Jennie Poate - Regional Manager for Siddalls France
Independent Financial Advice - your key to a worry free life
in France
Choosing the right adviser
is an important step towards making the most of your money, particularly so
when you are moving abroad or are already here. Whilst finding the perfect home
is a priority, planning finances can be overlooked. You need an adviser who will always work in
your best interest and can help you understand the complexities of the
financial world. The first step in ensuring you receive the best possible
advice is to use an independent financial adviser who is authorised and
regulated both in the UK and
France
Why do I need advice?
There
are a number of issues you need to be aware of and take advice on having
arrived in France
- Pensions. Whether you have already retired or still have
some years to retirement, living in
- Investments. When you move to
- Tax. Many people living in
- Inheritance planning. The legal system in
These are only some of the main areas where taking
independent financial advice is highly recommended and as advice
is based on each individual’s
personal and financial circumstances we can help develop a
solution that will meet your individual needs.
September 2014 - LA
RENTREE – TIME TO STOP PUTTING OFF THOSE TRICKY DECISIONS
As Summer visitors start to drift away and we
get “our” regions back to ourselves, thoughts turn to all those jobs that we
have put off during the holidays.
For those with children, late August/ early
September is all about getting the list of books, pens and equipment needed for
the new school year and getting to the local shops before they sell out.
Gardeners will also start to think about the
Autumn jobs that need to be before winter sets in.
Why not also make this year’s “rentrée” the
time when you finally put your finances in order?
Just run through the following list and see
whether you have ever said any of these things. If so, it might be worth having
a rethink, as taking no action could be an expensive mistake for you and/or
your family.
I am
still resident in the UK, so don’t need to make any financial arrangements in
France
It is a common misconception that residence
is a matter of choice. Whilst, of course, we can choose where to live, fiscal
residence is also a matter of fact. Many people split their time between the UK
and France and could quite legitimately claim that they are still UK resident.
However, there are also a large number of people who spend almost all of their
time in France but are still “UK resident” for tax purposes.
Each country has its own set of rules
regarding residence, but if more than one country can claim you are resident
there, and if there is a tax treaty in place between the countries, it is this
which will determine where you are fiscally resident. Put simply, if you split
your time between homes in the UK and France, where you spend more time is
likely to be considered your place of residence.
Even if you are still resident in the UK and
only use your property in France for holidays, this property will be subject to
the French inheritance rules in the event of your death and it is therefore
sensible to ensure that you understand who will inherit what when you die.
I will
pay far more tax in France than Britain
France has long had a reputation for high taxation,
which spends its taxes properly on its infrastructure. Whilst it is true that
the cost of running a business here could be significantly higher than in other
European countries, for individuals, French income tax compares favourably with
its neighbours.
One area which concerns British people is the
“Impôt de solidarité sur la Fortune” (ISF), or wealth tax. This is an annual
tax on your capital assets, which is alien to British taxpayers. The tax is
applied once assets exceed €1,300,000 and your “principal residence” benefits
from a 30% discount when calculating the value of assets.
However, for anyone having taken up French
residence since August 2008, you do not need to declare any “non French” assets
for the five years after you become resident.
Of course, it is sensible to do your sums
before making any decisions about moving to another country permanently, but to
live in France on an almost permanent basis and not declare yourself resident
because you are worried about the tax bills could not only be a mistake but
could land you in hot water with the authorities and could mean you are paying
more tax than is necessary.
The
French system is too complicated and I just want an easy life
It does sometimes seem that everything in
France was invented to keep the bureaucrats happy, but with proper advice and
guidance, the French system need not be that daunting. In any case, ignoring a
potential problem because it seems too complicated to sort out generally just
makes that problem worse.
Getting seemingly complicated technicalities
explained in plain English could prove to be invaluable in the long run.
I have
written a will in the UK and my family knows my wishes
Living permanently in France means that your
worldwide assets are subject to French inheritance rules and taxes in the event
of your death. The only exception for people with assets in the UK and France
is any property (real estate) in the UK, which will still be subject to the
rules and taxes that side of The Channel.
If you do still have property in the UK, your
UK will is still valid as far as that property is concerned. However, the rest
of your assets will fall under the strict French rules, as originally decreed
by Napoleon under the “Code Civil”.
