How is income sourced from the UK taxed in France, and 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?
However well we have settled into our new way of life in France, most UK nationals living here continue with some British lifestyle habits. Whether it is a Sunday roast with all the trimmings, watching UK TV channels and sport, there are some ties we do not like to lose and comfort in familiarity.
Likewise, many British expatriates keep hold of UK investment assets, whether bank accounts, shares, or property, as well as pension funds. You may have accumulated Premium Bonds and Individual Savings Accounts (ISAs) etc over the years or bought shares in UK companies, and prefer to hang on to them because they are familiar and feel like a safe option. But are these suitable investments for your new life in France? Are they tax-efficient here?
As a tax resident in France, you are liable for French tax on your worldwide income, gains, and property wealth.
Income earned from UK assets is also liable to UK tax in most cases. You need to carefully follow the France/UK double tax treaty to establish where you should pay tax and where you need to declare it (you can pay tax in one country but may need to declare it in both).
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. With 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.
How is income from UK investments taxed in France?
Income derived from ISAs and Premium Bonds is tax-free in the UK, but this advantage is lost once you live in France. Income and gains from cash and share ISAs are fully taxable here. Although betting and gambling winnings are tax-free in France, this does not apply to Premium Bonds since the initial investment is not at stake.
Also review your other UK investments, such as shares, unit trusts, and investment bonds, to establish whether France offers a more tax-efficient way of holding your capital.
In France, most investment income, wherever earned, is taxed at a flat rate of 30% (including 17.2% social charges). This applies to interest, dividends, capital gains on the sale of shares, etc. Low-income households can pay tax at normal scale rates instead. Lower social charges also apply if you hold a Form S1.
If you receive interest or dividends from the UK, you must declare the income within 15 days of month-end and pay 30% of the amount received. This is offset against the tax due on your tax return. Lower-income households can avoid this advance payment.
How is income from UK property rental taxed in France?
If you are resident in France and rent out UK property, the income is directly taxed in the UK. You must include as part of your taxable income for the year in France and will receive a credit equal to French tax and social charges.
How is income from UK pension taxed in France?
Pension income from UK funds is generally taxable only in France, at the scale rates of income tax. For 2022, these range from 11% for income over €10,225 to 45% for income over €160,336, with a potential extra 3% or 4% for higher income. You receive a 10% deduction (maximum €3,912 per household). 9.1% social charges are payable on top (reduced to 7.4% for low pension income), but you are exempt if you hold Form S1.
However, UK government service pensions are only taxable in the UK, not France, though you still declare it in France.
French residents do not benefit from the 25% tax-free ‘Pension Commencement Lump Sum’ UK residents get. Lump sums are generally taxed as pension income in France. Under certain conditions, you may be eligible for a fixed 7.5% income tax rate. If you meet the criteria and can withdraw your entire pension as one sum under the UK pension freedoms, this can present opportunities. You could potentially re-invest the capital into a tax-efficient arrangement in France and pay less tax overall.
With all pension decisions, take regulated advice and carefully consider your options to establish what would work best for you – don’t risk your long-term financial security.
The French tax regime is completely different from the UK’s, so the tax planning set up there is unlikely to be effective here. There are very tax-efficient investment vehicles available to residents of France. For example, an assurance-vie can prove to be highly beneficial if you choose the right one, with benefits extending beyond tax savings, particularly when it comes to estate planning.
Speak to a locally based wealth management adviser like Blevins Franks 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.
It’s not all about tax
Taxation is not the only reason to review your savings and investments. Ensure they are suitable for your life in France, future expectations, objectives, time horizon, and risk tolerance. Too many people have portfolios that are no longer suitable for them.
Finally, but importantly, Brexit dissolved the automatic ‘passporting’ rights that enabled cross-border transactions between EU member states through shared financial regulation. This means that UK advisers, banks, and financial providers may no longer be able to legally service clients who are in the EU.
The French connection
In any case, a UK adviser may not have the deep understanding of the French regime necessary to provide the most tax-efficient financial planning solutions. The local knowledge from a France-based adviser will prove invaluable.
At Blevins Franks, we have 10 offices across France with 19 advisers living there. We also have a team of tax specialists based in our London office offering vast technical knowledge on France and the other countries we cover. We are perfectly positioned to provide cross-border advice to UK nationals living in or moving to France.
Get in touch today for a financial planning review