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Guardianship for your Children

By Katriona Murray-Platon - Topics: Financial Planning, France, Succession Planning
This article is published on: 11th April 2020

11.04.20

Being the mother of two small children and the aunty of several more, like many parents, the issue arose quite early of what would happen to my children if something were to happen to my husband and I and what would happen to my sisters’ children should something happen to them. Whilst I don’t need to make a will from an inheritance tax point of view, because I have two children with the same father (my husband) and French law states that my half of our assets would go to my children as bare owners (nu propriétaire) and my husband as beneficiary (usufruitier), I do need to make a will regarding my wishes for my children’s guardian.

The first question is a personal one. Who, in your family or friends, would be best placed to be able to raise your children, in the country you want them to be raised in, in their language, in the way you want them to be raised? Do(es) this person(s) have children of their own? There are a range of different questions that are all particular to your situation. If you intend to appoint someone to be a guardian, then you should talk to them about it and maybe, if possible, talk to your children about it.

The second issue is the legal aspect. There are two ways to appoint a guardian in France. Firstly, you can appoint them in your will, or you could appoint them using a special declaration. Either way a notary needs to be involved. If no guardian is appointed by the parents, under aged children will be put under the protection of the court. A “Family council” will be appointed by the Guardianship Court (Juge des tutelles). This Family Council, made up of a minimum of 4 people, will have the responsibility of appointing a guardian (if one hasn’t already been appointed) who can be a member of the family or someone outside the family. Even if a guardian has been appointed but this person is unable to either adequately care for the child or properly manage the child’s assets, the matter can be referred to the court and another family member can chose another guardian.

If a child loses one parent then it is the other parent who will have parental responsibility. This parent can either care for the child themselves or appoint a guardian, who can be a member of the family or a close friend. If the parent is unable or incapable of looking after the child, then another guardian can be appointed by the court.

The third aspect is the financial aspect. If something were to happen, would the guardian have the financial means to look after the child(ren)? One thing you can do is make sure you have life insurance (called death insurance in France) which will pay out a lump sum and/or an annuity to the children for the rest of their childhood. Often when you purchase a house there is loan insurance that will cover some or part of the value of the house upon death of one or both parents. However, it may not be convenient or possible for the child to be raised in the family home and property as an asset is difficult to manage. Other liquid assets can be kept in bank accounts like Livret As or LLDs, but large lump sums (like the proceeds of a house or the lump sum from insurance upon death) should be placed in an assurance vie in order to protect it from inflation.

Luckily it is uncommon that a young child would lose one or both parents, but it is something that plays in the back of the mind of many parents so it is better having things in place to decide, who, how and with what means someone would look after your child in the best possible way.

Being prepared for BREXIT in France

By Katriona Murray-Platon - Topics: BREXIT, France, Pensions, QROPS, UK Pensions
This article is published on: 11th March 2020

11.03.20

On 31st January 2020, the UK left the EU. However, the real effects of Brexit, for those of us living in France, will not properly be felt until after the 31st December 2020 (what an interesting New Year’s Eve that will be!) and thereafter. Hopefully, by that time we will have a clearer idea of what our rights and responsibilities are. Until then there will still be much speculation and media noise, which may be just as confusing as it has been over the past four years.

One thing Brexit has established, from the very beginning, is that British citizens living in France, or planning to settle in France, need to get their affairs in order and decide where they would like to live for the foreseeable future. As British citizens we can always return to the UK if we so choose, but if we want to continue to live in France we must show that we have lived here continuously for the last five years or that we intend to continue living here in future.

The next few months are going to be very interesting and it is more than ever important for British citizens to consider some important financial changes.

Pensions after Brexit
In 2006, the UK introduced a law making it possible for UK private pension benefits to be transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS), provided that the overseas scheme meets certain qualifying conditions.

For those pensions that can be transferred there are many benefits including:

  • No obligation to purchase an insurance company annuity, at any time
  • The potential to pass on the member’s remaining pension assets to nominated beneficiaries on death with minimal or no death duty payable. By comparison, currently a tax charge at the beneficiary’s marginal rate can be applied in the UK, where the member is over age 75 at death
  • A wider choice of acceptable investments offered, compared to UK pension plans
  • The underlying investments and income payments can be denominated in a choice of currencies, which can potentially reduce exchange rate risk
  • Potential to receive a larger amount of Pension Commencement Lump Sum compared to UK schemes
  • Depending upon the jurisdiction where the QROPS is set up, income payments may be made without the deduction of local taxes, meaning that income will only be taxed in accordance with the law of the jurisdiction where the member is resident

In 2017 the UK government announced its intention to introduce a new 25% Overseas Transfer Charge (OTC) on QROPS transfers taking place on or after 9th March 2017. This charge does not, however, apply where the QROPS is in the European Union (EU) or EEA and the member is also resident in an EU or EEA country (not necessarily the same EU or EEA country) and remains EU or EEA resident for the next five full UK tax years.