Qualified professional advice will help you
to ensure that you understand the French rules and make use of them to suit
your circumstances because dying without making prior arrangements could leave
your heirs with some very nasty surprises.
My
money is all in Sterling and I don’t want to change it to Euros
We would always advise people to have at
least some income and/or capital in Euros, as that is the currency you use to
buy your baguette and other essentials.
However, whilst the recent weakening of the
Euro has made the situation slightly better, it is understandable if people do
not necessarily want to exchange Sterling for Euros currently. That does not
mean that proper financial planning for life in France is not possible.
Tax-efficient options still exist for those not wishing to invest in Euros, so
long term decisions can be made now and currency decisions can be postponed if
you wish.
What’s
the point in bothering? I will eventually go back to the UK
Whilst the longer term plan may well be to
return eventually to the UK, doing no planning now could mean that you pay more
in taxes on your income than you need to and you could land your heirs with big
headaches if you die whilst still resident in France.
It is perfectly possible to structure your
affairs so that they are tax-efficient for life in France now, without having
to undo all that planning if you move back to the UK in the future.
French Savings & Investments
Bank
Accounts
French banks offer current accounts,“Comptes Courants”, instant access
savings accounts, “Comptes sur Livret”,
and fixed term deposits, offering better interest rates for over one month, “Comptes à Terme”. For large amounts a “Certificat de Dépôt Négotiable” can
offer slightly improved interest and a shorter term if necessary.
For French residents, there are also various tax-free bank deposit accounts. The
most common are the 'Livret A' and
the 'Livret de Développement Durable'
(LDD).
The maximum
investment per person, plus accrued interest, is €22,950 for the ‘Livret A’ and
€12,000 for the ‘LDD’.
The general
conditions of the accounts are the same and are regulated by the government.
Interest is totally tax free and, the annual interest rate is 1.75%. Rates are
generally reviewed on a six-monthly basis.
For
low-taxpayers, the “Livret d’Epargne
Populaire” (LEP) offers an interest rate of
2.25%
for savings limited to €7,700 each. To qualify, you prove, via a tax
certificate,
that
you pay less than a specific amount of income tax in France.
The “Plan
d’Epargne Logement” (PEL) is a four year savings plan, aimed at saving for
house purchase and home improvement. There is no tax payable on the interest
earned whilst you are saving. If the sum is then used for the above purpose and
has been blocked for four years, it can be withdrawn free of income tax but will
be subject to “social taxes”.
Share Dealing
You can hold a share dealing account at your
bank, a stockbroker, or on the internet.
The normal safe custody account is called a “Compte Titres”. A share is an “action” and a Government or Corporate
Bond is an “obligation”.
Most people deal in shares through a specific
form of investment called a “Plan
d’Epargne en Actions” or PEA. This account allows you to hold and deal in
French and European shares and provides considerable tax advantages ON
CONDITION THAT no withdrawals are made for the first five years. Taxes may be applicable depending on when the
withdrawal is made. Please see our information on our website.
Life
Assurance
One of the most popular forms of investment
for French residents is the “Contrat
d’Assurance Vie”, a Life Assurance Investment Bond (investments with a Life
Assurance company).
The reason that such policies are so popular
is because they offer significant inheritance advantages, as well as beneficial
tax treatment for any growth and/or income generated.
To benefit from the preferential tax
treatment of these policies, the insurance company provides the “wrapper”, but
investors are then able to choose the investments which will be held within
this, either from a list of funds produced by the insurance company, or, for
larger sums (generally €500,000+), a discretionary investment manager can be
appointed to run a bespoke portfolio.
All French insurance companies also offer
access to their “Fonds en Euros”. This basically means that the insurance company invests as they see fit but, in return, they
guarantee that the investment cannot go down in value and must go up by a
certain amount each year. At the end of each year they work out how much they
have made and distribute investors’ shares of the “profits” as interest. These
investments are obliged to be very conservative, due to the level of guarantees
offere. As a result, they are therefore only making about
3% a year at present, due to low interest rates.
An alternative to the “Contrat d’Assurance Vie” is a “Bon
de Capitalisation”, Capital Redemption Bond.
