
The Lump Sum Allowance (LSA) limits how much tax-free cash you can take from your pension arrangements, while the Lump Sum and Death Benefit Allowance (LSDBA) impacts your beneficiaries.
For residents of France, the Overseas Transfer Allowance (OTA) imposes a 25% charge when UK registered pension funds exceeding your available OTA (maximum £1,073,100, higher if you have pension protections) are transferred out of the UK (like the old LTA).
If your pension funds don’t yet breach this limit but investment growth could push you over, consider your options now.
One feature of the LTA replacement law is that, for the next two years, HM Revenue & Customs can quickly amend the legislation without going through parliament. It has already amended aspects of the law affecting overseas transfers, but overcorrected in the process and will now rectify the situation again.
A change of government following the general election would likely lead to more reforms. The Labour Party has said it would bring back the old lifetime allowance… and could the limit be reduced if they do?
There is £3trillion sitting in UK private pensions, making it a target for any government needing to raise funds to fulfil election promises, and non-residents seem an obvious demographic to focus on.
Private pensions enjoyed tax relief while accumulating and tax-free growth, so why let those monies leave the UK tax-free? We already have the Overseas Transfer Charge for non-EU QROPS transfers (unless covered by an exclusion) and now the Overseas Transfer Allowance.
Will they look at pension income next? They could, for example, remove the personal allowance for non-residents.
Read more: French tax is not levied, must we pay social charges on UK pensions?
QROPS
Why leave your pension in the UK with all this uncertainty? It’s worth exploring your options to establish if your pension funds can be transferred out of the UK, and whether this actually suits your circumstances and objectives. Many British expatriates find that moving their UK pension to a QROPS proves beneficial.
Registered QROPS must meet HMRC rules to receive transfers from UK-registered pension funds, which adds a layer of protection. The benefits of moving your pension into an EU-based QROPS include:
Shelter from further UK taxes (if you breach the overseas transfer allowance you may have to pay tax at that point)
Protection from future UK regulation changes
Flexible access
More investment choice and diversification
Multi-currency options – protect your income from adverse exchange rates
Estate planning flexibility.
Assurance-vie option
Another option for moving pension capital out of the UK is assurance-vie, if you can cash in your pension (potentially with just 7.5% French tax on the lump sum in some circumstances).
This specialised form of life assurance allows you to hold a wide range of investment assets and is highly tax-efficient in France. It can also offer estate planning benefits and succession tax savings for your heirs.
There are various assurance-vie policies available, based in different countries, and the tax benefits vary, so do careful research first.
Pensions and tax planning advice
It’s possible neither QROPS nor assurance-vie is suitable for you – some people are better advised to leave their pension in the UK. Take account of your circumstances, other assets, risk tolerance and objectives, and weigh up the pros and cons of all your options to establish the most suitable for you.
Specialist, personalised advice is key here, from a regulated firm providing integrated advice covering pensions, the underlying investments, both UK and French taxation and estate planning. You have worked hard to build up your pension; now find the best solution to protect and maximise it.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
