Are you planning a move to France? Or have you recently started a new life here?
Either way, it is important to prepare for French taxation and adjust your wealth management accordingly.
Generally, if you arrive in France with the intention to live here indefinitely, you become tax-resident here immediately.
You are deemed resident for tax purposes if your main home is in France, or it is your principal place of abode (you spend 183 days here a year), or your principal activity or centre of economic interests is in France.
To protect your wealth from unnecessary taxation, take time to research the various liabilities you are exposed to and how they affect you.
The French tax regime is complex but it does present opportunities to improve your tax position, particularly regarding investment capital and pensions.
1. Income taxes
Income tax rates for 2022 income (declared in 2023) range from 11% for income over €10,777 to 45% for income over €168,994.
An additional 3% or 4% tax is levied on income over €250,000 and €500,000 respectively, with higher thresholds for families.
Social charges are additionally payable on income. This is generally 9.7% for employment income, 9.1% for pension income, and 17.2% for investment income.
Retirees with an S1 form escape social charges on pensions and pay a lower 7.5% rate on investment income. A medium rate of 7.4% can apply to pension income for those with lower incomes.
Investment income benefits from a special fixed rate of 30%, which includes both income tax and social charges. Those on lower incomes can opt for the ordinary income tax bands.
2. Wealth tax on real estate
Impôt sur la fortune immobilière (IFI) is an annual tax applied to the combined real estate assets of a household, though it only affects those with property assets exceeding €1,300,000, after allowances including 30% of the value of the main home.
The first €800,000 is tax-free, then rates range from 0.5% to 1.5%.
3. Succession tax
French inheritance tax is charged on each beneficiary, with rates and allowances varying considerably according to who the beneficiary is.
Inheritances between spouses/Pacs partners are tax-free (but not gifts) and children have lower rates and higher allowances than more distant relations.
You should be particularly careful where stepchildren and non-married partners are involved, as their tax-free allowance is very low and the tax rate is generally 60%.
While these figures may be daunting, there are often steps you can take to improve your tax position, sometimes considerably so, particularly for investment capital and inheritances.
4. Estate planning
In France, estate planning is almost as important as tax planning, even if you do not expect to live here forever.
Life is unpredictable and if you are resident in France at the time of your death, your heirs will be affected by French succession law and tax.
French succession law includes forced heirship rules, so under French-law rules you cannot leave your entire estate to your spouse if you have children.
The European ‘Brussels IV’ succession regulation allows you to opt in advance for the law of your country of nationality to apply instead of French law, though protected heirs can still make a claim for assets located in France.
Take cross-border advice to understand all the pros and cons and if you have not yet bought property, familiarise yourself with succession law first.
There are various ways of owning property in France, and they each have succession tax and law implications. Establish which option best suits your situation.
Retirees should also review their pension funds and whether they might benefit, for example, from moving them to a Qualifying Recognised Overseas Pension Scheme.
The advantages include more currency, investment and estate planning flexibility.
Alternatively, you could potentially take your UK pension fund, if coming across from there, as a lump sum and possibly pay just 7.5% tax in France under certain circumstances (plus 9.1% social charges unless you escape them, as noted above). You could then re-invest the capital in tax-efficient arrangements.
Moving your pension out of the UK would also protect you if the UK Lifetime Allowance charge (abolished in the 2023 budget) is reinstated by a future government.
As always, take regulated professional advice tailored to your situation.
6. Before you move to France
Weigh up the tax implications of selling your UK property, business and investments while still a UK tax-resident, compared to selling as a French resident.
This way, you will be able to time your move to France accordingly.
7. Overall planning
Your UK tax-efficient vehicles might not be as attractive in France, so review your tax planning and how you hold assets.
There are arrangements available in France that can prove very advantageous, tax-wise, for both you and your heirs. They can also provide succession planning benefits.
While preparing for French taxation is a major part of relocating here, to create a successful wealth management strategy you should look at the whole picture, including estate planning, pensions, savings and investments.
The way you hold the latter, for example, can make a big difference to how they are taxed and how easily they can be passed to your heirs.
Planning a tax-efficient move to France involves both French and UK taxation, so talk to a specialist cross-border adviser. They should be familiar with the interaction between both regimes and regularly advise on effective planning strategies.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our, Blevins Franks, 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.