Question
My wife and I have been living in France for nearly four years and have been using a UK fixed-term savings scheme to supplement my annuity and my wife’s state pension.
The savings scheme has now terminated and, although we are both UK citizens and taxpayers, we have been unable to reinvest in a new scheme because we are “no longer UK residents”.
We have tried more than 30 different schemes, all with the same answer. It seems crazy that we cannot invest in a country that is crying out for investment of all types.
We would like to know if your experts have a solution to our problem of supplementing our income to at least give us a reasonable standard of living, as we are now using our capital to maintain our life in France. D.J.
Answers
Richard Hatt, Siddalls, Merignac (Gironde):
I note that, although you have been living in France for nearly four years, you still believe yourselves to be UK taxpayers.
However, if you have been living permanently in France for this length of time, you will almost certainly be categorised as French, not UK, tax resident. As such, you are subject to French income tax on your worldwide income, including your pensions and savings income from the UK.
Your priority should therefore be to invest in a manner which is tax-efficient for your French tax residency. French residents are not eligible for UK tax-advantaged savings schemes such as ISAs.
There are a number of UK banks with offshore divisions which offer deposit schemes to UK expatriates. However, these do not offer any particular tax advantages and all interest arising will be subject to French income tax and social charges, even where interest is “rolled up” in the account.
Better options are the tax-free French savings accounts Livret A and LDD (Livret de Développe-ment Durable), offered by the main French banks. A maximum of e15,300 per person can be invested in a Livret A and e6,000 per person in an LDD. Both currently pay interest of 1.25% per annum, tax free.
Beyond this, more flexibility and choice can be found in the popular assurance vie, which give access to a wide choice of investment funds, including low-risk guaranteed funds usually offering better returns than bank deposits.
Leading French insurance firm offer an assurance vie product. Investors looking to retain funds in sterling can do this through assurance vie products held outside France, e.g. in Luxembourg.
Withdrawals can be used to supplement income and the product benefits from favourable tax treatment for both French income tax and inheritance tax.
Rob Hesketh, The Spectrum Group ,Valbonne (Alpes-Maritimes):
IT IS very difficult to offer any personalised advice without knowing more about your assets, income and attitude to risk, but we can highlight some key considerations.
As French residents of four years, you should be French taxpayers on all income other than “government” pensions (not UK state pension) and rental income in the UK. It seems likely, therefore, that your tax situation needs to be looked at.
There are products that are tax-efficient in France that can provide you with income. One would assume your savings are still in sterling and so currency risk must be considered as you are spending euros but receiving sterling.
If you do not want to transfer your capital to euros now then you could use something like a sterling-based assurance vie contract to access money market funds, corporate bond funds or yield-producing, capital-guaranteed structured products.
The income in the first few years can be declared at your basic rate, and then allowances for withdrawals later could make them significantly more tax-efficient.
If you are happy to move some of your capital to euros then a mixture of assurance vie and deposit accounts (Livret A, Livret de Développement Durable etc) could be employed to minimise your tax exposure.
It does appear as though you are in a similar position to many other people we are seeing at present. Having moved to France from a financially secure background in the UK, you have assumed everything can carry on as it was before.
I am afraid this is not the case, and therefore it is vital you obtain reliable and responsible independent financial advice in order to structure your finances in such a way as to support your retirement in France.
Robert Kent, Kentingtons, Cotignac (Var)
It is extremely common for investment companies and banks in the UK to refuse custom from those not resident in the UK. It is more to do with rules and regulations, and not because they do not want your business.
The first point is that as French “fiscal” residents (I will come to this later), there are far better ways of holding your capital than using a UK bank account or investment structure.
We show our clients every day how to save thousands every year in taxation and charges and how to gain a better return on capital.
As in the UK, there are ways of reducing tax, which are popularly adopted by French investors. One that works well is assurance vie. This is not an investment, merely an investment structure, with very attractive tax benefits in France. Almost anything is possible within this structure; from the secure to the adventurous, from the simple to the sophisticated.
I will assume, given your situation, you desire zero risk to your capital. This is often achieved by using a guaranteed fund, known as fonds en euros. These funds will never set the world alight in performance terms, but they are steady and secure and ideal for those wishing for a certain and reliable income.
We currently work with a French company that will provide a structure in sterling or euros (or a mix if you wish) with all the paperwork in English. It can even be switched into a full UK contract in the event you return to the UK.
With solutions such as this available, why look for a UK solution that is not designed for your situation as French residents, and that will cost money in unnecessary tax and charges?
As for your tax situation, you say you are residents of France, but UK taxpayers. If you reside in France, you are French taxpayers (this is not a matter of choice). If you live in France and you are not completing French tax declarations, you are breaking French fiscal law.
Even if you have no income or all your income is exempt, you are still legally bound to complete a French tax declaration.
In summary, I would suggest you seek guidance on your investment and tax position by talking to a French and UK qualified tax and investment consultant.
