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Top French tax myths debunked

Being the month of April (poisson d’avril), Connexion asked me to write about tax myths and misconceptions. As I don’t have 50 pages of space to elaborate, I’ll stick to the point and debunk myths, abridged style!

21 March 2020
By Robert Kent

Defining your residency of France by using foreign UK law

This is an interesting one as it is so incredibly common. I would say eight out of 10 British people moving to France say they understand all the HMRC rules on residency – or maybe they are following them as they prefer them!

Unsurprisingly, the French fisc do not care at all about the UK’s statutory residence test (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 but, in fact, quite a lot in common with French residency rules. It works on a series of tests. I am going to hugely oversimplify it but basically you are tax resident in France:

  1. If you have a home only in France;
  2. If you have a home in the UK and France and you spend most of your time in France

Please note that for rule 1, day-counting is irrelevant, and for rule 2, 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 pay my taxes in the UK
That defines your residency of France, but I have found this means very different things to different people. Here’s the correct information:
If you are a resident of France, you are assess-able to tax on your worldwide income and assets (article 4A and 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 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 difficult to earn a good living.
But is it true for private individuals?

Usually not, and especially not for the retired. For couples, and even more for big families, it can be spectacular when compared to the UK.

The secret is the “parts” system, 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 addressed a room of 200 French financial professionals and made this mistake is 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 brief,
animated PowerPoint for that). I am just debunking myths, so I will offer an example.

A married couple living in the UK: Mr Sandy, 67, has £30,000 of pension income, including a state pension. Mrs Sandy, 66, 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 two-thirds off their tax bill simply by moving here.

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 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 they were switched-on, or 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 costly, for you and your family.

It is human nature to do what is familiar.

However, that comfort comes at a cost, as does doing any kind of planning, financial or otherwise, based on myth, so don’t be this April’s fool.

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