Common Financial Mistakes to Avoid When Moving from the UK to France

France is a beautiful place to live; however, relocating from the UK can bring various challenges and risks. Over our years of providing financial advice to British expats in France, we have seen many common mistakes, and we would not want you to repeat them.

Prospective movers from the UK to France must be open-minded regarding their financial arrangements. Along the way, while some aspects of a given person’s tax and financial management in France might be slightly different from what you may be accustomed to in the UK, others might be in total contrast to what you are familiar with.

Financial mistakes can have severe consequences for British expats in France. They could lead to overpayment of taxes, fines, and even investigations by the tax authorities. Understanding and avoiding these mistakes is crucial to maintaining financial stability and peace of mind.

So, what are some of the most frequent mistakes UK nationals make regarding their finances in France? We have detailed the main ones below.

Misunderstanding French Tax Residency

Understanding French tax residency is a crucial financial aspect for UK nationals planning to move to France. It’s a common source of confusion among British nationals and can significantly impact their financial arrangements.

Some UK nationals misunderstand that tax residency in a particular country is not the same as whether one has legal residency in that country. Legal residency refers to the rights that a national of one state has to live and work in another territory. Tax residency is a different concept. It relates to which country has taxing rights on a specific individual’s worldwide income, gains, and wealth.

Even UK nationals who comprehend tax residency mistakenly think the concept works similarly in the UK and France. In the latter country, it is not a question of choosing where to pay taxes; tax residency is addressed explicitly by legislation, so it is a matter of where one falls within the rules.

The criteria for individuals to be considered tax residents in France are set out in the Code General des Impôts. These rules cite that someone may be regarded as a “tax resident of France” if just one of the following four situations is true: they have their principal residence or home in France, France is their principal place of abode, France is where their principal activity takes place, and/or France represents the “centre” of their economic interests. In practice, however, the common focus of the French tax office tends to be on “Where is your home?” assessing the “foyer fiscal”.

A UK national who satisfies any of the above criteria would typically be required to pay tax on their worldwide income, gains, and property wealth to the French authorities.

Misunderstanding the French tax residency rules can have severe financial implications. If a UK national has a period of ‘unplanned’ tax residency in France, incorrectly believing that they are still tax residents in the UK, they could lose the ability to structure their finances in the most tax-efficient manner, potentially leading to significant and unnecessary taxation costs.

Knowing that the double tax treaty between the UK and France overrules HM Revenue & Customs (HMRC) residency rules should help clear up much of the confusion that UK nationals often have on this subject.

Facing Unexpected Tax Liabilities When Transferring Assets

With effect from January 2018, a new wealth tax – Impôts sur le fortune immobilière (IFI) – was introduced in France. This replaced the previous Impôt de solidarité sur la fortune, or ISF, which had long deterred many people with significant assets from moving to France.

The newer wealth tax, IFI, is a tax on an individual’s real estate assets.

Both non-residents and residents are assessable to this tax on their property assets.

Whilst the old ISF assessed the total value of all a taxpayer’s assets, encompassing property, investments, savings, cars, and even jewellery, IFI is exclusively on property-related assets.

The double tax treaty between the UK and France contains provisions that could be invaluable for many individuals seeking to minimise their tax liabilities when transferring assets.

The latest UK-France double taxation agreement, signed in 2008 and taking effect in 2010, also retains the property wealth tax “holiday” for UK nationals moving to France.

For a UK national’s first five full French tax years after they become a resident of France, only French assets will be used to calculate their wealth tax liability; all other assets will be ignored. With effect from the sixth year of residence, though, the given individual will be required to pay wealth tax on their worldwide property.

Mismanaging Pensions and Retirement Funds

Managing pensions and retirement funds is complex, especially for UK nationals moving to France. Given each individual’s unique circumstances, it’s crucial to seek expert advice to navigate the intricacies of this financial aspect.

Pension income from UK funds is generally taxable only in France, following a 10% deduction at the income tax scale rates. As of 2023, the progressive scale for income tax in France ranged from 0% (for income up to €11,294) to 45% (for income of more than €177,106). In addition, France applies 9.1% social charges (reduced to 7.4% for low pension income), but an exemption applies to Form S1 holders.

Some UK nationals consider transferring their UK pension savings to a Qualifying Recognised Overseas Pension Scheme (QROPS). The QROPS was established in 2006 to satisfy the European Union’s (EU) freedom of capital movement requirements.

