Clinging to UK assets while living in France might not make tax sense

Even though we’ve settled in well to our new life in France, most British nationals living here retain some British habits, whether it’s a Sunday roast with all the trimmings or watching British TV channels and sports.

Some bonds are hard to lose and there is comfort in familiarity.

Similarly, many UK expats hold UK investment assets, whether bank accounts, stocks or property, as well as pension funds.

You may have accumulated premium bonds and Individual Savings Accounts (ISAs) over the years, or bought shares of UK companies, and prefer to hold on to them as they are familiar to you and seem like a safe option.

But are these investments suitable for your new life in France? Are they tax efficient here?

As a tax resident in France, you are liable for French tax on your income, capital gains and property assets worldwide. Income from UK assets is also subject to UK tax in most cases.

You must carefully follow the double tax treaty between France and the United Kingdom to determine where you must pay tax and where you must declare it (you can pay tax in one country, but you may have to declare in both).

UK rental income and civil service pensions are not directly taxable in France, but you still need to include them in your taxable income – a credit is then given for French tax and social charges payable. This applies even if no actual tax is paid in the UK.

Conversely, UK bank interest received by French residents is only taxable in France.

With UK dividends and capital gains tax paid in the UK is deducted from your French obligation. If your French tax bill is higher than that of the UK, you will pay the difference.

Read more: Bank accounts, gifts: Eight tips to avoid a French tax audit

UK investment income

Income from ISAs and premium bonds are tax exempt in the UK, but this benefit is lost once you live in France.

Income and gains from cash and stock ISAs are fully taxable here. Although betting and gambling winnings are tax exempt in France, this does not apply to premium bonds since the initial investment is not at stake.

Also look at your other UK investments, such as stocks, mutual funds and investment bonds, to see if France offers a more tax-efficient way to hold your capital.

In France, most investment income, wherever earned, is taxed at a flat rate of 30% (including 17.2% social charges). This applies to interest, dividends, capital gains from the sale of shares, etc.

Low-income households may pay tax at normal schedule rates instead. Reduced social charges also apply if you hold the S1 form.

If you receive interest or dividends from the UK, you must declare the income within 15 days of the end of the month and pay 30% of the amount received. This is deducted from the tax due on your tax return. Low-income households can avoid this prepayment.

Read more: Property tax France: who pays and the exemptions

UK rental income

If you live in France and rent property in the UK, the income is taxed directly in the UK. You must include it in your taxable income in France, and you will benefit from a credit equal to the French tax and social charges.

UK retirement income

Retirement income from UK funds is generally only taxable in France, at the income tax rate.

For 2022, these range from 11% for incomes over €10,225 to 45% for incomes over €160,336, with an additional potential of 3% or 4% for higher incomes.

You benefit from a 10% deduction (maximum €3,912 per household).

Social charges of 9.1% are payable in addition (reduced to 7.4% for low retirement income), but you are exempt from this if you hold the S1 form. Note however that UK government pensions are only taxable in the UK, not France, although you will still report them in France.

Read more: LEP tax-free savings account in France at 2.2% interest: who is eligible?

French residents do not benefit from the non-taxable 25% “lump sum start of pension” enjoyed by UK residents. Lump sums are generally taxed as retirement income in France.

Under certain conditions, you can benefit from a fixed tax rate of 7.5%.

If you meet the criteria and can withdraw your entire pension in one sum under UK pension freedoms, this may present opportunities.

You could potentially reinvest the capital in a tax-efficient arrangement in France and pay less tax overall.

For all retirement decisions, follow regulated advice and carefully consider your options to determine what is best for you – don’t jeopardize your long-term financial security.

Tax planning

The French tax system is completely different from that of the UK, so any tax planning implemented there is unlikely to be effective here. There are very tax-efficient investment vehicles available to residents of France.

Life insurance, for example, can be very beneficial if you choose the right one, with benefits going beyond tax savings, especially when it comes to estate planning.

Speak to a local wealth management advisor to confirm what taxes you should pay and where.

They can review how you hold your assets and can also recommend tax-efficient alternatives for France.

Read more: What is the French “exit tax”, who pays it and on what?

It’s not all about taxes

Taxation is not the only reason to review your savings and investments.

Make sure they are appropriate for your life in France, your future expectations, your goals, your time horizon and your risk tolerance. Too many people have wallets that no longer suit them.

Last but not least, Brexit dissolved automatic “passport” rights that allowed cross-border transactions between EU member states through shared financial regulation.

This means that UK advisers, banks and financial providers can no longer legally be able to serve customers who are in the EU.

In any case, a UK adviser may not have the in-depth understanding of the French system needed to provide the most tax-efficient financial planning solutions.

The local knowledge of a France-based advisor will prove invaluable.

Tax rates, coverage and reliefs may change. All statements regarding taxation are based on our, Blevins Franks, understanding of current tax laws and practices which are subject to change. Tax information has been summarized; an individual is advised to seek personalized advice.

Author: Rob Kay, Blevins Franks. Blevins Franks provides tax and wealth management advice.

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