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

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06.12.21

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

Brexit added some uncertainty and now, for new arrivals, more advance planning and paperwork.  But there are actually two types of residence that you need to be aware of:

  1. Lawful residence – your rights, as a national of one country, to live and work in another.
  2. Tax residence – the country which has taxing rights over your worldwide income, gains and wealth.

This article covers the second aspect, looking at the rules in France as well as the UK.

Tax residency is more complex than people realise, not just about day counting. We often meet people who think they are resident in one country, when they actually meet the tax residency rules of another.   Paying tax in the wrong country can prove costly, including back taxes, interest, potential fines and possibly even a tax investigation. And, with today’s automatic exchange of financial information regime, you need to be carefully follow the tax rules.

Tax residence rules in France

Under the Code General des Impôts, individuals are deemed to be tax resident in France if at least one of the following four tests is fulfilled.

  1. France is your main residence or home – your foyer. This is the rule the French authorities rely on most. Your foyer is defined as the place where your close family (spouse/cohabiting partner and dependent children, but not parents) – habitually live. If you are single with no children, it is where most of your personal life is centred. Your foyer can be in France even if you spend most of your time out of the country.
  2. France is your principal place of abode – your 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 in France than in any other single country. The authorities are reported to be increasingly applying this rule, particularly to ‘tax nomads’ who cannot prove tax residence elsewhere.
  3. Your principal activity is in France – for example, your occupation is in France (whether salaried or not) or your main income arises there.
  4. France is the ‘centre of your economic interests’ – where your most substantial assets are based (such as principal investments), where your assets are administrated or 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 make yourself known to the French tax authorities and fully declare all your income and assets as required.

Timing your move

France takes a ‘split-year’ approach. Only income received after you arrive in France is liable to French income tax. If you leave the country, only income up to the date of departure is taxable in France. French-source income, however, is always liable to taxation in France, regardless of residency.

So for those who are 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 still a UK tax resident, or waiting until you move to France.

Download our free tax guide to learn more about taxation in France.

UK tax residence – the Statutory Residence Text

British expatriates also need to understand the UK’s ‘Statutory Residence Test’ and how it could continue to affect them.  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 current tax year, if your only or main home is in the UK, or you work full-time there.

Sufficient ties test: Otherwise, whether or not you are UK resident for tax purposes 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 in the same year, the tie-breaker rules outlined in the UK/France double tax treaty will determine where you pay taxes. These look at where you have a permanent home, where your personal and economic interests are and where you have a habitual abode. Where residence still cannot be determined, it comes down to nationality.

Benefits of understanding tax residency rules

While you do not have a choice – you either are or are not 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.

Although France has a reputation of being a high-tax country, don’t let being a French tax resident put you off moving there. 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.

Residency is a complex area for expatriates with cross-border interests. To make sure you get it right, ask our Blevins Franks tax specialists for personalised advice.

Contact Blevins Franks today for a tax and financial planning review

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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