Many people have an incorrect definition of a tax haven in their minds. They think it is a place or country with no tax. Not so – the extended English Collins dictionary states: “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 made them better off. This is in spite of the recent news that France has again topped the EU tax burden list (this is distorted as it takes into account tax on businesses) or the gilets jaunes protests against rising taxes, particularly on fuel.
Is this the case for everybody? Indeed not, but the point being made is that France is not the high-tax country that everyone thinks it is. The issue with French tax is its complexity.
What makes France tax-friendly?
The parts system: This essentially shares allowances and thresholds between household members. The more people in the household, the more sharing takes place. In the UK, for example, self-employed people employing their spouses to take advantage of allowances is common. This is not required in France.
Even for a small household, this works well.
If we take a married couple, Mr and Mrs Smith, of UK state retirement age, where one is receiving pensions of the equivalent of €50,000 per year. UK tax would be around €7,400 (depending on the exchange rate used).
The mere act of moving to France means that Mr and Mrs Smith’s tax bill reduces to around €3,730 … pretty much half!
One of the confusing things about the French system is the plethora of rules. It can be mind-boggling. People simply look at the tax bands, drawing quick conclusions, and so dramatically miscalculate.
What about wealth tax?
This tax has been a stumbling block for some, though it does not apply to many people, ie. only to those with a worldwide estate above €1.3million. The good news is that, as from last year, this is now just a property tax, and so will only be applied to property (and funds investing in property). The government plans to reassess this in 2019 and continue or amend depending on the results. There are 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 chateau) valued at €1.8million and €10million in the bank, gives rise to a wealth tax bill of €0.
What about local taxes?
We have seen taxe d’habitation and taxe foncière rise significantly over the last few years, but taxe d’habitation, for many people, will be reduced dramatically to zero. Even people with relatively high levels of income (for example, couples with tax-referenced income up to €45,000 per year), will not have to pay this tax by 2020.
The new “flat tax” on savings
The new tax is 30%. Thankfully, it 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 at 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 Mr and Mrs Smith (our friends from earlier) were drawing their €50,000 from an assurance vie instead of a pension, their income tax bill would be a huge €0. Even happier New Year!
All great but what about the cloud of Brexit?
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, 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 tax treaties, which are bilateral agreements, so
nothing to do with the EU. There are solutions for health, even if Brexit ends in total disaster.
I would reason that if anyone is blaming Brexit for putting off a move to France, their hearts simply are not in it.
In conclusion, France is one of the most wonderful countries in the world to live and, what is more, it can be a tax haven and it could be for you. Happy New Year!
This column was written by Robert Kent of Kentingtons financial advisers. See www.kentingtons.com