france tax guide

8/6/2019 France Tax Guide

1/24

w w w . b l e v i n s f r a n k s . c o m

The Blevins Franks Guide ToTaxes in FRanCe
http://www.blevinsfranks.com/http://www.blevinsfranks.com/


2/24

Contents

Introduction 4

Have you actually left the UK? 5

The 91 day rule... 6

Are you paying tax in the right place? 7What about the UK/France Tax Treaty? 8

Are your investments tax efficient for you? 9

What about your rental income? 10

What about offshore bank interest? 11

What are social charges? 12

Who is going to inherit your assets? 13

What about your Will? 14

Who is going to pay the tax when you die? 15

What is wealth tax all about? 16

What if you are not married? 16

What about UK civil partners? 17

Summary 18

Rates of Tax

Income Tax Scale Rates for 2008 Income 19

Social Charge Rates for 2009 Income 19

Wealth Tax Rates for 2009 20

Succession Tax Rates for 2009 20 - 21

Gift Tax Exemptions 2009 21


3/24

http://www.blevinsfranks.com/EN.Enquiry.aspx


4/244

TheBlev

insFranksGuidetoTaxesinFRANCE|January2010

Introduction

Moving abroad is something that many Britons yearn to do, and France is a very

popular destination for many of them.

Yet how much do you know about the tax implications of moving to France?

This guide looks at many of the issues facing people moving from the UK to France,

to raise awareness of things that may affect you. Depending on your circumstances,

however, there are likely to be things that you can do to minimise the problems,

and you may even find that you can reduce your tax liability by moving to France!

You should always take advice when looking to purchase property in and/or movingto any country, and in particular France, where many of the taxes sound the same,

but are calculated completely differently to similar taxes in the UK. There are even

taxes which do not exist in the UK e.g. wealth tax, and, for some people, healthcare

charges. An adviser with a good understanding of both jurisdictions can help you to

work out how to make your money work for you, protecting it against foreign taxes,

and how to make the most of the opportunities available.
http://www.blevinsfranks.com/EN.Enquiry.aspxhttp://www.blevinsfranks.com/EN.Enquiry.aspx


5/24

5

TheBlev

insFranksGuidetoTaxesinFR

ANCE|January2010

Have you actually left the UK?

One of the biggest problems people can have when they decide to move abroad is that

although they thinkthey have left the UK, they will actually remain UK residentunder the

UK domestic tax rules.

There is no statutory definition of residence in the UK, and the rules have been

developed over many years and court cases. Residence is a matter of physical presence

in a country, either in terms of time spent there, or the quality of the time spent there;

thus, as in the case of France, even if you spend less than half of a French tax year (the

calendar year) in France, the French will see you as resident there if your main home is

in France.

The UK has time-based residence rules: if you spend more than 183 days in the UK

during a UK tax year, which is a statutory test, or more than 91 days per UK tax year

(averaged over four UK tax years) in the UK, you are UK resident.


6/24

6

TheBlev


ANCE|January2010

The 91 day rule can be misleading and

is misunderstood by nearly everybody

First of all the rule is NOT law and is completely ignored by the UK Courts. The Courts

only deal with lawand the 91 day calculation appears in an Inland Revenue publication

which HMRC preface by saying that it does not represent the law and is for general

guidance only and so cannot be relied upon.

Secondly, even if you spend far less than 91 days in the UK each year, you still may not

have left the UK. You first have to leave the UK permanently for a settled purpose. UKcase law is littered with stories of people who claimed they had left the UK, and spent

less than 91 days there, but were found by UK Courts to have remained UK tax resident.

Examples of individuals who were in the UK for less than 91 days, yet were found to have

remained UK resident include Mr Shepherd, the airline pilot who unsuccessfully claimed

he was resident in Cyprus; Robert Gaines-Cooper who claimed to be resident in the

Seychelles; and Mr Grace, another airline pilot claiming to be resident in South Africa.

The quality of your connections with the UK still count an individual whose family all

live in the UK but who works abroad and commutes back to the UK on some weekends

could still well be UK resident. So day counting, in itself, is not always an accurate guide

as to where you are resident.

