If you want to retire in style, what better place to enjoy it than in France? Whether you want the excitement of the French Riviera or the tranquillity of Provence, France has fabulous cuisine, wine and sunshine to make retirement a new beginning.
Like anywhere, France has its challenges. Laws, rules, and tax systems require thought before uncorking the rosé, which can become complicated regarding retirement income, especially when it crosses international borders.
There is no need to worry! I will cover the key issues that prospective retirees to France must consider.
Of course, everyone’s situation is unique. So, the information below should not be taken as equivalent to personalised advice.
Why is pension planning different for UK expats in France?
The population and ages of those in the UK and France are similar, with approximately 15% of people aged 65 or over. However, there are fundamental differences between pension schemes in the UK and France. Indeed, they could be considered as at opposite ends of the spectrum.
The UK pension system consists of state, occupational, and personal pensions. The UK has more individual or private pensions than France, and it does not rely to such an extent on compulsory occupational pension schemes.
The French pension system, by comparison, is highly centralised, and employees are legally obliged to participate in occupational pensions. Private provision has traditionally been using savings structures such as assurance vie. The private pension plan started in 2003 with the PERP, evolving to the PER in 2019. This compares to the UK’s 1921 Finance Act, bringing personal pensions to the masses.
Such fundamental differences underscore that UK expats must devise a specific strategy for their pension arrangements in France. Whatever action they take must be structured around their circumstances and objectives.
Certain post-Brexit changes have had implications for UK nationals’ pension planning in France. Prior to the UK’s departure from the European Union (EU), the country was a member of the bloc’s single market. This allowed UK companies to give certain regulated advice to non-UK residents per European law, so being able to offer counsel on UK pensions to those living in France.
Since Brexit, however, UK providers can no longer provide such advice to European-based clients, and companies and advisers have been cutting their clients adrift. This has resulted in movers to France, being cut off near their retirement removing counsel at a critical moment.
The gap can only be filled by seeking advice from those offering specialised counsel, with an international perspective, able to offer cross boarder solutions.
How are UK pensions taxed in France?
The most recent double taxation treaty between France and the UK took effect in 2010. It contains important provisions affecting individuals who may be residents of the two countries or who may be residents of one country while having income and gains from the other territory.
Generally, the taxation treaty dictates how UK pensions are taxed in France. Under the treaty’s terms, most UK pension income received by French residents is taxed in France, rather than in the UK (which is usually good news!). UK Government service pensions are an exception to this rule, assessable firstly in the UK, regardless of French residence.
The specific type of UK pension that an expat has, will have implications for how it is treated for tax purposes in France:
- A UK state retirement pension is always taxable in France. With the pension being paid gross in the UK, the expat will simply need to pay tax in France. However, they will need to be aware of the potential impact on PAYE coding notices for any other income that remains UK taxable.
- A personal/company/occupational pension will be taxed as a pension, with French income tax and social charges needing to be paid on it. These pension types are not subject to UK taxation. However, given that UK pension companies normally deduct tax at source, the expat will need to arrange for them to pay it gross so that double taxation is avoided. To accomplish this, the expat will need to prove they are tax resident in France and pay tax there. The “France Individual DT” form is used for this purpose and is downloadable from the GOV.UK website.
- As mentioned, if the expat residing in France has a pension arising from UK Government employment, it is UK tax that will always be payable on this. However, while the expat’s UK Government pension will not be taxed directly in France, the UK national will still be required to include the income on their French tax return, although differently to directly taxable income.
- As a general rule, an NHS pension will probably not count as a UK Government service pension. HM Revenue & Customs (HMRC) has a list setting out which pensions are taxed as Government service pensions.
In France, domestic law stipulates that retirement and disability pensions are taxed in a similar manner to salaries.
You will need to bear in mind that in France, the household is taxed rather than the individual. They will receive a 10% deduction – at least €442, up to a maximum of €4,321 – per household, followed by paying tax at the scale rates of income tax.
Click here to find out the latest French income tax rates (rates are released in arrears, so the tax bands apply to the previous years income):
Of course there are always social charges. It has been commented dryly that it’s odd to call them social charges, feeling that there is nothing “social” about them! All types of income are subject to this tax, which pays for social security in France, but is separate to social security contributions.
