2003

If you are thinking about making a permanent move to France, you need make yourself aware of the implications from a tax point of view. Most expatriates make the mistake of thinking that the French system of taxation must be similar to the UK system. This is a fundamental misconception. And, it can be a costly mistake not to seek specialist advice in this area. The French tax regime (and the Social Security contributions) can be much higher than in the UK. With careful planning however there are many ways of keeping your tax bill in France at very low levels. This requires a keen understanding of the French system and its tax planning opportunities.

Essentially, when tax resident in France, you are liable to pay tax on your worldwide income whether or not it is taken into France. If you become a tax resident, it is your responsibility to make yourself known to the French tax authorities and to fully declare your income, capital gains and wealth. Unlike the UK, the French tax year is a calendar year and you should note that you do not have a choice - you either are, or are not, a French tax resident. So, how do you know which it is?

You become a tax resident from the day after your arrival if you land in France with an intention to live there indefinitely. You will also be deemed to be tax resident if: your main residence (your home) is in France, you spend more than 182 days in a calendar year in France, you spend more time in France than anywhere else, your main activity is in France or if France is where the bulk of your assets are.

In the year of your arrival only income received after the date of arrival is liable to French income tax. Other taxes to be concerned with are capital gains tax and inheritance tax, in addition to a number of ancillary taxes including gifts tax, VAT, and wealth tax. If you run an incorporated business in France the profits will be liable to corporation tax on the worldwide income. There may be an opportunity to save considerable amounts of French tax by disposing of assets before you arrive in France, so you are well advised to take expert advice at the earliest opportunity.

It is important that your lifestyle is compatible with your declared wealth and income otherwise the French tax authorities have the right to raise an assessment to tax based upon their interpretation of your apparent wealth and lifestyle.

It is equally important to take advice from an experienced tax adviser, expert comptable or conseiller fiscal when dealing with French tax matters, who is both familiar with expatriate issues and with the local tax office. There is a considerable degree of inconsistency between the approach taken in respect of taxation of expatriates due to the autonomy enjoyed by the various regional tax offices in France. A local professional tax adviser will be familiar with the attitude of his local tax office.

You can be resident in both the UK and France simultaneously. However, the UK/France double tax treaty must then deem you to be resident in only one country. Under the terms of the UK France double tax treaty, tax is payable in the country in which you have your closest association (known as your “centre of vital interests”).

There is a common misconception that you can choose whether to pay UK tax on your pension, or French tax. This is wrong. It depends on the type of pension and whether or not you are French tax resident. If you are a French resident you are liable to declare all of your worldwide income, including your pension and to pay tax in France. If you have already suffered UK tax on the pension, you must reclaim it and apply to have no tax deducted at source by your UK pension provider.

An important point to keep in mind is that there is no provision for the payment of a tax-free lump sum under the French tax system. Any such commutation will be fully taxable.

State Pensions are treated the same way as private pensions for income tax purposes. However, Public Service Pensions (Civil Service, Military, Local Government), are only taxable in the UK as they are exempt from French taxes. Your pension is subject to particularly low tax rates if it is a purchased annuity (as opposed to a company retirement pension). In this case only a percentage, between 30% and 70%, of the pension is subject to French tax depending on the age of the individual when the pension first comes into payment.

Capital Gains Tax [Taxe des Plus-Values] in France is a complex subject and professional advice relating to your personal situation should always be sought before embarking upon any enterprise that may give rise to a gain. CGT is pursued relentlessly by the French Revenue [Le Fisc!] and has few similarities to the UK regime.

Residents are liable to wealth tax on their worldwide assets including all residences. The tax is based on the wealth of the household, including spouse and infant children. Wealth tax and income tax cannot exceed 85% of the net taxable income of the household. Following a decision in the Supreme Appeal Court, the fair market value of an owner occupied residence may be reduced by 20% for wealth tax purposes.

If your investment assets are housed within an EU authorised life assurance policy, generically known as a Private Client Portfolio [PCP], they are not taxable as the PCP is a life assurance contract [known in France as Assurance-vie] and is not included in the definition of assets in article 123. All income and capital gains taxes are rolled up and there are valuable concessions on Succession Tax too!

The full range of taxes and their implications in your particular circumstances are too great to go into in full detail in this article. Suffice to say that you should consult an expert adviser well before making a move, the tax savings are likely to heavily outweigh the cost! 

© Bill Blevins
Blevins Franks International Limited

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