You should review your wealth management at least annually to consider if you need to make any adjustments. There are too many changes in France and internationally for regular reviews to be ignored. Two significant changes affecting British retirees in France this year are the new EU succession regulation and UK pension reforms.
It is essential to conduct a thorough review of your wealth management arrangements when you live in France, whether you have been living here for years or simply planning now to relocate. Your tax and estate planning must be structured around the French regime and the opportunities this presents for your investment and pension arrangements.
You then need to review your wealth management at least annually and consider if you need to make any adjustments. There are simply too many changes in France and internationally for regular reviews to be ignored.
Let’s look at two significant changes affecting British retirees in France this year.
New succession regulation
On 17th August, the new European Succession Regulation came into force. While at first glance this appears a positive reform, it may have unexpected and costly consequences for UK nationals.
“Brussels IV” standardises the law of succession across the EU. It is designed to simplify cross border inheritances where currently multiple succession laws come into play.
The default position is that the law of the state in which the deceased was “habitually resident” at death applies to succession of assets located across the Brussels IV zone.
However, an individual can elect to apply the law of their nationality to all their assets across the zone. This must be made before death, through a statement in their will or similar document.
There are major differences between UK and French succession law. In France children are protected heirs, inheriting up to 75% of the parent’s estate, even in preference to the spouse who is generally not protected. There are ways of circumventing these laws, but it is complex and care must be taken to ensure they have the effect you are looking for.
Now, under Brussels IV, UK nationals can potentially choose to avoid these restrictions by opting for UK law instead.
However, it is not nearly as simple as first meets the eye. The UK, Ireland and Denmark have actually opted out and are not Brussels IV states. While UK nationals living in France should still be able to choose UK succession law, we still need to see how this works in practice.
Although Brussels IV does provide opportunities for some people, there are a number of important issues to consider. So much so, that many UK nationals would be better off with French succession law.
For a start, Brussels IV does not in itself cover tax laws. French succession tax continues to apply as it does now.
The taxman will actually benefit from the new regulation. Tax rates are high (up to 60%) for heirs other than your spouse, children and parents, and allowances low (as low as €1,594). So where you use UK law to leave assets outside your immediate family, your beneficiaries could receive a hefty tax bill.
There could be other serious implications for UK nationals. Under the UK/France double tax treaty, UK nationals opting for UK law to govern their succession under Brussels IV could find their estate now liable for both UK inheritance tax and French succession tax. While a credit would be given in France for tax paid in the UK, your heirs could well end up paying more tax. This could seriously affect the tax planning you already have in place.
It is therefore critical that you seek specialist, personalised advice, to ensure you fully understand the implications of Brussels IV and establish the best succession planning solutions for you and your family.
UK pension freedom
The new UK “pension freedom” provides new opportunities for retirees… it also provides opportunities for fraudsters. Pension companies are warning of a significant trend for transfer requests to schemes which, on investigation, turn out to be scams.
Take regulated advice to protect yourself. Besides the risk of fraud, you need to understand how all the new options work for you to make the best decision for your situation and aims.
The new freedom only applies to defined contribution schemes (money purchase schemes like SIPPs, personal pensions etc). Many people with defined benefit (final salary) schemes are considering transferring into a defined contribution scheme. This is not a decision to take lightly as you can lose safeguarded benefits.
The UK regulator, the Financial Conduct Authority (FCA), has taken steps to protect retirees, but they only go so far.
In June it confirmed its rules on pension transfers. Transfers over £30,000 from defined benefit schemes require a review by an adviser with a pension transfer qualification and who is regulated by the FCA. This applies for transfers to defined contribution schemes and Qualifying Recognised Overseas Pension Scheme (QROPS).
As the FCA acknowledges, expatriates have further levels of complexity to contend with.
Local knowledge and tax advice relating to France is essential. You have to seek advice from a UK regulated company, but UK based pension professionals will not understand the complexities of French taxation.
Expatriates may find they have to get advice from two or three different advisers and try and piece it all together.
Ideally you need guidance from one source that covers your pension options, taxation and estate planning implications, and underlying investments. The Treaty of the Functioning of the European Union does provide for regulated entities in one EU country to legitimately conduct business in another, through the EU’s Insurance Mediation Directive. So it is possible for a firm to be regulated in the UK at the same time as having advisers living in France who can provide the local and holistic advice needed.
It is critical that you consider the tax implications in France for your pension options. The local tax regime can provide opportunities in certain circumstances, but make sure the route you take is suitable for you and will achieve the required results. Don’t risk your pension savings – seek specialist advice tailored to your specific needs.
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17 July 2015
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.