Are you protecting your savings and investments from unnecessary taxation in France?
You will have worked to build up your savings; your aim now is to protect them and the income they provide. To maximise your returns, you need to understand the impact of French taxation and plan to limit your liabilities.
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 have been a number of tax reforms over recent years, including on how investment income is taxed, so you need to make sure you are up to date on the rules and rates.
Investment income, whether it is bank interest, dividends or capital gains on the sale of shares, is added to your other income for the year and taxed at the progressive rates of income tax. The rates for 2015 income (payable in 2016) are:
|Income band €||Tax rate|
|Up to 9,700||0%|
|9,701 to 26,791||14%|
|26,792 to 71,826||30%|
|71,827 to 152,108||41%|
Remember, in France you are taxed as a household not as individuals.
There is an additional exceptional tax (meant to be temporary) of 3% or 4% for income over €250,000 and €500,000 respectively. The thresholds are higher for families.
Social charges on investment income at 15.5% are added on top of income tax. The total combined tax rate can therefore climb as high as 64.5%, for those with an income over €500,000 (or €1,000,000 for a family)
It looked, briefly, as though Form S1 holders may no longer have to pay social charges on their unearned and investment income. This was following a ruling by the European Court of Justice (ECJ) that France could not apply social charges on people subject to social security in another EU member state. Refunds are available for the charges paid in recent years.
However the French government has now amended its social security law, so that social charges will be paid to a non-contributing fund, and so are outside the scope of the ECJ ruling. So all French residents need to pay social charges this year on their investment income, even if they have Form S1.
When it comes to tax on capital gains, there is a form of relief of 50% for investments held for between two and eight years and 65% thereafter. If you have held shares for a number of years you could consider selling the shares to reinvest the capital in more tax efficient arrangements.
You may also need to consider and plan for wealth tax, which is charged on top of income tax each year.
This unpopular tax remains a concern for wealthier residents. It affects you if the total taxable, worldwide, wealth of your household amounts to cover €1.3m. If it does, you pay tax on assets over €800,000, at progressive rates from 0.5% to 1.5%. If you are affected, seek advice on how to lower this tax liability.
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 charges liability is limited to 75% of your total income. While this sounds high, this does actually provide tax planning opportunities.
There are arrangements available in France that enable you to reduce the tax liabilities on your savings and investments. You need to understand how to use the advantages offered by the French tax system to your benefit.
Your tax planning should also cover succession tax, as the way you hold your savings and investments can impact how easily you can pass them to your heirs and how much tax they have to pay.
You will probably be surprised at how much tax you can save in France on your investment capital and income. It is important however to seek personalised advice in these complex areas of wealth management.