While we’re sure that you will want to spend plenty of your time as an expat in France, immersing yourself in the kind of charms, amenities, and culture that you might not 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. Many British expatriates, for example, maintain a lifestyle that blends both British and French influences, and often have significant financial assets and tax considerations spanning both countries.
What are we referring to here? Well, we could be referring to wanting to keep enjoying British pub grub alongside French gastronomy. But what we are really focusing on here is how the French tax system treats income derived from UK assets. UK nationals and UK nationals living in France need to understand the complexities of cross-border taxation, especially when retaining UK investments and income sources.
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 worldwide income, gains, and property wealth.
A ‘French tax resident’ is generally defined as someone whose main home is in France, or who spends most of their time in France, and certainly as someone who spends more than 183 days per year in France. It may also apply to those whose principal economic interests are in France. As a French tax resident, you are required to declare your worldwide income, including income from foreign assets such as UK bank accounts, dividends, or property.
You can also expect that in some cases, the income you earn from your UK assets will be liable to UK tax. The double taxation treaty between the UK and France is designed to prevent double taxation of the same income. It will set out where you will be required to declare and pay tax. In many cases, a tax credit may be available to offset taxes paid in one country against those owed in another. 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 are not directly subject to French tax, if they are applicable to you, you will still be required to include them as part of your assessable income. This will be followed by a credit being given for the French tax and social charges liability.
It is important to stay up to date with current taxation laws, as changes can impact your cross-border tax planning and obligations.
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 assessable to tax. Most investment income, including interest, dividends, and capital gains, is subject to French tax regardless of its UK tax status.
One thing that is tax-free in France is winnings from some betting and gambling; however, this is not applicable to Premium Bonds, given that the initial investment is not at stake.
Capital gains from UK investments are also subject to French tax and must be reported accordingly.
When living in France, you can expect most of the investment income, wherever it was earned, to be taxed at a flat 30% rate. French tax rules determine the applicable rates and social contributions, with special rates for high-income earners and non-residents. Low-income households, however, can instead pay tax at normal scale rates.
You are required to file a tax return in France to declare your UK investments (the fact that you have them, regardless of any income or withdrawals) and ensure compliance with local tax laws.
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, property owners must be aware that this UK rental income, particularly from real estate, will be directly subject to tax in the UK. However, in France, you will be required to include this income in your assessable income for the year; when you do, the UK tax paid on your rental income may be eligible for a tax credit in France, 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, it will generally be taxable in France only at income tax rates. Those rates range from 11% to 45% for very high income, with an additional 3% or 4% for even higher income. Social charges are also applied, but for those with low pension income, the rate is reduced to 7.4%, and holding Form S1 may exempt you from these charges.
As for UK government service pensions, they are only taxable in the UK, not in France. However, you will still need to declare this income in France, which may affect your marginal tax rate there.
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. When withdrawing a significant lump sum from your UK pension, tax at source is often applied, typically at a rate of up to 40%
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 reinvesting the capital into a tax-efficient arrangement in France, which could help lower your overall tax liability.
As we would always emphasise when it comes to decisions on your pension, it is crucial to carefully assess all your options with your long-term financial needs in mind, and to only place your faith in regulated advisors.
Do not 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 in organising your tax affairs in the UK, so would not 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, as the French tax regime has its own unique rules and structures that differ significantly from the UK’s. This 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 French tax regime works. 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, which is one of several tax-efficient investment vehicles available under the French tax regime; 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 is something else we feel we need to emphasise: you should carefully review your savings and investments when you move to France, for reasons beyond taxation alone. You will need to consider your requirements for your new life in France and whether your existing investment portfolio aligns with your objectives, risk tolerance, and future expectations. We strongly recommend that you seek personalised and professional advice to ensure your cross-border tax planning and investment strategies are fully optimised.
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 with personalised advice tailored to your unique situation.