Moving back to the UK - what are the tax considerations?

Hugh MacDonald answers reader questions on moving back to the UK from France, and the tax considerations to take into account.

3 September 2020
The White Cliffs of DoverTax considerations for a return to UK, explained.
By Hugh MacDonald

Selling French property, returning to UK

I am single and live in France in a property I own. For health reasons, I have decided to return to the UK and plan to put my property here up for sale and rent in the UK. Once in the UK, should I immediately notify the French and UK tax authorities so that I will come under UK law for inheritance tax purposes as soon as possible, as opposed to waiting to have lived most of the year in the UK? Are there other tax considerations? J.S.

A change in one’s fiscal residency is normally applicable the instant you leave one country to establish residency in another. You should notify the French fiscal authorities that you have left France and inform the UK’s HMRC that you are fiscally resident in the UK and are applying for a UK Unique Tax Reference number. This will suffice to establish fiscal residency in the UK, and will be applicable to all UK taxes, including inheritance tax. It would be best to retain a copy of what preferably should be a one-way car ferry, train or airline ticket to the UK to make it evident that the intention is to remain in the UK.

Inheritance law and wills in France, explained in our specialised helpguide

Can mother benefit from lower social charges on gain?

My mother is a UK tax resident and would like to sell her French apartment. We understand that as an EU resident she would not be eligible for social security charges on her capital gains. Does this rule still apply during the Brexit transition period? J.D.

There has been controversy for several years over France’s levying of social charges on property gains of those who live abroad in the EU/EEA/Switzerland or are affiliated to another of these states’ social security systems.

Last year, the French ruled that two social charges, CSG and CRDS – currently amounting to 9.7% – are not payable by this group of people, but a remaining charge at 7.5%, called prélèvement de solidarité, remains payable.

This applies to people resident in the EEA or Switzerland who belong to that other country’s social security system. It also applies to those living in France with an S1 health certificate. Due to the transition period, the UK is considered equivalent to an EEA country because it remains in the EU’s single market. The UK will lose this status from January 1, so it is expected that the full charges at 17.2% of the capital gain will apply from then.

Brexit planning in France: tax, assets, pensions explained

Are property tax reductions on way for second homes?

We are tax resident in France and our taxe d’habitation has been reduced over the last couple of years. Friends wonder if second- home owners will have their tax reduced or cancelled also. Can you clarify? S.C.

There are no current plans for second-home owners to benefit from this, either for those whose main home is in France, or for non-residents with a main home abroad.The rules are that main residences benefit from reductions in taxe d’habitation, which amount to full exemption as of this year for all but the 20% best-off households.

The reductions have been available if the owners’ incomes are less than set amounts, dependant on the number of taxable “parts” in the household, though there is tapering relief for incomes a little above the income limits. The limits are €27,706 for a single person or €44,124 for a couple without dependent children. Reductions are promised from 2021 for higher-income households, with exemption by 2023, but second homes are still excluded.

Sale of our French house

We have owned a French property for 10 years, which we use as a holiday home for part of the year. Our main home is in the UK. We are considering selling it to buy another property in France, possibly to make our primary residence. If we do so, what capital gains (or other) tax might we face? J.S.

Capital gains tax at 19% and a social charge at 7.5% (see answer before) will be levied on the gain incurred through the sale of your house in France if it is sold as a secondary residence. Since you have owned it for 10 years, you are entitled to a 30% reduction of the gain to which the 19% GGT tax is applied and an 8.25% reduction of the gain for the social charges.

There is a surcharge on gains over €50,000 from 2-6%, depending on the size of the gain. This applies to the gain after the reduction for length of ownership applicable to the CGT tax. However, there is no capital gains tax, or social charges, on the sale of main residences, which in France is the property which one has as a home on December 31 of the year of taxation of income.

There is, therefore, a possibility of your moving to your current French home first, before December 31 of a tax year, so establishing it as your main residence and yourselves as French fiscally-resident here, and only then selling the French house in the following tax year... free of French CGT tax and social charges.

French second home owners: capital gains tax cut explained

Connexion welcomes queries and publishes a selection with answers every edition. However, please note that we cannot enter into correspondence on money topics. Queries may be edited for length and style. Due to the sensitive nature of topics we do not publish full names or addresses on these pages.

The information on this column is of a general nature. You should not act or refrain from acting on it without taking professional advice on the specific facts of your case. No liability is accepted in respect of these articles. These articles are intended only as a general guide. Nothing herein constitutes actual financial advice.

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