If you own, or are buying, a property in France and spend time here each year, you need to understand the rules about residency in France and the UK, so that you comply fully with the correct tax regime. Getting it wrong could cause problems with the taxman later, or result in you paying more tax than you need to.
French tax residency
You will be deemed tax resident in France if you fulfil any of the following four tests. Note that you do not have a choice; you either are, or are not, French tax resident under the rules.
1) France is your main residence or home (your foyer). This embraces ideas of permanence and stability and is the rule the French authorities most rely on.
2) France is your principal place of abode, your lieu séjour principal. This usually means you spend more than 183 days in France per calendar year, or you spend more days here than in any other country.
3) Your principal activity (for example, your occupation) is in France.
4) France is the country of your most substantial assets (centre of economic interests).
You are tax resident from the day after you arrive in France, if you arrived with an intention to reside here indefinitely.
Tax in France
If you meet any of the above criteria, you are liable to French income tax, capital gains tax and wealth tax on your worldwide income and assets. You have to declare all of this, including income that is taxed elsewhere, such as UK rental income and pensions.
In France, you are taxed on a household, rather than on an individual basis. This means that if you are married or in a civil partnership, your tax liability is based on your combined income. French income tax rates are progressive up to 45%. In addition to income tax, social charges are levied on most types of income (8% on salaries, 7.4% on pension income and 15.5% on investment income).
UK government service pensions remain taxable in the UK and are not taxed in France, although you need to declare the income as it is taken into account when the rate of tax payable on your other French source income is calculated.
You also have to consider the tax implications on any other types of income such as investment income. It is important to note that what is tax-efficient in the UK (such as ISAs) is not tax-efficient if you become French resident.
Besides income tax, you may be liable to wealth tax. This is an annual tax on the value of a household’s worldwide assets as at January 1st. You are liable if your taxable assets are above €1.3 million. Rates range from 0% (for assets under €800,000) to 1.5% (for assets above €10,000,000).
Succession tax is the French equivalent of UK inheritance tax but works quite differently. Tax is not charged on your estate but paid by each beneficiary on the assets they inherit. Rates vary according to the relationship between the deceased and the beneficiary.
UK tax residency rules
In the UK, the Statutory Residence Test determines whether you are liable for UK income and capital gains tax on your worldwide income. In summary, it is a combination of day counting and the number of “sufficient ties” you have with the UK. Whether or not you were resident in the UK in the previous tax years also plays a part. This is detailed and complex legislation, so you really need to take professional advice.
You can be resident in both the UK and France simultaneously. In this case, “tie breaker” rules in the UK-France double tax treaty will determine where you are resident for tax purposes. These consider where you have a permanent home available to you, where your centre of vital interest is located, and where you have a habitual abode. If these are indeterminate, it comes down to nationality.
Many people avoid becoming resident in France because they believe they would pay too much tax as a result. However, if you are retired and take specialist, personalised advice, you may find that you can use compliant tax efficient arrangements in France to considerably lower your tax liabilities. You may even find that you could pay less tax in France than you do in the UK.
International tax legislation and cross-border tax planning is complex and you should always seek professional guidance to make sure you are completely up to date across your financial affairs.
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 is advised to seek personalised advice.