We have previously written here at Kentingtons concerning QROPSs. We also addressed some of the advantages of choosing a QROPS pension, such as the fact that this arrangement would not force the UK national resident in France to take an annuity at retirement age or by 75. However, a QROPS can also bring certain disadvantages that expatriates must consider. The main one is that the French tax office does not view QROPS as pensions but simply a pot of money in a trust, which potentially has severe and incredibly costly implications.

Regardless of what steps the UK national is considering taking with their pension when they move to France, speaking to an expert before making any decisions is crucial. This will enable them to assess the full implications of any move their actions for their long-term income and tax payable, and also provide a sense of reassurance and confidence in their financial planning.

Poor Inheritance and Gift Tax Planning

UK nationals who intend to purchase property in France as part of their plans to live there or who might already own such property will need to be well-informed about how French inheritance law will impact such assets. If a UK citizen is living in France at the time of their death, French law will govern how their estate is distributed, subject to the relevant tax treaty, which, in this case, would be the UK / France succession treaty.

A key element of French inheritance law that distinguishes it from the UK equivalent is the concept of forced heirship. This requires a portion of a deceased individual’s estate in France to be passed to their children and, in some cases, their spouse, irrespective of whatever wishes the deceased might have communicated in their will.

French law stipulates that children have a legal right to a portion of their parents’ estate, known as the reserve. If the deceased has a surviving spouse and a suitable will has been written, the spouse may have the right to use the property, known as the “usufruit”. This legal right would entitle the surviving spouse to use and enjoy the deceased’s property for the rest of their life. It is vital to note that, if the couple is not married, such an arrangement has a value which is assessable to inheritance tax.

French Gift Tax, also known as Droits de Donation, is frequently asked about by UK nationals planning a move to France. This tax is imposed concerning the giving of a gift (or, to use the French term, “donation”) of money or property to a child, spouse, or other relative in France. Two main factors dictate how much French Gift Tax will need to be paid: the value of the gift and the relationship between the donor and the recipient (or “donee”).

Ineffective Handling of Currency Exchange and Banking

Britons moving to France may also spend more time on the careful management of currency rates than they expected before relocating. They might be inclined to keep savings and investments in Sterling, a common occurrence, more from habit than intention. However, this would leave the actual value of their income vulnerable to fluctuations in exchange rates.

For this reason, UK nationals may instead decide to match their assets to their liabilities in the currency that they use. However, the situation may be more complicated for those who intend or believe they may one day return to the UK. This might make it a sound decision to introduce some level of diversification to their assets, including concerning currencies.

Shopping around for the best possible money transfer rates may also be sensible. By avoiding traditional high-street banks for currency transfers and instead using a specialist currency transfer company, a UK national can avoid the significantly higher charges that high-street banks tend to charge for this service.

Putting all Your Investment into Property

It can be easy for many Britons to assume that wherever they are, property will always be as safe as… well … houses!

While property can certainly be an excellent investment, this is likeliest to be the case if it forms just one part of a balanced estate. Property is no different to any other market, with ups and downs, to say nothing of the administrative headaches that can sometimes accompany it.

So, instead of simply assuming that property is a safe investment, British expats might wish to consider the implications for their property if interest rates increased or if any tenant ceased to pay rent.

Whatever stance a UK national does take on property as an investment, they are likely to benefit from carefully reading up on the tax implications of owning and selling property in France.

A balanced, long-term investment strategy will probably stand the best chance of success. It can be easy to become distracted by media “doom and gloom” stories about specific investments, panic, and sell accordingly, so British expats in France will likely be best served by resisting such temptation.

Not Being Prepared Before Moving to France

The importance of UK nationals consulting with professional financial and tax advisers before relocating to France cannot be emphasised enough. All too often, expats make the move without adequately organised financial affairs and miss out on opportunities to mitigate their tax liabilities.

Any financial adviser a British national engages in must be qualified and regulated to provide such services in France. This means not using a passport or regulations outside of France but being regulated by the French authorities since they are the only ones with any power in France. This will help give you peace of mind, knowing that the adviser will be well-placed to assist them in maximising the tax benefits of the UK and France.

Conclusion: Quality Preparation and Advice Will Help You Avoid Common Mistakes

UK nationals can help ensure they get the most out of their new life in France by taking financial advice from French-regulated advisers, understanding the tax residency rules in France, and getting their financial affairs in order ahead of their move.

To obtain professional advice from us so that you can benefit from personalised financial planning as a British national moving to France, please get in touch with Kentingtons.