If you own a home in France and either live there as your main residence or use it periodically, you may already be aware that when complicated UK tax law meets complex French tax law, chaos can quickly follow.
Without expert advice from someone who understands both regimes, you can end up losing considerable sums of money. To help you avoid that scenario, let’s look at some of the key questions you need to ask yourself and the issues which may prompt you to put the whole thing in the hands of an expat tax expert.
Where Do You Live?
It’s a deceptively simple question and you may feel it has a simple answer. The UK has a Statutory Residence Test that it uses to determine which country you live in for tax purposes. It is this status which is ultimately going to matter when it comes to your finances.
Whenever the UK tax authorities (HMRC) issue a guidance booklet, you know that you are not dealing with simple legislation. The fact that the guidance booklet for the residency test is over 100 pages long may further alert you to the fact that this is a complex area with a series of tests that are applied one after the other.
There is also the French residency test to contend with. Until now, there has been a treaty between both countries to ensure agreement between them on where you are resident. However, President Macron is reviewing tax regulations and certainly appears to have expats and owners of second homes in his sights for increased taxes. The treaty may, therefore, be renegotiated in the near future.
As with so many tax matters, timing is everything and which country you are resident in can make a major difference to how much tax you have to pay and where.
Will You Be Liable to Pay the Wealth Tax in France?
The whole concept of additional wealth taxation tends not to go down very well with UK expats. However, an advisor who knows the regime thoroughly will be able to reduce any bill greatly because of the number of allowances and reliefs that can be set against it. In fact, in some cases you may be declared completely exempt from the tax if you can fully understand the nuances of the French legal system.
Do You Have Different Sources of Income?
Some expats are renting out a house in the UK, others have income from salary, possibly from remote working, dividends, pensions that are in payment, interest and investment income. It’s also quite common for people to have some sources of income in France and some in the UK and for some of the income sources to relate to property.
This complexity can cost you money unless you fully understand how, where and when to declare the income appropriately in order to meet your obligations in both the UK and France.
Do You Have a Second Home?
In February 2018, President Macron introduced rules according to which second and holiday homes in towns with a population greater than 50,000 would be subject to a 60% increase in council tax. French taxes for expats are clearly popular with the electorate, so this may not be the last rise we see.
The good news is that if you own just one property and have permanently moved to France, any new rules won’t affect you. These second-home rules may also cause complications if you have recently gifted valuable property to members of your family and so it is important to consider your recent activity before making decisions when it comes to French property.
Do You Know Your Capital Gains Position if You Want to Sell?
If you want to sell a property in France, you need to be aware of French property tax, particularly capital gains tax regulations and allowances. Capital gains tax is currently 36% on a property sale, regardless of where you are officially resident. And there’s a graduated tax that adds up to 6% on top of this if you have capital gains of over EUR 250,000.
The rules have changed quite significantly and there are now different ones depending on whether you are selling property or other assets such as shares. If you want to move to France, you may need to pick your time so that you minimise UK capital gains tax on any assets such as shares that you are selling to fund your move. Note also that there’s a new capital gains tax liability if you don’t live in the UK but are selling a property that you own in the UK.
What Is the Inheritance Situation?
There is a marked difference between how the UK and France deal with inherited assets and wealth. In France, children are automatically entitled to up to 75% of your estate. However, a new law called the European Succession Regulation means that you can opt to have your estate dealt with under the laws of your nationality rather than the laws of the country in which you are living. Many expats who are UK nationals are likely to want to use this law to have their estate dealt with as it would be if they were in the UK.
Is Inheritance Tax Similar in Both Countries?
No – in fact the French Succession Tax is completely different from the UK inheritance tax regime in how it operates. In France, the tax is paid by the beneficiary of the estate rather than the estate itself. The amount paid depends to some extent on how closely the beneficiary is related to the deceased person.
If two people are partners but not married and one leaves their estate to the other, the survivor could end up paying 60% tax on the assets they have inherited. If you want your money to go where you say and not to follow a set of rules on family and kinship, you really need to take expert advice.
Again, France has a treaty with the UK that covers inheritance taxes. In order to benefit from this, you need to understand how your particular circumstances might affect the amount you have to pay.
And all of this is before we consider any further complications caused by Brexit!