Most British expatriates living in France continue to own some UK assets. If you fulfil any of the criteria that make you tax resident in France you are liable for French tax on your worldwide income, gains and wealth. Income earned in the UK is in most cases also liable to tax in the UK.
Most British expatriates living in France continue to own some UK assets, whether it is bank accounts (including those in the UK’s offshore centres), investments or pension funds. Under French legislation, if you fulfil any of the criteria that make you tax resident in France you are liable for French tax on your worldwide income, gains and wealth.
This applies regardless of whether the income and gains are received in France. So if you receive income from a UK asset into a UK bank account you still need to pay tax in France. With bank savings accounts, this also applies if you do not withdraw the interest and leave it to accumulate in the account.
Income earned in the UK is in most cases also liable to tax in the UK. You should not have to pay tax twice, but the income still needs to be declared correctly in both countries. This does not apply to UK source bank interest, which is only taxable in France if you are French tax resident.
In certain circumstances, such as with UK rental income and government service pensions, the income is not directly taxable in France – but you still have to include it as part of your taxable income. A credit equal to the French income tax and social charges that would have been payable is then deducted from your final tax liability. In other cases, such as with UK dividends and real estate gains, tax paid in the UK may be offset against the tax liability in France. If the French liability is higher, further tax may be due in France. If the UK liability is higher, no further tax is due in France, but there is no refund for the difference.
For UK residents, income derived from ISAs, PEPs and Premium Bonds are all tax free in the UK. Unfortunately, this advantage is lost as soon as you become resident in France; all the income is subject to French income tax, plus social charges.
All investment income, including capital gains on the disposal of shares and securities, is added to other income for the year and taxed at the progressive scale rates of income tax. The capital gain tax burden on the sale of shares could be reduced by up to 65% if you hold them for a sufficient amount of time. This could provide you with the opportunity to sell shares and move the capital into arrangements which are tax efficient in France.
Note that although you can continue to hold an ISA once you have left the UK, you cannot contribute any more to it. You can continue to buy Premium Bonds, but if you are lucky enough to have a big win you could face a very high tax bill in France.
There are very tax-efficient investment vehicles available to residents of France that can reduce income tax and social charges liabilities. They may also help minimise wealth and succession taxes.
Pension income from UK funds is generally taxable only in France, with one notable exception: – government service pensions.
Government service pension income – If your pension arises from UK government employment, UK tax will always be payable (unless there has been a transfer out before the pension commences and usually before age 59). HM Revenue & Customs publishes a list clarifying which are and are not government service pensions.
As mentioned earlier, although government service pensions are not directly taxed in France, the income must be included as part of taxable income. This applies even if no actual tax is paid in the UK (confirmed by a directive from the French tax authorities).
Pension lump sum – Lump sums received from a UK registered pension are taxable in France as pension income, if received while you are French tax resident. This applies whether the lump sum is paid into a French or UK bank account. Withdrawal because of an ‘accident of life’ (eg, invalidity, unemployment, death of a spouse) are exempt from French tax.
Lump sums are taxed at the income tax scale rates. A deduction of 10% of gross income is given (maximum of €3,711 per household). You can, however, opt for a fixed income tax rate of 7.5%, with a no-limit 10% deduction, if (1) the pension contributions were deductible from your or your employer’s taxable income, and (2) the whole pension fund is taken at once, or there is no further possibility to take another capital sum from the same pension fund.
Pension income and lump sums are also subject to 7.4% social charges, but this is only payable if you are subject to the French health care system (you are paying cotisations sociales or Protection Universelle Maladie (PUMA) contributions). Form S1 holders do not need pay social charges on pension income.
Exchange of information
Once you move to France, it is your responsibility to establish what taxes you are liable for on your worldwide income and assets, and declare and pay tax accordingly. Failure to do so, however inadvertently, could result in a tax investigation, back taxes, interest and penalties.
Your local tax office is about to start receiving automatically information on your assets and income outside France under the Common Reporting Standard, the new global exchange of information regime.
You therefore need to be sure you are declaring everything correctly. Many people who have paid tax in the UK, for example on UK rental income and government service pensions, mistakenly believe they have no further requirement to declare it on their French tax return. This would prove a costly error in future, so make sure you are getting it right.
French taxation can be complicated enough, cross-border taxation and international tax planning even more so. Take specialist advice on your situation and to establish the most tax efficient ways to hold your assets.
Any questions? Ask our financial advisers for help.
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.