Financial planning for expat retirees in France
If you have recently retired, you are entering a new and exciting phase in your life. While some people worry that retirement will be boring, I know plenty who embrace the freedom it gives. And I’m willing to bet that, if you’ve chosen to retire in France, you fall into the latter category.
France offers a beneficial way of life for retired expatriates, but peace of mind goes a long way to helping you enjoy your retirement years. Long-term financial security is key to this, and to achieve it you need to take a good look at your finances and the way you hold your assets. Your situation is totally different now from your working days in the UK and it is likely you need to make adjustments.
Savings and investments
You may have built up a successful portfolio of savings and investments, but your circumstances and objectives were different then.
With a regular salary coming in you could perhaps afford to take more risk when choosing investments and may have been focused on investment growth.
Many retirees, though, are looking for income, whether it is receiving regular payments or taking ad hoc withdrawals.
Besides planning for that, you need to protect the capital that generates the income, and so have to be careful about managing risk. At the same time, aim to earn at least enough capital growth to keep pace with inflation over time to help you maintain your spending power through retirement.
It is a fine balance and the starting point is to obtain an objective (and scientific where possible) assessment of your risk tolerance.
Together with a good understanding of your aims, circumstances, needs and likely time horizon, this is key to ensuring your portfolio is designed specifically for you.
This needs to involve risk management strategies, like a good mix of assets coupled with diversification across companies, sectors, geographical areas etc.
You now get to benefit from those many years spent contributing to your pension pot. Instead of paying money in each month, you can start to take it out.
Depending on the type of pension, you may even be able to withdraw the whole pot as one lump sum, potentially paying just 7.5% (or 16.6% with social charges) in France compared to up to 45% in the UK.
But, with so many options for your pension funds these days, it is essential that you research all your options and fully understand the various implications of each one – and ensure you do not risk your long-term financial security.
My September article in The Connexion was dedicated to pensions so I won’t go into detail now, but you do need a careful review of your pensions as you start retirement, and professional advice from a regulated firm is important.
All that free time in retirement can cost money! So, if you can take steps to maximise your income, all the better – and tax planning can help. Tax mitigation opportunities are limited when paying PAYE on your salary, but the way you hold your savings and investments can make a difference to your retirement income.
First of all, be aware that your UK tax planning is unlikely to be effective in France.
For example, ISAs are fully taxable in the hands of French residents, as are any winnings from premium bonds.
In France, all investment income is now taxed at a flat rate of 30% (including social charges). Those on lower incomes can opt to use the scale rates of income tax instead.
Be aware that this 30% tax does not apply to rental income, and property is also liable to wealth tax (in cases where your household’s total real estate exceeds to €1.3m).
So, if you are thinking of buying property as an investment, you should weigh up all the tax considerations first.
Many French nationals use assurance-vie as a savings vehicle and expatriate retirees have also found them to be very useful.
They allow you to combine your investment, tax and estate planning in one exercise, group different investments together in one easier to manage policy, and can provide considerable tax benefits. Be aware though that there are many different types of assurance-vie.
They can be based in different jurisdictions and both the type of product and jurisdiction can make a difference to the advantages they offer, and French-based ones are not right for everyone – so be careful when choosing a policy and check that it will deliver the benefits you are expecting. Note that when your policy passes onto your beneficiaries on death, they receive a sizable succession tax allowance for the premiums you paid before age 70. There are still some succession tax benefits after 70, but pay in before where you can.
This brings me on to estate planning. None of us like to think about our departure from this world, but there is no denying that reaching retirement age does bring it closer – though hopefully you have decades ahead of you yet!
The key message here is not to risk leaving it too late. Decide who you want to leave your assets to, how much and when, and then research the most effective way to achieve this, in the most tax-efficient way, taking both the French and UK rules into account.
But don’t ignore your own needs in the process, use arrangements which can provide tax-efficiency for you now as well as your heirs in future.
My final piece of advice is that integrated financial planning usually works better than just focusing on one element at a time.
For example, the way you hold your investments and pensions can affect how much tax you and your heirs pay and how the assets are passed to heirs. So, take advice from a specialist advisory firm that provides holistic advice.
This article is by Bill Blevins of Blevins Franks financial advice group who also writes for the Sunday Times on overseas finance. He is co-author of the Blevins Franks Guide to Living in France (www.blevinsfranks.com).
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice