Planning a tax efficient move to France: Case Study
Dave & Tina are in love….
…with France. They have purchased a property in the Dordogne, and are going to make their dream a reality, and retire there in 2020. But on a recent trip to the region, Dave’s new English neighbour warned him France has a notoriously high tax regime.
Dave & Tina are right to be concerned, because without the right tax planning and financial arrangements in place, you can end up paying more tax in France than you otherwise need to. But get it right, and France can be a “paradis fiscal”!
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Author of this article, Jason Porter is a Director of specialist expat financial advisers Blevins Franks, which has recently been rated Best Overall Adviser Firm in the ‘International Adviser’ magazine best practice awards. Jason is the co-author of the book ‘Retiring to Europe’.
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Dave & Tina will only sell their UK home once they have settled in France. What is the tax position in the UK and France on disposal of the UK home?
Capital Gains Tax (CGT) could be payable in both the UK and France, but each jurisdiction has reliefs for capital gains arising on the sale of the family home.
From 5 April 2015, UK real estate sold by a non-UK resident is potentially taxable. As Dave & Tina owned the property at this date, the base cost of the property is deemed the 5 April 2015 market value. Effectively, only the post 5 April 2015 part of any gain is potentially liable.
The sale of the main home in the UK is normally exempt, if there have been periods of non-occupation these can be taxable, whilst the final 18 months of ownership is always exempt.
The gain calculated above is apportioned, and any non-qualifying portion is taxable. The UK annual exemption of £11,300 can be set off against this, with UK CGT payable on the net amount.
As Dave & Tina will be resident in France at the time of sale, a CGT liability could also arise there. As the property was the main home, total relief from taxation is available, but only if the property were sold within 12 months of it ceasing to be the main home. One day beyond 12 months and the full gains are potentially taxable, though the tax and social charges due are gradually tapered according to how long the property has been owned.
Any tax paid in the UK can be set-off against the tax due in France (but not against social charges).
Dave & Tina will need to think carefully about the timing of the sale of their UK home, and also when they take up tax residence in France.
The medieval village of Segur-le-Chateau with half-timbered houses and a castle at the border of Auvezere river in the Dordogne area, Correze, France.
Is there anything important he should know about the taxation of pension income in France?
Dave intends to draw his pensions when he moves to France. He has a small Army pension, and a number of company schemes from a career in banking.
The tax position of a French resident recipient of a UK pension is decided by the UK-France Double Tax Treaty (DTT). If the pension is a company, private or state pension, it is taxable only in France. Where the pension is a government scheme (eg., teachers, firemen, Army), then this is taxable only in the UK.
Any annuity or regular income taxable in France will be taxable at normal French scale rates, along with 7.4% social charges (though these will be waived if Dave is not subject to the French healthcare system).
Since 5 April 2013, it has been possible to flexibly “drawdown” a UK pension scheme, either as a regular sum each month or year, or as a single lump sum. Lump sum pension payments in France are taxed at a preferential, single rate of only 7.5%, with 7.4% social charges (waivable, as above).
Strictly, the drawdown should be in one single lump sum to get the 7.5% rate on the whole lump sum, though we have seen a variation in local interpretations of this rule.
What is the tax treatment for ISA's in France?
Dave inherited a substantial sum from his grandfather a number of years ago, which he and Tina have gradually moved into ISAs.
Whilst ISAs are tax efficient from a UK perspective, they have no tax benefit in France, with dividends, interest and gains taxed as part of their overall income. Dave & Tina should consider cashing these in before they leave the UK, so no tax liability will arise. Thereafter, they may wish to look at a French tax efficient investment holding vehicle, such as an Assurance Vie.
This is similar to an “offshore life assurance policy” in the UK, but structured for the French market. This has significant tax deferral benefits, as well as enhanced French inheritance tax allowances and increased succession flexibility. It may also remove the potential for French exit tax on the value of any stocks and shares held, if Dave & Tina were to leave France (this could be more important in a post-Brexit world).
Blevins Franks have been advising UK nationals retiring to France, Spain, Portugal, Cyprus and Malta for over 40 years, through 22 local offices across these jurisdictions.
Our thanks to Jason Porter for this article
Jason Porter is a Director of specialist expat financial advisers Blevins Franks, which has recently been rated Best Overall Adviser Firm in the ‘International Adviser’ magazine best practice awards. Jason is the co-author of the book ‘Retiring to Europe’, www.retiringtoeurope.com
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