How is income from UK assets taxed in France?

How is income from UK assets taxed in France?

Oct 18, 2022

While we’re sure that you will want to spend plenty of your time as an expatriate in France immersing yourself in the kind of charms, amenities, and culture that you wouldn’t be able to expect in the UK, you will also probably wish to retain at least some aspects of your ‘old’ life, in order to preserve stability and comfort.

What are we referring to here? Well, we could be referencing such things as wanting to keep on enjoying British pub grub alongside French gastronomy. But what we’re really focusing on here, is the question of how the French tax system treats income derived from UK assets.

You might feel that you quite like your existing UK property, bank accounts, shares, bonds, and pensions, and see no reason to get rid of them, simply because you might have moved to France. But how tax-efficient would such investments be for a new life in France, and what exactly do you need to know?

The essentials of UK assets if you are a tax resident in France

The first important detail to know, on this subject, is that being a tax resident in France will mean being liable for French tax on your global income, gains, and property wealth.

You can also expect that in the majority of cases, income you earn from your UK assets will be liable to UK tax. The double taxation treaty, that is in place between the UK and France, will set out where you will be required to declare and pay tax. It may turn out, for instance, that you only need to pay a particular tax in one country, but are still required to declare it in both. However, even though you get a credit, this income may impact how other income is assessed, in France, as it serves to change your marginal rate of tax.

Although UK rental income and government service pensions aren’t directly subject to French tax, if they are applicable to you, it will still be required for you to include them as part of your taxable income. This will be followed by a credit being given for the French tax and social charges liability.

How can you expect the French tax system to treat your income from UK investments?

Although income provided from Premium Bonds and ISAs is not subject to tax in the UK, you will not enjoy this same benefit once you become a resident of France, where income and gains from cash and share ISAs are fully taxable.

One thing that is tax-free in France, is winnings from some betting and gambling is tax-free however, this is not applicable to Premium Bonds, given that the initial investment isn’t at stake.

When living in France, you can expect the majority of investment income – wherever it was earned – to be taxed at a flat 30% rate. Low-income households, however, are able to instead pay tax at normal scale rates.

How is UK property rental income taxed in France?

In the event of you being resident in France and renting out property in the UK, this income will be directly subject to tax in the UK. However, in France, you will be required to include this income as part of your taxable income for the year; when you do, you can expect to be given a credit equal to French tax and social charges. Again, even though you get a credit, this income may impact how other income is assessed, in France.

So, you have income from a UK pension – how will the French tax authorities treat it?

If you enjoy pension income from UK funds, this will be generally taxable in France only, at income tax scale rates. Those rates for 2022 begun at 11% for income of more than €10,225, and went up to as high as 45% for income exceeding €160,336, with a possible additional 3% or 4% for higher income.

As for UK government service pensions, it is only the UK, rather than France, where these are taxable. However, it will still be necessary for you to declare this income in France, again, potentially affecting your marginal rate of tax in France.

UK residents benefit from a 25% tax-free ‘Pension Commencement Lump Sum’; this is not the case for those who are resident in France, where lump sums are usually taxed as pension income.

There are certain conditions under which you might be entitled to pay a fixed 7.5% rate of income tax (indeed 6.75% as there is an unlimited 10% allowance). If you satisfy the criteria and are able to withdraw your entire pension as a single sum under the UK pension freedoms, you might be tempted by the opportunities this offers. You may like the idea of re-investing the capital into a tax-efficient arrangement in France, which could be a means of lowering your overall tax liability.

As we would always emphasise when it comes to decisions on your pension, it is crucial to carefully assess all of your options with your long-term financial needs in mind, and to only place your faith in regulated advisors.

Don’t presume you can – or should – simply replicate your UK tax arrangements

You might think that you have already taken a lot of time and care over the organisation of your tax in the UK, so wouldn’t you be able to simply mirror those arrangements as a resident of France?

The reality is that there is very little in common between the UK and French tax systems, which underlines the importance of seeking advice from professionals – such as our own consultants here at Kentingtons – who possess intimate knowledge and understanding of how the tax regime works in France. In other words, this is not a context in which you should simply be listening to your existing UK advisor.

Residents of France are able to tap into some highly tax-efficient vehicles, such as an assurance-vie; even in this case, though, you should seek advice from someone with local tax knowledge who will be able to assist you in making the right decisions.

Finally, there’s something else that we feel a need to emphasise; you should be carefully looking over your savings and investments when you move to France, for reasons beyond simply taxation. You will need to think about what your requirements will be for your new life in France, and whether your existing investment portfolio is the right match with regard to your objectives, risk tolerance, and future expectations.

When you are on the lookout for the specialised tax, investment, and financial advice that will best cater to your circumstances and needs as a British expatriate in France, why look beyond Kentingtons? Please contact us today, through our UK or French offices, to learn more about how we can help.

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 Disclaimer: The information in the above article concerning taxation is based upon our understanding of the taxation laws and practises in France at the time of writing. These taxation rules are subject to change and as such, Kentingtons cannot be held responsible for any inaccuracies that may occur. The information in this article does not constitute personal advice. Individuals should seek personalised advice in relation to their own situation.

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