Better save than sorry
Rob Kay throws the spotlight on savings and investments and explains how they will be taxed when you move to France
If you are planning a move to France, you need to find out about all the tax implications as early as possible. Tax in France, including on your savings, can be rather high if you do not use tax-efficient structures. There have been a number of tax reforms in recent years, particularly on how investment income is taxed, so you need to make sure you are up to date on the rules and rates before moving. Seek advice and know all the facts.
HOW SAVINGS ARE TAXED IN FRANCE
Investment income (this includes bank interest, dividends and capital gains on the sale of shares) is added to your other income for the year and taxed at the progressive rates of income tax of up to 45%.
There is currently an additional exceptional tax of 3% or 4% for income over €250,000 and €500,000 respectively; the thresholds are higher for families.
Social charges on investment income at 15.5% are added on top of income tax. This makes for a combined top rate of tax of 64.5%. This may change following a European Court of Justice (ECJ) ruling that the 15.5% French social charges should not be assessed on investment and passive income if the taxpayer is affiliated with a social security regime of a European country other than France. It may be that residents who have Form S1 (the EU-wide certificate that entitles you to health care in another EU country) will be exempt from social charges in the future. We are waiting to see how the French authorities respond to the ruling.
Besides income tax, your savings and investments will also be assessed for wealth tax. This is an annual tax charged on the value of a household’s total worldwide assets as at 1 January. You are liable if your assets add up to over €1.3 million; if so, you will start paying tax on assets over €800,000, at rates of between 0.5% and 1.5%.
TAX-EFFICIENT SAVINGS AND INVESTMENTS
When you move from the UK, it is very important to review your tax planning because what is tax efficient in the UK is generally not tax efficient in France.
IN THE UK
Individual Savings Accounts (ISAs) are commonly used for tax-free savings. UK residents and Crown employees (for example, diplomatic or overseas civil service) working abroad, or their spouse or civil partner, can save tax-free with an ISA. You can save up to £15,240 for the 2015/16 tax year, either in one cash ISA or one stocks-and-shares ISA, or you can split it between the two types.
You can keep your ISA once you leave the UK, and continue to get UK tax relief on it, but you cannot pay any more into it while you are a non-UK resident.
ISAs are not tax-free in France. They are taxed at your marginal rate of tax, so you may be better off making arrangements that are tax efficient in France.
There are various opportunities to save tax in France. For example, combined French income tax, wealth tax and social charges cannot exceed 75% of your total income for the previous year. Although 75% sounds high, this ‘tax cap’ actually presents tax-planning opportunities with specialist advice.
When it comes to tax on capital gains, there is a form of relief of 50% for investments held for between two and eight years and 65% thereafter. If you have held shares for a number of years, you can take advantage of this relief by selling the shares and reinvesting the capital more tax-efficiently.
There are also a number of tax-efficient savings vehicles in France, such as the Livret A, a tax-free savings account guaranteed by the government. Interest rates are set by the Banque de France and are currently 0.75%. You can only have one and there is a limit to how much capital you can hold in it – currently €22,950.
The ceiling on the similar, but smaller, savings account, the Livret de Développement Durable (LDD), is €12,000. Interest earned on this type of bank account is free from income tax and social charges.
For amounts up to €150,000 there is the Plan d’Épargne en Actions (PEA). This is a share savings plan that encourages long-term savings through investment in European and European Economic Area equities. It is only open to French residents and is limited to one per household (except for PACS or married couples who can open one PEA for each person).