Where will we pay tax? Our headline sponsor replies
Posted on 8 December 2023
Where will we pay tax?
Now that I am retiring, my wife and I intend to apply for French residence so we can make our French holiday home our main home now. We will, however, keep our UK home and visit regularly to spend time with our daughters and grandchildren. Other than opening French bank accounts (current and savings) the rest of our income will come from the UK – UK pensions, investments, and also a property I rent out. Am I right in thinking we’ll just pay French tax once we’ve received our residence permit and moved over?
You are deemed tax resident in France if your main home is in France or it is the single country where you spend most time
Jason Porter, Business Development Director at Blevins Franks (blevinsfranks.com) replies:
There are two issues you need to watch out for here. The domestic tax residence rules in each country, and the France/UK double tax treaty which determines where income is taxed if you are resident in one country and earn income in the other.
Your ‘tax residence’ status determines which country has taxing rights over your worldwide income, gains and wealth. It is not just about the number of days you are present in each country, and if you spend time and have ties in both you need to follow each country’s rules carefully.
In France you are deemed tax resident if your main home is in France, or it is the single country where you spend most time, or your principal activity or centre of economic interests is in France. For the UK you need to follow the Statutory Residence Test, which looks at a series of factors. For example, you will automatically be deemed UK resident for tax purposes if you spend 183 or more days there, or if your only or main home is there (available for 91 consecutive days or more and actually used for at least 30 days in the year), or you work there full time.
If you meet the domestic criteria in both countries, the double tax treaty has a number of ‘tie breaker’ factors which determine where you pay tax.
When it comes to where the income generated in the UK is taxed, this depends on the type of income.
Most UK pension income, including from lump sums, will be taxed in France once you are resident there. UK government service pensions, however, remain taxable in the UK. But although the income is not taxed directly in France, you must still include it as part of your taxable income – a credit equal to French income tax and social charges will then be given.
UK rental income is also taxed in the UK, but you still need to declare it in on your French tax return. If you sell a UK property as a French resident, the gain is liable to tax in both countries, but you receive a credit in France for UK tax paid. Moveable assets (shares and other capital investments) however, are generally taxed in the country where the seller is resident. Note that ISAs and Premium Bond winnings are fully taxable in France and so are not tax-efficient for French residents.
There are some very tax-efficient investment arrangements in France, and it usually pays to review and adjust how you hold your investment capital, to make it much more tax-efficient in France.