Many of those who work in the industry believe that after the transition period, it may no longer be possible for British citizens to transfer their pensions into an EU QROPS without incurring the 25% charge.

QROPS may not be suitable for everyone and much will depend upon the nature of the UK pension benefits being considered for transfer, as well as the person’s attitude to investment risk. Transferring a pension to a QROPS is not a decision that should be taken lightly nor in haste and proper financial advice with an experienced adviser is essential. Even when the decision has been made to transfer the pension it may take a good few months to complete, which is why, if you are even considering this possibility, it is important to contact a local adviser to explore what your options are.

Taxes after Brexit
As tax between the UK and France is determined by the Double Tax Treaty, this will not be affected by the fact that the UK has left the EU. However, whilst not directly taxed, a lot of UK income, such as UK rental income, is added to the taxable base and increases the tax margin of the French taxpayer. If you intend to live in France, you may want to consider whether it is really in your interest to hold onto UK assets.

It is possible to protect your capital investments in France and ensure that they can grow in a tax efficient environment by way of an Assurance Vie policy. French Assurance Vies or French approved foreign Assurance Vies offer valuable benefits when it comes to income tax, inheritance tax and estate planning. Foreign portfolios and bonds are not treated as Assurance Vies and any gain is subject to tax and social charges irrespective of whether this income is taken or whether it is brought into France. If you are French tax resident, you are taxable on your worldwide income in France. Proving that you are French tax resident will be an important factor for establishing the Right to Remain in France.

Being resident in France does not necessarily mean that all your assets have to be in France or have to be in euros. There are many opportunities for holding sterling based diversified portfolios in a tax efficient manner.
For anyone intending to live in France for the foreseeable future, be aware that today’s valuable financial planning opportunities are unlikely to remain beyond the short term (31st December 2020 could be an important date in this respect). Contact me, Katriona Murray, and I will be happy to arrange a meeting.

Brexit – What now?

By Katriona Murray-Platon - Topics: BREXIT, France, UK Pensions, United Kingdom
This article is published on: 18th December 2019

18.12.19

Some of you, like me, might have woken up on Friday and after hearing the election result felt utterly depressed. Irrespective of how the vote could or should have gone, or who you may have voted or wanted to vote for, this result will seriously affect the Brits living in Europe. Brexit is now more likely than ever, so what does this mean for us? Well luckily, there is someone who is somewhat of an expert on the matter, Professor Sébastien Platon, Professor in European Law at the University of Bordeaux and incidentally my husband! Over breakfast I asked him a few questions.

So, what now?
The British parliament must first pass the EU (Withdrawal Agreement) Bill, and then they have to agree on the Withdrawal Agreement itself. Given that the Conservatives now have a majority it is likely to be passed. Either later or at the same time, the European Parliament also has to agree on the withdrawal agreement. If all of this gets done by the 31st January, Brexit will happen as planned. If not, the UK will have to request ANOTHER extension which would have to be agreed by the other 27 member states.

During the transition period are all European rights maintained?
Apart from the right to vote and run as a candidate in EU elections and municipal elections, the right to participate in European citizens’ initiatives and the UK’s right to vote on EU laws, all rights, including the right to free movement, are maintained during the transition period.

Does a British citizen who has not yet settled in France still have the right to do so after 31st January?
Yes. Up until 31st December 2020 all British citizens can come and settle in the EU. After the transition period, those who have established residency in the EU and wish to bring their family members (spouses, partners, direct descendants under 21 or dependent, direct relatives in the ascending line) to live with them can still do so.

Can the transition period be extended?
Yes, if the UK and EU agree to extend the transition period. But, unlike the Brexit extensions, they cannot ask for an extension the night before the 31st December 2020. A decision has to be made before 1st July 2020 extending the transition period for up to 1 OR 2 years. British citizens would therefore have until the end of the transition period (or extended period) to settle in the EU.

