Like many other countries in Europe, France has had to put up some taxes over the last year in order to bring in more revenue for the State. It did, however, also reduce wealth tax for the majority of taxpayers but, even without this change, many people are often surprised to find that their tax levels in France could be lower than they expect.
Many Living France readers will own holiday homes in France or are hoping to buy one soon. With France being such an accessible country from the UK, it’s easy to pop over frequently for holidays or when they feel the need to escape the UK.
I often meet people who own second homes in France and wish they could spend more time there, or even move there permanently, but who don’t want to become tax resident in France as they fear this would mean that they pay more tax there than they currently do in the UK.
Many people investigating the French tax system find it complex and expensive from a tax perspective. However, when you understand all the intricacies of the tax rules and do all the complicated sums, you may be pleasantly surprised.
Depending on your circumstances, and particularly if you are retired, the tax savings can be considerable when compared to the UK. And this may even be before you employ tax mitigation arrangements. You may not realise that you may be able to take advantage of French tax compliant opportunities to protect your assets from the various French taxes.
Just how much tax you’d save depends on your assets and income, but if you would like to move to France it’s certainly worth looking into.
Income tax bands are actually lower than the UK’s, and France also has a system for households that can be very beneficial in some circumstances. This is the parts familiales system, where income is shared among the household, including dependant children, which often results in a lower tax bill. This can be very effective if one spouse earns much more than the other, including for retired couples where the wife is on a much smaller pension than her husband. Households with just one breadwinner and several children also really benefit from this system.
Unfortunately France does impose social charges on top of income tax, at fixed rates of tax, and these currently range from 7.1% to 13.5%. However, if you are retired and receive most of your income as pensions you are exempt from social charges on pension income if you hold Form S1.
The S1 is an EU-wide form which entitles EU citizens to State healthcare in another EU country. You can apply for it if you are in receipt of a UK State pension, or if you are in receipt of certain long-term benefits. If you retire early, you can apply for the form on leaving the UK and it will cover you for up to two and a half years.
Wealth tax has been one reason why wealthier Britons do not want to become tax resident in France. However, when it’s all worked out for them, many are surprised to discover it’s lower than they’d expected. And now of course, we have the new tax rules where the majority of people will pay less wealth tax.The threshold is now €1.3 million. The good news for anyone whose taxable wealth is more than this is that there is a five-year ‘wealth tax holiday’ for anyone who has just moved to France. For your first five years of residence, you are only liable to wealth tax on your French assets (your overseas ones are exempt). So keeping assets (eg investment portfolios) outside France can result in significant tax savings.
When it comes to inheritance taxes, there is no one answer as to whether your heirs would be better off if you were French resident or UK resident when you die. UK inheritance tax and French succession tax work differently (though in both cases spouses/civil partners are exempt on inheritances) but since the UK tax is charged on the estate and the French tax per beneficiary, the more beneficiaries you have the more likely it is they’ll pay less tax in France than in the UK.
This is not an exhaustive list of the tax issues you need to look into when comparing your tax liabilities, and in any case it really depends on your specific situation, so you do need to seek personalised advice.
Also I’ve just talked about basic tax rates and rules here. You can usually reduce the tax liability further on your savings, investments, UK pensions and estate by using compliant arrangements in France. Depending on your situation, they could significantly reduce your tax liability and are definitely worth exploring.
So, how do you become tax resident in France?
n You are tax resident if France is your main residence or home (your foyer fiscal). This embraces ideas of permanence and stability – the place where your close family habitually live – and ignores temporary absences. It can apply even if you spend less than 183 days a year in France.
n If you do spend more than 182 days a year in France, you are French resident for tax purposes. This is a cumulative rule, so you can come and go over the year. You can also be deemed French tax resident if your principal activity is in France or it is the country of your most substantial assets.
n If you were to continue to spend a lot of time in the UK, you would need to keep an eye on the UK residence rules as well. If you meet the rules of both countries, the UK/France double tax treaty has ‘tie breaker’ rules which come into operation to determine where you pay your taxes. If none of these rules are conclusive it comes down to nationality.
It would be a shame if the only reason you don’t move to France or spend more time there is because you want to avoid French taxation. The tax rates may not be as bad as you imagine and even if they’re higher than you’d like, with the right advice and arrangements in place, you may be able to reduce your tax liabilities on your savings, investments and pensions to a level you are happy with.
You should always take advice from an adviser who is up-to-date with the French tax system (there seem to be changes every couple of months at the moment) and who is experienced in advising British expatriates in France.
The 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 must take personalised advice.