In today’s world your financial planning needs constant attention. Financial rules and regimes change frequently. If you do not keep on top of the changes you could miss out on opportunities, or be adversely affected. It is also vital to look ahead and anticipate changes, to ensure you are ahead of the game.
In today’s world your financial planning needs constant attention. Financial rules and regimes change frequently. If you do not keep on top of the changes you could miss out on opportunities, or be adversely affected. It is also vital to look ahead and anticipate changes, to ensure you are ahead of the game.
Whether we are talking tax planning, succession planning, investments etc, it is important to review your assets and strategies from time to time. You need to keep up to date with the many changes in French and UK legislation to enable you to take whatever action is required to protect yourself from unnecessary taxation.
French tax reforms – impact so far and looking ahead
Some changes are small amendments to tax rates; others are major reforms affecting how your income and wealth is taxed. You surely do not want to end up paying more tax than absolutely necessary.
France is notorious for imposing a high tax burden on its residents, more so over recent years. At the time of writing we do not yet know what tax reforms the government will seek to introduce in the 2015 budget, but we can certainly expect some changes – watch this space!
In the meantime, the supplementary finance law for 2014 reduces income tax for lower earners. This has been adopted by parliament and validated by the supreme court, and comes into force in September. Individuals with taxable income under €14,145 will pay up to €350 less tax for 2013 income. This is an “exceptionnelle” reduction, though there is a proposal to make it permanent.
In early July the Prime Minister and President mentioned doing “something” for middle earners, but we have yet to see if anything concrete is announced. In any case, I would expect higher earners to continue to suffer a particularly high tax burden, for the foreseeable future.
Note that interest, dividends and capital gains on the sale of shares are now added to general income and taxed at your marginal income tax rate. The old fixed rates are no longer available. This change pushed many people into higher income tax brackets, resulting in even higher tax liabilities.
This was a significant change to how savings and investments are taxed. However, many people are only now realising the impact. It is possible to utilise alternative, much more tax efficient, methods of holding your investment capital to protect against these tax increases.
April 2015 – UK capital gains tax
From April 2015, UK residential property sold by non-residents will become liable to UK capital gains tax. This will apply regardless of how much time you live outside the UK.
Under the proposals, the tax would apply in the same way it does to UK residents. Any gain will be added to your other UK source income for the year and taxed at 18% and 28%. You will also pay French tax on the gain, though you will get a tax credit for the tax paid in the UK.
There is a clear short-term window of opportunity to review your assets and their tax efficiency. Remember, as a French resident you need to consider tax in both the UK and France and the interaction upon each other.
April 2015 – UK pensions
Another important change, due to come into effect with the start of the new UK tax year, is to UK pensions – to defined contribution schemes to be precise.
We have already seen one change this year, which gives some pension holders more flexibility on how much they can withdraw from their fund, when the minimum income requirement for flexible drawdown reduced from £20,000 to £12,000.
If the government’s proposed changes go ahead, everyone will have the option to withdraw as much of their funds as a lump sum as they wish, even all of it. In the UK, this would be taxed at their marginal income tax rates (instead of the current 55%).
In France, lump sums from UK pensions are taxed at 7.5%, and where an entire pension fund is withdrawn under flexible drawdown, it is likely to be taxed in the same way. This relatively low tax rate presents attractive opportunities for French residents.
August 2015 – New EU regulations and the effect on French succession law
France’s strict Napoleonic succession code often severely restricts to whom you can leave your assets when you die. Children are ‘protected’ heirs, and favoured over spouses.
From 17th August 2015, new EU regulation 650/2012, known as ‘Brussels IV’, will allow expatriates to opt for the succession law of their country of nationality to apply on their death. Although the UK, Ireland and Denmark opted out, it still applies to UK nationals resident in France.
British nationals living here will be able to elect, through a statement in their will, for the UK succession laws to apply, where you are generally free to distribute your estate as you wish (Scotland and Northern Ireland law does have some restrictions).
Note that this only applies to succession law, not to succession tax. You cannot opt for UK inheritance tax instead of French succession law. So although you are now able to easily leave assets to distant and non-relatives, they will be faced with tax of up to 60%. You need to consider the tax position and seek advice on how to reduce the liability for your family and other beneficiaries.
Whether we are looking at succession issues, tax planning, pensions or investments, it is important to use solutions precisely tailored to your needs. The arrangements and strategies you use must be based on your family’s personal circumstances and short and long-term aspirations. This is the time for you to seek advice if you wish to obtain the results you seek from your assets.
17 July 2014
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.