What will your position be if you retain a property in the UK? Could it be argued that your

property overseas is much more of a holiday home rather than a permanent home base?

Even where you satisfy the domestic residence criteria of France, as well as the UKdomestic rules, under the terms of the UK/France Double Tax Treaty, you can only

be resident in either country at any one time, and the Treaty has tie-breaker rules to

establish where you are resident. It might be dangerous to rely on the tie-breaker rules,

as circumstances can change, often from year to year sometimes, all it could take is a

bout of serious illness, and your residence position could change, and you havent taken

advice or prepared for it. Also, your interpretation of the rules might not be the same as

those of the tax authorities in the country in which you are claiming not to be resident.


7/24

7

TheBlev


ANCE|January2010

Are you paying tax in the right place?

The opposite can also be true: many people move abroad and continue to wronglypay

tax in the UK, when they should be paying tax in their new country of residence. This is

quite common in France, particularly where people live in France and commute back to

the UK, occasionally working from home in France, and some people just never declare

themselves to the French tax authorities at all, until they get caught. It can be all very

confusing unless you receive specialist advice.

People who do this may end up paying more tax than they should be, and had they taken

advice before they left the UK, could have put into place tax-efficient structures for their

money, saving them taxes and increasing their available income.

If you are traced by the authorities in France and have not submitted appropriate French

tax returns, or have under-declared your income because you are paying tax in the UK

and believe that you dont need to declare the income in France, this will be treated very

seriously by the French tax inspector. It is treated as tax evasion, however innocently

arrived at, giving rise to penalties and interest on any underpaid tax.

Declaring that you have paid tax in the UK on income which is actually taxable in France

will not be considered a defence under French law. Indeed certain types of income are

subject to tax only in France and not the UK, in which case the French tax authorities will

not allow a credit for UK taxes paid on the same income as this income is not subject to

tax in the UK under the terms of the UK/France Double Tax Treaty, so you will have to

pay the tax in France and reclaim the UK tax paid from the UK tax authorities.Whilst you might be working in the UK for a UK employer or performing self employment

activities in the UK, you may still have a tax liability in France, not the UK, and you could

find that you have been paying social security to the wrong country. This can affect

your healthcare, state retirement pensions, and other social welfare benefits. Again,

there may be penalties and interest due on any underpaid social security. By getting

this wrong, you can cost yourself, and possibly your employer, a lot of money as well as

losing healthcare, social security and pension rights.


8/24

8

TheBlev


ANCE|January2010

What about the UK/France Tax Treaty?

Doesnt that stop you paying too much tax?

Whilst the treaty between the UK and France means that the same income or gain is not

taxed twice, not all income or gains are taxed in both countries. The problem is, if you

dont know the rules, you can end up paying more tax than you need to do if you are

paying it in the wrong country.

Also, where income or gains are taxed in both countries, although you can offset the tax

paid in, say, the UK against the tax due in France, if the tax payable in the UK is higher,

you will not get a refund of the difference in France. So ideally, if you can avoid payingthe higher UK rate altogether, you can reduce your tax bill this way. However, just not

paying the UK tax is not an option, so you need to take advice to make all of your income

as tax efficient as possible.

In some cases, however, relief from double taxation is given in a different way. Some

types of UK-source income are not directly taxable in France, but must be declared there

as it is taken into account to calculate the rate of tax payable on other income which is

directly taxable in France.


9/24

9

TheBlev


ANCE|January2010

Are your investments tax efficient for you?

For UK residents, income derived from ISAs and PEPs, and Premium Bond winnings,are all completely free of tax. However, these are only tax efficient investments for UK

purposes, and all are subject to tax in France (and also social charges see page 11).

Whilst income from ISAs can be taxed at either the scale rates of tax or a flat rate of 18%,Premium Bond winnings are generally added to all other income and taxed at the scale

rates. Thus, should you be fortunate enough to have a big win, you may find that up to52.1% of the winnings are payable as tax and social charges in France.

Also, did you know that although anyone may hold Premium Bonds, regardless of where

they are resident (under the terms and conditions as at 1st February 2009), only UKresidents may contribute to an ISA? Those who have left the UK may continue to hold

such funds, but income and withdrawals taken from the investment are only tax free inthe UK and will be subject to tax in France.

