The fact it is high season means that many people reading this might be thinking of making France their home, or already have a second home in France and are spending more time there than planned. “We decided to stay longer, it’s much nicer here!” – I hear this often.
The issue for those who cancel their return flights is that there are some important considerations to be made.
It is common for many people spending time in France to consider that they can decide on where they are fiscally resident (ie. where they pay their taxes) based on their understanding of UK residency rules. The issue with this is that, important as the UK might be, its laws and rules do not apply in France. So when spending time between two countries, both countries’ laws need to be considered, not just the country of which you happen to be a national.
The basis for defining residency is not the same in France as in the UK, so the number of days spent in a country is not the only consideration. In fact, the main French laws defining residency do not even discuss the number of days spent in the country.
The residency rules are clarified both in Article 4B of the French tax code and Article 3 of the UK/France Double Tax Treaty. This is listed as a series of definitions/tests.
The first of the definitions highlighted is the “foyer ou le lieu de séjour principal”, thus where your main residence or home is situated.
The Double Tax Treaty states: “He shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him” (sorry about the “him”, ladies, I’m just quoting). This may be accommodation that you own or is (officially) rented.
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What is essential is that it is available for your use and under your control, so if the property is owned by you, but is rented out, this is not deemed to be a home.
Also, you may not use the address of siblings, parents, friends, etc. (this is very common and the French tax offices are wise to it).
Therefore, if your only property is in France, you are considered a French resident from the day you disposed of/rented out your UK property.
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If you have “homes” in both countries, we then move on to the next test.
This is where you spend ‘most of your time’. Many ancillary laws (both French and in the tax treaty) refer to 183 days. However, it is important to understand that:
- If you spend less time than this in France, but it is where you have spent ‘most’ of your time, you will still be considered resident.
- Once you have spent 183 days in France, you are not deemed resident from the 183rd day, but from the day of arrival.
This is often where people say: “Aha, so it’s the same as the UK, I spend six months here and I am resident, but I have not been here for six months, so all is well.”
Clearly, once you have been in France over six months, there is no question, but the ‘most of your time’ rule catches people out.
Many people we meet have another holiday home, or spend time in a third country, or more (lucky them).
If you spent 123 days in France, so around four months, but spent 121 days in another two countries, you are well below the six months under UK rules, but under the tax treaty and French law, it is where you have spent most of your time and so where you pay your taxes!
There are other, less significant, rules applicable where the position is less clear, down to the nationality of the individual. However, most people will fall into the above, either the main home test or the time spent test.
For those reading this and realising that they are deemed as French resident, you are assessable to the following in France:
- Income tax
- Capital gains tax
- Social charges
- Wealth tax
- Inheritance/gift tax
Last, but not least, you have changed your domicile from British to French!
That last one really gets people, determined to cling onto UK rules.
Again, there is another tax treaty (not the same one for defining residency) dealing only with succession and domicile, which dictates that the domicile is where you are resident, thus moving to France is one simple way to change your domicile.
Moving to France to live is a wonderful thing. It is this fact that pulls people here and makes them stay (I know, I have been here over 17 years). French taxation is not remotely as scary as people believe, but it does require some serious planning to make it work. Just turning up can lead to disaster, so this means that being caught out is bad news.
If you think that you may have issues with residency, or want to stay; just get some serious professional advice from a suitably qualified professional.
This column was written by Robert Kent of Kentingtons financial advisers.
See www.kentingtons.com
