Are you fulfilling your dream of enjoying your retirement years in France? Whether you are in the planning stages and looking forward to the day you can finally move or have recently arrived and are familiarising yourself with life in France, there are various financial planning stages to work through.
Your financial journey starts with researching the move, and while it continues throughout your life in France, you can take many of the steps early on. After that you’ll no longer need to worry about your financial and estate planning, other than some regular maintenance.
Here are the key steps to take on your journey.
1) Understand the tax implications of spending your retirement in France
Once you are a tax resident in France, you become liable to French tax on your worldwide income, gains and real estate wealth.
You are considered a tax resident if your main residence/home is in France, or you spend more than 183 days here a year (it’s your principal place of abode), or your principal activity (occupation) is in France, or it is the country of your most substantial assets. France uses the split-year approach; you become a resident from the day you arrive if you intend to live here indefinitely.
If you live in France and continue to earn income in the UK, the France/UK double taxation treaty determines where you pay tax.
2) Timing your move to save tax
The French tax year runs from January to December, while the UK is from April to April with different capital gains tax rules and rates.
It’s worth weighing up whether it is more tax-efficient to sell your UK assets while still a UK resident or wait until you are a resident in France and then time your move accordingly.
Learn more about taxes in France by downloading our free guide.
3) Structure your assets to minimise tax in France
A potentially costly mistake is assuming that what was tax-efficient in the UK was the same as that in France. The tax regimes are rather different, and UK tax planning arrangements are unlikely to provide the same benefits as those in France (ISAs, for example, are fully taxable in France).
While the headline rates of tax can look high, the French tax regime presents attractive tax mitigation opportunities. The way you hold your assets can make a significant difference to how much tax you pay.
4) Research how UK pensions are taxed in France
For residents of France, UK state pensions, occupational and personal pensions, and annuities are taxable in France, not the UK. Government service pension income remains liable only to UK tax and is not directly taxable in France (you still include it with your taxable income but receive a tax credit).
Pension lump sums are taxable in France, normally at the scale rates of income tax plus 9.1% social charges if applicable. However, if you take your whole pension fund at once and the pension contributions were made into a contributory scheme, then you may be eligible for a special 7.5% rate (excluding social charges).
You do not pay social charges on pension income if you are not subject to the French healthcare system and/or you have Form S1.
5) The QROPS option
Once resident in France, it may be possible to transfer certain UK pensions to a Qualifying Overseas Pension Scheme (QROPS). These can provide flexibility to take income in euros, more freedom to pass benefits to chosen heirs, and protection from any future adverse UK pension reforms.
UK pension rules frequently change so you need to keep up to date. In any case, always take regulated advice before making pension decisions to protect your benefits.
Contact us for a pension review.
6) Reviewing your savings and investments
Once you’re retired and living in France, your circumstances and objectives completely change from your working days in UK. Your risk tolerance is likely to be lower too.
This is the perfect time for a completely fresh review of your savings and investments. Ensure your overall portfolio is suitable for you today, is designed to meet your aims and current risk appetite, and has adequate diversification to reduce risk.
Another important element is currency – keeping savings in Sterling puts you at the mercy of conversion costs and negative exchange rate movements. It may be sensible to have a mix, so look for investment structures that allow flexibility.
Of course, you may want to move your investments into tax-efficient arrangements in France to improve your real returns. It’s not advisable to make investment decisions without considering the tax implications and opportunities.
7) Don’t forget estate planning
The French succession regime varies significantly from the UK’s. French inheritance tax is assessed on each beneficiary, with large disparities between rates and allowances for different levels of kinship. Couples who are not married/in a civil partnership and/or with children from previous relationships need to be particularly careful. Be aware too that France also imposes forced heirship. You can plan ahead to get round this but there are limitations for your French assets.
This makes it essential to review and adjust your succession planning to be effective and achieve your wishes under the French system.
8) Returning to the UK?
During your retirement in France, there may come a point where you decide to move back to the UK.
Early planning helps make your move as seamless and tax-efficient as possible. Allow enough time to reorganise your financial affairs in advance, not only for your peace of mind, but to ensure the financial implications of your return work in your favour.
With your tax and estate planning carefully structured around being a French resident, these need to be modified when you leave to suit the UK system. If you transferred UK pensions into a QROPS or made pension decisions based on French taxation, you will need to establish the best way forward.
Retirement in France – A helping hand
Cross-border wealth management is complex, with all the different various elements potentially having an impact on the others. For example, how you own assets can have repercussions on what tax you pay and your estate planning options. Speak to a specialist adviser who can provide a strategic financial plan for your whole journey, from your planning stages in the UK if you haven’t moved yet, ensuring you do everything at the right time, right through your retirement years in France, and should you decide to return to the UK in future.
Blevins Franks has been helping UK nationals retire to France for almost 50 years. Our advisers live locally, have an in-depth knowledge of the French tax regime, and receive support from our in-house specialists.
Contact Blevins Franks today.
