Given its proximity to other European countries – including the UK itself – and the rewarding and varied lifestyle that it promises, it should be no great surprise that so many Britons choose to relocate to France at some point during their lives.
If you are one of those people, the process of moving to France will unquestionably be an exciting one for you; however, it is also one that will bring with it an array of financial considerations.
So, we have decided to write this guide as an “at a glance” introduction to some things you must consider when achieving a tax-efficient relocation from the UK to France.
As always, we recommend that you consult a suitably qualified financial professional to help make the right decisions for yourself and your situation. With that in mind, here are some of the essentials you will need to take account of ahead of your move to France.
Preparing for your Move to France
Your careful considerations and planning about the French tax and financial rules will need to come into play long before you begin your new life in France. These preparations will need to consider such elements as:
- Your residency status: Before you embark on your journey to France, it is of the utmost importance that you are clear on your tax residency status. Whether or not you are classed as a French tax resident will have profound implications for your move – not least because if you are a French tax resident, you will be obliged to report earnings from both within and outside France.
Generally, once you arrive in France to live indefinitely, you will become a tax resident the following day.
You will be deemed a resident for tax purposes if your main home is in France, or if France is your principal place of abode (spending more time in France than elsewhere). In some cases, if your residency is unclear using the home tests, then your place of principal activity or centre of economic interest can be a deciding factor.
- Legal documentation: The meticulous assembly of all necessary legal documentation is crucial for a successful and seamless move to France. This may include gathering such items as your passport, visa or residence permit, birth certificates, marriage certificates, and any pertinent employment contracts or business permits. You must retain copies of these documents and diligently keep them current.
Where Will You Be Obliged to Pay Tax When You Move to France?
If you are classed as a French tax resident by the earlier criteria, you must report your earnings from the UK and other income sources, not just your income in France.
Many people who relocate to France are concerned about the possibility of double taxation; the good news is that this is mitigated through a double taxation agreement between the UK and France. This mutual agreement ensures that income is not subject to dual taxation and allows for tax credits or exemptions in one country for taxes paid in the other.
It is, therefore, an advisable course of action for you to familiarise yourself with the terms of this agreement so that you can refer to it to discover potential ways to significantly alleviate your tax liability (with the help, of course, of a suitably qualified and knowledgeable tax planning professional).
How Can You Expect to be Taxed During Your Time in France?
The French tax landscape is complex, punctuated by various taxes with varying effects on your finances. There are certain pivotal taxes, however, that especially necessitate your attention. Those include:
- Income tax: The French income tax system is progressive, with higher earners typically subject to higher tax rates. Income tax rates for 2022 income, declared in 2023, ranged from 11% for income of more than €10,777 up to 45% for income exceeding €168,994. Those with an income of more than €250,000 can expect an additional 3% tax, while for revenues of over €500,000, this extra tax is 4%.
- Wealth tax on real estate: France imposes an annual wealth tax on real estate valuation, known as impôts sur la fortune immobilière, or IFI. It applies to the combined real-estate assets of a household, although only those whose property assets are of a value greater than €1,300,000 are obliged to pay it. The first €800,000 is tax-free, with rates beyond the allowance, ranging from 0.5% to 1.5%.
- Inheritance/succession tax: one of the significant ways in which French tax laws can diverge substantially, from those applicable in the UK, is when it comes to inheritance rules. French inheritance tax is charged to each beneficiary, and there can be considerable variances in the applicable rates and allowances, depending on who the beneficiary is. Inheritance between spouses, for example, is tax-free, while children are subject to lower rates and higher allowances than more distant relations.
With so many intricacies and complexities involved in French taxation and estate matters, it would be prudent for you to seek the advice and help of legal and financial experts well-attuned to the exact rules that apply in France. This, in turn, will significantly assist your efforts to minimise potential tax burdens.
How Can You Best Structure Your Wealth for Your Relocation to France?
Naturally, considering the widely varying situations of those who seek to move from the UK to France, and the complicated and ever-evolving nature of estate and tax laws in the latter country, we cannot provide a “one-size-fits-all” answer here.
What we can do, however, is emphasise how important it is to take a proactive and structured approach to managing your assets when you are looking to move to France, well ahead of arriving in the country. This will mean considering how you can best manage your savings, pension products, and investments to achieve tax efficiency.
Deliberate wealth structuring involves setting up your assets to minimise tax liabilities. This may entail the use of specific investment structures or trusts that are tailored to your situation.
