There can be significant differences between taxation in the UK and taxation in France. In order to help maximise your returns on your savings and investments, you need to understand the impact of French tax on your income and capital, and plan to limit your tax liabilities.
You need specialist advice about tax mitigation in France and a well-considered tax planning strategy. Otherwise you risk seeing your investment returns considerably reduced by French taxes and social contributions.
Many UK nationals have accumulated large savings and investment portfolios using an array of options, from National Savings to Individual Savings Accounts (ISAs) and Personal Equity Plans (PEPs). Unfortunately, once you take up residence in France, these tax incentives fall away and the income and gains become wholly taxable under French law. If you are lucky enough to win one of the large Premium Bond prizes, you could lose over 60% in tax.
You therefore need to reconsider the way you hold your investments, and look for the most tax efficient arrangements in France.
There are various tax bands for income tax in France. Unearned income, such as capital gains on shares, dividends and bank interest are now added to your other income and taxed as such.
Until the end of 2012 there was an option for a fixed rate of tax on investment income, which resulted in lower tax for higher earners, but this has been removed.
Likewise income from ISAs, PEPS, Premium Bonds etc are taxed at the income tax rates.
The current income tax rates are:
|Income band in €||Tax rate|
|Up to 9,690||0%|
|9,690 to 26,764||14%|
|26,764 to 71,754||30%|
|71,754 to 151,956||41%|
An additional “exceptional contribution” tax is currently imposed at 3% for income over €250,000 and 4% for income over €500,000, though this is meant to be temporary.
On top of income tax, you also pay 15.5% social contributions on investment income and capital gains. So the top combined rate of tax is 60.5% – or 64.5% when you add in the exceptional contribution.
Besides income taxes you may also need to consider wealth tax. This is an annual tax paid in addition to the taxes above. It is imposed on the value of your household’s worldwide assets as at 1st January.
It is only payable if your taxable wealth exceeds €1,300,000, although once this threshold is exceeded, tax starts being applied to wealth over €800,000. Rates range from 0.5% to 1.5%.
There is a ‘holiday’ from wealth tax on non-French assets for new residents of France, for five years from arrival. In addition, once wealth tax does become a factor, the French tax system provides a “tax cap”, where your combined income tax, wealth tax and social charge liability is limited to 75% of your total income. While this sounds high, this does actually provide tax planning opportunities, since protecting your investment income from tax can therefore also reduce your Wealth tax liability.
While this may not affect you or your spouse directly, you may wish to think about what sort of tax your heirs will pay when they inherit your savings and investments.
Succession tax is the French equivalent of inheritance tax, but works quite differently. Tax is paid by each beneficiary, and rates vary according to the relationship between the donor and the beneficiary.
So, for example, children pay tax at progressive rates of between 5% and 45%. Distant relatives and those not related to you pay tax at a flat rate of 60%. Allowances also vary, with children receiving up to €100,000 each tax free, while distant relatives only get €1,594.
There are arrangements available in France that enable you to reduce the tax liabilities on your savings and investments.
The important point is to understand how to use the advantages offered by the French tax system, just as you did with your PEPs and ISAs in the UK.
Although France is considered a high tax country, it can actually provide tax advantages if you have the right advice.