If you’re a British expatriate living in France with a UK pension, recent and forthcoming changes could affect both your retirement planning and the wealth you pass on to your family. Understanding the interaction between UK pension rules, inheritance tax and French taxation has never been more important.
For many British expatriates in France, a UK pension is one of their largest assets. Most attention naturally goes towards investment performance and retirement income, but other questions deserve as much thought:
- How will your pension be taxed in the years ahead?
- How do UK and French rules interact?
- What happens to your pension when it eventually passes to your family?
These questions have become more important as pension legislation continues to evolve. While no one can predict exactly what future governments may do, recent changes have reminded us that pension rules are never set in stone. If you have significant pension savings in the UK, now is the time to review where you stand.
Pension rules keep moving
The UK pension landscape looks very different from the one many retirees originally planned around.
The introduction of pension freedoms in 2015 gave people far greater control over how and when they access defined contribution pensions. However, like any tax or pension benefit, the rules are not guaranteed to remain unchanged indefinitely.
More recently, the lifetime allowance was abolished then replaced by similar allowances and tax charges, and transfers to most QROPS are now subject to the Overseas Transfer Charge.
The direction of travel is clear. Pension funds represent a substantial source of private wealth, making them an ongoing focus for governments looking to balance public finances. Keep reviewing your arrangements rather than assuming yesterday’s planning will remain suitable tomorrow.
April 2027 and the next major change
One development in particular deserves considerable attention.
From April 2027, defined contribution pensions will be brought within the scope of UK inheritance tax. Historically, pensions were seen as an efficient way to pass wealth to future generations, with funds remaining outside your taxable estate. That advantage is about to disappear.
If you have built up substantial UK pension funds, the implications could be significant. Many long-term British expatriates are surprised to learn that this impacts them too. Although you may have left Britain years ago, UK assets are always assessed for UK inheritance tax – the UK/France double tax treaty doesn’t protect you here.
The precise outcome will depend on your personal circumstances, as well as how UK and French tax provisions interact. This is one area where assumptions can prove costly.
What your family could face
Inheritance tax may not be the only consideration.
If your pension passes to children or grandchildren who are UK residents, they may also face income tax when benefits are withdrawn. The tax treatment depends on several factors, including your age at death and how beneficiaries choose to access the funds.
If you die after age 75, withdrawals are generally taxed as the beneficiary’s income. For higher-rate taxpayers, the liability can be substantial. The combined effect of inheritance tax and income tax can dramatically reduce the amount your heirs ultimately receive, with the potential overall tax burden reaching up to 67%.
Many couples focus on ensuring that assets pass smoothly to a surviving spouse, but effective estate planning should also consider what happens further down the family line. Looking ahead to the position of children and grandchildren can make a considerable difference to the outcome.
Opportunities for French residents
Although the UK changes have attracted headlines, living in France can also create opportunities that are not available to UK residents.
Expatriates widely used Qualifying Recognised Overseas Pension Schemes (QROPS) before the UK introduced its 25% charge. But QROPS was not the only way to move pension savings out of the UK and into more flexible arrangements.
The France-UK double taxation treaty means pension benefits can be taxed differently once you become tax resident in France. In some circumstances, pension lump sums may qualify for favourable tax treatment, potentially resulting in a significantly lower tax rate than many people expect. For some retirees, this can open up planning opportunities that help simplify their affairs, improve tax efficiency or support wider estate-planning objectives.
That does not mean everyone should take immediate action. The right approach depends on a range of factors, including your pension value, income needs, age and long-term family objectives. Get in touch with our cross-border specialists for personalised, detailed advice.
Bigger pensions need closer attention
If you have accumulated substantial pension savings, the decisions become even more important.
A common assumption is that consolidating multiple pensions into a single arrangement is always beneficial. While this can certainly reduce administration and make retirement planning easier to manage, it is not automatically the best solution for everyone living in France.
France imposes additional tax surcharges on households with higher income, with recent measures increasing the minimum level of taxation. Bear this in mind if taking a pension as a lump sum is an option for you. In certain situations, maintaining flexibility through separate pension arrangements can make financial sense. It may offer greater control over encashments and help manage your tax position more effectively over time.
The best solution depends on the wider picture: your other sources of income, investment assets, spending needs and the legacy you hope to leave your family.
A good time for a review
Whether you retired to France years ago, are planning a move, or simply haven’t reviewed your arrangements recently, this is a sensible time to revisit your pension strategy. The rules around UK pensions continue to evolve, and French tax legislation changes frequently as well. What was appropriate five or ten years ago may no longer be the most effective approach today.
The encouraging news is that planning opportunities often exist, particularly when UK pensions, French taxation and estate planning are considered together rather than in isolation.
Every situation is different, but one thing is increasingly clear: leaving arrangements untouched is a decision in itself. Taking advice from a properly regulated adviser who understands both UK pensions and the French tax environment will help you make informed choices, avoid unpleasant surprises and ensure your wealth continues to support both your lifestyle and the people who matter most to you.
Blevins Franks has been advising British expatriates for 50 years. As a leading cross-border wealth management company, we are regulated to provide specialist advice in the UK and France. We have advisers living locally across France, as well as teams of pension and tax specialists based in our head offices. Working together, we offer integrated solutions covering pensions, taxation, estate planning and investment, which are tailor made for each client. We are perfectly positioned to help you select the best options and make the most of your retirement in France while planning ahead for a smooth, tax efficient transfer of wealth to your heirs.
Contact us today.