What about healthcare?
During the transition period, the EU social security coordination rules will continue to apply. The British who reside in France (or any other member state) and are in the UK health system but not the French health system can continue to benefit from this health cover as normal. After the end of the transition period, these rules will continue to apply to:

• UK nationals subject to the legislation of a Member State at the end of the transition period,
• UK nationals who reside in a Member State while being subject to the legislation of the UK at the end of the transition period,
• UK nationals who pursue an activity as an employed or self-employed person in one or more Member States at the end of the transition period and who are subject to the legislation of the UK,
• Their family members and survivors
These persons will be covered as long as they continue, without interruption, to be in one of these situations involving both a Member State and the UK at the same time.

What about pensions?
For the persons I’ve just mentioned, the time worked in the UK will count towards an EU pension and inversely any time spent working in France would contribute towards entitlement for a UK pension should they wish to return to the UK when they retire.

Do we need to apply for cartes de séjour?
During the transition period you do not need them. After the transition period each member state has the right to require UK citizens to apply for a new residence status, the sole purpose of which is to verify whether the applicants meet the conditions set in the withdrawal agreement. If they do, they have a right to be granted the residence status and the document evidencing that status (which will NOT be a “carte de séjour”). The French administration cannot refuse this status if you meet the conditions. The deadline for submitting the application shall not be less than 6 months from the end of the transition period. The host State has to ensure that any administrative procedures for applications are “smooth, transparent and simple, and that any unnecessary burden are avoided” with applications being “short, simple, user friendly and adapted to the context of” the agreement. Only once the agreement has been ratified will we know if and how the French Government wants to proceed on the matter.

Whilst I do not agree with Brexit and wish things had happened differently, at least after four years of uncertainty there may now be some progress. The pound bounced back up on Friday and this election result is likely to have a positive impact on the markets and portfolios.

Understanding the Taxe Foncière

By Katriona Murray-Platon - Topics: France, Taxe Foncière
This article is published on: 19th October 2019

19.10.19

As the last quarter of the year approaches, there is one thing that is certain and that is that taxes are due. In September the final instalment of the income tax must be paid, in October the Taxe Foncière is due and in November the Taxe d’Habitation must be paid.

Taxe Foncière is a tax paid by property owners on the 1st January of each tax year. Note that it is paid by the owner not the occupant and applies to both buildings (houses or apartments) and land (agricultural or constructible).

If you sell your property or land, the tax liability for that year is apportioned to each party, by the notary, according to the timing of the sale.

You may qualify for an exemption if:

    • the property is a new construction used as a main residence (the exemption is for 2 years)
    • you are in receipt of disability allowance
    • you are in receipt of old age allowance
    • you are over 75 (depending on level of income)

The tax office may also allow an exemption for unoccupied property which is habitable and normally rented, provided that:

    • it is unintentionally unoccupied
    • it is unoccupied for at least 3 months
    • part or all of the building is unoccupied

However, as the tax reduction is not automatically granted, you have to apply for it and demonstrate that you qualify (with reference to the specific points above).

Taxe Foncière is based on rental value according to the land registry multiplied by a rate set by the local authorities – so rates differ depending on where the property is situated and from one year to the next.

Any building on your property that is a permanent fixture could result in an increase of your Taxe Foncière. If you install a swimming pool (sunk or semi-sunk) then this could increase your Taxe Foncière. You have 90 days to declare to the tax offices that you have installed a swimming pool but you could also be exempt from paying the Taxe Foncière for the first 2 years.

The tax office sometimes makes mistakes when calculating Taxe Foncière liabilities, in which case you should contact your local office to ask for an explanation and rebate. You have until the 31st December 2019 to challenge your 2018 calculation. Additionally, the tax office sometimes doesn’t apply exemptions for which you qualify.

You can contact the tax office via your online account on the impots.gouv.fr website or by email or letter sent by recorded post.

Paying your taxe foncière monthly spreads the costs throughout the year. You have to settle in full by the middle of October, so if you do pay monthly and the amount hasn’t changed this year, you will have nothing to pay in November and December.

The long and complicated relationship with social charges

By Katriona Murray-Platon - Topics: France, Social Charges
This article is published on: 12th February 2019

12.02.19

Most people accept that when you live in a country you have to pay local taxes. Equally, most people can understand the fact that in order to get social benefits such as unemployment benefits and healthcare, you have to pay social security contributions. France, on the other hand, has another tax: social charges, which isn’t actually called a tax, but in fact operates very much like a tax.

