Is it tax-efficient for UK expatriates to keep hold of UK assets like bank accounts, shares, property, bonds and pensions if living in France?
Does it make financial sense to keep hold of UK assets like savings accounts, bonds and shares if you are living in France, or are there more tax-efficient ways of holding your capital?
Most British expatriates living in France continue to own some UK assets, whether bank accounts, shares or property, as well as their UK pension funds. But is it tax-efficient to keep hold of so many UK assets if you permanently live in France, particularly with a potential change of UK government ahead?
Where will you be liable for tax?
If you are tax resident in France, you are liable for French tax on your worldwide income, gains and property wealth. This applies regardless of whether you bring the income into France or leave it in the UK.
Income earned from UK assets is also liable to tax in the UK in most cases. You need to follow the France/UK double tax treaty to establish where you should pay the tax. Although you only pay tax in one country, the income still needs to be declared correctly in both France and UK.
The rules differ according to type of income.
UK rental income and government service pensions are not directly taxable in France, but you still have to include them as part of your taxable income – a credit is then given for the French tax and social charges liability. This applies even if no actual tax is paid in the UK. Conversely, UK bank interest earned by French residents is taxable only in France.
In other cases, such as UK dividends and real estate gains, tax paid in the UK is offset against your French liability. If your French tax bill is higher than the UK’s you will pay the difference, but there is no refund if it is lower.
How UK investment income is taxed in France
Income derived from ISAs and Premium Bonds is tax-free in the UK, but this advantage is lost once you become resident in France.
All income and gains from cash and share ISAs are fully taxable here. And although betting and gambling winnings are tax-free in France, this does not apply to UK Premium Bonds since the initial investment is never actually at stake.
Look also at your other UK investments, such as shares, unit trusts, OEICs and investment bonds, and consider whether they are the most tax-efficient way of holding your capital.
In France, most investment income, whether earned in France, UK or elsewhere, is currently taxed at a flat rate of 30% (including social charges which would be 17.2% on their own). This applies to interest, dividends, capital gains on sale of shares, etc. Low income households can pay tax at normal scale rates instead.
If you receive interest or dividends from the UK you must declare the income within 15 days of the end of the month and pay 30% of the amount received. This is then offset against the tax due on your tax return. Lower income households can avoid this advance payment.
How UK pension income is taxed in France
Pension income from UK funds is generally taxable only in France, at the scale rates of income tax.
Rates start at 14% for 2019 income over €10,064 and 11% for 2020 income over €9,964. The maximum 45% rate applies to 2019 income over €157,806 and €156,244 for 2020 income, with a potential extra 3% or 4% charge on higher income. You receive an annual 10% deduction (maximum €3,812 per household). 9.1% social charges are payable on top (7.4% for pension income below €2,000 per month/€3,000 for a couple), but you are exempt if you hold Form S1 or are not registered for French healthcare.
Read about France’s 2020 tax changes
There is one exception: if your pension arises from UK government service employment, UK tax is always payable. This pension income is not taxed in France, but must be included as part of your taxable income.
French residents do not benefit from the 25% tax-free ‘Pension Commencement Lump Sum’ that UK residents get. Lump sums are generally taxed as pension income in France. However, you may be able to opt for a fixed 7.5% rate, with a 10% deduction, provided you had paid into a contributory pension scheme, and the whole pension fund is taken at once or there is no further possibility to take another capital sum from it.
This can present real opportunities if you are over 55 and can withdraw your entire pension as one lump sum under the UK pension freedoms. You could potentially re-invest the capital into a tax-efficient arrangement in France and pay less tax overall.
Another option is to transfer pensions funds out of the UK into a QROPS (Qualifying Overseas Pension Scheme), which can unlock estate planning and currency flexibility that you do not get with UK pensions. Note, however, that the UK applies a 25% ‘overseas transfer charge’ for EU residents transferring outside the EU/EEA – this could potentially be extended post-Brexit to put an end to tax-free EU transfers.
If you are thinking of cashing in or transferring your pension, take advice and carefully consider your options to establish what would work best for you long-term.
See six things you need to know about pensions today
Tax transparency: Exchange of information
Once you move to France, it is your responsibility to establish what taxes you are liable for on all your assets and income, and declare and pay tax accordingly. Getting it wrong, however inadvertently, could result in a tax investigation, back taxes, interest and penalties.
Your local tax office in France now automatically receives information on your assets and income outside France under the global Common Reporting Standard, so double check that you are declaring everything correctly.
What you need to know about global tax transparency
Tax planning for France
The French tax regime is completely different to the UK’s, so the tax planning set up in the UK is unlikely to be effective here. France does offer opportunities for tax efficient investing – an assurance-vie, for example, can prove to be highly beneficial, for yourself and your heirs, if you choose the right one.
Speak to a locally based tax and wealth management adviser to confirm what taxes you should be paying and where, and so they can review the way you hold your assets and recommend tax-efficient alternatives for France. Your tax and estate planning should be designed around your specific circumstances and objectives.
Arrange a financial review with 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 are advised to seek personalised advice.