Tax residence in France and the UK – are you paying tax in the right place?

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20.02.24
Tax residency in France

Tax residence has been a big topic amongst British expatriates in France, and those hoping to move there over recent years.

You are probably aware of the importance of reviewing your tax planning for France to ensure it is suitable and tax efficient for a French resident. The first step though, before re-organising your assets, is to understand the tax residence rules of both France and the UK. Also, if you live in France and have assets elsewhere, establish how the relevant double taxation treaty affects you.  You should be certain which country you have to pay tax in, and on which assets.

Tax residency can be complex, it is not just about day counting. We often meet people who think they are resident in one country but actually meet the tax residency rules of another.   Paying tax in the wrong country can prove costly, including back taxes, interest and potential fines, not to mention stressful.   With today’s automatic exchange of financial information, you need to carefully follow the rules.

Tax residence rules in France

Under the Code Général des Impôts, individuals are deemed to be tax resident in France if one of these four tests is fulfilled:

  • France is your main residence or home (foyer) – the place where your close family (spouse/cohabiting partner/dependent children) habitually live, or where most of your personal life is centred if you are single without children. Your foyer can be in France even if you spend more time out of the country.  This is the rule the French authorities rely on most.
    
    
  • France is your principal place of abode (lieu séjour principal). This usually means you spend more than 183 days in France in a calendar year, but may also apply if you spend more days here than in any other single country and cannot prove tax residence elsewhere.
    
    
  • Your principal activity is in France – for example, your occupation or main income arises here.
    
    
  • France is the ‘centre of your economic interests’ – where your most substantial assets are based (such as principal investments); your assets are administrated; your business affairs are, or where you draw a larger part of your income.

If you meet any of these criteria, you are liable to pay French tax on your worldwide income, gains and property wealth.  It is your responsibility to fully declare all your income and assets as required in France.

Learn more about paying your taxes in France by downloading our free tax guide.

Timing your move

France takes a ‘split-year’ approach. In the year of arrival, only income received after you arrive is liable to French income tax. When leaving France, only income up to the date of departure is taxable. French-source income is always liable to French taxation, regardless of residency.

When leaving or arriving, you could avoid French tax by timing when you sell assets – but consider where you are tax resident at the time and what tax is due there.  Weigh up whether you are better off selling your UK assets while you are still UK tax resident or waiting until you live in France.

UK tax residence – the Statutory Residence Text

The UK’s ‘Statutory Residence Test’ can continue to affect British expatriates.  If you spend time in both countries or retain ties with the UK, you could be deemed resident in the UK for tax purposes without realising it. It includes three tests:

Automatic overseas test: You are not resident in the UK if you spend less than 46 days there in a UK tax year and were not resident in any of the previous three tax years. However, if you were UK resident within the last three years, just 16 days back could trigger residency. Those who work overseas full-time and spend under 90 days in the UK per year will not be deemed UK resident.

Automatic residence test: You are UK resident if you spend 183 days or more there in the tax year, or your only or main home is in the UK, or you work full-time there.

Sufficient ties test: Otherwise, whether you are UK tax resident or not depends on how many ties you have with the UK (family, work, accommodation) and how many days you spend there.

If you meet the domestic tax residency rules of both countries, double taxation treaty tie-breaker rules determine where you pay taxes. These look at where you have a permanent home, where your interests are and you have a habitual abode. If necessary it comes down to nationality.

While you do not have a choice – you either are or are not tax resident under the rules – if you have flexibility you can be careful with the number of days you spend in each country and where you have assets and ties.

France may have a reputation of being a high-tax country, but don’t let that put you off becoming resident here. Restructuring your assets to make them suitable for a French resident can improve your tax liabilities – you may be surprised by how much, especially if you are retired and living off private pensions and investments.

French residents earning UK income

Take care to declare any UK income correctly, following the rules of the France/UK tax treaty.

You are obliged to report all UK source income in France, even if you pay UK income tax.

UK government service income – Unlike other UK pension income, government service pensions remain taxable in the UK.  But although the income is not taxed directly in France, you must still include it as part of your taxable income – a credit equal to French income tax and social charges is then given.

UK rental income – The same rules apply as government pensions above. UK rental income is taxed in the UK, but must be included on your French declaration.

Capital gains on UK assets – French residents must declare and pay tax on gains made on the sale of UK property and moveable assets (shares etc).  Real estate gains are liable to tax in both countries, but you receive a credit in France for UK tax paid.   Moveable assets are generally taxed in the country where the seller is resident.

UK savings and investments – You need to declare interest or dividends from the UK within 15 days of the month end and pay the 30% tax (the Prélèvement Forfaitaire Unique /PFU).  This will be offset against the tax due on your tax return.  ISAs and Premium Bond winnings are fully taxable in France in the hands of French residents.

Residency and cross-border taxation are complex issues.  Getting it right from the start will make life much easier in future, so take specialist, personalised advice with Blevins Franks.

Contact us today.

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.

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