We are all much more transient these days.
Most Connexion readers will have come to France from another country. It’s not uncommon for people to have relocated to a different country three or four times during their adult lives. For most people, the first decision to relocate is based on lifestyle, with often a subconscious assumption that tax and other laws will be more or less similar to those the individual is familiar with. It is often a huge shock to find out just how different tax and other related laws are in the new country, especially as we are all members of the EU.
While it is always best, especially for those relocating to France, to set up tax planning in advance of arrival, there are still plenty of tried and tested ways to reduce tax after arrival. It is even more important to consider tax planning now, with all EU governments starting to increase taxation.
The issue for financial advisers is not straightforward either. As my own company’s experience proves, many British expatriates return to the UK in later life. This happens for a variety of reasons, increasing old age, poor health, family issues, economic reasons and occasionally, but rarely, disenchantment. It is vital therefore that every opportunity to reduce tax is taken in respect of the new country of residence but, equally important, to also make sure that, if a return to the UK occurs in later life, the individual has also taken action to reduce taxation for himself or herself and spouse as well as for their beneficiaries.
Both France and the UK can be considered high tax countries and both levy unpopular death taxes: inheritance tax in the UK and succession tax here in France.
When an individual moves from the UK to become resident in France, the UK-France double tax treaty does prevent him or her being liable to both taxes. Their heirs therefore will escape IHT, but only to be faced with succession tax instead.
It is possible to set up tax planning “structures” before leaving the UK, whereby the assets within them will be exempt from succession tax even after you become fully tax resident in France. The UK-France double tax treaty will still also protect your estate from IHT.
If you are planning a return to the UK, it is important to plan ahead. Many foreign nationals who live there can enjoy a far more beneficial tax regime than British nationals do.
By carrying out the appropriate tax and wealth management planning prior to returning, British expatriates can benefit from tax advantages that are not otherwise available to UK residents.
By taking appropriate specialist advice before you return to the UK, it is possible to arrange your assets in a manner where you can enjoy tax-free growth and income as a UK resident, irrespective of the amount involved. Advantages can also be created for a variety of existing pension arrangements to reduce the tax otherwise payable on a return to the UK.
A British national who has been living in France and who returns to the UK will immediately be liable for IHT again. New legislation that came into effect in the UK during February introduced a concept known as Qualifying Non-UK Pension Schemes or QNUPS. They provide both British expatriates and British domiciles with a new opportunity to receive an income for life, while legitimately avoiding IHT, when used in conjunction with other tax efficient structures.
QNUPS is an arrangement recognised by HM Revenue & Customs, into which you can place normal investments (rather than your pension funds), without limit and at any age, even if you are already retired.
The assets within a QNUPS are immediately and permanently exempt from UK inheritance tax.
In effect, and subject to meeting the necessary criteria, this new opportunity provides another escape route to avoid inheritance tax in the UK for the returning expatriate.
Even if you never return to the UK, your money may eventually find its way back there if your beneficiaries are UK resident, at which point it will become liable to UK tax unless you plan in advance to avoid it. This is something you should plan for during your lifetime while you are an expatriate, so that after your death your assets will continue to be tax-efficient for your family and any other beneficiaries.
Likewise, if you decide to move from France to a completely new country, you need look into tax planning before you go. You may also plan, for example, for a return to the UK, but then decide to move somewhere else instead.
Effective tax planning is all about flexibility and adaptability; nothing is set in stone and responsible tax planning can generally be adapted if your plans change.
Effective tax planning will reduce liabilities for yourself and/or your heirs. However, you should only use proven strategies which are effective for your current circumstances and future objectives.
This column is written by Bill Blevins of Blevins Franks financial advice group (www.blevinsfranks.com), who has written for the Sunday Times on overseas finance for the past 10 years. He is the
co-author of the Blevins Franks Guide to Living in France. This column is exclusive to Connexion.