Keeping cash offshore is dealt with on page 10, but what about other investments, like

shares, OEICs, unit trusts or investment bonds? The gross dividend income from UKshares (i.e. the dividend received, plus the 10% tax credit treated as being attached to

the dividend) is taxable in France, as in the UK, and there are two methods of calculatingthe taxable income in France, so it is important to choose the one that is most tax-efficient

in your circumstances. The gross income is also subject to social charges. You alsohave to consider the French capital gains tax and social charges on disposal of these

assets, including on shares held in ISAs, as these will be taxable disposals in France.

Investment bonds are a vehicle that people often use, giving the freedom of deferring tax

on any income or gains arising until money is withdrawn from it. If you are a UK residentthis is usually for at least 20 years, and sometimes more, as you can take 5% (the 5%allowance) of your original investment each year tax-free in the UK, whilst the income

and gains within the bond roll up tax efficiently. The 5% limit is cumulative, so if notutilised in one year, can be carried forward. The 5% allowance does not extend to French

residents as these are UK tax rules and the French rules on such income are different.

There are very tax-efficient investment vehicles available to residents of France that can

reduce taxable income, and thus income tax and social charges. They can also helpminimise wealth tax (depending on your circumstances), and have an impact on French

succession law and tax. If only ISAs were as beneficial for UK residents!


10/24

10

TheBlev


ANCE|January2010

What about your rental income?

Many people retain UK property to let out when they leave the UK. For some, this is their

pension fund, and they have one or more buy-to-let properties; others are unable to sell

their UK main home when they leave the UK, and so decide to let it out to provide an income.

This income remains taxable in the UK, and must be reported there each year on a UK

tax return.

But this income is also taken into account in France, and whilst not directly taxed there,

is added to other income that is directly taxed in France (such as pension or savings

income) to calculate the effective rate of tax that should be applied to the income directlytaxable in France, an addition known in France as the taux effectif. Such income is also

directly subject to French social charges at 12.1%.

Under the new UK/France Double Tax Treaty which came into force in France from 1st

January 2010, gains arising on UK properties are now subject to French capital gains tax

at 28.1% including social charges. Previously the gain was not taxed in France.

There are alternative methods of investment available to residents of France that aremuch more tax-efficient, and even where a property is not selling or being sold, it is worth

taking advice to see if there is anything that can be done to mitigate taxes and social

charges.


11/24

11

TheBlev


ANCE|January2010

What about offshore bank interest?

French tax residents are subject to tax on their worldwide income, including bank interest

arising anywhere in the world, even if you never use the account.

Under the terms of the EU Savings Tax Directive, there are two options available to those

who have accounts in the many non-EU signatories to the Directive, e.g. Switzerland,

Isle of Man, Channel Islands etc.

Under the first option, you can choose not to have details of the account(s) exchanged with

France, in which case tax will be deducted at source, currently at 20%, and increasing to

35% of the income from 1st July 2011. If you opt for this, failure to declare the existence

of the bank account to the French authorities will attract a fine of up to 10,000 per

undeclared account per year if discovered. In addition, failure to declare the income to

the French tax authorities will be seen as tax evasion in France.

Alternatively, you can opt for exchange of information regarding the account with France,

in which case you will receive the income gross. Again, any failure to declare the account

or income in France will be penalised.


12/24

12

TheBlevinsFranksGuidetoTaxesinFR

ANCE|January2010

What are social charges?

Are these like National Insurance contributions?

Social charges in France are nothing to do with social security; they are an income tax by

another name, payable on allforms of income, including income that is not directly taxed

in France, such as UK rental or government service pension income.

Social charges are payable at rates of 12.1% on all investment income, such as interest,

gross dividends and rental income, and also on capital gains. A lower rate of 8% ispayable on employment and self-employment income (this is the only income that is

subject to social security contributions the French equivalent of UK National Insurance

contributions in France), and finally, 7.1% of pension income. Many UK nationals

moving to France who have not yet reached UK state pension age can be caught by this,

if they are in receipt of pension income when they move to France.


13/24

13


ANCE|January2010

Who is going to inherit your assets?

