Tax and estate planning for living in France is best left in the hands of the experts, providing a holistic view of French taxation, residency and succession laws so that you can structure your wealth efficiently based on your specific circumstances.
As we move further into 2023, what do you need to think about in terms of your tax and financial planning? What has changed in the last few years that you need to be aware of and plan for?
The French budget for 2023 was uneventful in terms of taxation, with no significant changes to tax rules or rates.
Investment income continues to benefit from the fixed, combined 30% rate of tax and wealth tax still only applies to real estate assets. There are no signs that either of these will change in the near future.
Succession tax also remains the same as 2022. President Macron had talked about increasing some allowances and reducing some tax rates, but the current economic situation meant this had to be shelved for now.
One small tax change that should benefit us all a little though was the increase to the income tax bands for 2022 income. While the tax rates themselves remain the same, each income band has increased by 5.4% to index them with inflation. This means we can earn a little more before hitting the next tax rate.
Unfortunately, inflation means this does not improve our spending power, but it does help counter the higher cost of living a little.
French social charges
Social charges also remain the same as 2022: 9.7% for employment income, 9.1% for pension income and 17.2% for investment income.
The special lower rates introduced a few years ago remain in place. Social charges on pensions are reduced to 7.4% if your taxable income is less than €2,000 a month (€3,000 for a couple). That said, if you have Form S1 or not subject to the French health care system, you escape social charges on pensions completely. Likewise, if you have an S1 or are covered under the health care system of another EU/EEA country, the social charges applied to investment and property income are reduced from 17.2% to 7.5% – a significant saving.
There was some debate over whether the reduced 7.5% rate applies to UK nationals after Brexit, but last year the French authorities confirmed that this treatment continues to apply.
The UK budget and taxation by stealth
If you have assets in the UK or expect to move back there in the coming years, you need to keep a close eye on what is happening with UK taxation. The Autumn Statement included various measures to increase tax revenue:
- The capital gains tax exemption will be cut from £12,300 to £3,000 by April 2024.
- The dividend allowance will decrease from £2,000 to £500 by 2024.
- The various income tax allowances and National Insurance Contributions thresholds will remain frozen until April 2028 and the additional rate threshold cut to £125,140 from April.
- Both inheritance tax allowances also remain frozen until 2028.
While tax rates may not have gone up, freezing allowances has a similar effect – and is therefore often described as ‘taxation by stealth’.
The UK’s Office of Budget Responsibility estimates that the frozen thresholds will create an additional 3.2 million new taxpayers, while 2.6 million will move into the higher rate band. The Institute for Fiscal Studies warned that the UK has entered a “new era” of higher taxes and that, along with the soaring cost of living, the tax burden is unlikely to return to pre-pandemic levels “for several decades”.
Rental income from UK property and government service pensions remain taxable in the UK, even if you are resident in France. While gains made on capital investments are generally taxed in your country of residence, if you sell a UK property as a French resident the gains will be liable to tax in both countries, though you receive a credit in France for UK tax paid.
In the case of inheritance tax, if you are a tax resident of France you are generally considered to be a French domicile, making your worldwide estate liable to French succession tax rather than UK inheritance tax. Be aware, however, that if you opt for UK succession law to apply to the distribution of your estate under the Brussels IV regulation, you may be deemed to be UK-domiciled. In any case, assets in the UK always remain liable to UK inheritance tax. And here the main nil rate band is frozen at £325,000 from 2009 to 2028 – 19 years! – even though house prices will have risen considerably.
Moving assets out of the UK – and this includes your pensions if such a move is suitable for you – could prove very beneficial from a taxation point of view.
French succession restrictions
Moving away from tax onto estate planning, one issue British expatriates in France have to contend with is the strict forced heirship regime. Between 50% and 75% of your assets must be left to your children, depending on how many you have. Only the balance can go to your spouse.
This can particularly cause issues if you and/or your partner have children from previous relationships, or if you simply have different intentions for how you divide up your estate.
Since 2015, the EU succession regulation ‘Brussels IV’ allows foreign nationals to elect the law of their country of nationality to apply to their assets on their death, which generally allows Britons to bypass the French rules.
Note however that under legislation approved in late 2021, when French assets pass according to the provisions of a country that does not impose forced heirship rules (such as England and Wales) the protected heirs can make a claim for the share they would be entitled to under the French rules. This effectively allows French forced heirship rules to override Brussels IV on local assets. If this is contrary to your wishes, take specialist advice on what you can do to bypass this.
Tax and estate planning in France
The French taxation and succession regimes can be complicated enough on their own, but they become a minefield when you’re dealing with cross-border issues. You need to understand the rules of each country and how they impact you, and also how they interact. Blevins Franks is the leading cross-border wealth management company in Europe, with more than 45 years of experience helping our clients to ensure their finances are structured in the most tax-efficient way possible for a life in France. Our advisers live locally and have deep knowledge of tax and estate planning in both France and the UK.
Contact Blevins Franks today.