Being the month of April (poisson d’avril / April fool) the Connexion have asked me if I could write about tax myths and misconceptions. Mmm… I might need a bit more than half a page for that, so failing the Connexion granting me 50 pages to write about this, I had better stick to the point of debunking myths, abridged style!
Defining your residency of France by using foreign UK law
This is an interesting one as it is so incredibly common. I would say 8 out of 10 people moving to France said that they understood all the HMRC rules on residency – or maybe they just preferred it!
Unsurprisingly, the French fisc (tax office) do not care at all about the UK’s SRT rules, though they have to care about the tax treaty between France and the UK, since it has been in force and working well since 1968. It has precious little in common with UK residency rules and, in fact, however, quite a lot in common with French residency rules.
It works on a series of tests, however, I am going to hugely oversimplify it, as this is not an article on residency; I am just debunking the myth.
1) If you only have a home in France, you are tax resident in France
2) If you have a home in the UK and France, it is where you spend most of your time
Please note that for rule one, day counting is irrelevant and for rule two a holiday in a third country could mean less than six months but still makes you resident.
Another myth is that you are only resident after 183 days (when mathematically, you must be resident on time spent), so you start after that point. Sadly, the fisc will go back to the day of arrival. There is no free residency period.
I am a resident of France, but I pay my taxes in the UK
Having defined your residency of France, what does that actually mean? I have found that this means many different things to different people.
If you are a resident of France, you are assessable to tax on your worldwide income and assets (article 4A & 4B of the French tax code). Note that being assessable to tax does not mean that you actually pay tax; it just means that you are obliged to fully and compliantly report it.
There is no income, no matter how small, that you may simply leave off your declaration. If you have no income, you are obliged to submit a declaration, albeit empty of income detail. There are even heavy penalties for not declaring capital, whether it provides any income or not.
There are some types of income that do correctly pay tax in the UK, such as UK rental and civil service pensions; however, this income must still be declared in France. Do not worry, they get a 100% tax credit in France (you only pay tax once). For all other income, you need to stop UK tax from being taken at source, using the HMRC form, the ‘France Individual’.
France is a high tax country
The point is it can be, especially if you run a business here. Unemployment is stubbornly high for a reason; it is very difficult to earn a good living.
Is it true for private individuals?
Usually not, especially for the retired, but not for most people. For couples, and even more for big families it can be spectacular when compared to the UK. The secret is the parts system, also known as “Le quotient familial”, which is important to pronounce correctly, or it sounds like you are saying ‘the family pig’. Any rumour that I once, years ago, addressed a room of 200 French financial professionals and made this mistake is definitely a myth!
I could use this space to explain, in fine detail, how it works, but I will spare you (for any masochists I have an excellent, thankfully very brief, animated PowerPoint for that – maybe the Connexion will add it to their website). I am just debunking myths, so I will offer an example:
A married couple living in the UK, Mr Sandy is 67 and has £30,000 of pension income, including a state pension. Mrs Sandy is 66 and has a UK state pension of £3,043.
UK income tax is £3,309. Moving to France, doing nothing clever at all, their bill becomes €1,158 or £1,007 if using an exchange rate of 1.15. They have cut their two thirds off their tax bill simply by moving to France.
France is, for many, not a high tax country and for some is even a tax haven!
It will be simpler if I keep all my savings and Investments in the UK
If you were living in the UK and you had some new French neighbours who told you that they had a French qualified adviser flying in from France to see them, would you think that they were very intelligent indeed or that they were crazy not to engage someone who could tell them about all the advantageous tax planning that can be done in the UK, as new UK residents?
Not oddly, the same applies in reverse, only France has many more levers, buttons and switches to its tax system than the UK. This makes leaving things in the UK, ineffective and very costly, for you and your family.
It is human nature to do what is familiar, however, that comfort comes at a cost, as is doing any kind of planning, financial or otherwise, based on myth, so don’t be this April’s fool!
This article was first published in the Connexion in April 2020