French succession law applies to the worldwide assets of French residents (with the exception of non-

French real estate), and to French real estate belonging to non-residents of France, even if held in a

French company.

Under French law, any children of the deceased, whether from within the current marriage or outside that

marriage, are reserved heirs, who are entitled to up to 75% of the deceaseds estate, even in preference

to the current spouse. Your Will (in whichever country it might have been written) becomes illegal if it

attempts to override these reserved heir rights. One child is automatically entitled to 50% of the deceased

parents estate, two children receive 2/3rds of the estate in equal shares (i.e. a third each), and three or

more children are entitled to 75% of the estate on death, to be divided between them in equal shares. A

current spouse is only entitled to a maximum of 25% of the estate.

This can be a big problem for people who have children of an earlier marriage or relationship, and even for

those who dont, who want the spouse to inherit their assets on their death, not the children.

You cannot get around these rules simply by making a Will, as any Will not in accordance with French

succession law will simply be set aside.

There are things you can do to avoid some of these problems, but you should take advice before buying a

property (as matters may be sorted out by simply reviewing how the property should be held), and certainly

before moving to France. Even some of what people think of as the obvious answers, such as putting aproperty in the name of their children (for example, to avoid taxes on death) can have unexpected effects,

some of which are to actually increase the tax liability.

If you were to put the property into the names of adult children, whilst this can be beneficial and perhaps

even avoid French succession tax, if you remain UK resident, it is unlikely to avoid UK inheritance tax if

you are still using the property, and if your property is one of the childrens assets and they divorce or file

for bankruptcy - what happens then?

Using companies can be beneficial in some circumstances, but in other situations can solve some

problems but can create problems in terms of other taxes such as income tax, capital gains tax and wealthtax or corporation tax. There are also the additional costs of setting up and the annual running costs of

the company, and if the property is to be let for holiday rentals, such a structure can increase all costs

significantly, as well as causing problems on disposal.

It is not unknown for individuals who have UK companies to wish to purchase the French property in the

name of the UK company, seemingly to save taxes by using corporate funds but this in itself can cause

other tax problems.

Therefore, it is essential to get the ownership structure right when you purchase the property, and to do

this, you need to take advice based on your circumstances. The same is also true for anyone thinking of

moving to France, to ensure that other assets can pass as you wish them to, not as French law says they

should.


14/24

14


ANCE|January2010

What about your Will?

A UK Will may be effective in France, although any provisions that do not comply withFrench succession law will be ignored (see the succession law section above), and

this will be the case for most UK Wills. However, for those without children and/or a

spouse, ensuring that you have a valid Will is essential to ensure smooth and cost-

efficient transfer of assets.

A UK Will must go through the probate process in the UK, after which it needs to be

translated and notarised and then go through the probate process in France. Thus

this can take a significant amount of time before a Will can be finalised and the assetsdistributed. This is also a very costly process.

If you set up a French Will for French assets, this may inadvertently revoke your UK Will,

leaving your assets intestate, which can take a lot of time to sort out. Alternatively, the new

French Will may be at odds with your existing UK one, leading to disputes between your

heirs, which again may be expensive and costly to resolve. Taking advice can solve these

problems, ensuring that any transfer by Will goes as smoothly as possible for your survivors.


15/24

15


ANCE|January2010

Who is going to pay the tax when you die?

French succession tax is a tax on both lifetime gifts and assets passing on death, and

always applies to French real estate, regardless of where the person gifting/bequeathing

the asset is resident. It is also payable on all assets of the donor/deceased if they are

resident in France at the date of the gift/death.

It is the person who receives the assets, whether by way of lifetime gift or as a bequest,

who is liable to pay the tax (unlike the UK, where the estate pays the tax, unless

specifically provided for in the Will). However, as in the UK, the ownership of an asset

cannot be transferred until the tax is paid, and as you cannot sell the asset to pay the

tax, problems can arise for the beneficiaries in France, where tax usually has to be paid

within six months of the death.

So as you can see, it is not only the laws that apply on death that are different from the

UK, taxes on death are also different.

However, there are measures you can take to avoid both French succession law andminimise (if not avoid) French succession tax completely. As you would expect, planning

can start early, even before you actually purchase a property in the first place, and getting

this right could save a lot of tax in the future.

