THE RE­TIR­ING TYPE

Un­der­stand­ing your pen­sion op­tions and the im­pli­ca­tions of re­ceiv­ing pen­sion in­come in France is an im­por­tant part of a move across the Chan­nel, as Rob Kay ex­plains

Living France - - Contents -

The im­pli­ca­tions of re­ceiv­ing UK pen­sion in­come in France

For many Bri­tish ex­pats, their pen­sion is the key to a se­cure and com­fort­able re­tire­ment. If you are al­ready liv­ing in or plan­ning to move to France in re­tire­ment, it is im­por­tant to un­der­stand all your pen­sion op­tions as well as the tax im­pli­ca­tions of re­ceiv­ing pen­sion in­come in France. You need to make sure you meet all your obli­ga­tions un­der UK and French tax law – with­out pay­ing more than you need to. The ac­tions you take now could mean the dif­fer­ence be­tween pay­ing as lit­tle as 7.5% or as much as 45% tax on your pen­sion in­come.

WHO WILL YOU PAY?

You can­not choose which coun­try you pay tax in. If you meet cer­tain con­di­tions, the French tax au­thor­i­ties will con­sider you a res­i­dent for tax pur­poses, whether it suits you or not. If you are con­sid­ered a French res­i­dent, you will need to pay French tax on all of your in­come, in­clud­ing your UK pen­sion. All UK state, oc­cu­pa­tional and pri­vate pen­sions are tax­able in France. UK gov­ern­ment ser­vice pen­sions are an ex­cep­tion – they re­main tax­able only in the UK. These in­clude pen­sions from a lo­cal author­ity, the army, po­lice and some NHS de­part­ments – you can find a full list at HM Rev­enue & Cus­toms ( gov.uk).

Thanks to a tax ar­range­ment be­tween the UK and France, you will not have to pay tax twice on the same in­come. This means that any UK per­sonal and oc­cu­pa­tional pen­sion in­come for French res­i­dents can be paid gross in the UK and then taxed only in France (the state pen­sion is al­ways paid gross).

With gov­ern­ment ser­vice pen­sions that are not sub­ject to French tax, you must still in­clude them as tax­able in­come on your French tax re­turn. You then re­ceive a credit equal to the French in­come tax and so­cial charges that you would have paid, which is taken off your fi­nal tax li­a­bil­ity. Although you will not pay French tax on a gov­ern­ment ser­vice pen­sion, it will be counted as part of your an­nual in­come when cal­cu­lat­ing your French tax rate.

HOW MUCH WILL YOU PAY?

For French res­i­dents, UK pen­sions are taxed at the nor­mal French in­come scale rates, which range from 0% for in­come un­der €9,700 to 45% for in­come over €152,108. In­stead of tax­ing the whole amount, the French tax au­thor­i­ties of­fer a 10% al­lowance on your gross pen­sion in­come, up to €3,711 per house­hold. They will also work out your tax rate ac­cord­ing to the ‘parts’ sys­tem, which di­vides your house­hold in­come by the num­ber of mem­bers. For cou­ples where one spouse re­ceives a much higher in­come than the other, this re­sults in a lower over­all tax bill than if they were as­sessed in­di­vid­u­ally.

TAX ON CASH LUMP SUMS

One of the UK’s new pen­sion free­doms al­lows you to take out all of a ‘de­fined con­tri­bu­tion’ pen­sion fund as cash. Bri­tish res­i­dents can with­draw up to a quar­ter with­out pay­ing tax in the UK. If you take out more than this as a UK res­i­dent, you will get a quar­ter of it tax-free ev­ery time you with­draw cash.

How­ever, if you are a French res­i­dent, as soon as you take a cash lump sum it be­comes li­able to French tax, even if it re­mains in the UK. The only ex­cep­tions to this are if your with­drawal is due to cir­cum­stances known as an ‘ac­ci­dent of life’, such as in­va­lid­ity, un­em­ploy­ment or death of a spouse.