A 9.1% rate applies for social charges on pensions. In the event, however, of a given expat having Form S1 and/or not being affiliated to the French social security system, they will not be required to pay social charges on their UK pension income.
What are the best options for drawing your UK pension as a French resident?
When moving to France, there are generally three options:
- Doing nothing, and simply accessing their UK pension from France. This will result in limited options
- Transferring to an International Self-Invested Personal Pension (SIPP), which is a HMRC-approved and UK-regulated pension scheme specifically built for non-UK residents
- Transferring to a Qualifying Recognised Overseas Pension Scheme (QROPS)
Taking the first route, leaving their pension in situ, and not taking any action, is likely to be a suboptimal arrangement for many UK nationals retiring to France. This approach can limit future pension income, bearing in mind the complexities of exposure to UK tax charges, currency risk, and possible caps on the pension commencement lump sum value they are allowed to withdraw.
There are potential solutions for expats other than an international pension transfer. They may, for instance, decide to investigate the tax implications of reinvesting their pension funds into a UK-based SIPP.
One may also consider that it would benefit them to leave their defined benefit pension as it is, especially if the pension fund provides a high level of guaranteed lifetime income.
The question of lump sum versus regular income, and the French taxation implications, is an important one to consider.
Rules in the UK allow for a 25% “pension commencement lump sum” to be taken, tax-free. However, this lump sum will be fully liable to French income tax – as well as, potentially, social charges – if the expat takes it after they become resident in France. So, if they have yet to leave the UK, they may decide to take a lump sum prior to their relocation to France.
Here at Kentingtons, we have written extensively about what a QROPS pension is. We have also addressed the aspects that have long made these schemes so relevant for UK expats, including their greater flexibility in terms of what can be invested in.
QROPS schemes are now known simply as “ROPS” (Recognised Overseas Pension Schemes). They must be approved by HMRC, and they offer various features. Approved schemes change on a regular basis, and the department maintains a list of pension schemes that have stated they meet the conditions to be a recognised overseas pension scheme. Note, that this is UK approval and does nothing to help you understand how the French will view and treat it. In more recent news, new UK movers to the EU / EEA will now pay the exit tax of 25% when moving into a QROPS.
How will moving to France affect your UK state pension?
Personal and/or workplace pensions can continue to be paid to those living in France; however, Pension Credit will stop when permanently moving to a country outside the UK. The latter is a means-tested benefit, which tops up some pensioners’ weekly income.
A UK expat will be able to claim their state pension in France if they have paid enough UK National Insurance contributions to qualify. They will need to be within four months of their state pension age to claim. They can claim their pension by contacting the International Pension Centre (IPC) or by sending the international claim form to the IPC; the address is on the form.
Not all UK nationals who move abroad will be able to receive an increase in their UK state pension each year. Fortunately, as France is in the European Economic Area (EEA), people will usually get an increase in their pension every year.
What are the French wealth tax implications for UK pensions?
The current French wealth tax – known as impôt sur la fortune immobilière, or IFI, which translates as “real estate wealth tax” – is payable by resident households where the total worldwide properties are more than €1,300,000.
IFI replaced the previous French wealth tax, the solidarity wealth tax (impôt sur la fortune, or ISF) from January 2018. For residents of France, the wealth tax is calculated on their worldwide properties. Assets on which this tax is paid are now limited to land and buildings – so, financial investments – including pensions – are now excluded from wealth tax.
Conclusion: a proactive, informed, and considered approach will help deliver the best outcome
Ultimately, when it comes to pension planning for UK nationals who are contemplating a move to France or who have already relocated, there will be a multitude of different factors to consider. So, the optimal arrangement for one individual in France may well look very different to the best possible solution for another expat.
Determining what actions to take with their UK pension will be one of the most important aspects for someone to think about when they are relocating from the UK to France for retirement purposes.
This underlines the importance of not rushing into any decisions. By taking a proactive approach to your pension planning, seeking out personalised financial advice, and considering all options for their pensions, you can help put yourself in the best position to enjoy a rewarding retirement in France. Get the most out of life in France.