Q&A: Retiring in France

David Anderson of Sykes Anderson Perry Ltd offers advice

Q: I am retiring to France and wondered how my UK pension would be taxed? I also intend to rent my UK property out for a couple of years before selling it, in order to provide me with an additional income. How will this affect my tax position now, and once the UK property is sold? Would it be beneficial for me to become French resident, if indeed this is something I could do?

David Anderson replies:

Firstly, I recommend that you seek specific advice on your circumstances because there are always particular circumstances which will impact on whether you are taxed more heavily in France or the UK.

The first analysis which will have to be conducted is whether you will become non-UK resident under the statutory residence test, and resident in France under French internal law. Depending on that analysis the position of the UK-France double tax treaty will also have to be taken into consideration.

Assuming you can establish that you are resident only in France, and not in the UK, your state or private pension will only be taxable in France. However, you will have to take positive steps with the UK Revenue to ensure you are paid gross in the UK. Any government service pension (such as HM Forces, Civil Service and Foreign and Commonwealth Office), will only be taxed in the UK.

French income tax liability is determined according to the total income of the household. Tax is levied on a progressive basis with current rates varying from 5.5% to 45% depending on the level of the household income.

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Even as a non-resident the income from renting your UK property will be taxable in the UK. The default position is that the letting agent or tenant will have to deduct tax at 20% before paying the rent over to you.

You can apply to HMRC to receive income gross and then pay the due tax yourself. The advantage is purely a cash flow one. In France you must declare your worldwide income – specific rules apply to UK rental income, which mean it is effectively not taxed in France but it pushes other income into higher taxing bands.

You may want to seek advice as to whether you could qualify as a ‘professional landlord’ in France which could carry income tax, wealth tax and capital gains tax benefits.