Top 10 tax planning tips
Tax expert Bill Blevins throws the spotlight on the top 10 most important things to consider when planning your move to France
Thinking of moving to France? What a great choice: the scenery, the lifestyle, the culture, the food, the wine… what are you waiting for?
In planning your move, though, it is worth bearing in mind that your tax residency will change. That is not a good or a bad thing, but it does mean you need to understand the local taxation and how it interacts with UK taxation, or sit down and go through some detailed planning with someone who really does.
Ideally, you should try and do this well in advance of moving, so that any necessary steps can be taken to ensure you do not end up paying more tax in either France or the UK, which could have been avoided.
There are many important financial considerations to plan for, and the sooner the better. Here is a checklist of some of the important ones:
1. TAX RESIDENCY AND OBLIGATIONS
First and foremost, you need to establish if and when you become resident in France for tax purposes. There is a recognised list of criteria, and if you meet any of them, you are liable for tax in France on your worldwide income, gains, wealth and estate.
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You also need to understand the UK tax residency rules since it can be harder than you think to lose UK tax residency. Where necessary, the UK/France double tax treaty will determine where you pay tax.
2. YOUR HOME
Your home or homes are likely to be among your most important assets and there are a number of issues to consider.
If you own one or more properties in the UK and/or one or more in France, which do you sell when and why? And what is the best plan to limit or avoid UK or French capital gains tax?
These are issues to look at seriously as you can preserve your wealth by careful planning or allow it to be reduced significantly by one or other tax authority taking more than necessary by taxing gains on your homes.
3. NOTIFYING THE UK TAX AUTHORITIES
As you get close to moving, you should let the HM Revenue & Customs (HMRC) know of your likely departure date from the UK. Although this is not mandatory, it indicates to HMRC your likely residence status after your departure.
In most cases this means that you can be treated as UK non-resident from the date of your departure. To do this, you will have to obtain a Form P85 from your local tax office or download one from www.hmrc.gov.uk.
4. STRUCTURING YOUR ASSETS TO MINIMIZE TAX
Taxes can be high in France. Social charges are added to income tax, and then there is wealth tax to contend with. But do not let this put you off. You can often structure your savings, investments and assets to be tax efficient. Seek specialist advice on what arrangements are effective and compliant in France.
Do not presume that what was tax efficient in the UK is tax efficient in France. You will probably need to replace existing arrangements with ones designed for French residents, and it may require a solution that takes both tax regimes into account, so may not actually be situated in either jurisdiction.
5. BANK ACCOUNTS
If you retain any UK bank accounts but are tax resident in France, the bank interest will be taxable in France. To receive your UK bank interest gross, you can submit a Form R105 to your bank or building society.
Not all banks will pay interest gross, and it usually depends on the type of account you have. Form R105 can also be obtained from HMRC or downloaded from the website at www.hmrc.gov.uk/forms/r105.pdf.
Many expats keep their savings and investments in sterling. This puts your income at the mercy of exchange rate fluctuations, which can have a significant impact on your income.
A good rule of thumb is to match your assets to your liabilities, so if you are spending euros, your assets are in euros. However, you may have other considerations. Perhaps you will return to the UK one day, or want to leave an inheritance to UK-resident children.
It is often good to have some diversification in currencies. Choose flexible arrangements which allow you to change currency if necessary.
Retired people rely on their pension funds to provide much, if not all, of their monthly income. There may be ways to improve your private pension funds to make them work better for a UK expatriate living in France.
8. INFLATION AND YOUR LONG-TERM SECURITY
Do not underestimate the risk of inflation. It will reduce the spending power of your savings over your retirement years. It is important to take steps now to protect your wealth in real terms, so that you can enjoy the standard of living you are used to right through retirement. With life expectancy increasing, this may be longer than you expect. Allow for extra expenses along the way, such as healthcare issues, home renovations, new hobbies etc.
The first rule of any investment strategy is that it should be specifically designed around your circumstances, short- and long-term objectives and risk tolerance. Your circumstances drastically change with retirement, and a move to a new country, so your strategy needs to be professionally reviewed to establish how it should be adjusted to suit your new life and goals.
Have you accumulated ISAs and PEPs over time? They afford great tax efficiency for a UK resident and many people have accumulated significant funds in these ‘tax wrappers’ over several years utilising their annual allowances. But if you plan to move to France, when is the best time to sell to avoid paying unnecessary tax? And when is the worst time to sell?
10. ESTATE PLANNING
This is a major issue when you move across the Channel. French succession tax works quite differently from UK inheritance tax, and you need to understand the impact it will have on your heir’s inheritance.
And then there is French succession law which imposes restrictions on how you can divide your estate. You also need to understand how probate works in France, and anywhere else you have assets, and find out if there are steps you can take to avoid probate for your heirs.
While you can do a lot of research online these days, taking advice from a professional tax planning and wealth management specialist is invaluable. It is the only way you can be sure that you have not overlooked anything, and that you have identified all your options worked out and how suitable they are for you.
*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 should take personalised advice.