If moving to France or already living there, make sure you understand how French income tax, wealth tax, and inheritance tax work and how to maximise the opportunities available for your family.
Are you in the process of planning your move to France? Or have you recently started your new life here? Either way, it is important to prepare for French taxation and adjust your wealth management accordingly.
Generally, once you arrive in France to live here indefinitely, you become a tax resident the following day. You are deemed resident for tax purposes if your main home is in France, or it is your principal place of abode (you spend 183 days here a year), or your principal activity or centre of economic interests is in France.
To protect your wealth from unnecessary taxes, take the time to research the various taxes you are exposed to in France and how they affect you. The French tax regime is complex but it does present opportunities to improve your tax position, particularly on your investment capital and pensions.
The key taxes you face as a French resident
Income tax rates for 2022 income (declared in 2023) range from 11% for income over €10,777 to 45% for income over €168,994. An additional 3% or 4% tax is levied on income over €250,000 and €500,000 respectively, with higher thresholds for families.
Social charges are additionally payable on income, generally 9.7% for employment income; 9.1% for pension income, and 17.2% for investment income. Retirees with Form S1 escape social charges on pensions and pay a lower 7.5% rate on investment income. A reduced rate of 7.4% may apply to pension income for those with low incomes.
Investment income benefits from a special fixed rate of 30%, which includes both income tax and social charges. Those on lower incomes can opt for the scale rates of tax.
Wealth tax on real estate
Impot sur la fortune immobilière (IFI) is an annual tax applied to the combined real estate assets of a household, though it only affects those with property assets exceeding €1,300,000. The first €800,000 is tax-free, then rates range from 0.5% to 1.5%.
French inheritance tax is charged on each beneficiary, with rates and allowances varying considerably according to who the beneficiary is. Inheritances between spouses/PACS partners are tax-free (but not gifts) and children have lower rates and higher allowances than more distant relations. You need to be particularly careful where stepchildren and non-married partners are involved, as their tax-free allowance is very low and the tax rate is generally 60%.
This may seem daunting, but there are usually steps you can take to improve your tax position in France, particularly for investment capital and inheritances, sometimes considerably so.
Download our ‘Guide to Taxes in France’ for more information on the taxes you’ll face in France
Estate planning solutions for living in France
In France you need to give estate planning almost as much importance as tax planning. Even if you do not expect to live here forever, life is unpredictable. If you are resident in France when you die, your heirs will be impacted by French succession law and tax.
French succession law imposes forced heirship. Your children are ‘protected heirs’ so you cannot leave your entire estate to your spouse. The European ‘Brussels IV’ succession regulations allow you to opt in advance for the law of your country of nationality to apply instead of French law, though protected heirs can still make a claim for assets located in France. In any case, take cross-border advice first to understand all the pros and cons as opting for UK law may not be the best option for you and there are other options.
If you have not yet bought property, familiarise yourself with succession law first. There are various ways of owning property in France, which can have succession tax and law implications. Establish which option would best suit your family situation.
Retirees should also review their pension funds and the options now available to them, such as whether they could benefit from moving their pension to a Qualifying Recognised Overseas Pension Scheme. The advantages include more currency, investment, and estate planning flexibility.
Alternatively, you could potentially take your UK pension fund as a lump sum and possibly pay just 7.5% tax in France under certain circumstances (plus 9.1% social charges unless you escape them as noted above). You could then re-invest the capital into tax-efficient arrangements.
Moving your pension out of the UK would also protect you should the UK lifetime allowance tax changes (abolished in the 2023 budget) be reinstated by a future government.
With something as important as your pension, it is vital to take regulated professional advice tailored to your situation.
Download our guide: ‘Pensions and the implications for your retirement in Europe’
Before moving to France
If you have not left the UK, then do your research before you sell UK assets and before you become a tax resident in France.
You need to weigh up the tax implications of selling your UK property, business, and investments while still a UK tax resident compared to selling as a French resident. You can then time your move accordingly.
Your UK tax-efficient vehicles may not be tax-efficient in France, so review your tax planning and how you hold assets. There are arrangements available in France that can prove very advantageous tax-wise, for yourself and your heirs. They can also provide succession planning benefits.
While preparing for French taxation is a major part of relocating here, to create a successful wealth management strategy look at the whole picture, including estate planning, pensions, savings and investments etc. The way you hold investments, for example, can make a big difference in how they are taxed and how easily they can be passed to your heirs.
Planning a tax-efficient move to France involves both French and UK taxation, so talk to a specialist cross-border adviser who is familiar with the interaction between both regimes and regularly advises on effective planning strategies.
Contact us to discuss your plans and how we can help