There is also the additional problem, that if you should die owning UK assets, not only

French succession tax may be due on those assets, UK inheritance tax might be due

on those assets as well. There is a double tax treaty specifically on tax on death (so

this doesnt cover lifetime gifts), but situations can arise whereby tax can be due in bothcountries, but on different events and in this case, as the tax isnt due in both countries

on the same event, there can be no offset of tax paid in one country against the tax due

in the other country. This is where careful planning can help, so that the people you want

to inherit your assets can do so at a minimum of tax, meaning that more of your money

goes to them, and less to the governments of either France or the UK.


16/24

16


ANCE|January2010

What is wealth tax all about?

In France, the value of your assets is added up on an annual basis as at the 1st January

each year, and is subject to tax. There is no equivalent tax in the UK, as this is effectively

a tax on your capital assets, rather than income or growth in value of disposed assets

(i.e. capital gains tax). This can be a complicated tax, and can be very expensive for

those who are unprepared for it.

The rules have changed recently and the effect of this tax can be mitigated by taking

advice, particularly before you move if you are intending to move to France. Even if you

are not planning on moving to France, it is sensible to take advice to see if this tax will

affect you, and how.

What if you are not married?

For those who are not married, French succession tax is 60% on anything inherited or

gifted between you, and in addition, you will not benefit from the Partssystem, which

allows a family to utilise the lower rate bands of all members of the household.

However, unmarried couples are treated as one household for wealth tax purposes, so if

you are living together, unmarried partners effectively get the worst of all worlds unable

to take advantage of the income tax benefits, and subject to high rates of tax on death,

whilst being subject to the wealth tax limitations.

There are ways around this, and they dont necessarily involve being married, but if you

are unprepared for this when you move, the consequences can be terrible when the first

partner dies, as the survivor will have no automatic right to inherit assets, particularly if

the deceased has children, and may have to pay 60% tax on assets inherited from the

first deceased.


17/24

17

TheBle

vinsFranksGuidetoTaxesinFR

ANCE|January2010

What about civil partners?

The Pacte Civil de Solidarit (PACS) is recognised as a civil partnership for UK legal andtax purposes for same sex couples (but not for opposite sex couples).

A UK civil partnership is now recognised in France. This means that if you are already in

a UK civil partnership, you will be treated as PACS partners in France for tax purposes.

Prior to April 2009, a UK civil partnership was not recognised in France, and you were not

able to enter into a PACS unless the UK civil partnership was dissolved first.


18/24

18

TheBle

vinsFranksGuidetoTaxesinFR

ANCE|January2010

Summary

There are many issues facing UK nationals looking to buy property in and move to

France, and a lot of these can be dealt with very easily, in many cases, provided

you take advice. However, to make the most out of such a purchase or move, the

adviser needs to be cognizant of both French and UK tax law, as something that

can save you tax in the UK can have the opposite effect in France, and vice versa.

There is no one solution for everyone, because each situation is different, and it is

important to do your research, but there is no substitute for advice tailored to yourspecific circumstances.

Despite the reputation that France has for high taxation, this is not always true, and

many of our clients have found this out to their benefit...

Can we do the same for you?


19/24

19

TheBle

vinsFranksGuidetoTaxesinFRANCE|January2010

Rates of Tax

Income Tax Scale Rates for 2009 Income

Income tax rates are usually only set at the end of the tax year to which they relate, or

sometimes even after the tax year is over. They are very rarely set in advance of the

relevant tax year starting.

