Residents of France are liable to French income tax, social charges, wealth tax on property and your heirs will pay inheritance tax.
If you are resident in France, you will be liable to French income tax, social charges and wealth tax on property, plus your heirs will be subject to inheritance tax.
The French tax regime is very different from the UK’s. There are two taxes on income (income tax and social charges); investment income can be taxed differently than general income; a wealth tax is applied on real estate assets and succession tax differs significantly from UK inheritance tax.
So if you are moving to France or buying property there, it is important to take the time to familiarise yourself with the French taxation and how it will apply to you. You also need to keep up to date with the various rules as they can change from year to year.
Income tax is payable on earnings, pensions and rental income, and you are taxed as a household rather than an individual. This ‘parts’ system can prove beneficial for some families.
2019 income tax rates (payable on 2018 income)
| Up to €9,964
| €9,964 to €27,519
| €27,519 to €73,779
| €73,779 to €156,244
| Over €156,244
Higher earners currently pay an additional tax of 3% or 4% for income over €250,000 and €500,000 respectively, with higher thresholds for families.
Since January 2018, investment income is taxed at a special fixed rate (the Prélèvement Forfaitaire Unique or PFU), rather than the above rates. The rate is 30%, which includes both income tax and social charges.
Lower earners can opt to apply the progressive rates of income tax for their investment income instead, plus social charges.
For non-residents, the minimum tax rate on French source income is 30% in 2019.
Social charges are payable on all forms of income, in addition to income/capital gains taxes.
In 2019 they are:
- 9.7% for employment/self-employment income
- 9.1% for pension income
- 17.2% for investment income including rental income
Variations to social charges
Retirees who hold Form S1 do not need to pay social charges on pension income. Also, individuals with pension income lower than €2,000 per month (€3,000 for a couple) pay a lower rate of 7.4%.
Individuals covered under the health system of another EU/EEA country no longer have to pay the full 17.2% social charges rate on investment income and capital gains. Instead, the new prélèvement de solidarité will apply at a flat rate of 7.5%. This affects residents holding Form S1 and non-residents with assets in France.
France began implementing a pay-as-you-earn system from 1st January 2019.
It applies to employment income, retirement income (pensions, lifetime annuities), rental income (including French property rental income of UK residents), taxable state benefits, maintenance payments, non-French income taxable in France, business profits and consultancy fees/independent income.
Income tax is now deducted at source for French employment income and pensions each month. For other affected income – such as self-employment earnings, rental income and UK pensions – tax is collected through monthly or quarterly direct debit from your bank account.
The amount payable is calculated on your last income tax return (so for 2019 it will be your 2017 return), with any balance due by the end of the year.
Investment income – interest, dividends, capital gains and gains from life insurance policies/non-French assurance-vie – is excluded from PAYE. It also does not apply to non-French income that receives a tax credit in France under a double tax treaty.
Wealth tax/Real estate tax (IFI)
Prior to 2018, France imposed an annual wealth tax on worldwide assets. Since last year, it is only levied on real estate assets.
This Impôt sur la Fortune Immobilière (IFI) wealth tax is payable where the taxable household real estate wealth exceeds €1.3 million. Where wealth is over this threshold, the tax-free allowance is €800,000 and the rates below apply over this figure.
Wealth tax rates
|Gross property assets of the household
|€800,001 to €1,300,000
|€1,300,001 to €2,570,000
|€2,570,001 to €5,000,000
|€5,000,001 to €10,000,000
Considering how often the French tax rules change, it is possible wealth tax will be extended to cover all assets again in future.
There have not been any significant changes to succession tax in the last few years.
In France, each beneficiary is liable to pay succession tax on the amount they receive (whether as a gift or inheritance); it is not charged on the estate as in the UK. Tax rates and allowances vary considerably according to who the beneficiary is.
There is no tax on inheritances between spouses, but gifts are taxable. The tax rates for gifts for spouses and children, and for inheritances received by children, range from 5% to 45%. For other beneficiaries, the rates are 35%, 45%, 55% or 60%, depending on the level of relationship and the amount inherited or gifted.
Succession tax allowances
Spouses receive an €80,724 allowance (for lifetime gifts) and children €100,000 (per child). But for everyone else the allowances for inheritances only range from €1,594 to €15,932 (though disabled persons can benefit from a much higher allowance). Grandparents can gift up to €31,865 tax-free to grandchildren.
French taxation can be rather complex. Care needs to be taken to ensure you are following the rules and paying tax correctly – it is important to understand how French taxation affects you personally.
The French regime does, however, provide opportunities for effective tax planning. You may be able to lower your tax liabilities much more than you expect, particularly for investment capital.
Note that since the French and UK rules are so different, your UK tax planning is unlikely to be effective in France. For example, what is tax efficient in the UK often is not in France, so you may need to restructure how you hold your assets.
If you have not yet moved to France, the earlier you can take advice the better, so that when you buy assets in France you can use the structures that will work best for you. Use a specialist financial and tax adviser who is familiar and up-to-date on both the UK and French rules and how they interact, and ensure that the tax planning solutions you use are tailored for your specific objectives and family circumstances.
Contact us for a tax 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 are advised to seek personalised advice.