Preparation is key for a return to the UK
France remains as popular as ever with UK nationals looking for a new life abroad, whether to spend their retirement years or as a working expatriate.
We are pleased to see that Brexit does not seem to have changed this; in fact, some people have decided to move sooner rather than later.
It is not one-way traffic though, as there are always people who, for one reason or another, find the time has come to leave France.
If you are thinking about returning to the UK, or moving to another country, do not leave it too late to start planning.
You should carefully review the tax and wealth management considerations before you leave France – even before you decide on your departure date.
You may be able to secure long-term tax benefits in the UK due to your time as an expatriate and retain tax advantages secured by your tax planning in France.
You will become non-resident in France the day after you leave under the local rules.
So, only income earned before that will be taxed in France (French source income is always taxable). Inform your tax office of your departure date and new address, and then file a part-year resident tax return the following year. The UK also applies split year treatment.
As soon as you are tax resident, you will be liable to UK income and capital gains taxes, and your worldwide estate will be subject to UK inheritance tax.
The UK Statutory Residence Test is very detailed so make sure you are following it correctly so that you do not get caught out.
Your UK residency may start earlier than you realise – if you buy or rent property to use as a base while planning your move, this could unwittingly affect your UK residence status.
To reduce tax liabilities on both sides of the Channel, you need to take action at the appropriate time to, for example, determine the optimum date for your return, review your domicile situation, crystallise investment gains, realign investments, consider appropriate trust structures, avoid possible exit tax etc.
If you can be flexible, it is better to schedule your return date around your tax planning rather than the other way round. It can be beneficial to complete necessary arrangements in the UK tax year before your return.
Capital gains tax is an important consideration when moving from one country to another. Are you better off selling French assets while still in France or waiting until you are UK resident?
In the UK, the current capital gains tax rates for individuals are 18% or 28% (depending on total taxable income) for residential property and carried interest, and 10%/20% for other gains. There is a £11,300 allowance.
In France, capital gains on shares are currently added to your other income and taxed at the income tax scale rates up to 45%, with a general taper relief for investments held for over two and eight years. President Emmanuel Macron wants to simplify taxation on financial income so this may change.
For real estate, the capital gains tax rates range from 19% to 25%, with reductions dependent on how long you have owned the property. For all assets, social charges are also payable at 15.5%.
Importantly, the main home is exempt from capital gains tax in France provided it is your habitual and actual residence at the time of the sale. In the UK, tax relief will depend on whether the property qualifies for Principal Private Residence relief.
France imposes an exit tax on stocks, shares and UCITS funds (Undertakings for Collective Investment in Transferable Securities), even if you do not sell them before you leave.
Residents who have lived in France for more than six of the last 10 years are subject to tax (up to 45% plus social charges as above) if they own more than a 50% share of a company or their total shares are valued at over €800,000.
Payment is deferred if you move to an EU member state or EEA country with a mutual assistance agreement with France – so Brexit may have an impact here.
This is a very brief summary of detailed rules so take individual advice. You may also be able to avoid this liability with advance planning.
You then need to consider how your investments will be taxed as a UK resident.
If your tax planning was set up to take advantage of the French regime, consider what is tax efficient in the UK and adjust as necessary.
With appropriate advance planning while still non-UK resident, you may be able to benefit from tax advantages when you return which are not ordinarily available to UK residents.
Your estate planning will need a thorough review, to consider inheritance taxes, succession law, probate etc. Ensure your assets pass to the right beneficiaries at the right time, with the minimum of administration and taxation.
Returning UK nationals are normally liable to UK inheritance tax even if they had acquired a new domicile of choice elsewhere.
If you have structures set up based on a domicile of choice in France, you need to seek specialist advice.
If you had transferred your UK pension into a Qualifying Recognised Overseas Pension Scheme (QROPS) you will need to establish the best way forward. If you made pension decisions based on French taxation, establish what you can and should do once you become liable to UK rather than French taxation.
Whether you are sad to be leaving France or looking forward to living in the UK, you want your move to go as smoothly as possible.
It is worth taking the time to carefully consider all the issues and ensure that your tax, estate and general financial planning is well structured for your return
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.