Social charges were first introduced in 1991 and have been much grumbled about by French tax payers and expats living in France. It is not one social charge, but is made up of various types of social charges, the rates and combined rate of which has increased progressively over the years. Social charges are taken from all types of income, but where they have caused the most problems is the social charges on capital and rental income, especially for non-resident tax payers.

In 2015, following a challenge by a Dutch national, Mr De Ruyter, the European Court of Justice held that the social charges on rental and capital income were not a tax but a social security contribution and that an EU national should not be required to pay social charges in France when they are paying or have paid social security contributions in their own Member State. The French Administrative Court, the Conseil d’Etat then confirmed that decision and orders were issued to the French tax offices to reimburse the social charges paid to non-resident EU nationals or resident EU nationals who were covered for their health insurance by another EU system (under the S1 form, for example). This led to hundreds of thousands of pounds being reimbursed for the tax years 2012, 2013 and 2014.

In an effort to resolve the problem of the drop in funds being collected, in 2016 the French government changed the allocation of the social charges from rental and capital income so that they were no longer paid to the social security body, but to the Old Age Solidarity Fund and the Social Debt Depreciation Fund. Therefore, claims could not be made on income earned in 2015 taxable in 2016 or on capital gains from 2016 onward. This was a bit of last minute shuffle to seemingly comply with the European judgment, however the legal grounds of this abrupt turnaround were questionable.

On 31st May 2018, the Nancy Administrative Court of Appeal held that even these social charges should not apply to those covered by another EU Member State social security scheme. This meant that the major part of the social charges (14.5%) should be refunded. Although this decision has been referred to the European Court for a ruling and has yet to be confirmed by the Conseil d’Etat, claims for 2016 and 2017 should be made now to avoid being time barred later (2015 is time barred as of 31st December 2018).

Whether or not it is because the French government is expecting the European Court of Justice to rule against them again, the Law on Social Security Financing of 2019 has now entered into force, stating that tax payers who do not rely on the French social security system for their healthcare, but on a healthcare system of another EU Member State, Iceland, Norway, Lichtenstein or Switzerland, are exempt from the CSG and CRDS on capital and rental income. Social charges in general have been reorganised so that, as of 1st January 2019 there are only the CSG and CRDS. However a new social charge has been introduced called the “Prélèvement Solidaire” at a rate of 7.5%, which means that the total amount is the same as last year at 17.2%. Under the Social Security Financing Law of 2019 those not reliant on the French State for health cover, as described above, only have to pay this 7.5% social charge.

An Order published on 7th February 2019 by the French parliament on the situation of Brits in France in case of a No Deal Brexit has stated that all current healthcare arrangements would be maintained for a period of 2 years following the Brexit. Although this is good news, it is subject to the UK reciprocating the same rights and guarantees.

Whilst no one knows what the final Brexit outcome may be, it would still be worth getting in touch with a financial adviser to review your investments and see how you can benefit from these new tax changes.

The PAYE system – and so it it begins!

By Katriona Murray-Platon - Topics: France, PAYE in France
This article is published on: 4th February 2019

04.02.19

Earlier last year I wrote about France’s plans to bring in a PAYE system as from 1st January 2019. Now that we are in January, we can see the effects of this new system. French pensioners and employees may have had the tax deducted from their salaries/pensions in December 2018 if the payment was made 1st January but for many people the effects of this new system will appear by the end of this month. Self-employed business owners, landlords and those with foreign sourced income will have to make monthly or quarterly tax payments. The difference with the previous system is that last year your quarterly or monthly payment was to pay towards your income tax for 2017 paid in 2018 whereas this year the payments are not for the 2018 tax but for the 2019 tax only.

If you go onto your account at impots.gouv.fr you can go into the menu for “gerer mon prélévement à la source”. This will show you your joint rate, if you and your partner chose one, or your individual rates. For those receiving French pensions and on French payroll, you will see a percentage of how much will be deducted from the income after social charges (so the “net imposable”). Going forward you will be able to see how much and when the tax was deducted. The applicable rate already takes into consideration the 10% tax abatement on salaries and pensions.

