Since the change in the UK / France tax treaty, capital gains from UK property, for French residents, are now taxed in France under French rules.

Some people have been confused by the change to capital gains tax, as article 14 of the treaty, dealing with capital gains on property, states that it may be taxed where it is situated, so the UK, but the UK does not apply capital gains tax to non residents, resulting in no tax. What overrides this is article 24 of the treaty which states that there will be a tax credit for tax paid. Of course, there will be no credit since the gain is not taxed in the UK, thus making it clear that French tax is the only tax that matters.

Capital gains tax in France is currently 19%, but with a further 13.5% (up from 12.30% last year) in social charges for French residents.

Until recently, being taxed in France was not a major problem for many who had owned their property for a considerable time, but the last French budget (or at least its second correction adopted 8^th September) has taken off the shine, leaving people with anxieties over any sale. Many people seem to have understood that this is already in force; however, for private individuals, the new rules apply from 1^st February 2012.

The original rules were that, after five years of ownership, there was an allowance added every year of 10 percent. This meant that a property owner could sell their UK property, free of capital gains tax, after 15 years. The new rules mean that this is now no longer the case, as is outlined in article 150 VC of the French tax code.

The time of ownership now required to receive 100% relief is double, at 30 years. The details are as follows:

-2% for each year of ownership beyond the fifth year;

-4% for each year of ownership beyond the seventeenth year;

-8% for each year of ownership beyond the twenty-fourth year.

Or to really simplify things:

Pre-budget, there was also a €1,000 euro allowance applied as part of the calculation under article 150 VE of the French tax code. Although this did not make an enormous difference, this also being removed certainly adds to the cost.

Example : An individual sells 5 May 2012 a second home acquired on 1^st October 2000. No additional exemption is applicable. The selling price is € 240,000 and the purchase price was the equivalent of € 91,470.

* A flat rate of 7.5% may be used when assessing the acquisition cost of the property (Article 150VB 3 of the French tax code).

**Where the taxpayer sells a property after five years of ownership is not able to provide the justification for home improvement expenditures, a fixed allowance of 15% of the purchase price may be used (Article 150VB 4 of the French tax code).

A declaration now needs to be made to the tax authorities within one month of the sale.

Some of you may have read about first proposal (Draft law 3713) made under the first corrective budget which considered having no allowance for time owned, but with an indexation allowance against inflation, however it was considered that years of ownership was a simpler system, dropping the indexation option.

For those with a second property in France, one solution to avoid this tax is to move into the property you wish to sell, completing at least one income tax declaration from that address, making it your principal residence, thus exempt from capital gains tax. It may come down to the size of the bill and how much trouble you are willing to go to, to avoid paying it.

In summary, investing in property, whether in France or the UK, is no longer attractive for French residents and those who are selling property now might wish to achieve their sale before 1^st February 2012 as it is likely to be more expensive after that. For those that are looking to move to France and buy a second property as an investment, they may wish to consider other investment options to create an income other than property, as numerous more attractive options exist.

Robert Kent

Firstly – let’s be clear about who has to do them. Anyone who is tax-resident in France (if you are in any doubt about your tax residency status, see our blog on residency). A French resident must complete a declaration for income tax “Impôt sur Revenue“- even if you have no income at all, you still have to complete a return, even if it contains just your address. A very important point for those who are new to France; it is not up to the fiscal authorities to find you and send you a form – it is your obligation to get a return and submit it.

The declaration for Wealth Tax (Impôt de Solidarité sur la Fortune) must be completed by

• - French Tax residents who have total worldwide assets of more than €790,000

• - Non French Tax residents who have total assets in France of greater than €790,000

The tax is assessed on the value of your assets as of the 1^st January. Note that assets in this case are net assets – i.e. any liabilities such as mortgage or other loans can be offset against assets, as can your taxes, including your theoretical wealth tax bill!

Again, it is entirely your responsibility to make sure you submit a return if you need to.

The main French income tax Forms

The 2042             – the main income tax declaration

The 2042c           – the complementary form for extra information

The 2047             – the declaration for income from abroad

The 2044             - the declaration for income from property

Bank Accounts outside France

As a foreigner, it is likely that you have bank accounts outside of France. It is very important that you offer details of these accounts with your return. This is asked for in box UU of the 2042. This can be achieved by filling in a 3916 for each account, or you can simply detail all your accounts on a separate sheet of paper.

