A few years ago, our company ran a series of seminars with this exact title, which were well attended, if only by people wanting to poke fun at the absurd notion but who, instead, left confounded.
The first point to make is that many people have an incorrect definition of a tax haven and think it is a place or country with no tax.
The extended English Collins dictionary puts it succinctly: “A tax haven is a country or place that has a low rate of tax so that people choose to live there or register companies there in order to avoid paying higher tax in their own countries.” Using this definition, it is easy to prove that, for many, simply moving to France has made them better off than before the move.
Is this the case for everybody?
Indeed no it is not but the point being that France is not the high tax country that many think; not by a long shot. The issue with the French system is its, very real, complexity.
What points make France so tax friendly?
The parts system: This essentially shares, between household members, the allowances and thresholds. The more people in the household, the more sharing takes place, but it does not need to be a big household to work well.
If we take the example of a married couple of UK state retirement age, where one is receiving pensions of the equivalent of €50,000 per year, the UK tax would be around €7,500 (depending on the exchange rate used). However, the mere act of moving to France, means the couple’s income tax bill reduces to around half...€3,760.
The plethora of allowances and offsets: One of the confusing things about the French system, is that there are so many rules, it is mind boggling. People look at the tax bands, draw quick conclusions, and miscalculate without taking into account the many allowances and credits.
What about Wealth tax?
This tax has been a stumbling block for some, though it does not apply to many people, affecting only those with a worldwide estate above €1.3million. The good news is, it looks like (at the time of writing the law was not passed but voted on and past the first reading) this tax is morphing into a property tax and thus will only be applied to property (and funds investing in property). This means that avoiding this tax has never been easier. There are also allowances to consider, such as 30% on the main home and offsetting all taxation, debt etc.
This means that owning a house (maybe a nice château) valued at €1.8million and €10million in the bank, gives rise to a wealth tax bill of...€0!
What about local taxes?
The taxe d’habitation and taxe foncière have risen significantly in recent years, impacting the attractiveness of owning French property.
The good news is that we are in for a significant cut, that being taxe d’habitation, which, for many people, will reduce to zero. This means that, even people with relatively high levels of income (for example, couples with tax-referenced income of up to €45,000 per year), will not pay this tax by 2020.
The new “Flat Tax” on savings
The new tax is 30%, but thankfully this includes social charges, which are now 17.2%, so actually the flat “tax” is just 12.8%. This does have an impact on assurance vie investments after eight years, which could be taxed at 7.5%, so this adds 5.3%. In the early years, however, the tax at source rate starts are 35% + 17.2%, therefore, the new tax is a huge improvement.
With good financial planning, it is possible to make significant savings being assessed via the declaration, since much of the income from an assurance vie is not even deemed “taxable”.
To illustrate that this tax is hardly an issue: If our retirement-age couple were drawing their €50,000 from an assurance vie instead of a pension, their income tax bill would be a huge €0!
All good but we can be gloomy about Brexit …huh?
Indeed, we can be as miserable as we like about the politics but we can be overjoyed that we are here (or looking to move as soon as possible).
People are worried about their right to remain and the unknowns on tax and health. If you want to live in France, none of these are issues.
Non-EU citizens move to France all the time, with no problems, and tax is covered by bi-lateral tax treaties so nothing to do with the EU, and there are solutions for health, even if Brexit negotiations end in disaster. I would reason that anyone putting off a move to France, blaming Brexit, does not really have their hearts in it.
In conclusion, France is a great country to live and it can be a tax haven – and could be for you.
Happy New Year!
This column was written by Robert Kent of Kentingtons financial advisers.