One of the aspects, of your life in France, that you will need to be most mindful of, as a British national, is your status as far as tax residency is concerned.
A lot of confusion and uncertainty can reign on the subject of residence, not least because fulfilling one residency criteria does not necessarily mean that you automatically fulfil another.
When a lot of us think about residency status in a given country, we might think of legal residence, which refers to the rights that someone – as a national of one state – has to live and work in another territory.
A Spanish national, can move to France and be immediately legally resident, because being an EU national gives this as an automatic right of residency anywhere in the EU; something UK nationals have lost since Brexit. Whether obtained via a visa or automatic, this status, does not make someone fiscally or tax resident.
It is important, therefore, to appreciate that tax residence is something different. It is about determining which country has taxing rights in relation to your worldwide income, gains, and wealth – so, if it is the latter that you wish to know more about, what is the ‘state of play’ for you as a UK expat in France?
The essentials of tax residency
A crucial thing to emphasise about tax residency before we go into detail about anything else, is that the French tax residence rules are in the form of legislation that sets out your status; it is not a question of you making a choice as to where to pay your taxes. It really does just come down to where you fall within the rules.
At the same time, though, tax residency can be a complicated matter, and ascertaining your status isn’t just a matter of counting the days you spend in one jurisdiction versus another.
Here at Kentingtons, we are often contacted by British expatriates who believe themselves to be tax resident in the UK, even though it is actually the French tax residency rules to which they are subject – or vice versa.
You will not want to risk that being the case for you, given that you could end up having to pay back taxes, interest, and fines, and maybe even being investigated by the tax authorities. So, you must be proactive and vigilant in determining which country’s tax regime you would fall under as an expat.
What are the current French tax residence rules?
The Code General des Impôts sets out the criteria for individuals to be considered tax resident in France. Basically, you will be considered a ‘resident of France for tax purposes’ if just one of the below four situations is true:
- You have your main residence or home in France. If there is any rule that the French authorities are especially likely to depend on when ascertaining whether you are tax resident there, it is this one. For tax purposes, your home – or foyer – is defined as the place where your close family members habitually live. Such family members would include any spouse or cohabiting partner and any dependent children you have, but not your parents. In the case of single expats with no children, the authorities will consider where most of that individual’s personal life is centred. It is perfectly possible, though, that the French authorities could determine you to be tax resident in France, even if you spend most of your time elsewhere.
- France is your principal place of abode. Or, to use the French term, your lieu séjourprincipal. The authorities could reach this judgement if you spend more than 183 days in France in a calendar year, although they might also do so simply if the number of days you spend in France exceeds your time spent in any other single country. You might be particularly likely to be subject to this rule if you are a ‘tax nomad’ who is unable to demonstrate that you are tax resident in any other country.
- France is where your principal activity takes place. An obvious example of this would be France being where you practise your occupation, even if this isn’t a salaried occupation. It might also be judged that you are tax resident in France if it is the country where your main income arises.
- France represents the ‘centre of your economic interests’. You will probably already have an instinctive sense of whether this is the case for you; it would be the case, for example, if you have more income from French sources than you do from non-French sources. You might also interpret the term ‘centre of your economic interests’ as referring to the location of your most substantial assets, where your business affairs are centred, or the country in which your assets are administrated.
As you can see, the British habit of simply counting days in and out of France is simply not going to work!
Under French law, satisfying any of the above criteria would normally mean that you are required to pay tax on your worldwide income, gains, and property wealth, to the French authorities.
Of course, from a UK (indeed any foreign national) point of view, satisfying any criteria could be very problematic if you have a mix of criteria in both countries.
The good news is that any complications are covered neatly by the UK / France double tax treaty, which generally (not always) makes the above a list in order of priority, so the main home test overriding everything else, followed by (if you have home in both countries) where you spend most of your time etc.
If you are defined as a French tax resident, you will be responsible for letting the French government know about your status, and fully declaring all your income and assets in accordance with the requirements.
Will the time you move to France affect your tax liability?
The short answer is that it could certainly have an effect, due to the fact that the fiscal year, in France, is the calendar year, unlike the UK, which runs April to April.
Moreover, when you arrive in France, only income received on the day of arrival will be assed to taxation. When you leave France, only income generated up to the date you leave will be assessable in France. If, however, your income is judged to be French-sourced, it may always be subject to taxation in France, and your residency will not affect this.
So, whether you are set to arrive in or leave France, there is scope for you to avoid French tax simply by being careful about exactly when you sell certain assets. However, you will need to account for where you would be judged to be tax resident at the given time, and what tax you would be liable to pay in the given jurisdiction.
Ultimately, it might be that in some cases, selling your UK assets while you are still tax resident in the UK would be the better choice, or it may be wiser to wait until after you have completed your relocation to France.
Contact us for advice and guidance on your tax residence situation
There is a lot to think about on the subject of tax residence status. And of course, if you are a UK expatriate moving to France, or still based between the two countries, you will need to be well-informed on the domestic tax residency rules of both territories.
In the event that you satisfy the rules for tax residency in both countries, the UK/France double tax treaty will set out exactly where you will be expected to pay your taxes.
If you would appreciate further help with determining your tax residency status and optimising your situation, please don’t hesitate to reach out to our team at Kentingtons. We can assist you in making the most of your life in France with regard to your financial opportunities and obligations.