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News / Taxation Of Pension Lump Sums In France

Taxation Of Pension Lump Sums In France

07.07.11

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On 1st January 2011 French tax law changed to make pension lump sums taxable in France for the first time. This could affect you if you are already living in France and have not yet taken your pe

On 1st January 2011 French tax law changed to make pension lump sums taxable in France for the first time. This could affect you if you are already living in France and have not yet taken your pension commencement lump sum.

There is some debate about the tax treatment of lump sums received from UK pensions, with some commentators arguing that they should escape the new rules since the UK/France tax treaty is ambiguous as to whether lump sums are taxable in France or the UK. The Ministry of Finance is considering the position, but at the time of writing we do not have their reply.

Under the new rules, if the original contributions to the pension were tax deductible on the way in ? as is the case with UK pension funds – the lump sum is taxed as pension income, and the 10% deduction (max of around ?3,600) is available. Social charges are applicable at 7.1% as for pension income, unless you hold Form S1.

If the contributions were not tax deductible on the way in, the lump sum is treated as income from moveable capital and only the growth element is taxable.

Where the lump sum exceeds ?6,000 and the contributions were tax deductible, it may be possible to spread the tax effects of the lump sum to avoid falling into the higher tax bands in the year of receipt.

Note that if your lump sum is taxed in France, it is unlikely that you will be able to apply the sometimes more beneficial annuity treatment to your pension income, so you need to consider your options. Existing pension income will not be affected.

The 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; an individual must take personalised advice.

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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