France’s tax may appear comparable to UK tax, and a little less kind on your finances than other parts of Europe, but with proper financial planning, France can be a very tax-efficient place to live.
When you research French taxation online the facts and figures you find are not very encouraging at first glance. France comes across as being a high-tax country, which can discourage some people from moving here. But if you look deeper into the system and establish what compliant tax planning arrangements are available, you may be pleasantly surprised.
As always with tax, the devil is in the details, and your personal circumstances and objectives play a large part too. In many cases, it is possible to legitimately re-engineer your financial arrangements to make France your very own tax haven, especially if you are retired.
How does French income tax compare to the UK?
If you look purely at income tax rates there is little difference.
In the UK, every individual benefits from a personal allowance which enables them to earn £12,570 before they start paying tax. After that tax is applied at 20%, before rising to 40% and then 45%.
In France, the first €10,777 of income is taxed at 0%, which broadly achieves the same result as having a personal allowance. France also uses progressive rates, starting at 11% and rising to 45%.
While the two systems appear similar, this is before you consider the French parts familiales system. In France, income tax is calculated on a household basis, very different from the UK’s individual basis. The household’s income is added together, then that figure is divided by the number of parts (people in the household) and the income tax liability is calculated using that amount.
This levels out the household’s income. For example, for a family of five with one breadwinner earning €60,000, the effective tax rate would be calculated based on an annual income of €15,000. The highest rate they pay is 11% (whereas in the UK it would hit 40%).
We can’t overlook the fact that France additionally applies social charges to income, in this case 9.7%. The parts system for income tax, however, helps compensate for this, and in this example, the family pays less tax overall in France than in the UK.
Is France an attractive place to retire to, from a fiscal point of view?
Being such a financially attractive place to live is probably one of the biggest surprises most people, especially Britons, discover when they research if it is viable for them to retire to France.
Couples, where one partner has built up a substantial source of pension income while the other just has a small pension (for example, after dedicating years to bringing up the children), can find that the parts system is very beneficial.
For example, a couple we met recently were weighing up whether to move to France. Their joint retirement income was £84,000, a combination of company pensions, a couple of annuities, and two state pensions. The bulk of the income was paid to the gentleman; his wife was receiving pension income of just £8,000. In the UK, £25,000 of the husband’s £76,000 is being taxed at 40%. That part of their tax bill alone amounts to over £10,000 a year.
In France, using the parts system, the 10% pension abatement, and the beneficial tax treatment of annuities, their overall household income tax liability will be less than £3,000 a year. Tax-wise, they are better off enjoying their retirement years in France.
For information on visas and more, read our article on retiring to France after Brexit.
Can British retirees still apply for an S1?
Form S1 is alive and well and one of the most valuable things every British expatriate needs to consider. Don’t underestimate the benefit of an S1 or the fact that even following Brexit the UK is still in the European S1 system.
For a start, having a UK Form S1 in France means you do not need to buy costly medical insurance or pay into the French PUMA healthcare system. Without an S1 you could be contributing 6.5% of your taxable income to PUMA to cover any healthcare costs. If you have an S1, the UK will pick up those costs because if you still lived in the UK, you would be entitled to free healthcare thanks to the national insurance contributions you paid during your working life.
The other major advantage of having an S1 is the exemption you are granted which suppresses French social charges. It completely exempts you from paying the 9.1% pension social charge, and the rate for investment income drops from 17.2% to just 7.5%.
Form S1 could save you quite a bit of tax each year – another plus for spending your retirement in France.
From a tax perspective, is better to die in the UK or France?
There is no one answer here. It depends on who your beneficiaries are and what estate planning you set up in advance.
Without appropriate arrangements in place, such as holding investment assets in an assurance-vie in France, your nearest and dearest could quite easily pay more tax than they need to.
In the UK, once your estate exceeds the inheritance tax threshold, whoever benefits from your estate will find that their inheritance is hit by a flat 40% tax charge. In France it is the beneficiaries who each pay succession tax, not the estate, and the tax rate varies according to the relationship between the deceased and beneficiary and how much they inherit. If the recipient is not of your bloodline they will pay 60% tax on what they inherit – and this includes unmarried partners and stepchildren.
Children on the other hand receive €100,000 tax-free as standard. With appropriate planning, this could increase to €252,500. This is from each parent to each child. So even larger estates could potentially pass to your children tax-free, depending on what your assets are, the value and number of children, and if you have suitable arrangements in place.
Take specialist and highly personalised advice with Blevins Franks to establish exactly how the French tax system affects your family, and what compliant tax planning opportunities will suit your circumstances and objectives. If you haven’t left the UK yet, we can help before you do, so that you don’t miss out on any opportunities to lower taxes in both countries.
Contact Blevins Franks today.