The proximity of France to the UK makes France a very accessible country for Britons to own holiday homes. For many they are more than just ‘holiday homes’, as they commute regularly between the two countries and spend a considerable amount of time enjoying a more laid back life over the Channel.
Many people wish they could spend much more time in France, or move there permanently, but they restrict the number of days there to avoid becoming caught in the French tax system.
France does have a reputation for being a high tax country, and not without cause, but when you understand all the intricacies of the French tax rules, you may find it makes more economic sense to be tax resident in France as opposed to the UK. The tax savings can be considerable, even before you employ tax mitigation arrangements. Just how much tax you’d save depends on your assets and income, but it’s certainly worth investigating.
Wealth tax has often been cited as a key reason people don’t want to be resident in France. However, I’ve found that when I calculate the potential liability, most were pleasantly surprised to discover that it’s lower than they’d expected. And now we have the new wealth tax rules where the majority of people will pay less wealth tax than previously – so wealth tax shouldn’t be a deterrent to taking up residence in France.
In any case, for your first five years of residence, you are only liable to wealth tax on your French situated assets (and not on assets that remain outside of France). If your assets in France are below €1.3m you won’t be liable for wealth tax at all during this period. You might set up your investment assets outside of France and escape wealth tax on these for at least five years.
Moving on to income tax, the tax bands are actually lower than the UK’s. Also in France, there’s a system – parts familiales - where income tax can be applied on the income of your whole household, including dependant children, which often results in a lower tax bill. This can be very effective if one spouse earns much more than the other, including for retired couples where the wife is on a much smaller pension than her husband. Households with just one breadwinner and several children also really benefit from this system.
Unfortunately, France does impose social charges on top of income and fixed rates of tax, and these currently range from 7.1% to 13.5%. However, if you are retired and receive most of your income as pensions, you won’t have to pay social charges on this income if you hold form S1, available if you are over UK state retirement age or, if you retired early, on leaving the UK to cover you for up to 2.5 years.
When it comes to comparing UK inheritance tax and French succession tax to determine where you would have the lower liability, the two taxes work so differently I cannot give a definite answer for everyone. In the UK, inheritance tax is charged on your estate but in France is charged per beneficiary, so you need to seek advice based on the number of beneficiaries you have and who they are.
This is not an exhaustive list of the tax issues you need to look into when comparing your tax position and, in any case, it really depends on your specific situation so you do need to seek personalised advice.
Also I have just talked about basic tax rates and rules here. You can usually reduce the tax liability further on your savings, investments, UK pensions and estate by using compliant arrangements in France. Depending on your situation, they could significantly reduce your tax liability and are definitely worth exploring.
If you own a holiday home in France and already spend time there each year, it may not be that big a step for you to become French tax resident.
You are tax resident if France is your main residence or home (your foyer fiscal). This embraces ideas of permanence and stability – the place where your close family habitually live – and ignores temporary absences. It can apply even if you spend less than 183 days a year in France.
If you do spend more than 182 days a year in France, you are de facto a resident for tax purposes. This is a cumulative rule, so you need to add together all the days you spend in France in any particular calendar year. You can also be deemed French tax resident if your principal activity is in France or it is the country of your most substantial assets.
If you were to continue to spend a lot of time in the UK you would need to keep an eye on the UK residence rules as well. If you meet the residency rules of both countries, the UK/France double tax treaty has ‘tie breaker’ rules that come into operation to determine where you pay your taxes. If none of these rules are conclusive, it comes down to nationality.
It would be a shame if the only reason you did not move to France or spend more time there is because you want to avoid French taxation. The tax rates may not be as bad as you imagine and even if they are higher than you would like, with the right advice and arrangements in place you may be able to reduce your tax liabilities on your savings, investments and pensions to a level you are happy with.
•With thanks to Bill Blevins
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.