The basic contract terms are the same for
both policies, as is the income and social tax treatment. However, “Bons de
Capitalisation” carry no inheritance advantages and the value of the policy on
death is part of your estate.
There are two clear advantages of using these
policies. Firstly, for wealth tax purposes, the amount that is declared is the
initial investment amount (or the current value, if lower). Secondly, a “Bon de
Capitalisation” can be gifted during your lifetime or left on death, which
could be useful if the aim is to pass on a “family portfolio”.
Note: Siddalls are qualified and registered
independent financial advisers in France and are not lawyers or accountants.
Please remember that the above comments are merely a summary of our
understanding of current legislation. This summary cannot hope to cover all the
details of French savings and investments and you should always seek
appropriate advice before deciding on any changes to your arrangements.
NEW PRESIDENT
STARTS REFORMING FRENCH TAXES
During the
presidential election campaign earlier this year we heard a great deal about
the need to raise taxes to help reduce France
After its passage
through parliament, the Loi de Finances
Rectificative 2012 (2) was enacted on 17 August. This first piece of
legislation did not contain much of what had been predicted and we will have to
wait until the Autumn to see what the Loi
de Finances 2013 might have in store for us (the planned budget measures
for next year will be announced in September).
However, there
were a number of changes in legislation which will have a direct impact upon
many of you.
WEALTH TAX
Last year there
was a significant review of the rules regarding the Impôt de Solidarité sur la Fortune (ISF), increasing the threshold
to €1.3 million and reducing the number of tax bands to two.
These changes
have partially been reversed and whilst the threshold remains at €1.3 million,
the bands used to calculate the tax due are the same as those used last year.
This has been called an “exceptional” tax for 2012 and this leads us to think
that a more detailed review of this tax will be announced for 2013. We will, of
course, keep you informed.
The tax rates for
this year are;
€800,001 to €1,310,000 0.55%
€1,310,001 to €2,570,000 0.75%
€2,570,001 to €4,040,000 1.00%
€4,040,001 to €7,710,000 1.30%
€7,710,001 to €16,790,000 1.65%
Above €16,790,000 1.80%
Therefore, if you are liable to wealth
tax you will actually receive two bills this year. You will either have already
paid, or have to pay by 15 September, an amount based on the calculation set
out by the previous government.
You will then receive a further bill in
October, for the difference between what you have paid and the “new”
calculation.
The
effect of combining these two calculations is that the bill this year should be
approximately what you paid last year.
INHERITANCE TAX
As a result of
this new legislation, the amount that can be left to children by their parents
on death has been reduced from €159,325 to €100,000 (per child by each parent).
As well as
reducing the amount that can be left to children on death, the new law also has
reduced the amounts that can be gifted during a parent’s lifetime without an
immediate tax charge to €100,000. Previously such gifts could be renewed every
six years, although this was increased to ten earlier this year and has now
been increased again to fifteen years.
This also means
that in the event of death during the fifteen year period after any gift, the
value of the gifts will “come back into the account” for inheritance tax
purposes.
This means that
it has become even more important than previously to invest in ways that can
help reduce future inheritance tax bills.
INCOME & “SOCIAL TAXES”
The increase in “social taxes” (Contributions Sociales) on investment income
and gains to 15.5%, which was planned by the previous government, has
unsurprisingly been maintained!
The one change that has grabbed all the headlines in
the expat press is the decision to impose “social taxes” (currently 15.5%) on
property income earned by non-residents (on both rental income and capital
gains).
WHAT DOES THE FUTURE HOLD?
We are anticipating a full review of wealth tax in
the near future, and higher rates of income tax at the
top end of the scale; this was part of M Hollande’s presidential campaign.
Other things that have been mentioned are the
doubling of the maximum amount which may be invested in a Livret A Account. This has now been increased to €19,000 as a
temporary increase with a further one planned later in the year.
Changes also to the capital gains tax rules for
property and the removal of taxation at source at fixed rates (prélèvements libératoires) on bank
interest, dividend income, capital gains and withdrawals from assurance vie policies within the first
eight years after the initial investment.
As always, we will keep you updated as and when any
further changes to tax law are announced.
European Inheritance rules : Good news for expatriates?
First the bad news: one of the first measures taken
by the new Government in France was to reduce inheritance allowances for your
children, so French inheritance rules and taxes remain at the heart of any
planning for your life in France.
