Financial Planning for Expats in France
France is renowned for its culture, class and cuisine. A wonderful destination for expats looking to experience all that life has to offer, France truly does have everything. However, the country is also infamous for its punitive and confusing tax regime, which can cause issues for many.
On this page, we’ll explore some of the key financial issues facing you as you move to France.
Getting set up in France
Are you moving to France, or perhaps you live here already?
Continue reading to understand the key issues at play, or speak to an expert for personalised advice.
Before you arrive
Before you move to France, your finances should be reviewed to ensure you are not falling into the common tax traps that come with leaving the UK. This means looking at your savings (ISAs and other accounts), pensions and investments to optimise your tax position before you cease to be a UK resident. The moving process can be stressful, which may lead us to neglect our financial planning. Unfortunately, this means that many expats do not understand how to structure their assets until it is too late. It is crucial that you speak to an adviser before making the move.
Avoiding Tax Traps
In my practice, I will often see 3 main areas where UK expats in France are most frequently stung by the French tax regime:
(1) ISAs and premium bonds: when you move to France, you are taxed as a French resident. Whilst UK ISAs are tax efficient for UK residents, French residents are liable to tax on all investment gains – just like on a standard investment account. Therefore, it is usually preferable to move funds out of your ISA holdings and premium bonds before becoming tax resident in France, and moving those funds into a more suitable tax-compliant vehicle.
(2) Wealth tax on property: the French wealth tax on property above €1.3m applies to your global holdings, and can cause a headache. Fortunately, you have 5 years (from the date of the move) to dispose of the asset if you are keen to avoid this tax charge. Specialist advice should be sought if you are looking to reduce your exposure to specific tax charges.
(3) Other savings & investments: whilst UK tax residents benefit from a Capital Gains Tax Allowance and Personal Allowance on their (non-ISA) savings and investments, French tax residents have no such allowance. However, other tax reliefs exist (such as income tax reductions on assets that are for a certain length of time) that should be incorporated into your approach. An adviser can add significant value here by applying fundamental financial planning strategies.
French Compliant Savings & Investments
Unlike UK tax-efficient investment strategies, tax reductions in France are often linked to the length of time you are able to hold an investment. This increases the need for prudent financial planning.
Whilst many tax-efficient savings options exist (all similar to ISAs in the UK), such as the various Plans Epargnes and the Livret A, not all options are equal. For fixed-rate accounts, such as the PEL, the interest rates offered tend not to make these particularly attractive for your long-term savings (again, we see the parallels with the Cash ISA in the UK). Market-linked accounts offer the potential for greater capital growth (similar to a Stocks & Shares ISA) while retaining taxation benefits.
There are two structures that underpin most expat savings and investment strategies in France: the Plan d’Epargne en Actions (PEA) and the assurance vie (AV). These are investment accounts that bring with them a series of taxation and other benefits. With both a PEA and an AV, we can invest in the markets and have full flexibility over the access to our money – it is usually advisable to have one of each of these policies.
Plan d’Epargne en Actions
The Plan d’Epargne en Actions, or PEA, allows a resident of France to invest in the stock market and pay no capital gains tax on the profits (if the funds are invested for five years or more). Social charges, however, will still apply. There is an investment limit of €150k – however, a PEA is an attractive investment option for your medium-term savings.
Assurance Vie
For your longer-term savings, or for portfolios above €150k, an assurance vie is usually the most suitable vehicle. The tax benefits of an assurance vie are more extensive than a PEA, and also more nuanced. As a result, best practice is often to pair a PEA with an AV and structure a portfolio strategy for each that meets your circumstances and lifestyle objectives.
Assurance vie policies allow you to invest in equities, like a PEA. Tax on profits reduces from the standard 12.8% to 7.5% (plus social charges) if the policy is held for 8 years or more – which appears less generous than the PEA. However, there is a €4,600 tax-free withdrawal allowance (€9,200 for a married couple), so your strategy may depend on your income requirements.
Another significant benefit of the assurance vie is the impact on succession tax. If you establish your assurance vie before the age of 70, each beneficiary that you assign will have an allowance of up to €152,000 that is completely free of succession tax. If you open the account after 70, this allowance drops to €30,500 (a large reduction, but still worth consideration).
Pensions & Retirement
If you are working in France and wish to contribute to a pension, it may be worth contracting a Plan d’Epargne de Retraite (PERP). This allows you to save up to 10% of your gross salary each year and defer/reduce/eliminate the tax payable, in a similar manner to a UK defined contribution pension scheme.
If you hold an existing UK pension, it may be worth seeking out specialised advice. If your long-term plan is to settle outside the UK, then you may benefit from transferring some/all of your existing UK pensions (not in payment) into a euro-denominated, European compliant vehicle. These vehicles are known as QROPS or International SIPPs. You can watch our dedicated webinar on the subject to learn more (see button below).
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