Almost half the people we deal with have seen their UK financial advisers, set up their ISAs and National Savings schemes and pay their taxes only in the UK.
“How will they find out? They can’t prove anything” are the scary common replies.
Firstly, forget the legalities; if you are moving to a new country, is disrespecting the way its citizens do things, including their laws, the right thing to do?
There is a feeling that people can come from other countries and treat your country with contempt, belittling the local rule of law, as somehow being of less importance than those of their own country.
Article 123 of the French tax code states that residents must declare their worldwide income. This means not to do so makes you a criminal – not a good way to start life in France.
To the ‘they can’t find out/prove anything’ point. The answer to both is ‘effortlessly’. With the EU savings directive, the Common Reporting Standard (CRS), the exchange of information is absolute.
If a UK national moves to France, both tax authorities in those countries have access to bank accounts and investments, with all movements being tracked.
Now we have established that declaring your worldwide income and assets in France is the rational, ethical and legal thing to do, the next logical step is to organise your finances to be tax efficient.
Ideally, this should not come from a UK adviser but a French qualified and authorised professional. If you are lucky, you might find one who speaks English and is UK as well as French qualified.
What are the basics?
Savings accounts: Livret A and LDD (Livret de développement durable) instant access accounts are income tax and social charge free. So much so, that you do not even need to mention them on your French tax declaration.
The rates are only 0.75% but, even if you are a 30% taxpayer, by the time you add social charges at 17.2%, you need to earn twice the rate to get the same return as these accounts. These accounts are a great place to keep emergency money and should always be kept well-funded.
The maximums are low at €22,950 per person for the Livret A and €12,000 for the LDD. It still gives €69,900 for a married couple.
Tax is calculated on the first and 16th of the month, so it can be worth delaying withdrawals to after these dates if the need is not urgent.
Assurance vie – life assurance bonds:
We do use similar structures in the UK, though nowhere to the same level as in France. The reason is that the French tax advantages are significantly more attractive, both for income tax and inheritance taxes and rules.
No tax is payable until you make a withdrawal and when you do, much is deemed as a return of capital, so is not assessable to income tax.
As if that were not reason enough, there is a fixed rate of tax at 12.8% (or your marginal rate) and there are allowances after a number of years of investment. It is possible to earn a significant income and pay no tax. Unlike ISAs in the UK, there is no limit to the amount of capital that may be held this way.
These are easy to manage, can be set up with access to other currencies like sterling and offer simple reporting, with statements telling you how much to put in what box on your declaration or even being pre-filled on your tax declaration. Note that a UK/offshore life assurance bond will not work well for French residents, potentially creating a tax and admin nightmare.
We are not talking little ball-shaped green veg, but Plan d’épargne en actions, which is essentially a wrap, like an ISA, for shares (though some unit trusts and UCITS – investment funds regulated by the European Union – can also be used).
These are a very distant second to assurance vie. They are income tax free but do pay normal social charges. Against an assurance vie, they tend to pay more tax overall as they are assessed to social charges at 17.2% on the whole amount earned, not just what is deemed assessable. There is a maximum of €150,000. To get the best tax treatment, you need to keep it for more than eight years. There are also no inheritance tax advantages.
In conclusion, if you are moving to France (or already living here and holding on tight to the UK), to ensure your situation matches local laws and gains the best tax advantages, you need to consider savings and investment options that will give you both.
That will allow you to relax, knowing you are respecting the law and your new hosts, as well as getting the most from your money.
This column was written by Robert Kent of Kentingtons financial advisers. See www.kentingtons.com