If you fail to do this you may be fined €750 PER ACCOUNT not reported, so if you have several accounts this may become an expensive omission.

Exchange Rate

This was a real sticking point for many people last year. As always, there is the law (use of the Paris exchange rate at the day of exchange) and then there is what the local tax office wishes you to do which, bizarrely, do not always coincide. This is because the law means looking up each payment of income over a year, which is fine for your French person with minimal foreign income, but overly complex for foreigners who derive all their income from abroad; too much work for you and, more importantly, too much work for the tax office.

The most common suggestion we have come across from local tax offices, is to use the 31^st December rate, which for 2009 was €1.125999324 (to be precise). Last year we saw up to 8 different methods being suggested by local tax offices all over France. This has led many to find a way to get it in writing from a suitable source. A word of assurance, I have never seen anyone penalised for using a reasonable exchange rate, in good faith, so don’t lose sleep over it.

Tax Planning

People often ask us how to reduce their taxes at tax return time, which brings to mind a rather old joke. A man was walking in the countryside, trying to find his way to Paris. He came across an old shepherd, minding his flock of sheep. He approached the man, and asked him “could you help me find my way to Paris?”. The shepherd looked at him with a puzzled expression, and after a long pause replied “Well I wouldn’t start from here if I were you”.

This is a roundabout way of saying that much effective tax planning has to take place well before you fill in your returns. This is where Kentingtons can help, by using strategies that reduce the amount of declarable income, which in turn can reduce your income tax, social charges, capital gains tax and wealth tax (more on this later). However, if you haven’t taken steps to minimise liabilities, it is never too late – if nothing else, we may be able to help next year!

The main points to consider for the income tax return itself are to ensure that you are not over-declaring income, and are claiming for all possible reliefs you are entitled to. For example, make sure you understand whether any interest you have received has already had tax deducted. If this income is by a foreign authority (e.g. the UK), you may be able to reclaim it from them. If you let out property, there are deductions you can make for the costs – although this is quite complex, as there are several ways of doing this. On the relief side of things, certain home improvements that are “ecological” – double glazing, heat pumps, solar panels etc, can entitle you to tax relief. Using the “parts” system correctly can also reduce your tax bill – you are taxed as a household in France, not as an individual like the UK system, but your tax bill will be lowered depending on the number of people in your household – and here, spouses, dependent children in full time education, and even elderly relatives can all count. Treatment of overseas pensions can be complex, and it is worth seeking some advice to make sure you are dealing with this correctly.

If you are (un)fortunate enough to be liable for Wealth Tax, then there are two very important reliefs that you need to be aware of, the “Plafonnement“, and the “Bouclier Fiscal“. Basically, if your taxable income is low, you may be able to significantly reduce your Wealth Tax, or possibly eliminate it altogether!

The “Plafonnement” – This is specific to wealth tax and this calculation is found on the tax declaration itself, offering an immediate reduction of your tax bill. Basically, this rule means that your wealth tax cannot be more than 85% of your taxable income, though if your assets are above €2,530,000, the reduction can only be 50%.

The “Bouclier fiscal” – This is not specific to wealth tax, but also other taxes. This rule means that your total tax bill  – including income tax, local taxes on your main residence (“Habitation” and “Foncière“) and Wealth Tax should not be more than half of your taxable income. So if you have a lot of assets, but have a low income (or can arrange for your income to be low – hence the need to plan!) then this can be highly effective.

Of course, there is not enough space to regurgitate the whole fiscal code here – the above are general principles only – each case is different. Like in any jurisdiction, there are a multitude of rules, regulations and special cases, and being France, they are often less than intuitive to the Anglo-Saxon mind. However, to make the most of your money, you need to start thinking like a French man or woman, at least fiscally!

Kentingtons are qualified Tax and Financial Advisers in France, and so if you are unsure if you are making the most of your money here in France, then please contact us, and we will be happy to see if there is anything we can do to help. Initial consultations are completely free.

