While the Brexit countdown may be on to secure French residency, British expatriates wishing to live in France should not underestimate the importance of early tax and financial planning.
With just months to go before the end of the Brexit transition period, many UK nationals are rushing to secure residency in France. Those who are lawfully settled before 31st December 2020 can lock in a lifetime of citizens’ rights under the UK/EU Withdrawal Agreement. This protects access to healthcare, social security, education and employment opportunities for as long as you remain resident.
Under current circumstances, most people are focused on getting into the French system as quickly as possible. However, without careful planning, changing residency can have unexpected financial pitfalls, not least because residence in France makes you subject to French tax and succession rules. It is also advisable to review your investments and pensions to ensure they are suitable for this new chapter of your new life.
Getting it right from the outset makes things easier and cheaper, so do your research and take professional advice as soon as possible. That said, there are usually steps you can take to improve your tax and estate planning even if you already live in France.
Taxation in France
Anyone moving to France needs to prepare for a completely new tax regime.
First of all, establish exactly when you become liable for French tax on your worldwide income, gains, wealth and estate.
Generally, once you arrive in France to live here indefinitely, you become 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 in a year), or your principal activity or centre of economic interests is in France.
French taxation can be complicated… and high. Besides income tax rates up to 45%, you face social charges on most income with rates generally between 9.1% and 17.2%, depending on type of income. If you hold Form S1, these charges reduce to 7.5% on investment income and pension income escapes them completely.
France imposes an annual wealth tax on real estate assets if your property portfolio exceeds €1.3 million, though there is a €800,000 allowance.
But the good news is that, with expert planning, it is possible to structure savings, investments and assets to be tax-efficient – and potentially pay less tax in France than you did in the UK, depending on your circumstances.
Disposing of UK assets
Any gains or income arising while still UK resident are not taxed in France (unless they are French assets) but are taxable if they arise after you have arrived. Understanding when to liquidate your UK assets could lower your tax liabilities. Here are some examples:
UK pensions
While UK residents can generally take 25% of their pension as a tax-free lump, it will be liable to income tax in France (plus possibly social charges) if you take it after you are resident there. However, if you cash-in your entire pension, under certain conditions French tax rates can be as low as 7.5%.
UK investments
Once you leave Britain, UK investment products such as ISAs lose their tax benefits, with interest or dividends taxable in France. If you cash-in these investments as a French resident, capital gains tax can apply, so encashing before you become French resident can allow you to benefit from the UK tax wrapper. Alternative investment vehicles are available to French residents that offer tax-efficiency as well as estate planning and other benefits.
UK property
Timing is key when disposing of UK property. If you sell your main home when in the UK it escapes French tax, but if sold after a year of living in France it will be taxed as a second home in France. Selling a second home in the UK will always attract UK capital gains tax, but it can be tax-free in France if you have owned it for 30 years or more.
Estate planning for France
French succession law and taxes differ greatly from the UK’s. ‘Forced heirship’ rules will automatically distribute up to 75% of your estate to your children. While you can elect for the relevant UK law to apply to your estate instead, this can be complex so consider it carefully. Note that doing this will not affect your liability for French succession taxes, which can be as high as 60% if you leave assets to step-children or non-relatives.
Good estate planning should be a key part of your strategy to become French resident and help ensure your legacy will end up in the right hands at the right time, with as little tax as possible.
Your savings and pensions
Whenever there is a big change in your life, like moving to a new country, you should review your savings and investments to check they are suitable for you now. Are you holding the right spread of assets to meet your objectives, time horizon and risk tolerance? Once you are living in France, you may need to hold more assets in Euros and diversify away from UK shares and bonds.
For peace of mind, obtain an objective analysis of your risk profile, then ensure the mix of assets in your portfolio is suitable for your needs.
Retirees should also review their pension funds and the options now available to them. Can you maximise your retirement savings without unnecessary risk? Should you move your pension out of the UK? If you are considering a Qualifying Recognised Overseas Pension Scheme (QROPS), remember the UK could start imposing a 25% ‘overseas transfer charge’ once it sheds its EU obligations.
Strategic financial planning for France
Although the Brexit countdown is on to secure French residency, take the time to ensure your finances are in the best possible position for your life in France. Take professional advice from a cross-border specialist who is experienced at helping UK nationals settle in France and make the most of the opportunities here.
Every family is different. Your strategic financial planning must be carefully designed for you. All the various aspects should work cohesively together to create an overall wealth management plan that provides long-term financial security for yourself and achieves your wishes for your heirs.
Contact a France-based adviser to discuss your plans
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.
