The difference between ‘lawful’ and ‘tax’ residence

This column is by Bill Blevins of Blevins Franks financial advice group (blevinsfranks.com). He has decades of experience advising expatriates in France and co-authored the Blevins Franks Guide to Living in France

21 March 2020
By Bill Blevins

“Residence in France” is a key topic at the moment, with Brexit under way and the clock ticking down to the end of the transition period on December 31, 2020.

Many UK nationals are, advisably, taking the necessary steps to cement their residence in France this year before the rules change in 2021.
There are, however, two different concepts of residence you need to be aware of:

  • Lawful residence – your rights, as a national of one country, to live and work in another;
  • Tax residence – the country which has taxing rights over your worldwide income, gains and wealth.

Lawful residence in France
While we still do not know what the UK’s new relationship with the EU will look like, the transition period provides some certainty for the rest of this year. 

UK nationals have the freedom to move to live in France this year, as they did before Brexit.

Those who are lawfully settled in France before the end of 2020 can lock in citizens’ rights under the terms of the Withdrawal Agreement.

These benefits are protected for as long as you are resident in France and include access to healthcare, social security, education and employment opportunities. UK retirees will continue to receive yearly cost-of-living increases to their UK state pension payments.

In France, however, British expatriates no longer have the right to vote or stand in local elections – that ended on January 31, 2020.

Be aware that you will lose those rights you still maintain if you leave France for more than five years. If you move from France to another EU country, you will have to apply for residence as a non-EU citizen.

Whether you are already living in France or arriving this year, you will need to apply for the official carte de séjour residence card.

The deadline for applications is June 30, 2021, but you must have arrived in 2020 (and presumably be able to demonstrate that).

If you already have a permanent residence card in France, you will swap your old card for the new one.

The French government is launching a new website, scheduled for July 2020, for residency card applications for UK nationals.

There are currently no guarantees for UK nationals arriving after 2020.

While we are confident France will continue welcoming British expatriates, we do not yet know what the application rules will be or what rights residence will give you. 

It is worth noting that under current rules for non-EU/EEA nationals, each individual must demonstrate a minimum income to qualify for residence in an EU state, equivalent to the national minimum wage.

This could prove difficult for retirees, although there are potential ways to restructure assets to meet the requirements.

As things stand, from 2021, if you do not have a residence card, you will be permitted to spend only 90 days in France in any 180-day period.

Tax residence
It is possible to have a residence card for one country but be tax-resident in another.

Unlike legal residence, you do not have a choice: you either are, or are not, tax-resident under the domestic rules.

While your focus may be on securing residence in France as soon as possible because of Brexit, you still need to spend some time understanding what your tax liabilities will be in France – careful advance planning could help you save considerable amounts of tax.

French tax residents are liable to pay tax on worldwide income, gains and real estate wealth.

It is your responsibility to make yourself known to the French tax authorities and submit annual tax returns. Note that registering for tax and submitting your self-assessment tax return for the year you become resident would help prove your residence in France.

Under the Code Général des Impôts, individuals are deemed to be tax-resident in France if at least one of the following tests is fulfilled:

  • France is your main residence or home – your foyer. This is the rule the French authorities rely on most. Your foyer is the place where your close family (spouse/dependent children) habitually live or, for a single people with no children, where most of your personal life is centred. It can be in France even if you spend much of your time out of the country;
  • France is your principal place of abode – your lieu séjour principal. This usually means you spend more than 183 days in France in a calendar year but may also apply if you spend more days here than in any other single country;
  • Your principal activity is in France – your occupation is in France or your main income arises here;
  • France is the “centre of your economic interests” – where your most substantial assets are based, are administered, or your business affairs are, or where you draw a larger part of your income.

You become French tax-resident from the day of arrival. France uses the “split-year” approach, so you can be non-resident for the earlier part of a year and resident for the latter part.

If you have recently arrived or spend time in both countries/retain ties with the UK, you could be deemed resident in the UK for tax purposes without realising it. If you meet the domestic tax residency rules of both France and the UK, tie-breaker rules from the double tax treaty determine where you pay taxes.

Specialist cross-border advice is more important than ever, ideally holistic advice covering a range of issues, from residence (both types), tax planning, investing and estate planning.

It is important to ensure that the company and advisers you deal with are fully Brexit-ready and can advise you in France beyond 2020. Not all are in a position to do so, nor do they advise on complex areas such as overseas pension transfer considerations (eg. Qualifying Recognised Overseas Pension Schemes – QROPS). Choose your adviser carefully to ensure you have all aspects of living in France covered.

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

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