You can contact us on:-

France

South East: 04 94 37 29 40

South West: 05 56 18 11 32

North West: 08 72 68 10 90

UK office: 020 7692 5178

Nick Wood

The first point to make about property is that, although there is something comfortingly tangible about a “bricks and mortar” asset, the value of a house may not be as solid as the house itself. Property markets can down as well as up, and in extreme circumstances, a house can become almost worthless – for example if an area suffers a major economic upheaval like the closure of a dominant employer. More broadly, house prices are strongly linked to the wider economy, and such factors as general confidence, interest rates and lending policies can have a big impact.

But what about the investment performance? With the usual caveat that “past performance may not necessarily be a guide to the future”, we can at least look historically how the different investment classes have fared. Typically in articles in the financial pages of the popular press, you will see a comparison of the rise in average house prices with an index, such as the FTSE100, or an equivalent index for bonds.  Generally, these will show property to be a good investment, better than bonds, although less good over the long term (20 years+) than shares. However, in my view these theoretical returns are far removed from what a real investor would experience.

With property, there are many additional issues to consider. Firstly, a property requires maintenance – “fixing the roof” and so on. Also, it needs to be insured, and local taxes paid, and possibly service charges for an apartment, or similar a house is part of a private domaine. A more subtle cost not accounted for when looking at “average house” price trends is the general improvement in housing stock. If you bought an “average house” in say, 1980, then in 2010 it would be distinctly “below average” if you hadn’t invested a significant sum of money in bringing the property up to date – replacing kitchens and bathrooms, and maybe fitting air-conditioning in certain French regions, and so on.

Transaction costs are another big factor – in France in particular. (I have never understood why French Estate agents charge a whopping 5% or more to sell a house, when their English counterparts can do it for as low as 1% -  but they do!). Adding in Notaires fees, you can count on around 7-8% to buy a house, and 5-6% to sell it. Not so significant if you hold the property for twenty years – but enough to make a big dent in your gains over five.

On the more positive side, nobody in their right minds buys a house and then just leaves it empty for a decade. Houses can be rented, either permanently, or as holiday homes, which provides an income. Clearly this must be taken into account in the total return on housing as an investment. The problem in trying to do this is that it is a very variable number – whether it is permanent or holiday rental, how long the season is in the case of holiday rentals, and the owner’s skill in marketing their property.

Looking at Shares, some of the same issues come into play. There are transaction costs to buy and sell shares, and nobody can replicate the performance of an “index” at no cost, because transactions are required to track an index. If you are buying a fund, then there are management costs. In total however, these are much smaller effects overall than property.

Another aspect to consider is risk and volatility. As we have seen in the last couple of years, property prices can drop as well as rise. However, at the height of the financial crisis, share prices dropped further than house prices, even though the crisis had its origins in an overheated property market! The ideal strategy over the last couple of years of course would have been to have all your money in a guaranteed investment like “Fonds en Euros” (easy to say in hindsight!). As a general rule, shares would be consider more volatile that property, with fixed income investments like bonds being lower risk still.

In analysing risk, however, you have to account for the fact that you can’t go a buy an “average house” – you buy a particular one. Therefore your return depends on how good you are at analysing the market, choosing a property, and negotiating the price at purchase and sale. You also have to account for the possibility that some unforeseen circumstance devalues your property – a new road or construction, or simply the area you have chosen falling out of favour (of course these factors can go in your favour).

Liquidity is the final point to consider. Here financial based investments win hands down. Selling a house is time-consuming and expensive, whereas most financial investments can be sold rapidly and at low cost. You also have the advantage that you can make partial withdrawals, whereas you can’t easily sell a quarter of your house!

Of course, buying property is an emotional as well as a calculated decision. Many people buy a French holiday home, with the idea of renting it part of the time and using themselves, and gain a great deal of pleasure from doing so – you can’t take a short break in your share portfolio! What we would advise though is treating a property investment like a small business; in other words

1. Analyse ALL the costs carefully – taxes, insurance, service charges, a realistic maintenance allowance, and the transaction costs to buy and sell.
2. Have a realistic plan of how much income you can get from the property – you won’t keep it occupied 100% of the time
3. Decide out how you will handle the work associated with managing the property – maintenance, change-overs for a holiday property, marketing and promotion etc. If it is not nearby, then this should not be underestimated.
4. Work out all the tax consequences – income, capital gain, ISF.