However, a recent European
Union regulation has sought to clarify the complication of cross-border
inheritances within Europe .
From 2015, a UK National, living in France
Therefore, from 2015 it will be perfectly possible
for a British expatriate in France
Since French “forced heirship” rules are the most
common source of worry amongst the British community in France
However, whilst there is no question that this is a
welcome development, which will allow considerable extra flexibility from 2015
onwards, especially for the protection of the survivor of you, it is
unfortunately unlikely to be suitable in many cases.
This is because the regulation only covers inheritance rules and not inheritance taxes.
Therefore, if you have children from a previous
marriage and write a will leaving everything to your spouse under English law,
your wishes will be respected by the French, from 2015, but the survivor will
not be able to get anything back to his/her step-children without the French
Government wanting to take 60% of its value in inheritance tax.
For this reason, the new-found flexibility will have
to be handled with care and it seems logical that the best option for many will
continue to involve the use of the many legal measures and investment
techniques available in France
There are many ways you can structure your assets,
which allow you to reduce the effects of French inheritance rules, while
keeping the family inheritance tax bill to a minimum. It is vital to take
advice relating to your specific situation
SEEKING
RETURNS FOR LOW RISK INVESTORS
Traditionally
investment experts have split assets into four broad classes; cash, bonds
(government securities and corporate bonds), property & equities (shares).
These asset classes are deliberately listed in that order, because the level of
risk increases as you move along, with cash perceived as the least risky and
equities as the most.
Conventional
thinking also accepts that the more risk you are prepared to take, the greater
the potential for reward, but also there is a greater possibility of losses.
Therefore, you have to accept the risks when investing and your “attitude to
risk” will determine how you allocate any funds available for investment.
The problem is
that there is no such thing as a “risk free” investment.
You may find
that statement slightly confusing, as cash in a bank account may seem to carry
no risk. However, although your capital will not fluctuate in value as it would
if it was invested in other assets, there are three crucial considerations
which will affect the return you achieve; the gross interest rate paid,
taxation and inflation.
With the
European Central Bank (ECB) base rate at 1%, interest rates on offer from
deposit accounts in France
If you have
the time and inclination, you can, of course, shop around and switch between
accounts in an effort to continually obtain the best rate you can. However, this
does demand a lot of time and devotion to the task.
Interest on
deposit accounts is subject to both income tax (either at your marginal rate or
at source at a fixed rate of 24%) and ‘social taxes’ (currently 15.5%). This
means that a gross rate of 2.5% could end up returning only 1.5% after tax.
This applies whether the interest is taken out and spent or is left to accrue
in the account.
You should
make sure that you utilise any tax free allowances. As far as deposit accounts are
concerned, the most common are:
‘Livret A’ - available from all
banks, subject to a maximum investment of €15,300*.
‘Livret de
Développement Durable’ - available from
all banks, maximum € 6,000*.
*One of François Hollande’s election pledges is to double
the limits on investment into these two types of account.
The conditions of the
accounts are the same and are regulated by the government. They are only
available to French residents and the current interest rate being paid is
2.25%. Interest is tax free and is earned for every 15 day period on the
balance of your account, but is only applied once a year, either at the
beginning of the following year or on closure of the account if you take out
your money during the year.
Access to your money is
instant but you may lose up to 15 days interest if you take out your money
during an interest period. The ideal is
to take out money on either the 2nd or the 16th of each month.
For
low-taxpayers there is a further account called the ‘Livret d’Epargne Populaire’ (LEP).
Offered
by all banks, this account offers an interest rate of 2.75% for savings limited
to €7,700. You have to prove, via a tax certificate, that you pay less than a
specific amount of income tax in France
The
other deposit account, which is commonly used is a ‘Plan d’Epargne Logement’,
which is a four year savings plan, aimed at saving for house purchase and home
improvement. There is no tax payable on the interest, while you are saving. If
the sum is then used for the above purpose and has been blocked for four years,
it can be withdrawn free of income tax (but not “social taxes”).
The
third “risk” associated with deposit accounts is inflation. Currently,
inflation in France
So,
if you wish to obtain a reasonable return on your money without taking risks,
what can you do?
