France or UK: Are you paying your taxes in the right country?

Partner article: A guide to the rules in France as well as in the UK for paying taxes

10 November 2021

'Tax residency is more complex than people realise. We often meet people who think they are resident in one country when they actually meet the tax residency rules of another' Pic: fizkes / Shutterstock

‘Residence’ has been a big topic among British expatriates and those hoping to move to France over recent years. Brexit added some uncertainty and, for new arrivals, more advance planning and paperwork.

There are actually two types of residence that you need to be aware of and plan for.

This first is your lawful residence (your rights, as a national of one country, to live and work in another).

The second is your tax residence (the country which has taxing rights over your worldwide income, gains and wealth).

This article covers the latter, looking at the rules here in France, as well as in the UK.

Tax residency is more complex than people realise. It is not just about day-counting. We often meet people who think they are resident in one country when they actually meet the tax residency rules of another.

Paying tax in the wrong country can prove costly, including back taxes, interest, potential fines, and possibly even a tax investigation. With today’s automatic exchange of financial information, you need to follow the rules carefully.

Tax residence rules in France

Under the Code général des impôts, individuals are deemed to be tax-resident in France if at least one of the following four tests is fulfilled:

1. France is your main residence or home

Your foyer. This is the rule the French authorities rely on most. Your foyer is defined as the place where your close family (spouse/cohabiting partner and dependent children, but not parents) – habitually live. If you are single with no children, it is where most of your personal life is centred. Your foyer can be in France even if you spend most of your time out of the country.

2. France is your principal place of abode

Your lieu de séjour principal. This usually means you spend more than 183 days in France in a calendar year, but may also apply if you spend more days here than in any other single country. The authorities are reported to be increasingly applying this rule, particularly to ‘tax nomads’ who cannot prove tax residence elsewhere.

3. Your principal activity is in France

Your occupation is here (whether salaried or not) or your main income arises here.

4. France is the ‘centre of your economic interests’

Where your most substantial assets are based (such as principal investments), where your assets are administrated or your business affairs are, or where you draw a larger part of your income.

If you meet any of these criteria, you are liable to pay French tax on your worldwide income, gains and property wealth.

It is your responsibility to make yourself known to the French tax authorities and fully declare all your income and assets as required.

Timing your move

France takes a ‘split-year’ approach. In the year of arrival, only income received after you arrive is liable to French income tax. If you leave France, only income up to the date of departure is taxable here. French-source income, however, is always liable to taxation in France, regardless of residency.

For those who are leaving or arriving, you could avoid French tax by timing when you sell assets. Consider where you are tax-resident at the time and what tax is due there. Weigh up whether you are better off selling your UK assets while you are still UK tax-resident, or waiting until you move to France.

UK tax residence – the Statutory Residence Test

British expatriates also need to understand the UK’s Statutory Residence Test and how it could continue to affect them. If you spend time in both countries or retain ties with the UK, you could be deemed resident in the UK for tax purposes without realising. It includes three tests:

1. Automatic overseas test

You are not resident in the UK if you spend fewer than 46 days there in a UK tax year and were not resident in any of the previous three tax years. However, if you were UK-resident within the last three years, just 16 days back could trigger residency rules.

Those who work overseas full-time and spend fewer than 90 days in the UK per year will not be deemed UK-resident.

2. Automatic residence test

You are UK-resident if you spend 183 days or more there in the current tax year, if your only or main home is in the UK, or you work full-time in the UK.

3. Sufficient ties test

Otherwise, whether or not you are UK-resident for tax purposes depends on how many ties you have with the UK (family, work, accommodation) and how many days you spend there.

If you meet the domestic tax-residency rules of both countries in the same year, the tie-breaker rules outlined in the UK/France double tax treaty will determine where you pay taxes.

These look at where you have a permanent home, where your personal and economic interests are, and where you have a habitual abode.

Where residence still cannot be determined, it comes down to nationality.

While you do not have a choice – you either are or are not resident under the rules – if you have flexibility, you can be careful with the number of days you spend in each country, and where you have assets and ties.

Although France has a reputation of being a high-tax country, do not let being tax-resident in France put you off moving here.

Restructuring your assets to make them suitable for a French resident can improve your tax liabilities – you may be surprised by how much, especially if you are retired and living off private pensions and investments.

Residency is a complex area for expatriates with cross-border interests.

To make sure you get it right, take specialist personalised advice. 

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.

Author: Rob Kay, Blevins Franks. Blevins Franks provides tax and wealth management advice.

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