Through strategic tax planning, French residents can reduce income tax, payroll taxes, capital gains tax and wealth tax liability in France, while unlocking other advantages.
Over time, we learn more about what Brexit means for life in France, what really changes and what doesn’t. The good news is that when it comes to taxation, nothing really changes for UK nationals residing in France.
The tax system remains as complex as ever, but at least we don’t need to learn new regulations, writes Jason Porter, director of Blevins Franks.
Taxation is a domestic matter and France taxes all its residents in the same way, regardless of their nationality. When residents own assets and earn income in another country, the applicable double taxation treaty determines where the income and assets are to be reported and taxed.
The UK / France treaty is agreed between the two countries, not at EU level, so the UK’s departure from the bloc makes no difference here.
As we approach tax filing season in France, now is a great time to revisit tax planning to see what last year’s liabilities were and how they can be improved.
A reduced tax bill
One of the most obvious benefits is the reduction in the overall liability for income tax, social charges, capital gains tax and property tax.
Many people don’t explore if there is a more tax-efficient way to conserve their capital and assets, and unknowingly end up paying more than they need. This can include income tax on bank interest that has not been withdrawn or capital gains tax when switching from one investment to another.
Many expatriates are also surprised not to review their arrangements for their new life in France. For example, income from Isas and Premium Bonds prizes is tax exempt in the UK but is fully taxable in France.
Meanwhile, customers could miss out on alternative structures available in France that can reduce their tax liability and offer other potential benefits, such as currency flexibility.
It should also be noted that, although Brexit does not in itself affect taxation, some Member States tax non-EU / EEA assets differently from local / European assets.
In France, a very advantageous tax treatment may apply to life insurance /life insurance but some of the benefits only apply to EU policies, so more taxes might be paid in the future.
Less taxation for heirs
Of course, the less tax the client pays in their lifetime, the more they have to spend now or pass on to the heirs.
But with certain investment structures, the inheritance tax debt of heirs can be reduced. Life insurance, for example, can be very tax efficient for estate planning purposes.
Ideally, the solution is to limit inheritance taxes while ensuring tax-efficient income and investment growth throughout life.
Strategic tax planning can also make it easier for families after a death. Many investment agreements that offer tax efficiency also offer more flexibility and control in estate planning.
Some UK pensions are only transferable to a spouse in the event of death, but when transferred to a recognized eligible foreign pension scheme (Qrops) or reinvested in a tax-beneficial structure for France, funds can be transferred to other beneficiaries chosen, often without the need to go through probate.
Maximize real returns
In this global climate of economic uncertainty and prolonged extremely low bank interest rates, effective tax planning also helps to help yields exceed the cost of living.
Ultimately, what matters when evaluating the value of investments are the “real” returns – after tax, expenses and inflation are taken into account.
Property, for example, is often leased to produce relatively high returns over the long term, but with the application of stamp duty, local rates, capital gains and wealth tax, the tax burden may be significant compared to other assets.
For investments, the starting point should always be to ensure that the portfolio is well diversified and designed to fit the client’s situation, needs, goals, time horizon and risk tolerance. .
But without proper tax planning, returns can be diminished by taxes that could have been avoided or significantly reduced, so this is also important.
This article was written for International advisor by Jason Porter, director of the tax and financial planning firm of expatriates, Blevins Franks.