This way, you will avoid your property dream becoming a nightmare.

Returning to the original point of this somewhat lengthy analysis – which is the best investment? Unfortunately, there isn’t an easy answer. Past performance would tell you that over the long term, shares have performed best, with property next, and fixed income investments slightly less. However the usual correlation between risk and return applies – shares have also been the most volatile. The only caveat we would apply is that housing is perhaps more risky than most analyses would suggest – purely because of the way in which individuals invest in the property market, buying a single house (somewhat analogous to investing in a single company rather than a basket of shares).

The most important thing is to ensure your investment strategy suits you, taking into the account the following main factors.

1. Your appetite for risk
2. Your objectives – income, or capital growth
3. The amount of time you are willing to put into looking after your investment.
4. The degree to which you are happy to have your wealth tied up, or easily accessible.
5. Your timescales for investment
6. The Tax consequences of different investments given your personal circumstances

Helping you with this kind of financial planning is what Kentingtons specialises in, for French residents, or those with property in France. Our broad conclusion would be that property is an important asset class, and one that has shown historically good returns. At the same time, it is a type of investment with its own particular characteristics, and you need to consider if it suits your investment needs. We would generally advice clients to have a balance of different types of assets, or which property may well be an important one – but excessive trust in “bricks and mortar” is probably not the best financial plan.

You can contact us on:-

France

South East: 04 94 37 29 40

South West: 05 56 18 11 32

North West: 08 72 68 10 90

UK office: 020 7692 5178

Nick Wood

For people living and working in one country, these issues can seem rather distant, only having an indirect impact on daily life, and perhaps the choice of a foreign holiday. For expatriates, on the other hand, these fluctuations can have a dramatic and instant effect on one’s ability to keep one’s head above the water line financially.

As Kentingtons advises expatriates in France, we will concentrate on the immediate issues in France, although the same applies to a large extent in the entire Eurozone, and partially to any expatriate.

Firstly, it is instructive to try and understand what is going on – why are currencies so volatile right now? The basic issue underlying all this is clearly the economic crisis or “credit crunch”. In times of difficulty, the markets look for “safe” places to put money – traditionally this would have been large mature economies like the US and Europe.

The unique character of this crisis is that it is just such places bearing the brunt of the crisis – meaning nobody can decide what is “safe”. For a while the Euro qualified, due to the sheer size of the Eurozone, but now the stability of the Euro is in question. The US has lost some of its traditional “safe haven” status, due to large and growing deficits. Meanwhile, emerging economies like China – normally the places that money would exit fast in bad times – are actually in good shape, and are looking in some respects “safer” than the West.

The net result is that money flows around based on the latest snippet of news, and currencies move up and down seemingly at random.

The more practical question is then – what to do? Should I move money from Sterling to Euros – or the other way? Should I put my plans to move to France on hold – or move before the rate goes down? Often the reaction to such turbulence is to just give up and wait for clarity. However, we would suggest that difficult times are when a solid financial plan is most needed.

As our job is to help expatriates, we’d love to be able to tell you where the Euro-Sterling rate will be in six months time. Unfortunately, we can’t – and of course, no one can. Even the most well informed analyst cannot predict exchange rate movements given the current climate.

What we can do, and do all the time for our clients, is to help them create a Financial Plan that works for them, and that minimises the effect of this turbulence.

Here are some of the key issues we propose you try and think about:

How much money do I actually spend each month/year?

It may be tempting to wait “until things get better” to move money, or move country even, but that could be a long wait (we only live once!). Perhaps a better approach is to see what you need to achieve the lifestyle you want, and see if that is attainable in the current climate. In general, it would be wise to assume exchange rates are as likely to get worse as get better. In doing this, it is important to fully understand the impact of taxation on any changes you wish to make.

Where do I spend my money?

If you spend say four months of the year in the UK, and eight in France (and spend equally in both places), then it would make sense to have a third of your wealth/income in Sterling, and two thirds in Euros. This way, the effect of exchange rate movements will be minimal on your spending power. In such a scenario, for example, a fixed sterling income such a pension might be balanced by making a Euro-denominated investment of spare capital.

Are my investments tax-efficient for my country of residence?