It is pos­si­ble to limit French tax on your UK lump sum to a fixed rate of 7.5% with an un­capped 10% al­lowance. This will only be an op­tion if you can meet two con­di­tions. First, the pen­sion con­tri­bu­tions must have been de­ducted from your or your em­ployer’s tax­able in­come. Se­cond, you gen­er­ally have to take the whole pen­sion fund at once. It is un­likely you will be el­i­gi­ble if you have al­ready taken any­thing from your pen­sion fund.

If you do not meet the con­di­tions for the lower fixed rate, any lump sums will be taxed at the nor­mal French scale rates of in­come tax up to 45%.

OTHER TAXES ON YOUR PEN­SION

As well as French in­come tax, your UK pen­sion can also be li­able for so­cial charges of 7.4%, but only if you are af­fil­i­ated to the French health­care sys­tem. This will be the case if you are still em­ployed or self-em­ployed in France and pay­ing co­ti­sa­tions so­ciales, or if you are pay­ing pro­tec­tion uni­verselle mal­adie (PUMA) con­tri­bu­tions. Pro­vided you never worked in France, if you hold Form S1 – avail­able once you start re­ceiv­ing your UK state pen­sion – you do not need to pay any so­cial charges on your pen­sion in­come.

It is your re­spon­si­bil­ity to es­tab­lish what taxes you are li­able for on your world­wide in­come and as­sets, and declare and pay the right tax to the right place. If you fail to do this, how­ever in­ad­ver­tently, you could face a tax in­ves­ti­ga­tion, back taxes, in­ter­est and penal­ties. New in­ter­na­tional law means your lo­cal tax of­fice will soon au­to­mat­i­cally re­ceive in­for­ma­tion on your as­sets and in­come out­side France, so you need to make sure you declare ev­ery­thing cor­rectly.

FIND­ING THE BEST OP­TION FOR YOU

Even if it is pos­si­ble to take your en­tire pen­sion in cash and pay just 7.5% in French tax, this may not nec­es­sar­ily be the best op­tion for you. For some peo­ple there may be ad­van­tages in do­ing this and rein­vest­ing, for ex­am­ple, in a tax-ef­fi­cient as­sur­ance vie, but it is by no means a one-size-fits-all so­lu­tion. There are also dif­fer­ences be­tween providers and ju­ris­dic­tions that could af­fect the tax ben­e­fits. It is im­por­tant to take per­son­alised ad­vice and ex­plore all of the op­tions avail­able.

An­other op­tion for non-UK res­i­dents is to trans­fer your pen­sion into a Qual­i­fy­ing Recog­nised Over­seas Pen­sion Scheme (QROPS). Again, you should seek pro­fes­sional ad­vice be­fore you de­cide if this is suit­able for you. Also be wary that pen­sion trans­fers are a com­mon fo­cus for scam­mers look­ing to de­fraud peo­ple out of their pen­sion sav­ings.

The Fi­nan­cial Con­duct Author­ity in the UK rec­om­mends that you speak to a reg­u­lated fi­nan­cial ad­viser be­fore you make any de­ci­sion about your pen­sion. A reg­u­lated ex­pert will carry out a high level of due dili­gence and outline your full range of op­tions to es­tab­lish the best so­lu­tion for your par­tic­u­lar cir­cum­stances. They can also pre­vent you fall­ing vic­tim to pen­sion scams or un­reg­u­lated in­vest­ments that risk los­ing some or even all of your pen­sion sav­ings.

Since your pen­sion pro­vides fi­nan­cial se­cu­rity and in­come for the rest of your life, it is im­por­tant not to rush into any de­ci­sions. You need to make sure you take the right route for your cir­cum­stances and ob­jec­tives while tak­ing the French and UK tax im­pli­ca­tions into ac­count.

Pen­sions are a highly spe­cial­ist and com­plex area, as is French tax­a­tion, so pro­fes­sional guid­ance is es­sen­tial to en­sure you are in a po­si­tion to make the most of your re­tire­ment in France.

Rob Kay is se­nior part­ner at Blevins Franks 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.

It is your re­spon­si­bil­ity to es­tab­lish what taxes you are li­able for

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