If you are living in or moving to France, what are the tax rates on your investments? With professional tax advice there are opportunities for saving tax in France.
You will have worked long and hard to accumulate the savings you have today. Whether they are in a bank account, investment portfolio or pension funds, your aim now if you are approaching, or already enjoying, retirement is to protect the value of your wealth and the income it creates.
Protecting your wealth against the key threats of inflation and taxation is essential. Although headline rates of inflation are low right now, your personal rate of inflation is almost certainly higher than the “official” rate. It is the compound effect of inflation, year after year over the longer-term, that does the most, damage. Inflation has a substantial long-term impact on cash deposits. If you do not take action the spending power of these deposit is sure to decline, often causing great difficulty in later years..
Taxation is the other major threat. It is vital to understand the finer points of French taxation to legitimately lower your overall tax liability.
Some areas to consider:
Investment income, whether it is bank interest, dividends or capital gains on the sale of shares, is now added to your other income for the year and taxed at the progressive rates of income tax of up to 45%.
There is an additional exceptional tax (meant to be temporary) of 3% or 4% for income over €250,000 and €500,000 respectively. The thresholds are higher for families.
Additionally there are the inevitable social charges, adding a further 15.5% charge on investment income.
The total combined tax rate can therefore climb as high as 64.5%, for those with income over €500,000.
Importantly, income from UK investments like ISAs, PEPS and Premium Bonds, normally free of tax for UK residents, are taxed at your marginal rate of tax in France.
When it comes to tax on capital gains, there is currently is a form of relief of 50% for investments held for between two and eight years and 65% thereafter. If you have held shares for a number of years you can take advantage of this relief to sell the shares now and then reinvest the capital in more tax efficient investments.
This unpopular tax is charged on the value of a household’s worldwide assets as at 1st January, including your investments. It affects every resident of France where taxable assets are above €1.3 million. If your assets are above this level you will start paying tax on assets over €800,000, at rates between 0.5% and 1.5%.
If you will be affected by this tax seek professional advice to possible lower your tax liability.
While this may not affect your personally, it could make a significant difference to how much inheritance your heirs receive.
The rate of succession tax depends on how closely your beneficiaries are related to you, and how much they receive. Children receive an allowance of €100,000 each and pay tax at progressive rates between 5% and 45%. At the other end of the scale, distant and non-relatives pay tax at 60% and only receive a €1,594 allowance.
From August 2015 British nationals living here will be able to elect for UK succession law to apply on their death instead of French law. This gives you freedom to leave as much as you want to distant and non-relatives, even if you have children. If you are considering such an election, it is essential you seek specialist advice or your heirs could see over half their inheritance wiped out by tax.
For many, their pension funds play the biggest role in supporting their financial security in retirement.
From a tax point of view, pensions are generally taxed at the progressive scale rates of income tax. UK government service pensions are an exception as they remain taxable in the UK. They are not taxed in France, but be aware that you still need to declare the income as it is taken into account determining the rate of tax payable on your other French source income.
Annuities and Qualifying Recognised Overseas Pension Schemes (QROPS) can receive special treatment. Lump sums are taxed at 7.5%.
Taxation can be more complicated than first meets the eye. The new UK pension changes from April provide a range of options, and you need to look at the tax implications of each one and weigh them up to be in a position to make the best long-term decision for you.
It is not just taxation that you need to consider either. Do not rush to cash in your pension under these new rules without first taking professional, specialist pension advice and considering all your options.
There are various opportunities to save tax in France, and they can make a significant difference to how much tax you pay.
They are not always obvious either. For example, combined French income tax, wealth tax and social charges cannot exceed 75% of your total income for the previous year. Now 75% may sound high, but this “tax cap” actually presents tax planning opportunities.
Assurance Vie can be very advantageous tax planning structures in France, but be careful because not all Assurance Vie are the same so make sure you get it right. These tax planning vehicles can be used to create non-taxable withdrawals, similar to your current taxable income however with significantly reduced taxation.
With specialist advice, many readers have been pleasantly surprised at how much tax they can save in France on their savings and investments, and how French taxation can actually be beneficial for them. It is important however to seek personalised advice in these complex areas of wealth management.
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; an individual should take personalised advice.
19 January 2015