If you live in France and have assets or family in the UK, cross-border financial planning can be complex. You need to understand the rules of both countries and how they interact to establish the best solutions for you and your family.
France remains a popular destination for UK nationals, for holidaymakers and those wanting to enjoy their retirement years abroad. There are many reasons to fall in love with France, but one advantage is its proximity to Britain, enabling many people to spend time in both countries. Others fully make France their home.
Whichever camp you fall in, this proximity doesn’t mean that maintaining interests in both countries is simple – France and the UK have different tax, succession and pension regimes, for example.
If you spend time in both countries, carefully follow the tax residence rules to establish where you must declare your worldwide income and assets and pay tax. Even if France is very much your home, you probably still have cross-border tax considerations, such as UK pensions, investments, property, not to mention heirs in the UK.
Ensure you understand all the rules, how they apply to your family, and what steps to take to establish the best outcome. Keep informed on reforms in both countries, as they may prompt you to revise your arrangements. For example, few long-term residents of France were concerned about UK inheritance tax, but it has now become a much bigger issue.
Cross-border tax planning for France and UK
Reassess your tax planning when moving to France, to ensure it remains effective. While a UK resident would employ different planning from a French resident, if you live in France and keep UK assets, you require a strategic solution to cover both jurisdictions.
Follow the France/UK double tax treaty to understand where cross-border income must be declared… it can be confusing. Let’s say, for example, you are tax resident in France and own and rent out a UK property. You and your spouse receive UK state pension, government service and private pension income.
UK rental income is taxable in the UK, not France, but must be included on your French income tax return (with credit for the French tax). You still benefit from the UK personal allowance and don’t pay French social charges on this income.
Government service pension income is also only taxed in the UK (but also included on your French return). In contrast, state and private pension income is not liable to UK tax; you pay income tax in France, plus social charges unless you hold Form S1.
Paying tax in the wrong place could prove costly and stressful, so take professional advice. A DIY approach, or even using a UK-based adviser not experienced with French taxation, could result in higher taxation than was necessary.
Ensure your tax planning is based around the French regime. What was tax-efficient in the UK may not be tax efficient in France, and may potentially even be detrimental. ISAs are taxable in France, and you would no longer benefit from the UK’s capital gains tax and dividend allowances on your UK investment portfolio.
Revising how you hold investment capital, using tax-efficient arrangements in France such as assurance-vie, could significantly reduce your tax liability (plus provide estate planning and investment benefits).
Cross-border estate planning
The UK levies ‘inheritance tax (IHT)’ and France ‘succession tax’, but only succession tax will apply to your estate if you are resident (and so deemed domiciled) in France. Except, that is, for assets in the UK, which are subject to both taxes (your heirs won’t pay tax twice but will pay the higher amount of French and UK taxes).
Previously, pensions were not included as part of your estate for UK inheritance tax, but this exemption is scheduled to end soon, pushing many more British expatriates into the IHT net. Additionally, the nil-rate bands are frozen until 2030. With asset values rising, the £325,000 threshold doesn’t provide nearly as much protection as it used to.
The UK allows you to choose who to leave your assets to; France imposes ‘forced heirship’ rules. The European Succession Regulation, Brussels IV, enables you to opt for the succession law of your country of nationality to apply instead of France’s. But is this the right decision for your family? Your children could still make claim against the assets located in France. Also, electing for UK laws could call your French domicile into question, potentially exposing your worldwide estate to UK inheritance tax.
Pensions
Although UK pension income may be liable to French rather than UK tax, other UK rules and charges still apply.
For UK pensions, the maximum Pension Commencement Lump Sum entitlement is £268,275. This is paid tax-free in the UK, but anything above this maximum would be taxed as income. Furthermore, on your death your beneficiaries could pay income tax on lump sums over £1,073,100 (or lower if lump sums previously taken), or, if you die after age 75, the whole fund would be taxable. If your beneficiaries live in France or elsewhere outside the UK, they may be able to reclaim this through the relevant Double Taxation Agreement. Additionally, UK pension funds will be subject to UK inheritance tax from 2027.
Transferring UK pensions into a Qualifying Recognised Overseas Pensions Scheme (QROPS) now incurs the 25% Overseas Transfer Charge (unless you are resident in the same EU/EEA country as the QROPS and there are no QROPS in France).
Explore the pension options available to you as a French resident and spend time doing tax calculations and considering the pros and cons of each one. While the 25% overseas transfer charge may seem prohibitive, weigh this against how much UK tax your beneficiaries could pay. Or an alternative to QROPS may be to take your fund as cash and re-invest in a tax-efficient arrangement in France.
While reducing tax liabilities is a strong incentive, ensure that your decision is suitable for your circumstances and objectives and does not risk your retirement savings. Professional cross-border advice, from a firm regulated to give advice on UK pensions in France, is important here.
Investments and advice
Consider if your UK investment portfolio is still suitable for your circumstances and objectives today as a French resident.
If you have a good relationship with your UK-based investment adviser, you may wish to continue using them. Since Brexit however, most UK-based advisers are not regulated to provide financial advice to residents of France. In any case, few have in-depth and current knowledge of French tax and succession regulations, and you could miss out on tax-efficient investment structures in France.
Cross-border financial planning
Cross-border wealth management can be a minefield, tread carefully. Blevins Franks advisers know their way around the tricky landscape and will help you avoid pitfalls and take advantage of the opportunities France has to offer.
Overall, you want to aim to get the best of both worlds while avoiding the worst of both worlds – contact Blevins Franks today.