With France’s highly complex taxation and legal systems, making wrong (and unnecessarily expensive) decisions can be dangerously easy when structuring your wealth. For this reason, we would strongly urge you to seek expert advice from financial and legal professionals who specialise in tax-efficient wealth structuring across international borders.
What are Some Currency Considerations for Switching from the UK to France?
While managing your finances amid your relocation to France, you may find yourself handling multiple currencies. With currency exchange rates potentially exerting significant influence on your financial well-being, you should give thought to the below factors:
- Exchange rates: Regularly monitoring exchange rates and employing such strategies as forward contracts and scheduled transfers can serve as hedges against currency risk.
- Banking: as a UK national moving to France, you must have a French bank account regardless. Opening a local bank account also brings advantages such as generally more accessible day-to-day transactions and avoiding expensive currency exchange fees.
- Tax considerations: Attention to the tax implications inherent in currency exchange is essential, as these factors may profoundly influence your overarching financial strategy.
A Rundown of Your Property Options for a UK-to-France Move
Finding the most suitable place to live is a requisite component of a move from the UK to France. You are likely to have numerous options in this regard, encompassing buying or renting, so it will be helpful for you to know what advantages and disadvantages are associated with each of them:
- Buying a property: Purchasing a property in France would necessitate substantial upfront costs, including notary fees and property taxes, and would impose responsibility for potentially expensive property maintenance and repairs upon you. However, such a course of action would also afford you greater control over your living arrangements and long-term investment potential, with the scope for capital appreciation.
- Renting a property: Renting a property could be an attractive option to minimise the upfront costs of your French accommodation. This might apply particularly strongly if you expect that your life in France might necessitate changing residences from time to time at relatively short notice – in which case, renting will give you the optimal flexibility to do this. On the other hand, renting would not give you the long-term investment potential that the outright purchase of a French property would, and you may be subject to rent increases over time.
Handling Your UK Pension When You Move to France
Integral to your process of relocating to France and your financial strategy, is making sure any pensions you already have in the UK are efficiently managed.
The good news is that there are a few potential options for managing your UK pensions as a French resident. You could leave your pensions in the UK, which is feasible; however, it might not represent the most tax-efficient choice.
Another avenue you may consider is transferring your pension to a self-invested personal pension (SIPP), which could give you greater flexibility regarding currency, investment, and estate planning. But, again, you will need to speak to a financial expert to ascertain the best option for your situation.
Qualifying Recognised Overseas Pension Scheme (QROPS) is another option that you may hear about. However, we do not generally recommend this as the French fiscal authorities tend to treat such contracts poorly.
Cashing in UK Pensions
It is possible to cash in a UK pension and pay tax in France, as low as 7.5%, after an unlimited 10% allowance, thus just 6.75%. For those who will pay much more, drawing it as an income can make a significant saving whilst giving total control over the capital. This is generally not advisable for those in final salary. It must be understood that this is somewhat of a loophole and requires prudent management.
Passing on Your Legacy
One big difference between France and the UK regarding managing your finances is that you will need to place almost as much emphasis on estate planning as tax planning.
French inheritance laws are a classic example; they diverge significantly from the current situation in the UK, which could have profound implications for the distribution of your assets after your demise.
A central principle of French succession law is the imposition of forced heirship, which will apply if you are resident in France at the time of your death. With any children of yours being “protected heirs”, it will not be possible for you to leave your entire estate to your spouse.
Although the European “Brussels IV” succession regulations do enable you to opt in advance for the law of your country of nationality to be applicable in this situation instead of French law, it will still be possible for “protected heirs” to claim any assets of yours that are in France.
Regardless, it is not necessarily automatically the case that opting for UK law would be the most suitable path for you. So, as always, with such potentially complicated and confusing matters, we advise you to seek tailored advice from a qualified professional before making any firm decisions.
Are You Planning Ahead with Your Financial Arrangements as Your Move to France Nears?
Hopefully, our words in this article will have left you with no doubt about the importance of sound financial planning, including the need to take your first steps on this long before you set foot on French territory as a permanent resident.
The reality is that the earlier you initiate your own financial, tax, and estate planning for your relocation to France, the more effective and smoother a process will likely be. This will be especially so when you enlist the services of a financial advisor who specialises in cross-border financial planning that takes account of your specific circumstances.
If you would appreciate such bespoke and in-depth advice from our team at Kentingtons, please feel free to contact us today at our offices in France or the UK.