It is important that any investments are optimised for your country of fiscal residence. Note this does not contradict the point above – it is perfectly possible to have Sterling investments in a French tax efficient structure. Conversely, UK tax efficient investments (e.g. PEPs or ISAs) won’t work if you are a French resident. If you are in any doubt as to where you are resident, then you should contact us for advice.

Is my Mortgage right for me?

It is tempting to take out a mortgage purely based on who is giving the best interest rate on day one. However if you are buying across borders, it is important to consider what effect future exchange rate movements could have on your ability to pay. If you are paying a mortgage denominated in one currency from an investment denominated in another, you could be very seriously exposed – both from currency movements and divergent interest rate movements.

What level of risk am I comfortable with?

It is nearly impossible to eliminate all risk in life. However some strategies are riskier than others. Currencies can be extremely volatile, and any investment approach should take this into account. For example, if you were living in France, and thus spending in Euros, and were invested in UK Government Bonds (a theoretically “safe” asset class), your investment would have been extremely volatile over the last two years – mainly due to exchange rate fluctuations. Therefore managing the risk profile of an expatriate’s investments requires not only looking how risky an asset is (cash, bonds, shares), but at the currency aspect too.

Clearly we can only talk in general terms here – each person’s situation is different. If you would like further advice we would be pleased to discuss your personal situation with you.

You can contact us on:-

France

South East: 04 94 37 29 40

South West: 05 56 18 11 32

North West: 08 72 68 10 90

UK office: 020 7692 5178

Nick Wood

These common reactions in mind, if I talk about France being a tax haven, the reaction is one of stunned amusement followed by an intrigue to know more, but with an overwhelming sense that it cannot be true.

If the objective is to prove that France is a tax haven, it’s very important to agree on what a tax haven actually is. The dictionary defines a tax haven as “A place where people pay less tax than they would pay if they lived in their own country”.

Many have wrongly assumed it meant tax free and we would never claim that France was that, but in most cases, we have been able to prove again and again that people and their families can actually be better off financially as French tax payers, as well as achieving the lifestyle they always dreamed of.

Kentingtons are presenting seminars on this subject at locations throughout France, where we go through actual case scenarios demonstrating just how much better off people can be as French tax residents compared to the UK.

Please do contact us if you would like to register your interest in an event near you, or you would like to see how we can establish if France can be a tax haven for you.

Is France a tax haven for you?

As far as the UK is concerned it is tax free, however, the French fiscal authorities do not see it that way and will tax it for what it is, thus if it is a deposit based ISA, it will be taxed as interest in the same way as any other bank account.

The overall effect is that the common deposit ISA is not generally tax efficient for residents of France. This is especially the case when we consider that there are tax efficient ways of investing in France. The question is, how significant is the difference?

The only way to illustrate this clearly is to look at the position of a typical couple:

A married couple with pension income from the UK; one with a pension of €16,000 and the other a pension of €14,000.

The income tax bill for this couple amounts to just over €1,150 for the year, at 2008 rates. However, if we assume income from their UK bank is paying interest of €10,000 per year, the tax situation changes. The interest results in an income tax bill more than double, to just over €2,550 for the year, leaving them an extra €1,400 to pay.

This demonstrates that investment income can make a significant difference to your income tax bill.

However, if we look at what the liability would be had the money been invested in a compliant “assurance vie”, for example, the difference is significant:

The same couple drawing €10,000 from a tax efficient investment in France would have an average tax bill over 10 years of €104.94, somewhat less than the €1,400 extra tax caused by  bank interest. Even if we add in the social charges (which, of course, you would pay on the  interest from your UK ISA or bank account), bringing the 10 year average total to €252.11, the bill is still dramatically less.

Thus as residents of France we have a choice; we can ensure that our investment income results in as little tax as possible, or continue maintaining UK ISAs and bank accounts, paying tax in France at our highest marginal rate, paying, as in this case, over 13 times more tax than is necessary!

Some people have been saving in them since their inception 10 years ago and have a substantial amount of money saved. As you may well know, as a non resident of the UK, you can no longer add to an ISA, but merely hold it.

As far as the UK is concerned it is tax free, however, the French fiscal authorities do not see it that way and will tax it for what it is, thus if it is a deposit based ISA, it will be taxed as interest in the same way as any other bank account.