The main advantage of this new system is to allow the tax payer to inform the tax office of any changes to his personal situation such as a wedding, a divorce, a birth or death. In the “Gerer mon prélevement à la source page” you can declare any changes to your personal situation, change your tax rate or increase your tax payments. For those paying tax monthly or quarterly, you can change the frequency of your payments to monthly (if you paid quarterly) or to quarterly.

If your income has significantly decreased or the applicable rate is too high you can easily inform the tax office via the website. For French pensions and salaries, if the tax is reduced by more than 10% or 200 euros per year, the tax office will change your tax rate and inform your employer or pension provider within 1-2 months. The rate for income that is not taxed at source was calculated on the income declared for 2017. This amount, after the applicable abatement, was then divided into 12 monthly payments or 4 quarterly payments.

The annual tax declaration must still be completed between April and June. This declaration is to allow you to declare any income that is not taxed at source, any allowable expenses and any tax reductions or credits. The tax rate or amount will be adjusted once the tax return is completed in May 2019 and the tax calculation is carried out in September 2019.

Those receiving tax credits (home help, child care, etc) will have received an advance payment into their bank accounts in January. There will be an additional tax credit when the tax is calculated in September 2019 which will cancel some of the tax payable 2018 to avoid people paying 2018 and 2019 all in the same year.

Capital income is not taxed at source. They are subject to the set rate of 12.8% unless the marginal rate has been opted for. Assurance vie payments will be taxed according to the rules in place when the policy was set up. All assurance vies set up or topped up after 27th September 2017 and/or under 150,000 euros, may be taxed at the 35%, 15% or 7.5% rates as before or the marginal rate, in addition to the 17.2% social charges.

If you have recently arrived in France, there will be no tax to pay until you complete your first tax return between April and June of this year. You should make sure that you get your French tax forms early in April, do not expect them to be sent to you. You will not be able to complete your tax return online so you will have to file a paper return.

Whereas the French tax rules were complicated previously, even though this new system is designed to simplify things, it is going to take a while to get used to. For complete peace of mind, it is best to get in touch with a good financial adviser who will be able to carry out a free financial review and assist you in making the best tax efficient decisions.

The Gift of Giving

By Katriona Murray-Platon - Topics: France, Tax, United Kingdom
This article is published on: 19th October 2018

19.10.18

In my family, there are a lot of birthdays at the end of the year and before you know it Christmas is upon us. With only limited space for physical gifts like clothes or toys, sometimes cash gifts or contributions to the children’s savings plans are more than welcome! But how much can you give your children, grandchildren, nephews and nieces? As we will see, whilst the rules on official gifts and inheritance allowances are very clear, there seems to be much more flexibility on smaller gifts for special occasions.

Gifts from a UK resident to a French resident – UK tax applies
If you receive gifts from a UK resident, such gifts are generally subject to UK tax rules. However, if the recipient has lived in France for at least six of the ten tax years preceding the year in which the gift is received, French tax rules will apply. Inheritances are covered by the Double Tax Treaty between France and the UK but gifts are not. Inheritances are not taxable even if the recipient has been living in France for more than six years. If a double tax situation were to arise then the tax paid in the UK would be deducted from any tax payable in France. French tax is also payable if a UK resident gifts an asset that is situated in France.

A gift is defined as anything that has a value, such as money, property, possessions. If a person were to sell their house to a child, for less than its market value, then the difference in value would count as a gift.
Gifts to exempt beneficiaries are not subject to Inheritance Tax. These include:

  • Between husband, wife or civil partner, provided that they reside permanently in the UK
  • Registered UK charities (a list is available on the gov.uk website)
  • Some national organisations, such as universities, museums and the National Trust

HMRC also allows an annual exemption of £3,000 worth of gifts to people other than exempt beneficiaries each tax year (6 April to 5 April), without them being added to the value of the estate. Any unused annual exemptions may be carried forward to the next year, but only for one year.

Each tax year, a UK tax resident may also give:

  • Cash gifts for weddings or civil ceremonies of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • Normal gifts out of their income, for example Christmas or birthday presents, provided that they are able to maintain their standard of living after making the gift
  • Payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • Gifts to charities and political parties

These exemptions may be cumulated, so a grandchild/nephew/niece could receive a gift for their wedding and their birthday in the same tax year. However, if the wedding or civil partnership is cancelled, the gift for this event will no longer be exempt from Inheritance Tax.

There is an unlimited amount of small gifts allowance of up to £250 per person during the tax year provided that the person making the gift hasn’t used up another exemption on the same person (such as the £3,000 annual exemption limit).

