Check finances for life in France after Brexit
The transition period gives everyone some breathing space and although little should change during this time, the Brexit clock is ticking and – once that countdown is over – there will be changes, Bill Blevins, of Blevins Franks financial advice group (blevinsfranks.com), writes
Brexit. We have all been talking about it for going on for four years now, but 2020 is the year UK nationals living in and moving to France need to stop just talking and start taking action where necessary.
The transition period gives everyone some breathing space and although little should change during this time, the clock is ticking and – once that countdown is over – there will be changes.
If you have not yet finalised your residency in France, now is the time to do so.
If you need to adjust your financial planning to protect your wealth, investigate your options before it is too late.
If you have assets in the UK and are planning on living in France long-term, you may wish to consider whether it makes sense to keep assets in one country while you are settled in another – more so when one is an EU member and the other is not.
Here we look at pensions and taxation.
Pensions and QROPS
Many Britons living overseas have chosen to transfer their pension funds out of the UK and into a Qualifying Recognised Overseas Pension Scheme (QROPS) for the various benefits they offer.
For a start, you can consolidate several UK pension funds under one roof, making them easier to manage.
A QROPS may provide greater investment diversification compared to UK pension schemes and many offer multi-currency flexibility, letting you hold and draw your funds in the currency of your choice – ideal for Britons in France whose day-to-day expenses are in euros.
Funds within a QROPS are sheltered from UK and French taxation on income and gains, though you, of course, pay tax in France on pension income.
While many UK pensions are payable only to your spouse on death, a QROPS allows you to include other heirs. It could also help protect your funds from future unwelcome changes to UK pension rules.
French residents can currently transfer their UK pensions into a QROPS tax-free, but once the Brexit transition period is over, it is highly likely that the UK will start to impose a 25% tax charge, which would mean you lose a quarter of your pension savings.
This “Overseas Transfer Charge” was unexpectedly introduced in the UK’s 2017 spring budget, after the Brexit referendum.
The 25% tax is applied when funds are transferred from UK pension funds into offshore pension schemes – but there are currently some exclusions.
In particular, you escape this tax if you and your QROPS are resident in an EU/EEA country (or both in the same country outside the EEA).
Many speculate that once the UK is no longer bound by EU rules, such as freedom of movement of capital, it may extend this 25% charge to transfers within the EU too.
This would be easily done, since the legislation is already drafted to catch all pension transfers, so the government would just need to remove the exclusion.
While QROPS can be a very attractive option, it is not suitable for everyone and you need to weigh it up against other pension options.
Take specialist, regulated advice to ensure you understand all the pros and cons.
But if you are interested in QROPS, don’t risk leaving it too late or you may face the 25% charge. Pension transfers can take several months to complete, so it is best to act sooner rather than later.
Even without Brexit, it is worth reviewing your UK assets to establish how much they are costing you in tax.
Weigh this up against the tax you could pay if you moved the capital to France, especially when using tax-efficient structures such as assurance vie policies.
Taxation and double tax treaties are domestic, not EU, issues, so the tax rules that apply to British expatriates in France today should not change after Brexit.
That said, under their domestic rules, some countries do tax non-EU/EEA assets differently to domestic/EU assets.
For example, under French rules, very beneficial tax treatment can apply to life assurance/assurance vie policies.
However, some of the key advantages only apply to EU policies, so if you have a UK life assurance policy, you could end up paying more tax once Brexit is completed if you do not take action in the meantime.
If you plan to return to live in the UK after Brexit and have shareholdings totalling morethan €800,000 or own more than a 50% share of a company, you need to be aware of France’s “exit tax”.
If you have been resident in France for six of the last 10 years, this tax – currently 30% – is levied on gains accrued while French-resident and arises the day you depart.
It is deferred (until the shares are sold, reimbursed etc) if you move to an EU country, or to an EEA country with a tax assistance agreement with France.
There are other circumstances where it can be postponed or cancelled, but Brexit could be significant for anyone who could potentially be affected by this tax.
If you are concerned, the key is to take advice to clarify your situation – exit tax has various rules and conditions – and to find out if you should revise your investment arrangements so they escape exit tax.
There is still much that is unknown about Brexit, and much will depend on the various negotiations that will now take place.
We are confident France will continue to welcome British expatriates and that the UK will continue to look out for its nationals living in the EU, but this does not mean there won’t be changes or that the UK will not reduce tax benefits for non-residents.
So you may want to take action now, under current rules, rather than wait to see what happens and risk finding you have missed opportunities.
This article is by Bill Blevins of Blevins Franks financial advice group who also writes for the Sunday Times on overseas finance. He is co-author of the Blevins Franks Guide to Living in France (www.blevinsfranks.com).
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our 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