The overall effect is that the common deposit ISA is not generally tax efficient for residents of France. This is especially the case when we consider that there are tax efficient ways of investing in France. The question is, how significant is the difference?

The only way to illustrate this clearly is to look at the position of a typical couple:

A married couple with pension income from the UK; one with a pension of €16,000 and the other a pension of €14,000.

The income tax bill for this couple amounts to just over €1,150 for the year, at 2008 rates. However, if we assume income from their UK bank is paying interest of €10,000 per year, the tax situation changes. The interest results in an income tax bill more than double, to just over €2,550 for the year, leaving them an extra €1,400 to pay.

This demonstrates that investment income can make a significant difference to your income tax bill.

However, if we look at what the liability would be had the money been invested in a compliant “assurance vie”, for example, the difference is significant:

The same couple drawing €10,000 from a tax efficient investment in France would have an      average tax bill over 10 years of €104.94, somewhat less than the €1,400 extra tax caused by bank interest. Even if we add in the social charges (which, of course, you would pay on the interest from your UK ISA or bank account), bringing the 10 year average total to €252.11, the bill is still dramatically less.

Thus as residents of France we have a choice; we can ensure that our investment income results in as little tax as possible, or continue maintaining UK ISAs and bank accounts, paying tax in France at our highest marginal rate, paying, as in this case, over 13 times more tax than is necessary!

Robert Kent< ><-->

It’s tax return time in France. If you moved to France in 2009 and have yet to complete your first tax return, now is the time to get organised for your first declaration.

This BLOG is not designed to be a step by step guide, but more of an introduction and overview of the main points to ensure that you have taken all considerations into account.

If this is your first tax declaration, unless your situation is very simple indeed, I would recommend seeking professional guidance.

If you are unsure of your residency status i.e. whether you should be completing a tax declaration in France or not, then follow this link to the BLOG on “Are you tax resident of France?”

For those already in the French system, you should have received your declaration forms by now; for those not yet in the system, returns will be available at your local tax office and online soon (see www.impots.gouv.fr).

Those who wish to complete their returns online, may do so right now.

If you have received your tax returns in the post, you may notice, there is only one copy this year (they are trying to save paper). The issue is, for some, that they are sending the simplified versions which do not contain the boxes they need, so they find themselves needing to obtain another form (not really saving paper then!)

A point for those doing their first return, you may need to complete the “France Individual” (formerly called the FD5) if you have income taxed at source in the UK.

This is a UK form in English and French which you give to your local French tax office (for this reason always put the French copy on top) at the time of completing your first tax return. This is sent by your tax office, indirectly, to the UK and ensures you are repaid for any tax taken whilst French resident and that future income is paid gross, where applicable. If you have completed a P85, do ensure that the dates you use on the France Individual match those on the P85.

The main French income tax Forms

The 2042             – the main income tax declaration

The 2042c           – The complementary form for extra information

The 2047             – the declaration for income from abroad

The 2044             – the declaration for income from property

Deadlines

The deadline for paper returns is 29^th May

For online returns, it depends on which area you are in, but it is from 11^th to 25^th June. I would always advise not leaving it until after 29^th May in case, for some reason, you are obliged to complete a paper return; however, this is very useful for those who are completing late.

Exchange Rate

A real sticking point this year seems to be what exchange rate to use. The main reason for this is that local tax offices like to keep things simple for themselves (which is very understandable given their workload) and sometimes offer a fixed rate for the year. This is commonly the Paris exchange rate as of 31^st December. That rate for 2008 was 1.049868766 (to be precise!)

For income tax, this rate is for use by businesses (CGI 38, 4) but not for individuals (apart from wealth tax, for which this rate is suitable), however, some tax offices prefer its use, since it simplifies checking returns. This is also somewhat advantageous this year, for us the tax payers, due to the fact that Sterling against the Euro was near its all time low at this date.

However, the advantage for the taxpayer is clearly a disadvantage for the French treasury who are already dealing with highly stretched budgets due to the current climate, thus those using the end of year rate may find themselves having to redo their returns to satisfy the treasury that they are not losing out.

We have heard of some people using an average rate and that being accepted by some tax offices. However, being that a finite annual average figure is not actually published by the French tax authorities, (though the Banque de France does offer a rate) we tend not to recommend its use.

