Financial planning issues British expatriates overlook or get wrong in France

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16.04.24
Financial planning issues in France

Financial planning issues UK nationals face when moving to or living in France are compounded if they have not adequately planned the early relocation stages or misunderstood essential residency and tax considerations.

Moving home always takes time and effort, which is multiplied when moving to a new country.  There are many different aspects to sort out, and you also need to find your way around complex foreign regulations and bureaucracy.  It’s all worth it in the end, but in the meantime, it’s easy to overlook some aspects or get steps wrong.

To get things right, you first need to know what they are and the pitfalls, so here we look at some key issues that British expatriates in France often get wrong.

Not doing enough ‘arrival planning’

With the extra effort involved in applying for a French residence visa these days, UK citizens make this their primary focus and tasks like tax planning are left for later – but later can prove costly.

For example, you can take 25% of your pension as a tax-free lump sum in the UK.  In France, however, lump sums are treated as pension income and generally taxed at the scale tax rates up to 45%, potentially plus 9.1% social charges.  Waiting until you’re living in France to take your lump sum can be a very expensive delay.

On the other hand, if you wish to move your pension funds into a more tax-efficient investment vehicle in France, and you can take your entire pension as a single lump sum and meet other criteria, it may be eligible for a fixed 7.5% income tax rate instead of the scale rates.

In this case, you’re better off waiting until you live in France, but you wouldn’t know this unless you research French taxation in advance.

Another example is property ownership.  How you own your home can impact your heirs thanks to France’s succession and inheritance tax regimes.  You want to get this right before you buy, particularly where children from previous relationships are involved, and ensure you understand the tax and succession consequences of each option.

Not bothering with the S1 healthcare form

The S1 form is primarily your way to ensure you have access to essential healthcare services in Europe – but in France, there are some considerable tax advantages to carrying an S1 as well. Pension income is subject to both income tax and 9.1% social charges.  UK nationals with the S1 form are exempt from this and also pay a reduced 7.5% social charges rate on investment income (instead of 17.2%).

Over the years, the S1 could save you thousands in tax.

Learn more about the S1 Form and how to apply for yours.

Misunderstanding the cross-border taxation of UK pensions

The taxation of UK pensions in France is a widely misunderstood area, particularly regarding what happens on death. Many people overlook the fact that UK pension funds are not only assessed for French succession tax but, also, if you die after age 75 the UK applies a tax recovery charge on the beneficiaries of up to 45%.

While spouses are exempt from succession tax and children receive a €100,000 allowance, if, for example, your pension goes to a stepchild, they would lose 60% of it to the taxman.  If they draw from the pension (which they may have to pay the bill), they pay UK income tax too. There may not be much left. Specialist advice is key.

Making assumptions with tax and succession planning

The French tax regime differs significantly from the UK’s, more so than may first appear.   Don’t presume your UK tax planning will be effective in France – ISAs and Premium Bonds, for example, are fully taxable there. You must restructure your assets to take advantage of tax-efficient compliant opportunities in France.

Succession (who and how to leave your assets to) in France is much more complicated than in the UK.  It can be a minefield if you or your spouse have children from a previous relationship.

You need to consider who you can leave assets to under French law and how to arrange your affairs to have control over who receives them, and also how much succession tax your beneficiaries will pay.  A solution for one concern may cause unexpected consequences in the other.

Remember, if you, for example, leave your assets to your wife, who then passes them back to your children when she dies, your children will pay 60% tax with virtually no allowance.

Download our free tax planning guide for France.

Neglecting CERFA 3916

Since you are dealing with a foreign tax system, it’s important to declare your assets and income correctly,  especially where overseas investments are concerned.

Besides your main income tax return, you must complete form CERFA 3916, where you individually list all your non-French bank accounts, life insurance policies, etc.   This includes every account opened, held, used at least once or closed during the year.

The penalty is €1,500 per undeclared account per annum but can be as high as €10,000, making it a costly oversight.

Holding many different investments directly

It’s worth considering if you have the right investment structure to begin with, and if it makes sense to retain all your UK savings and investments if you expect to live in France long term. Restructuring your assets can prove highly beneficial.

For example, if you own various UK company shares directly and frequently buy and sell them, it all needs to be declared in France for capital gains purposes as well as on Cerfa 3916, even if you reinvest the capital into new shares.  All the data needs to be in the Euro equivalent at the time, which is extra work.

If, instead, you hold shares within an approved investment ‘wrapper’ in France, such as an assurance-vie, the trades will not incur tax consequences if the gains are rolled over, potentially saving a significant amount of tax, and you will massively simplify your tax declarations each year.

Not fulfilling residency obligations

Holding a residency card in France, the carte de séjour or VLS-TS long stay visa, means, by definition, that you live here. To be a resident, you should spend at least 183 days in the country each year – which also makes you a tax resident in France.

Nowadays, as part of the residence application process, you sign a form stating that you intend to live in France.   To fulfil this declared intention, you then need to register for social security and tax and then submit a tax return in your second year.

Whether you received your carte de séjour before or after Brexit, when the time comes to renew it, you must prove that you are a tax resident (i.e. provide your French tax returns).  If you will not be able to do this, you should rectify your situation in advance.

Download our free Visiteur Visa Guide for France.

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Making assumptions, especially with tricky issues such as succession and cross-border taxation, without taking professional advice can easily prove very costly.  You don’t know what you don’t know, making it relatively easy to overlook small but important details or get something wrong. Professional advice provides peace of mind that your financial affairs are in order and suitable for a UK national living in France.

Blevins Franks has multiple offices throughout France, and our advisers live locally. We help our clients transition from the UK, from the early planning stages to continued support and guidance once they have completed their move. It is our job to ensure you have a clear road map to capitalise on all opportunities available and that you can avoid any nasty surprises.

To get started, contact us today.

 

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; individuals should seek personalised advice.

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