Delaying registering for healthcare in France could save tax on your pension

French tax on pension lump sums can be very low in certain circumstances. If you can avoid social charges it will be even lower.

If you are planning to take your pension as cash, avoiding social charges could make a considerable saving.

One of the key concerns for expatriates arriving in a new country is healthcare. While we hope we will not need to use it anytime soon, we need the peace of mind of knowing that we, and our families, have access to healthcare and are covered financially for it. For many British expatriates, therefore, registering with the French system is high on their priority list.

Be aware, though, that you should consider the options for your pension fund before you register for healthcare.

If you are thinking of taking your UK pension as a lump sum, having access to French healthcare could cost you 7.4% (9.1% next year) of your pension in social charges. You may be better off waiting until you have transferred your pension, and taking out private medical insurance in the meantime.

How UK pensions are taxed in France

With the exception of government service pensions, if you are resident in France your pension income is taxable solely in France at the income tax scale rates of up to 45%.

Where it becomes more interesting is the taxation of pension lump sums. Unlike the UK, where you can take up a quarter of your pension as a lump sum tax free, they are fully taxable in France (with exceptions for sums taken because of an ‘accident of life’).

In general, lump sums received from a UK registered pension are taxable as pension income if received while French tax resident. However, you may be able to avoid the scale rates and instead benefit from a fixed rate of just 7.5%.

This special 7.5% tax rate for lump sums is available if:

1. the pension contributions were deductible from your or your employer’s taxable income; and
2. the whole pension fund is taken at once or, if after having taken a capital (lump) sum there is no further possibility to take other capital sum from the same fund

Social charges on pension income and lump sums

As with all income in France, social charges are payable on top of income tax. The rate for pension income is 7.4%, increasing to 9.1% next year under the proposals outlined in the 2018 budget.

However, you do not have to pay social charges on pension income or lump sums, if

1. You hold EU Form S1, and/or
2. You do not have access to the French healthcare system

Therefore, if you are thinking of taking a lump sum from your pension, it may be sensible to delay joining the French healthcare system if this results in a significant savings on social charges – particularly if you are taking your whole pension at once.

In this case you should take out private medical insurance until you have received the pension funds.

While taking your whole pension as cash is now an option, it needs careful consideration and specialist advice to make sure it is the right move for you. It is a particularly attractive option in France though, because of the potential low tax rate and the opportunity to invest the funds in an assurance-vie policy which offers many tax and estate planning advantages.

Read more about pensions and France

Deciding what to do with your pension could be one of the most important financial decisions you make. Blevins Franks offers specialist, personalised pensions advice to help you find the most suitable course of action for your individual circumstances and objectives. We have pension experts, tax experts and investment experts working together with your local adviser in France to create the most effective strategy and outcome for you. Please do not hesitate to contact us to discuss your situation and options.

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 is advised to seek personalised advice.