It is tax return month in France. Rather than moaning about the system, however, I encourage readers to consider some of the benefits of being a tax resident here.
Many readers own second homes in France, visiting as often as they can each year. They have embraced the French way of life and would like to spend more time here, but worry about taxes being too high or that it would be too complicated to change to a new tax system.
The reality can be quite different depending on your personal situation and objectives, and how you plan and organise your affairs. Indeed, France could even be a more favourable tax jurisdiction than your country of origin.
Why is France an interesting tax jurisdiction?
Establishing French tax residency can offer advantages for wealthy individuals. France taxes residents on a worldwide basis, as many countries do, but there are nuances that set it apart.
One key benefit is the potential for tax optimisation through France's tax treaties. The France/UK double taxation agreement helps prevent double taxation on income, allowing for a strategic tax-planning approach across both countries.
France also offers a family quotient system for income tax – parts familiales – which could be beneficial for couples, families or those with dependents. It divides the household’s total income according to the number of persons, potentially lowering the effective tax rate, which can make a significant difference in some cases.
While France does impose a wealth tax, it can be less of an issue than you may expect. France only targets real estate assets with a threshold of €1.3million, which provides relief for those whose wealth is diversified beyond property.
Read more: How to plan for your financial future in France
Additionally, new residents can enjoy a five-year wealth tax exemption for foreign properties – appealing for those with a substantial property holding in other countries.
Succession tax rates in France look high at face value, but few estates pay this level of tax. Strategic planning can allow families to claim multiple tax-free allowances and bring the taxable element within the lower tax bands.
And there are various things that can be done in terms of asset planning to potentially reduce succession tax right down.
However, these benefits depend on successfully navigating France’s complex tax laws, and require careful planning. Guidance from wealth management advisers experienced with both tax systems, compliance regulations and maximising benefits is invaluable.
Why choose France over lower tax countries?
From a fiscal perspective, France can, in certain cases, be more interesting than many so-called tax havens.
For example, many British working expatriates in jurisdictions such as the United Arab Emirates also have a second home in countries such as France.
On retirement, they must decide between remaining resident in the UAE and just visiting their French house occasionally (without breaching visa and tax residence rules), relocating to France permanently, or returning to the UK.
They should be used to living in a country offering multiple tax benefits such as, in the case of UAE, no tax on income or capital gains.
Once you retire however, you inevitably think more about estate planning and arranging a straightforward, tax-efficient transfer of wealth to your family.
The UK’s tax treaty with the UAE does not include inheritance tax, which may bring your global estate within the scope of UK inheritance tax, depending on your circumstances. France, however, is one of the few countries to have an inheritance tax treaty with the UK.
If you move to France, with careful strategic planning you may be able to significantly reduce your overall inheritance tax liabilities.
There are other tax savings, too. Once your French holiday home becomes your main home, it is no longer subject to taxe d’habitation, and you benefit from a reduction on its value for wealth tax.
While income is not quite tax-free, you may be able to structure your pensions and investments in such a way that withdrawals are regarded mostly as return of capital, resulting in a low effective tax rate.
Is establishing residence in France difficult?
Moving to the French system may seem daunting due to its administrative processes, but there are compelling reasons not to be deterred.
Firstly, France has streamlined many bureaucratic procedures in recent years, making relocation smoother than you may expect.
New online platforms for visa applications simplifies what was traditionally a paper-heavy process.
Once in France, numerous support systems are in place to assist newcomers. There are dedicated services for foreign nationals where you can find help understanding and navigating administrative procedures.
Read more: Taxes, forced heirship and property ownership: Understanding French succession law
Moreover, the French administrative system, while sometimes seen as complex, operates with a certain predictability. Once you understand the steps required for tasks such as registering for social security, opening a bank account, or getting a carte de séjour residence permit, the process becomes routine.
Of course, community support plays a significant role. Expat groups offer invaluable advice, and there are English or English-speaking specialists throughout France to guide you through everything from property purchase, residency visas and relocation, to effective tax and wealth management in France.
In summary, do not let taxation and bureaucracy put you off becoming resident in France. The benefits of living here make it all worthwhile, and with specialist cross-border wealth management advice and strategic financial planning in place you may be pleasantly surprised by your tax situation in France.
Rob Kay is a financial adviser and Regional Director of Blevins Franks
