Fi­nance

From tax and cur­rency to pen­sions and Brexit, Rob Kay presents nine fi­nan­cial fac­tors you need to think about be­fore buy­ing across the Chan­nel

French Property News - - Contents -

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.

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