From tax and currency to pensions and Brexit, Rob Kay presents nine financial factors you need to think about before buying across the Channel
Nine factors to consider before moving to France
While French bureaucracy and tax rules may seem offputting, you can stave off most headaches with early and careful planning and make the most of tax-efficient opportunities. Here are nine things to think about before making your move.
Where will you pay tax? You need to establish exactly when you will become liable for French tax on your worldwide income, gains, wealth and estate.
Generally, once you arrive in France intending to live there permanently, you become French tax resident the following day. But it is not always so straightforward. You could be considered resident even if you do not live in France but your spouse does, or if your main home is in France. You also need to be wary of UK tax residence rules – you could, for example, unintentionally trigger UK tax residency by spending just 16 days back home.
However, as long as you plan carefully and are prepared to be flexible, it is perfectly possible to time your residency switch to minimise your tax liabilities in both countries.
How will you be taxed?
French taxation can be complicated and high. Besides income tax peaking at 45%, you also face up to 15.5% ‘social charges’ on most income. Currently, an annual wealth tax also applies if your household’s taxable assets exceed €1.3m. But, with expert planning, it is possible to structure savings, investments and assets to be tax-efficient, and maybe even pay less tax than you did in the UK, depending on your circumstances.
Once resident in France, you are responsible for making yourself known to the French tax authorities and declaring your worldwide income, capital gains and wealth. Taxes are declared a year in arrears, so your first tax return is usually due around the end of May the year after arrival.
Unlike the UK, French tax rates are not calculated by individual income, but by dividing the total income of a household by the number of family members. This can result in lower taxation in households with high income but several ‘ parts familiales’.
How will you structure your wealth? Do not assume that what is tax-efficient at home will be the same in France. ISAS, for example, lose their tax-free status once you are no longer UK resident, and interest attracts both French income tax and social charges.
Your circumstances and goals will almost certainly change when you relocate too. It is crucial to take a fresh look at your financial planning to make sure your affairs are set up in the best way for your new life in France.
If you have investment capital, take professional advice to establish the most tax-efficient structures for French residents. An adviser with cross-border expertise can recommend suitable investment vehicles that provide considerable tax advantages to suit you and your particular circumstances as an expatriate.
Which currency works for you? Although Britons living in France tend to favour sterling for savings and investments, this makes income vulnerable to exchange rate fluctuations, which can impact returns. Ideally, you should hold some assets in euros to avoid exchange rate risk, especially during this time of Brexit volatility. However, you may want to spend money in the UK, return someday or leave an inheritance to UK residents. Ask your adviser about investment structures that let you diversify by holding multiple currencies or consider transferring UK pensions to arrangements offering currency flexibility.
What are your property options? Understanding the tax implications before buying and selling property could save thousands. Are you better off selling UK property now or should you wait until you are living in France? Rules, rates and allowances differ in each country, so take advice to establish what
It is crucial to take a fresh look at your financial planning to make sure your affairs are set up in the best way for your new life in France
works best for you.
If you are looking to buy a home in France, note that there are various ways of owning property, each with different tax implications. For example, several people, including children, can share ownership using a French property holding company called an SCI ( Société Civile Immobilière). You could also reduce succession tax by giving ownership to heirs while keeping the right to live in the property through an ‘ usufruit’.
The most suitable option for you will depend on your family situation, what you want to happen to the property on death and how you will use it – will you live there full-time, treat it as a holiday home or rent it out? Advice is essential to understand your best approach.
What will happen to your UK pension? When living abroad, many Britons find it beneficial to transfer UK pension funds into a Qualifying Recognised Overseas Pension Scheme (QROPS) to enjoy tax efficiency, flexibility and estate planning advantages over UK pensions. Alternatively, you could potentially take out your UK pension fund as a lump sum and pay just 7.5% tax in France in some circumstances. You could then re-invest the capital into tax-efficient arrangements in France to make your retirement savings go further.
There is no ‘one size fits all’ solution, however. With something as important as your pension, it is vital to take regulated professional advice tailored for you and your particular situation.
How will your legacy be passed on?
In France, succession law and inheritance taxes work differently from the UK. Getting it wrong can have serious consequences, especially if you have children from previous relationships or want to leave assets to distant or non-relatives, who could face heavy taxes. Beware also the ‘forced heirship’ rules in French succession law. This can automatically pass on up to 75% of your estate to your children, regardless of your wishes. It is possible to nominate UK inheritance law, but take care to understand the pros and cons.
What about Brexit? While there is still uncertainty about this, the rights of Britons in France can’t change before March 2019 when Britain leaves the EU.
New reciprocal agreements are likely to protect existing residents, so if you are serious about living in France, consider moving and securing your residency sooner rather than later. It may also be a good idea to act now, under known rules, if you are thinking about moving your pensions out of the UK, rather than waiting to see what changes post-brexit.
Seek advice Ultimately, you need professional advice to make the most of your opportunities in France and ensure you use legitimate arrangements that suit your circumstances. UK financial advisers, however, are unlikely to be up to date with the intricacies of French taxation and the frequent changes to the tax regime. Speak to a France-based adviser who has cross-border experience with British expats. With proper guidance, you can get your affairs in order and relax into your new life in France.