There is much to consider when thinking of a move to France. One of the big questions will centre on whether you can actually afford it, says Bill Blevins…
One British lady who is hoping to retire to France in approximately 4 years’ time has written to Living France about whether she would find it financially difficult to live there and asking about a comparison in living expenses between the UK and France.
What your living expenses will be in France depends very much on your personal lifestyle and what you like to spend your money on. While it is difficult to predict what the cost of living will be in 4 years’ time, I can provide a basic comparison between taxes in France and the UK as they stand in 2009.
The basic rate of UK income tax is 20 per cent for income up to �34,800 (for tax year 2008/09) and �37,400 for 2009/10. The higher rate of 40 per cent applies to income earned above these rates. There is a 10-per-cent starting rate for savings income only on savings up to �2,320 (2008/09) and up to �2,440 (2009/10).
Income in France is subject to tax on progressive scale rates over five income bands. These are the bands for 2009: income up to €5,852 (�5,167) the tax rate is nil; €5,852-€11,673 (�5,167-�10,308) – 5.5 per cent; €11,673-€25,926 (�10,308-�22,894) – 14 per cent; €25,926-€69,505 (�22,894-�61,378) – 30 per cent; over €69,505 (�61,378) – 40 per cent. Bank interest is taxed at a fixed rate of 16 per cent.
The taxable income in France is assessed on the total income of the household, which is divided by the number of members in the household known as parts. The income tax scale rates are then applied to this lower figure, and having computed the income tax due, it is multiplied by the parts to provide a larger number, which is lower than it would have been based on one household member. Various tax credits are available which can be deducted against the tax due.
There is another form of tax in France, known as social charges. They are 12.1 per cent on investment income and gains, 7.1 per cent on pensions and 8 per cent on earnings. Part of these charges can be deductible in calculating the tax due on income charged at scale rates (but not if taxed at a fixed rate).
While those in receipt of their state pension do not have to pay social security in either France or the UK, be warned that in France, if you are not working and not paying social security contributions, you will have to pay for private medical insurance. If you are in receipt of your UK state pension and have registered Form E121, or are below retirement age and covered by Form E106, you are exempt from contributing to the state health system, the CMU (Couverture Maladie Universelle) but will be covered for free state health care. The basic CMU does not cover all medical costs and you will either need to pay the extra yourself or arrange top-up insurance.
France imposes a wealth tax but the UK does not. It is raised on the worldwide assets of a French resident as at 1 January in any tax year. Assets amounting to the value of €790,000 (�697,633) or under are exempt. Above this amount the wealth tax rate ranges from 0.55 per cent to 1.80 per cent over six wealth bands. The value of a main home can be reduced by up to 30 per cent. You are exempt from wealth tax for 5 years after arriving in France, providing that you have not been resident in France during the previous 5 years.
UK pensions are taxable in the UK and the state pension is always paid gross. You’ll need to pay tax if your total income from pensions, employment and any other source is more than the tax-free allowances. The personal allowance for 2008/09 is �6,035 and for 2009/10 �6,475. The personal allowance for people aged 65-74 is �9,030 (2008/09) and �9,490 (2009/10); and for those aged 75 and over �9,180 (2008/09) and �9,640 (2009/10). Married couples allowance ranges from �6,535 to �6,965 for these tax years depending on their age group.
Pensions are taxable in France except for UKgovernment pensions (not the NHS) which are always taxed in the UK. There is a 10-per-cent abatement for your gross pension before tax, which ranges from a minimum €367 (�324) to a maximum of €3,592 (�3,172) for 2008, per household. Anyone aged over 65 is entitled to a deduction from their net taxable income, depending on the level of income. For 2008 income this was €2,266 (�2,001) for income up to €13,950 (�12,318), and €1,133 (�1,000) for income between €13,950 (�12,318) and €22,500 (�19,869).
Your UK state pension can be paid in euros into a French bank account but is subject to the prevailing exchange rate. The same applies to private pensions although it depends on the provider. You will need to enquire if they make payments abroad and what the charges are. Currency agencies usually offer a better exchange rate than a direct bank transfer. You could accrue your pension in a UK bank until it amounts to �5,000 or �10,000 and have a lump sum transferred or have payments transferred monthly. Another option may be to transfer your pension into a QROPS (Qualifying Recognised Overseas Pensions Scheme), which allows UK non-residents to transfer their pensions out of the UK. Exchange-rate fluctuations can be avoided by choosing in which currency you want to take your pension income. It can be taken in sterling or euros or, indeed, in any other currency to suit. A QROPS has tax advantages providing you remain UK non-resident for 5 consecutive UK tax years and the funds can be invested in an efficient tax structure. Advice on QROPS should be sought only from an authorised and qualified financial adviser.
There is also a tax-efficient vehicle available when you move to France called an assurance vie. It is a specialised form of life assurance which acts as a tax wrapper’ and can reduce your tax liability. A variety of assets can be held in an assurance vie where capital can grow and income is taxed only when a withdrawal is made and then very favourably. If you set up an assurance vie before moving to France and the assured lives are under 70, French succession tax is avoided.
UK inheritance tax (IHT) is paid by the deceased’s estate on all assets over the tax-free threshold of �312,000 (�624,000 for married couples or civil partnerships) for 2008/09 and �325,000 (�650,000) for 2009/10. Transfers between spouses and civil partners are exempt except where the deceased spouse is UK domiciled but the recipient spouse is non-UK domiciled.
French succession tax is the equivalent of UK IHT. It is paid by the beneficiary and the tax rates vary depending on the amount bequeathed and the relationship between beneficiary and donor. The highest rate can be 60 per cent and the lowest 5 per cent. There is no succession tax on inheritances between spouses or PACS partners but tax is payable on lifetime gifts between them with a tax-free allowance of €76,988 (�67,986). Each child receives €156,357 (�138,075) tax free before tax is payable. It is also important to consider the effect of French succession law which dictates how you can pass on your assets.