Cross-border planning is the key to ensure you and your heirs don’t pay more tax than necessary on your income, assets, pensions and investments.
When living in France, cross-border planning is the key to making sure you and your heirs don’t pay more tax than necessary on your income, assets, pensions and investments.
If you are a recent arrival in France, you have so much to look forward to as you settle into your new life here. If you’ve been here a while, you’ll already be reaping the benefits of the local lifestyle. One of the advantages for UK nationals is France’s close proximity to Britain. There may have been some travel obstacles this year with lockdown and quarantine, but France remains just a short hop away over the channel.
This proximity means many people choose to have homes in both countries, dividing their time between them for the best of both worlds. While this can work well, you need to be careful as it can cause complications when it comes to tax residence – which country has taxing rights over your worldwide assets and income – and cross-border tax planning.
Even if you have moved here permanently, you probably still have cross-border tax considerations, such as UK pensions and investments and heirs in the UK.
Make sure you understand all the rules, how they apply to your family, and what steps you can take to establish the best outcome.
Tax planning for France and the UK
There are some significant differences between the two regimes, meaning your tax planning in each country is different and you may have to take both rules into account. You need to follow the France/UK double tax treaty and understand where cross-border income must be declared… but it can be confusing.
Let’s say, for example, you are tax resident in France and own and rent out a UK property. You are retired and you and your spouse receive UK State Pension, government service and private pension income:
- Your UK rental income is taxable in the UK, not France, but you need to include it on your French income tax return and a credit is given for the tax that would have been paid in France.
- You still benefit from the UK personal allowance (but could this change in a post-Brexit world?) and don’t pay French social charges on this income.
- Government service pension income is also only taxed in the UK (but included on your French tax return and you receive a credit).
- In contrast, your State and private pension income is not liable to tax in the UK and you pay income tax in France.
- Pensions income is also liable to 9.1% social charges unless you hold Form S1… but there’s a good chance those arriving after the Brexit transition period will lose this benefit.
Getting it wrong and paying tax in the wrong place would prove costly in the long-run, so take professional advice. A DIY approach, or even using a UK-based adviser not experienced with French taxation, could result in you paying more tax than necessary.
Make sure your tax planning is based around the local tax regime. What was tax-efficient in the UK is unlikely to be here, for example, ISAs are fully taxable in France. Likewise, while the UK’s capital gains tax and dividends allowances may have given you tax-free returns from your UK investment portfolio, you would pay tax in France.
Will UK assets invite a bigger tax bill after Brexit?
Changing the way you hold your investment capital to use arrangements that are tax-efficient in France, such as an assurance-vie, could significantly reduce your tax liability.
Cross-border estate planning
This is just as complex.
The UK levies ‘inheritance tax’ 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).
The UK gives you freedom to choose who to leave your assets to, but France’s ‘forced heirship’ imposes rules as to who must inherit and in what amounts. You can use the European Succession Regulation, ‘Brussels IV’, 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? Electing for UK laws could call your French domicile into doubt, potentially exposing your worldwide estate to UK inheritance tax.
Cross-border pensions planning
Review your pensions to see if there are new options available to you as a non-UK resident. Leaving your pension in the UK may well be the best option for you but, depending on the type and your circumstances, it’s worth weighing the pros and cons of transferring out of the UK.
Transferring to a Qualifying Recognised Overseas Pension Scheme (QROPS) can provide various advantages for France residents. Bear in mind that after Brexit the UK government may extend its 25% ‘overseas transfer charge’ to include EU transfers, so there may be a short time limit on tax-free transfers.
Another option may be to take your fund as cash and re-invest in a tax-efficient arrangement in France. But always seek regulated advice first and take care not to jeopardise your retirement savings.
Cross-border investments and financial advice
If you have a good relationship with your UK-based investment adviser, you may understandably wish to continue using them. But can they continue advising you after the Brexit transition period? Advisory firms regulated by the UK Financial Conduct Authority can currently passport into the EU, but what happens if those permissions fall away next year? Can they still manage your investments? Would you have to travel to the UK for meetings and paperwork? Could product providers prevent UK-based advisers from intermediating on new transactions for EU clients? These are all questions you need to ask your advisers.
See 4 things to consider if you’re receiving UK-based advice abroad
Also consider if your UK investment portfolio is still suitable for your circumstances and objectives today as a French resident.
So cross-border wealth management can be a minefield; tread carefully. Use a guide who knows their way around the tricky landscape and can help you avoid the pitfalls and take advantage of the opportunities France has to offer. Overall, you want to aim to get the best of both worlds but avoid the worst of both worlds.
Arrange to speak to a France-based adviser
The 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.