One
of the most competitive low risk returns on offer in France
These
returns are subject to ‘social taxes’ at source and therefore the net return is
likely to be in the region of 2.7-2.8%. If annual interest is not withdrawn, it
will not be subject to income tax and how it is taxed if you do withdraw it
will depend upon how long you have held the investment and your income tax
position.
For
those who generally want a lower risk approach but are prepared to allocate
some of their money to slightly higher risk assets then using ‘cautious
managed’ funds could be appropriate. By investing in these, you are trusting a
fund manager to select the right mix of assets to provide longer term returns.
Whilst some of the money will be invested in equities, the “cautious” mandate
should mean that there is far less volatility than there would be if investing
exclusively in stock markets.
We are all seeking
high returns at reduced levels of risk, but there is no magic formula and the
best way to ensure that you achieve what you want with your investments is to
seek professional advice and make sure that investment risk is fully understood
before committing to anything.
Inheritance Rules for French residents – and proposed EU changes from 2015
As I hope most of you already know, under French law, if a French resident individual has children, they cannot leave assets to who they wish. Strict inheritance rules mean that children have certain rights to their deceased parent’s estate.
For someone with one child the reserved portion is 50%, 67% for two children and 75% for three or more children, split equally between them. The remaining percentage is considered the unreserved portion and may be left to whomsoever the owner pleases.
Whilst the French forced succession rules are not changing, new EU rules on succession have recently been agreed, and once finally adopted (expected in the summer of 2012), will come into force 3 years later, in 2015.
These new regulations will give expatriates the right to opt for the succession law of their country of nationality to apply on their death.
Without an appropriate will, the French succession rules above would continue to be applied to a French resident’s estate.
However, with a correctly drawn up will, it should become possible from 2015 to opt to use the law of the country of your nationality. For British nationals, this should mean that you can opt to use British rules – leaving your assets as you wish via an appropriate will.
It is vitally important to understand that, whilst it will become possible to choose to use UK law for the distribution of your estate, it is only this that has changed, as the new regulations will not apply to tax issues.
For example, whilst it will become perfectly possible to leave all of your assets to your spouse in the first instance, assets left to be divided between children and step-children would still result in the step-children facing a punitive 60% French inheritance tax on anything over a minimal allowance of €1,594.
At first glance it would appear that this will be a significant advance, since inheritance issues are the main concern of most British residents in France. However, in many cases, using the many techniques available under French law to ensure that your wishes are met and taxation is kept to a minimum, is likely to be the preferable option, so no action should be taken without professional advice.
Tax return time is here again!
The annual tax return needs to be
completed by the end of May in France
Most of us will have some income
derived from the UK and you
will need the ‘pink’ form 2047 to declare income earned outside of France France
The tax year runs from January to
December so if you arrived in France UK
Here are some of the recent changes
and the less obvious requirements given recent announcements by the authorities.
In general, as French tax residents
you have an obligation to declare your worldwide income and assets to
the French authorities. Importantly, with the ‘exchange of information’ rules
now operating between European countries including, since July 2011, exchange
of information from Jersey, Guernsey and the Isle of Man, the French tax authorities
will receive information about income and gains earned from non-French sources.
Whilst this takes time to work through the system, it is important that any
information they receive corresponds to an entry on your tax return.
The main elements of your tax
returns will be similar to last year, but the following changes are worth
noting:
Wealth
Tax “Impôt de Solidarité sur la
Fortune”.
One major tax change that may affect
some of you is in respect of “Wealth tax” reporting. As you will recall, the
threshold for Wealth Tax was increased to €1.3m of assets, as at 1st
January 2011
This year, for those who are liable
to Wealth Tax, but have assets of less than €3m, there will be no need to
complete a separate wealth tax return, as the declaration will now be
incorporated in the income tax return. For those with net assets valued in
excess of €3m, you will continue to file a separate Wealth Tax return in June.
The other major change for Wealth
Tax is that any assets held in Trust
for you (or by you for anyone else) will have to be declared. This may affect
some of you and, for those concerned, this is a more complicated area and
specialist advice is recommended.
At the same time, those of you who
are not liable to Wealth Tax at present should not worry about seeing this new
box on your forms, as you have nothing to declare if you are under the
threshold.
Pension
lump sums.
