A general overview of the key financial considerations of relocating to France and living there.
As the summer progresses, it is a good time to step back from our usually more detailed analysis of French taxes and, instead, provide a general overview of the key financial considerations of relocating to France and living here. This will be particularly useful for those who are here on holiday while planning a move to France, or are enjoying their stay here so much they are now considering if they should relocate.
It is also a useful checklist for those already living here, especially if they have arrived fairly recently.
French bureaucracy and ever changing tax legislation concerns many people. However, taking advice early prevents many mistakes, including paying more tax than necessary.
1. Tax residency and obligations
You need to establish what makes you resident in France for tax purposes – it is not just a matter of day counting. If you meet any of the residency criteria, then you are liable for French tax on your worldwide income, gains, wealth and estate.
You also need to understand the UK tax residence rules to make sure you do not inadvertently find you are resident in the UK for tax purposes – it’s easier than you may think!
2. Your home
Your home is likely to be among your most important assets. If you own property in the UK and/or in France, which do you sell, when and why? What is the best plan to limit or avoid UK or French capital gains tax? You could either end up paying more tax than necessary or preserving your wealth through careful planning. Appropriate, timely advice, will avoid the common pitfalls.
3. Notifying the tax authorities
If you have not yet left the UK, advise HM Revenue & Customs of your departure date on Form P85 (available from local tax offices or www.hmrc.gov.uk).
You then need to make yourself known to the French tax authorities – there are around 800 tax offices – Hotel des Impôts – for resident taxpayers. Taxes are declared a year in arrears, so your first tax return usually needs to be filed the year after arrival.
4. Structuring your assets to minimise tax
Taxes in France can be high. Besides income tax you also have to pay social charges on income, plus an annual wealth tax if your household’s taxable assets amount to over €1.3m. But don’t let this put you off living here! You can structure savings, investments and assets to be tax efficient and, with careful planning, you could pay less tax in France than you did in the UK.
Do not presume that what was tax efficient in the UK is tax efficient in France. You will probably need to vary existing arrangements with those designed for French residents. It will require a solution that takes both tax regimes into account.
5. Bank accounts
If you retain any UK bank accounts, the bank interest will be taxable in France (at income tax rates up to 45%) as a French resident. To receive UK bank interest gross you can usually submit Form R105 to your UK bank.
Many British expatriates keep their savings and investments in Sterling. This puts income at the mercy of exchange rate fluctuations, which can have a detrimental impact on returns. A sensible rule of thumb is to match your assets to your liabilities, so if your long-term spending will be in Euros you should consider holding an appropriate amount of your assets in Euros to reduce currency risk.
If you or your widow(er) may return to the UK in the future, it is often wise to have diversification in your assets, including currencies.
There are usually ways to improve your private pension arrangements to make them work better for you when living in France.
It is vital that you receive specialist advice before you take any pension decisions. There are various options for your UK pension funds, and each has different implications for your long-term income and tax payable. If you act before taking advice you may end up with the wrong ‘plan’ for your needs, and probably pay more tax than you need to.
8. Inflation and your long-term security
Inflation will reduce the spending power of your savings over your retirement years. It is essential that you take action now to protect your wealth in real terms, so that you can enjoy the standard of living you are used to throughout retirement.
Your investment strategy should be specifically designed around your circumstances and objectives. Having moved to a new country, you now need to review your strategy to see if it needs to be adjusted for your new life in France.
10. Estate planning
This is particularly important for France, where succession law and succession tax work very differently from the UK and are particularly complicated. Getting it wrong can have serious consequences for your beneficiaries.
New EU regulations from August 2015 will improve the succession law position for British nationals – but not your succession tax position. You need to understand how it all affects your estate.
You also need to look at how probate works in France and find out if you can avoid probate for your heirs.
Taking advice from a professional tax planning and wealth management specialist is invaluable. It is the only way you can be sure that you have not overlooked anything, and that you have established what all your options are and how suitable they are for you.
12 June 2015
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.