The law is clear on the exchange rate for private individuals and is highlighted in the guidance notes for completing the 2047 and that rule is that you must use the exchange rate of the day the money was received, using the Paris rate. The best method of checking this rate is to look at the Banque de France website.

Bank Accounts outside France

As a foreigner, it is likely that you have bank accounts outside of France. It is very important that you offer details of these accounts with your return. This is asked for in box UU of the 2042. This can be achieved by filling in a 3916 for each account, or you can simply detail all your accounts on a separate sheet of paper.

If you fail to do this you may be fined €750 PER ACCOUNT not reported, so if you have several accounts this may become an expensive omission.

Robert Kent

The event will take place at Domaine St Endréol on Thursday 7th May and is hosted by Kentingtons together with the British Association of the Var. This free event is open for all to attend; however, numbers are limited so please reserve your place early to avoid disappointment.

What is a Pacs?

A Pacs is a formal civil union between two people, as an alternative for “couples” who do not wish to get married. It is also a solution for two people who merely wish to formalise a household for tax and succession reasons.

Who can Pacs?

Almost anyone can Pacs, i.e. those of the same sex, as well as different sexes. Blood relatives, however, cannot be Pacsed. A couple cannot enter into a Pacs if they are in any other formal arrangement in France or elsewhere. The couple looking to enter into a Pacs must have a common residence and must be over the age of 18.

What are the financial advantages to being Pacsed?

For tax purposes a Pacsed couple will be taxed jointly. This means that income tax will be treated the same way as for a married couple, thus taking advantage of the “parts” system, or “Quotient Familial” which generally results in a lower income tax bill than if the couple were taxed separately.

Further to the law No. 2007-1223, from 22^nd August 2007, transfers between Pacsed couples are no longer subject to inheritance tax on death, there is an allowance on life time transfers of €79,221, which is reset every 6 years, and a tax rate of up to 40%, (though this rate is  only on transfers above €1,722,041) (see latest tax rates). This does a lot to alleviate the problems suffered by unmarried couples, as before this change, money and assets left to a non relative received an allowance of just €1,500 with the remainder subject to inheritance tax at 60%! This law change gave unmarried couples the right to be treated financially, the same way as a married couple.

What are the financial disadvantages of being Pacsed?

Once you are Pacsed, you are one “foyer” or household, which means that your combined assets are liable to wealth tax. It may be that separately, you are not subject to wealth tax, but with your combined assets, you become liable. If you are already paying wealth tax, it may cause an increase in your liability.

Of course, before deciding against a Pacs for this reason, it is very important to know your potential liability and all the options for reducing or eliminating this tax, since the positives may very well outweigh the negatives.

How to Conclude a Pacs

Many people do the work themselves, with varying degrees of success and stress. Often the best way to start, especially for a foreigner / non French speaker, is to engage a notaire to draw up the contract and deal with its submission on your behalf. This should normally cost around €300.

The paperwork generally required:

A full birth certificate (showing the parents names) – this must be an original, less than 3 months old and translated into French by an “appointed” translator.

A “Certificat de Non-PACS” – a certificate proving that you are not already Pacsed, usually obtained from the Tribunal d’instance in Paris.

An acceptable official form of identity – A Passport, a Titre de séjour, or a French driving licence.

A ”Certificat de coutume” – This basically attests to the fact that the person is not already married or in a similar agreement and has the capacity to get Pacsed. This is obtainable from the embassy / consulate. Some countries do not provide these and will merely send you a letter attesting to this fact. 

An “Attestation sur l’honneur” attesting your capacity to be Pacsed, that you are not married or part of another similar agreement and a further attestation of your fixed communal residence.

Naturally, if you are doing this by yourself (which we would advise strongly against) a “modèle de Pacs” can generally be found on the internet. We would recommend engaging a notaire, who can guide you through the process and can tell you exactly what paperwork you need, meaning you can rest assured that all has been completed correctly.

If you want to know if a Pacs is the right thing for you to do, a notaire will merely discuss the legal consequences and help you put it into place. Ensuring being Pacsed fits as part of your overall financial planning is something that you need to discuss with a financial professional and naturally, we are on hand to help.

Robert Kent