The other major change from last
year’s tax declaration relates to the need to declare lump sum payments received
from non-French pension schemes in 2011. Whilst these would normally be
available tax-free up to a certain limit (normally 25%) if you were still a UK tax resident, such lump sum withdrawals are now
taxable in France
The only
exception would be a lump sum received from a military or civil service
pension. Whilst this must still be declared in a different box on your form,
the terms of the double tax treaty should ensure that it is not taxed.
Declaration of all foreign bank
accounts and life assurance policies.
It has been a requirement for many
years to declare on your income tax return the fact that you hold either bank
accounts or Life Assurance Investments outside France
You have every right to have as many
of these as you like, as long as you give the details to the authorities. For
bank accounts, there is a specific form (3916 – one for each account), or else
you can simply list them on a separate sheet of paper. The latter is normally
easier and the authorities simply want to know the details of the policy or
account, the name and country of the bank/insurance company, and the name of
the account holder(s).
Don’t forget that any of you who
have old UK
We mention this because the recent
budget has considerably increased the penalty for non-declaration, so it is
worth taking the trouble to complete the boxes.
This
article confirms our understanding of certain specific requirements. However, should
you have any additional questions, please do not hesitate to contact me.
However, we are not accountants and we may recommend you seek additional
assistance from an accountant, if necessary.
Understanding Inheritance Rules and Tax in France
As a permanent resident of France, you will be considered “domiciled” in France for inheritance purposes and your worldwide estate will be subject to French inheritance rules and taxes.
Britain may also have the right to tax certain assets, UK property for instance, and may even try and claim your “domicile”. In the case of a dispute, it is the Double Tax Treaty on inheritance tax, which decides which country can claim your residence. The criteria are basically the same as for residence.
French inheritance rules state that your children are “protected heirs” and must inherit part of your estate. The amount involved depends on the number of children, but is at least 50% and is called the “Réserve Héréditaire”.
The remaining portion of your estate is freely disposable by will (“Testament”) and is called the “quotité disponible”.
Therefore, you need to know that, if you have children, a will leaving everything to the surviving spouse and then to the children will not be upheld in France, since the children must inherit their minimum share.
The question of the protection of the surviving spouse is therefore one of the main preoccupations of the British community in France. There are various solutions, which are more or les effective or advisable, depending on your situation.
French inheritance tax is a completely different system to the UK, since it is the beneficiary who pays the tax and tax rates and allowances vary according to your relationship to your heir.
In 2007, inheritance tax between spouses was abolished, as was tax between unmarried couples with a “Pacte Civile de Solidarité”.
For your children, French inheritance tax is perfectly reasonable, since allowances were raised in 2007 and tax rates are reasonable. For a large estate, inheritance tax is normally considerably lower than in the UK and France also offers more opportunities for reducing tax.
The problem is for those who want to leave assets to other family members or friends. For example, nephews and nieces pay 55% tax, after allowances of only €7,967 each and unrelated persons pay 60% tax after an allowance of only €1,594.
If you want to leave assets to your partner (without a PACS), to stepchildren or to friends, you know that over half of your assets will be taken by the state, so it is imperative to find another solution.
Understanding income tax in France?
As residents of France, you are obliged to declare all of your worldwide income and capital gains for tax in France. The tax year is the calendar year and there is no PAYE in France, so all income must be included in your annual tax return.
The tax declaration for 2011 income is to be submitted by the end of May 2012. Those making their first declaration will have to obtain the forms from their local tax office.
All income declared will be subject to income tax (“impôt sur le revenu”) and “social taxes” (“contributions sociales”). The latter is an extra tax on most sources of income, which is used to finance the health and other services, and is a set percentage of what you declare.
On the other hand, income tax is on a banded system and involves a complicated calculation. This is because different allowances are given for different types of income. For instance, pension income is only taxed on 90% of its value, up to certain limits. Unlike the UK, you are taxed as a “household”, rather than as individuals, with each member of the “household” considered to earn part of the income, irrespective of its origin.
How many declarations to make.
A married couple, or a couple who have formalised their relationship through a “PACS” (“Pacte Civile de Solidarité”) will make one declaration. The combined income will be considered to be earned equally by each spouse.
Unmarried couples with no PACS should each make separate declarations.