Social Charge Rates for 2009 Income

Net Income Subject to Tax Band

Tax Rate Tax on Band

Cumulative Tax

Up to 5,875 5,875 Nil

5,876 to 11,720 5,844 5.5% 321 321

11,721 to 26,030 14,309 14% 2,003 2,324

26,031 to 69,783 43,752 30% 13,126 15,450

Over 69,783 40%

Salaries and

unemployment

benefits (on

97%

of gross)

Retirement or

disability

pensions

(on 95% of

gross)

Investments,

annuities, rental

income and

capital gains

CSG

(Contribution sociale gnralise)7.5% 6.6% 8.2%

CRDS

(Contribution au remboursement de la

dette sociale)

0.5% 0.5% 0.5%

PS

(Prlvement Sociale Contribution

additionelle)

0% 0% 2.3%

RSA Contribution 1.1%

TOTAL 8% 7.1% 12.1%


20/24

20

TheBle


Gross Worldwide Assetsof the Household

Band % age Tax on Band Cumulative Tax

Under 790,000 790,000 0 0 0

790,001 to 1,290,000 500,000 0.55 2,750 2,750

1,290,001 to 2,530,000 1,240,000 0.75 9,300 12,050

2,530,001 to 3,980,000 1,450,000 1.00 14,500 26,550

3,980,001 to 7,600,000 3,620,000 1.30 47,060 73,610

7,600,001 to 16,540,000 8,940,000 1.65 147,510 221,120

16,540,000 upwards 1.80

Wealth Tax Rates for 2010

Succession Tax Rates for 2010Taxable Inheritance To spouses and PACS

partners: (gifts only)

Tax on Band

Cumulative Tax

Less than 7,953 5% 398 398

7,953 to 15,697 10% 774 1,172

15,697 to 31,395 15% 2,355 3,527

31,395 to 544,173 20% 102,556 106,083

544,173 to 889,514 30% 103,602 209,685

889,514 to 1,779,029 35% 311,330 521,015

Above 1,779,029 40%


21/24

21

TheBle


Taxable Inheritance In the direct line (including

adopted children but not step-children unless adopted)

Tax on Band

Cumulative Tax

Less than 7,953 5% 398 398

7,953 to 11,930 10% 398 796

11,930 to 15,697 15% 565 1,361

15,697 to 544,173 20% 105,695 107,056

544,173 to 889,514 30% 103,602 210,658

889,514 to 1,779,029 35% 311,330 521,988

Above 1,779,029 40%

Taxable Inheritance Brothers & Sisters Other relatives to the

4th degree

More remote and

non-relatives

Less than 24,069 35% 55% 60%

Above 24,069 45% 55% 60%

Succession Tax Rates for 2010

Succession Tax Exemptions 2010

Spouses/PACS partners - gifts (inheritances exempt) 79,533

Each natural or adopted child from each parent/to each parent 156,974

Sibling 15,697

Nieces/nephews 7,849

Other (inheritances only) 1,570

To any disabled person additional to above 156,974
http://www.blevinsfranks.com/EN.Enquiry.aspx


22/24



23/24

Tax PlanningInvestment Management

Asset Protection

Trustees

Retirement Planning

Pensions

QROPS

Foreign Exchange

Domicile Determination

UK Tax Residents Living Abroad

Tax Residency

Expatriates Returning To The UK

Blevins Franks Financial Management Limited

is authorised and regulated by the UK Financial

Services Authority only for the conduct of investmentand pension business. Blevins Franks Trustees

Limited is authorised and regulated by the Malta

Financial Services Authority for the administration of

trusts and companies. Blevins Franks Tax Advisory

Service only gives taxation advice; all of the advisers

are fully qualified tax advisers.

This guide has been prepared based on the laws of the UK and France

as at 25th January 2010. It is a general guide only and, in explaining

complex matters in a simple way, cannot be relied upon as a substitute

for professional advice. Blevins Franks cannot accept any responsibility

for loss occasioned by any persons action (or refraining from action) as

a result of reading this guide. You must take detailed professional advice

relevant to your particular circumstances before any action is taken.


24/24


contact us for more information and personal advice on your situation

Blevins Franks, Barbican House, 26-34 Old Street, London EC1V 9QQ

0044 (0)20 7336 1116or CLICK HERE to send us an email

alternatively CLICK HERE to fill out our enquiry form
mailto:taxadvisoryservices%40blevinsfranks.com?subject=Enquiry%20from%20Tax%20Guidehttp://www.blevinsfranks.com/EN.Enquiry.aspxhttp://www.blevinsfranks.com/EN.Enquiry.aspxmailto:taxadvisoryservices%40blevinsfranks.com?subject=Enquiry%20from%20Tax%20Guide

france tax guide

Documents