Moving to France? Don't ignore your finances
France is beautiful any time of year (well, except perhaps in the pouring rain) but it is the summer that attracts most visitors, many of whom fall in love with the country and start dreaming of buying a holiday home or moving over permanently. If you are at the planning stages of a move, or seriously considering it, this article looks at the various financial planning elements you need to look at. The earlier you start the better, as there may be some decisions you need to take before leaving the UK or buying property in France. The same applies if you are leaving France to return to the UK. Early planning can present tax-efficient opportunities that may be lost if you wait until you have changed residency.
Taxation and investments
Taking capital gains tax as an example, examine whether you are better off selling UK assets (property or investments) while still UK resident, or if you should wait until you are living in France. While both countries can exempt your main home from tax, the rules, rates and allowances are different, so establish what works best for you.
While you can retain your current UK investment portfolio in France, you need to consider whether the mix of assets and level of risk is appropriate for your new circumstances and objectives, and what currency to hold them in, as well as whether they are tax-efficient in France. You may be surprised at how different French taxation is from the UK – for a start it imposes a second income tax called ‘social charges’ and, for those with possessions over a certain value, a wealth tax (though the latter may be reformed under President Macron).
Your UK tax planning arrangements are unlikely to provide the same benefits in France, so to protect yourself from unnecessary taxation you may need to move investments into structures that are tax-efficient here. There is no denying France can be a high-tax country, but vehicles are available that provide considerable tax advantages for your investment capital and wealth.
Investments such as shares and securities owned for two years benefit from a 50% tax relief in France, and those held for over eight years receive 65%. This presents an opportunity to release long-term investments and reinvest funds more tax-efficiently for France, as well as possibly to restructure your portfolio, so it is better suited to your needs today.
France’s ‘parts system’, where income tax is divided over a household, can also improve your tax position on employment, investment and pension income, depending on your circumstances.
Property ownership is another issue you need to research and decide on in advance since there are various ways to hold a property. If you opt for joint ownership, should it be en indivision, en tontine or an asset included in your marital community? Or should you buy through a Société Civile Immobilière (a special type of French company)?
The ownership method can have inheritance tax and succession consequences, so what is best for you will depend on your family situation and what you wish to achieve for your heirs.
Which leads me onto estate planning, another complex area in France, particularly if you have children from previous relationships or if you want to leave assets to distant or non-relatives.
French succession tax is charged on each beneficiary, and rates and allowances vary depending on what relation they are to you. So children have high allowances, but some other heirs could pay 60% tax with virtually no allowance. You need very careful planning to protect your heirs. It is often easier to mitigate succession tax on investment capital than on property, so this is another issue to consider when deciding how much to spend on your French home.
Then there is succession law. France imposes forced heirship, with children as protected heirs, even above spouses. The 2015 EU succession regulation does allow you to opt for UK succession law instead, but first take professional advice to make sure you understand all the pros and cons. There may be other ways to circumvent it.
Living in France presents some opportunities for your UK pension funds.
As a non-UK resident you may be able to transfer your funds out of the UK and into a Qualifying Recognised Overseas Pension Scheme (QROPS), which can provide various benefits.
But being an expatriate does not mean you should necessarily opt for a QROPS. You should understand and weigh up all your options, including the tax and estate planning implications, before making a decision.
Under certain circumstances – which UK nationals here often meet – France only levies 7.5% tax on pension lump sums. So under the UK pension freedoms, you could withdraw your entire fund for relatively little tax and reinvest the capital into tax-efficient arrangements in France. Again, this option is only suitable for some people, depending on circumstances. Do not risk your retirement savings; take professional, regulated advice before taking any action.
Finally, there is the million-dollar question of how Brexit will change things for Britons in France. It is hard to imagine that France will stop welcoming Britons moving over in future, and we are hopeful that the rights of those already here will be protected.
If you are serious about living in France, you may wish to do so now, under known rules, rather than wait to see what happens later. The same applies if you wish to move pensions out of the UK, as the UK government would have more scope to tax such transfers once outside the EU.
Take a bit of time early on to sort out all the various elements of your wealth management.
You will find specialist advice invaluable. This will give you peace of mind that everything is in order and you can get on with enjoying your new life in France.
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
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.