Dependent children will be included in their parents’ tax return and will also be considered to earn part of the household income.
Married couple: 1 part each
The first two children: 1/2 part each
Third and subsequent children: 1 part each
This system obviously favours large households, but also reduces the tax burden where one partner earns the majority of the income.
What to declare?
As a French resident, you should declare all of your worldwide income and gains on your French tax return. If you pay income tax outside France (say in the UK) on the same income, the Double Tax Treaty prevents you from paying tax twice.
In fact, as non-residents of the UK, you should only be paying UK tax on UK earned income, UK public sector pensions and UK property income. These are not taxed in France, but are included in the calculation to work out your tax band for any other income. If you are paying UK tax on any other income, you will need to complete form “France Individual”, available on the Inland Revenue website, to apply to have income paid gross and recover any tax paid.
However what is tax-free in the UK is not tax-free in France. Interest, dividends or gains from PEPs/ ISAs, for example, need to be declared for tax in France.
A new rule in 2012 involves the declaration of all assets held in Trust, where the trust has a French resident settlor or beneficiary, as if the assets belonged to that person.
What exchange rate to use?
We are often asked at this time of year, and have had varying responses from different tax departments over the years.
In theory, you should keep track of the exchange rates applicable to your Sterling income as you received it! However, for regular payments received over the year, the authorities are happy for you to use the average rate for the year. It is our understanding that, for 2011, this was £1= €1.1483. For a large one off payment, the exchange rate on the date of receipt should be used.
Overall, income tax is relatively reasonable in France, since although the top rate is 41%, only 50% of households in France pay any income tax at all!
It tends to be a large amount of bank interest or investment income, which makes the largest difference to your tax bills and, with proper planning, it is relatively easy in France to shelter investment income from income tax
Jennie Poate is Regional Manager of Siddalls France, Independent Financial Advisers specialising in tax, inheritance, investment and pension planning, for the British community in France since 1996. www.siddalls.fr or e-mail jennie.poate@siddalls.net
Your Place of Residence
Many of you will reside partly in the UK and partly in France, with homes in both countries and therefore may assume that you will remain UK resident for tax purposes.
Under French law the simple fact of owning a home in France means that you can be considered French resident. You may also fulfil residence criteria under UK law.
The question is to decide which country has the greatest claim on your residence. The answer is normally found in the appropriate Double Tax Treaty. These are bilateral agreements, between two countries, which set out the rules for:
1. Which country has the greatest claim on your residence.
2. Which country has the right to tax different sources of income, your assets and in certain cases, inheritance.
3. How to ensure that you are not taxed twice on the same amount.
France has signed two treaties with the UK, for income tax and for inheritance tax, which basically, with certain exceptions, allow the country which has the greatest claim on your residence, to tax all of your worldwide income and assets.
The criteria for determining which country has the greatest claim on your residence are:
1. Where is your ‘home’?
2. If you have more than one home, then where is your place of ‘vital interest’?
3. If that cannot be determined, where is your ‘habitual abode’?
4. If you spend exactly the same time in each of your ‘homes’, it is the country of your nationality which has the greatest claim.
Therefore if you have sold your UK home or rented it out, you will automatically become resident of France from that date. Indeed if you come to France with the intention of residing here, you should declare your intention to your local Mairie within 90 days of your arrival.
In the past we have heard “I do not intend to spend six months in any country”. The point is that the 6 month or 183 day rule is only relevant to deciding which of two countries is your ‘habitual abode’. If more than two countries are involved and you have homes in each then the country which has right to claim your residence will normally be the one in which you spend most of your time.
The tax year in France runs from January to December, with the tax declaration being completed the following May. Therefore if you have arrived in say September 2011, you will complete a tax declaration for September to December 2011 in May 2012 for the French tax authorities.
It is very important that you are registered for tax correctly in France. Getting professional advice for your finances is vital.
This article is by no means comprehensive. This is the first in a series which aims to cover the type of taxes that may be applicable to your income and assets here in France.
If you have any questions, please contact:
Jennie Poate, Regional Manager for Siddalls France, who have been providing impartial independent financial advice to the British community for over 15 years. www.siddalls.fr tel: 0688475303 or email jennie.poate@siddalls.net
