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Do you know what taxes to pay, and where? Rob Kay un­rav­els the knotty is­sue of residential sta­tus

Living France - - Contents -

Cover story Ex­pert Rob Kay ex­plains the im­por­tant is­sue of tax res­i­dency

If you are tax res­i­dent in France, then you are li­able to pay French tax on your world­wide in­come, gains and wealth, and are sub­ject to the French suc­ces­sion (in­her­i­tance) tax rules. It is your re­spon­si­bil­ity to make your­self known to the French tax author­i­ties and to fully de­clare your in­come and as­sets ac­cord­ingly.

Note in par­tic­u­lar that an in­di­vid­ual does not have a choice; you ei­ther are, or are not, French tax res­i­dent un­der the rules.

An in­di­vid­ual is deemed to be a tax res­i­dent of France if at least one of the four fol­low­ing tests is ful­filled:

France is your main res­i­dence or home (your foyer). This em­braces ideas of

Where are you res­i­dent for tax pur­poses? The an­swer may not be as sim­ple as you think. If you live in the UK and just visit a hol­i­day home in France a few weeks a year, you are most likely to be res­i­dent in the UK for tax pur­poses. If you, your spouse and any de­pen­dent chil­dren live in France full-time and only visit the UK for brief hol­i­days, you are most likely French res­i­dent.

But for those who fall in be­tween, and spend time in and/or have prop­erty in both coun­tries, it can be com­pli­cated. Many peo­ple do get caught out.

It is im­por­tant to es­tab­lish your tax res­i­dence, to en­sure you pay tax in the right coun­try. If you mis­tak­enly as­sess your res­i­dence or pay tax in the wrong place you could end up pay­ing more tax than you should. Cor­rect­ing past mis­takes may prove costly and stress­ful when the tax author­i­ties catch up with you, and you could find your­self sub­ject to a tax in­ves­ti­ga­tion.

You also can­not put ef­fec­tive tax plan­ning in place un­til you are sure of what taxes you should be pay­ing in which coun­try, so seek pro­fes­sional ad­vice early on. If you have not yet moved to France, take ad­vice be­fore you do, since that can re­sult in you pay­ing less tax than if you leave it un­til you are res­i­dent in France.

FRENCH TAX RES­I­DENCY RULES

per­ma­nence and sta­bil­ity, and is the rule the French author­i­ties most rely on. The foyer is the place where your close fam­ily (spouse and mi­nor chil­dren) ha­bit­u­ally live. Even if you spend most of your time abroad, if your foyer is in France you will be con­sid­ered French tax res­i­dent.

France is your prin­ci­pal place of abode, your lieu de séjour prin­ci­pal. This usu­ally means you spend more than 183 days in France per cal­en­dar year. How­ever, if you spend less than 183 days in France, but more days than in any other coun­try, you may still be deemed to have your lieu de séjour prin­ci­pal in France. This test is only ap­plied if a foyer can­not be de­ter­mined.

Your prin­ci­pal ac­tiv­ity is in France. For ex­am­ple, your oc­cu­pa­tion is in France (whether salaried or not) or your main in­come arises in France, un­less you can show it is in­ci­den­tal.

France is the coun­try of your most sub­stan­tial as­sets (cen­tre of eco­nomic in­ter­ests). This means if France is the place of prin­ci­pal in­vest­ments, or where as­sets are ad­min­is­tered, or where your busi­ness af­fairs are based, or where a larger part of your in­come is drawn from.

If the French tax author­i­ties ques­tion your tax res­i­dence, and claim you are res­i­dent there when you be­lieve you are not, then it is up to them to prove their case and bring fac­tual ev­i­dence to sup­port it.

You are tax res­i­dent from the day af­ter you ar­rive in France, if you ar­rived with an in­ten­tion to re­side there in­def­i­nitely.

France takes a ‘split-year’ ap­proach for tax in re­la­tion to res­i­dence and non-res­i­dence. In your tax year of ar­rival, only the world­wide in­come re­ceived af­ter the date of ar­rival is li­able to French in­come tax (ex­cept­ing French-sourced in­come, which is al­ways tax­able). In the year of de­par­ture, the re­verse of this is true.

There is ob­vi­ously an op­por­tu­nity to save con­sid­er­able amounts of French tax by dis­pos­ing of as­sets be­fore you ar­rive in France, but en­sure that you take spe­cial­ist ad­vice to make sure you get it right.

UK TAX RES­I­DENCY RULES

In the UK, the Statu­tory Res­i­dence Test de­ter­mines whether you are li­able for UK in­come tax and cap­i­tal gains tax on your world­wide in­come.

To as­sess your res­i­dence sta­tus, you need to work through three tests in or­der. The time pe­riod re­ferred to is al­ways a UK tax year: from 6 April to 5 April.

Un­der the au­to­matic over­seas test, you are treated as not res­i­dent if you meet any of the fol­low­ing con­di­tions:

You spend less than 46 days in the UK and were not res­i­dent the pre­vi­ous three years.

You spend less than 16 days in the UK and were res­i­dent in any of the three pre­vi­ous UK tax years.

You work over­seas full-time, sub­ject to cer­tain con­di­tions.

Un­der the au­to­matic res­i­dence test you are treated as res­i­dent if you meet any of the fol­low­ing con­di­tions: You spend 183 days or more in the UK. Your only or main home is in the UK. The home must be avail­able for use for at least 91 days and ac­tu­ally used at least 30 sep­a­rate days.

You work full-time in the UK for 365 days, sub­ject to cer­tain con­di­tions.

Where your res­i­dence sta­tus is not de­ter­mined un­der the first two tests, the ‘suf­fi­cient ties’ test de­ter­mines whether you are res­i­dent in the UK based on a com­bi­na­tion of the num­ber of days and ‘ties’ you have to the UK. The ‘ties’ are: fam­ily; avail­able ac­com­mo­da­tion; sub­stan­tive work; more than 90 days in the pre­vi­ous two years, and more time in the UK than any other coun­try. There are spe­cific def­i­ni­tions for each tie.

Be aware that this is a very brief sum­mary of com­plex leg­is­la­tion, so you need to take pro­fes­sional ad­vice.

DOU­BLE TAX TREATY

You can be res­i­dent in both the UK and France si­mul­ta­ne­ously. In this case, ‘tie breaker’ rules in the UK/France dou­ble tax treaty will de­ter­mine where you are res­i­dent for tax pur­poses.

These con­sider where you have a per­ma­nent home avail­able to you, where your cen­tre of vi­tal in­ter­est is lo­cated, and where you have an ha­bit­ual abode. If these are in­de­ter­mi­nate, it comes down to na­tion­al­ity. If the is­sue is still not solved af­ter the na­tion­al­ity test, the author­i­ties of both coun­tries will try to find an agree­ment.

Many peo­ple avoid be­com­ing res­i­dent in France be­cause they be­lieve they would pay too much tax as a re­sult. How­ever, if you are re­tired and take spe­cial­ist, per­son­alised ad­vice, you may find that you can use com­pli­ant tax-ef­fi­cient ar­range­ments in France to con­sid­er­ably lower your tax li­a­bil­i­ties. You may even find that you could pay less tax in France than you do in the UK. www.blevins­franks.com 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 is ad­vised to seek per­son­alised ad­vice.

You can be res­i­dent in both the UK and France si­mul­ta­ne­ously. In this case, the dou­ble tax treaty will de­ter­mine where you are res­i­dent for tax pur­poses

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