Last Updated on 31st October 2024
There are many decisions to make when planning for retirement in France, from deciding where to live to buying or renting a home, transferring your accounts and assets, and managing your affairs back home.
This is alongside the logistics of packing and shipping belongings, gaining travel certifications for pets, and notifying the tax office and other authorities.
One aspect never to overlook is your finances, ideally, before you complete your relocation, to ensure you make decisions in a considered, unhurried way and have full oversight of all available options and solutions.
This guide, compiled by the tax specialists at our Bordeaux office, highlights some of the primary tax schemes to be aware of as an expatriate retiree living in France.
The Relevance of Your Tax Residency Position as an Expat Retiree in France
Like most countries, the taxes you are expected to pay as a retiree living in France will depend on whether you are a resident or non-resident for tax purposes.
Tax residents are treated as any other tax-paying citizen, which means all your worldwide income, earnings, dividends, assets and savings are subject to tax within France at the prevailing rates.
If you spend a proportion of the year in the UK or retain business interests and a primary residence in Britain, you could remain a UK tax resident. In this case, the norm is to pay French taxes against earnings or events that occur within France – including property taxes linked to real estate you own in the country.
Tax residency assessments may be complex if there is no obvious jurisdiction in which you spend more time than another. Professional guidance is important to ensure you submit the right tax returns and make the appropriate declarations in the correct tax regions.
Planning for Property Taxation
As a French property owner, there are several taxes to be aware of, especially if you decide to retain a UK property as an overseas rental asset. Other taxes linked to owning a home in France include:
- Taxe d’habitation: Following reforms in 2023, this tax is payable only against second homes and properties that aren’t the owner’s primary residence. However, the rates can vary from 5% to as much as 60%, with local authorities having autonomy to set higher rates in regions with housing shortages.
- Taxe foncière: Comparable to council tax in the UK, this tax is calculated against the notional rental valuation of a property and the land it sits on. This cadastral value is typically far lower than the actual market value and is subject to tax rates set by the local council, based on half of the assessed value, with an average charge of 35.6% across all councils.
- Wealth tax: French property owners with real estate assets worth over €1.3 million are subject to wealth tax, although the tax liability is calculated on real estate from €800,000 and upward. This tax, called the IFI, ranges from 0.5% on properties or portfolios worth between €800,000 and €1.3 million to 1.5% for larger portfolios worth €10 million or more.
As with all aspects of taxation for French retirees, there are several variables, allowances, and ways to manage your affairs to maximise tax efficiencies. Knowing the taxes likely to be applied against your property may help with planning or influence the decisions you make.
Managing Inheritance and Estate Planning
Regardless of whether you are a resident or non-resident in France for tax purposes, your estate may remain exposed to UK inheritance tax. This is because, in most cases, expats living overseas remain British domiciles.
However, assets inherited from non-UK residents with permanent homes overseas are sometimes subject to inheritance tax in Britain only if they are based in the UK – excluded assets may include foreign currency accounts, overseas pensions and investment holdings.
The general rule is that HMRC will treat an estate as belonging to a UK domicile if you have either had a permanent home in Britain at any point within the previous three years or lived in the UK for 15 years within the last 20 – although this is a potentially complex area.
Expatriates subject to French inheritance tax may also need to plan due to the alternative French succession tax rates, which depend on the position of the beneficiary. There are also ‘forced heirship’ rights, possibly dictating who can inherit certain proportions of your assets.
Considerations for Investments and Savings Products
Investment income, including interest earnings, annuities, and dividends, is subject to a flat taxation rate of 30%, split between a 12.8% income tax charge and 17.2% social charges.
However, there are options to request that some types of income, originating inside or outside of France, be assessed against progressive income tax rates—if so, all earnings within the category will be treated the same way.
This could be beneficial, especially if a proportion of your income relates to dividend payments, where taxpayers may be able to claim a 40% deduction when opting to have dividend revenues taxes on the income tax scales.
Deciding How to Handle Your Pension Funds
Most residents pay income tax against pension benefits, following a 10% tax-exempt deduction, calculated per household rather than per individual. The rest of your pension will normally be taxed at the standard income tax rates.
The location and structure of your pension or other retirement assets may also affect the taxes that apply, as will any pension transfer arrangements you make to relocate a UK-based pension scheme to France or an approved scheme within the EU.
Taxes that could be relevant include the Overseas Transfer Charge, which was introduced in 2017 and gives HMRC the ability to raise a tax change of up to 25% on pensions transferred to a Recognised Overseas Pension Scheme (ROPS).
There are, though, exclusions and exceptions, or options to use an alternative form of transfer to a non-pension investment structure, another financial product, or a Self-Invested Personal Pension (SIPP), where a private pension offers many similar tax advantages as a ROPS, but without exposure to a transfer charge.
As this guide illustrates, you may need to plan for multiple tax schemes and charges when retiring in France, and many will depend on your tax residency position, the value of your income, and the tax-efficient strategies you have in place.
For more information about managing your assets, pensions, and investments before retiring in France or to find ways to improve tax efficiencies as an expat already living in France, please contact your local Chase Buchanan team.
*Information correct as at October 2024