See the French residence rules and 2020 tax rates for income and investments, social charges, wealth tax and succession tax in France.
Get to know the French residence rules and 2020 tax rates for income and investments, social charges, wealth tax and succession tax in France.
If you are planning to move to France, or even just buy property there, there are various local rules, regulations and customs that you need to familiarise yourself with and this includes taxation. Researching taxes is admittedly never fun, but it is worth it to save yourself headaches down the line and especially worth it when planning ahead saves from paying more tax than you need have.
The French tax rules are quite different to the UK’s, with some extra taxes like social charges and a wealth tax on property, so you do need to make sure you understood it all correctly. They also change regularly, particularly following a change of government, so it is important to keep up to date.
Tax residence in France
First of all, you need to establish where you are/will be resident for tax purposes. While for many people this is straightforward, it is not always clear cut. Take professional advice if necessary, as paying tax in the wrong country could prove costly.
An individual is deemed to be a tax resident of France if any of the following tests are fulfilled. You will be tax resident from the day after your arrival, if you intend to live there indefinitely.
- France is your main residence or home – your ‘foyer’, i.e. the place where your close family (spouse, minor children) live.
- France is your principal place of abode, your ‘lieu séjour principal’. This usually means you spend more than 183 days in the country per calendar year, but can also be applied if you have spent more days in France than any other single country.
- Your principal activity is in France.
- Most of your substantial assets are located in France (‘centre of economic interests’).
If you are tax resident in France under French rules and tax resident in UK under its rules, tie breaker rules will determine where you pay tax.
Residents of France are liable to tax on their worldwide income, gains and real estate wealth, and subject to French succession tax rules. It is your responsibility to register with the French tax authorities and fully declare your income and wealth.
France taxes on income
France imposes three forms of tax on income:
- Income tax at scale rates of tax
- Social charges
- A fixed rate on investment income
French income tax
The scale rates of tax apply to earnings, such as employment, pension and rental income. The rates for 2020 income are:
| Up to €9,964
| €9,964 to €25,405
| €25,405 to €72,643
| €72,643 to €156,244
| Over €156,244
Higher earners currently pay an additional tax of 3% or 4% for income over €250,000 and €500,000 respectively, with higher thresholds for families.
The taxable income to be assessed is the total income of your household – it is not calculated per individual. To avoid the higher rates of tax where there is a high income but more than one household member, the family is divided into a number of ‘parts familiales’.
Various tax credits and deductions are available.
Social charges are payable on all forms of income, in addition to income/capital gains taxes (and are separate from social security contributions). In 2020 they are:
- 9.7% for employment/self-employment income.
- 17.2% for investment income; reduced to 7.5% if you are covered by the health care system of another EU/EEA country (so if you hold Form S1).
- 9.1% for pension income; reduced to 7.4% if your pension income is less than €2,000 a month (€3,000 for a couple). Form S1 holders are exempt.
French taxes on investment income
Since January 2018, investment income (bank interest, dividends, capital gains on the disposal of securities) is taxed at a special fixed rate of 30% (the ‘Prélèvement Forfaitaire Unique’ or PFU), rather than the above rates. This includes both income tax and social charges, so it lowers the tax bill for investors with larger portfolios.
Lower earners can opt to apply the progressive rates of income tax for their investment income instead, plus social charges.
French taxes on wealth
France imposes an annual ‘wealth tax’ in addition to income taxes. Until 2018 this was charged on a household’s total wealth, but today it only applies to real estate assets (whether directly and indirectly owned).
This ‘Impot sur la fortune immobilière’ (IFI) applies to your worldwide property if you are resident. But the good news is that you are only liable if your total real estate assets are valued at over €1.3 million and, in any case, UK nationals escape this tax for their first five years of residence.
Where you do have to pay it, the first €800,000 is tax free. Wealth tax rates then start at 0.5% for property between €800,000 and €1,300,000 and rise progressively to 1.5% for property over €10,000,000.
If you are not resident in France you are only liable on local property, with the same thresholds and rates as above.
French taxes on inheritances and gifts
Be aware that once you are habitually resident in France, your heirs and beneficiaries will be subject to French succession tax on any inheritances or gifts they receive from you.
This works quite differently to UK inheritance tax which is paid by the estate. In France each beneficiary is liable on the amount they receive, and the rates and allowances vary significantly depending on who the recipient is.
Here are a few examples:
- Spouses are not liable to succession tax on inheritances, but they are on gifts.
- Children each receive a €100,000 allowance and pay tax at progressive rates from 5% to 45%.
- Siblings get a €15,932 allowance and pay tax at 35% or 45%.
- Remote and non-relatives pay 60% tax with an allowance of just €1,594.
So you need to consider who your heirs will be then seek advice to see what you can do to reduce their succession tax liability and make the process easier for them.
Brexit and taxation in France
Taxation and double tax treaties are domestic, not EU, issues, so the tax rules that apply to British expatriates in France today should not change when the Brexit transition period comes to an end on 31 December 2020.
That said, under their domestic rules, some countries do tax non-EU/EEA assets differently to domestic/EU assets. For example, under French rules, very beneficial tax treatment can apply to investments held within life assurance/‘assurance-vie’ policies. However, some of the key advantages only apply to EU policies, so if you have a UK policy you could end up paying more tax in the future than you would today. This is something to consider when reviewing your investment arrangements for your life in France.
Tax planning for France
There is no denying that French taxation can be complex and the tax burden high for some households. But it does also provide some opportunities for effective tax planning, particularly for investment capital and certain pensions.
One thing for certain is that you need to review and adjust your tax planning once you move to France, since what was effective in the UK is unlikely to be effective across the Channel. Taking professional, cross-border tax and wealth management advice will give you peace of mind that you have all facts and are doing everything correctly, and can also help you lower your tax liabilities wherever possible, for both yourself and your heirs.
Contact 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.