In the UK, Inheritance Tax is payable (at 40%) on gifts made in the 3 years before the donor’s death. Any gifts given between 3 to 7 years before death are taxed on a sliding scale known as ‘taper relief’. Gifts given more than 7 years before death are not counted towards the value of the estate. Inheritance tax will apply if the gift is more than £325,000 in the 7 years before the donor’s death.

Gifts from a French resident to another French resident or to a UK resident – French gift tax rules apply
In France, the Inheritance Tax allowances are not as generous as in the UK. The tax relief on gifts is the same as for inheritance tax and depends on the relationship between the donor and beneficiary. A parent may only give their child up to €100,000 tax free, a grandparent only €31,865 to a grandchild, brothers and sisters may receive €15,932, nephews and nieces € 7,967 and great-grandchildren €5,310.

There is no inheritance tax between married couples or those in a civil partnership, however, for gifts made during a person’s lifetime the maximum amount allowed is €80,724.
Gifts made to disabled persons, subject to certain conditions, have an additional exemption of €159,325 per person irrespective of the relationship between the donor and the disabled person. This exemption is in addition to the normal exemptions above.

These exemptions for gift tax (or ‘droits de donation’) may be used several times over during one’s lifetime, provided that there is a 15-year gap between each gift.
As in the UK, financial support given to a child/ex-spouse/dependent relative on a monthly/annual basis is not considered as a gift in French law, but rather as a family duty. Such support, or ‘pension alimentaire’ as it is called in French, is tax deductible for the donor but must be declared as income by the recipient.

A gift (called ‘don’ in French) may be a physical object, a house or property or intangible gifts like shares or intellectual property rights. If the gift is a house or property, a notary will be required, and he/she will make sure that the proper gift tax declarations are filed. The transfer of property must take place immediately and once given is irrevocable.

Cash gifts, (‘don manuel’ in French) – made by hand, cheque or bank transfer – are subject to different rules. A cash gift of €31,865, may be given to a child, grandchild, great-grandchild or, if there are none such, to nephews, nieces, or if the nephews and nieces have died to their children or representatives. The donor must, however, be less than 80 years old and the beneficiary must be over 18 years old on the day the gift is made. This exemption is also subject to the 15-year rule and is in addition to the Inheritance Tax allowances mentioned above.

The cash gift allowance and the normal gift allowances may be cumulated as long as they do not exceed the legal maximum amounts. So for example, provided that in all cases the donor is not yet 80 years old and the beneficiary is over 18; a mother or a father can give their child a total amount of €131,865; a grandparent can give an adult grandchild a total amount of €63 730 (€31,865 + €31,865); a great-grandparent can give an adult great-grandchild a total amount of €37,175 (€31,865 + €5,310) and an aunt or an uncle can give a nephew or niece a sum of €39,832 (€31,865 + €7,967).

Such cash gifts must be declared to the tax office the month after they are made. Cash gifts (above these exemptions) are taxable if they are discovered by the tax authorities during a routine enquiry by letter or during an official tax inspection. When the beneficiary declares the gift to the tax office of his/her own accord, they must pay the relevant amount of tax. If the value of the gift is over €15,000 it may be declared and any tax paid in the month after the donor’s death.

The French have another type of gift called ‘Présent d’usage’ which is a gift for normal ordinary life events like weddings, birthdays, graduations, baptisms etc. Such gifts are not considered taxable gifts provided that they are given on or around a special event/occasion and that they are not disproportionate given the level of income and assets of the donor.

There is no law which defines the exact amount of these gifts so each is considered on a case-by-case basis.

The Cour de Cassation ruled that a gift of €20,000 from a husband to his wife was a ‘present d’usage’ as it was given for her birthday and by way of a loan taken out by the husband. The monthly payments on the loan were less than 20% of his net income.

Such gifts are not subject to French gift tax and are not included in the donor’s estate.

So now that you are aware of the rules in both countries you may give or receive gifts knowing exactly what needs to be declared. However, the use of gift tax allowances as a tax planning strategy is something which should only be considered after taking proper advice from a qualified independent financial adviser specialised in cross-border matters.

France’s new PAYE system

By Katriona Murray-Platon - Topics: France, Income Tax, PAYE in France
This article is published on: 12th October 2018

12.10.18

As of 1st January 2019, taxes in France will be paid at source for certain types of income. Although PAYE systems exist in many countries, including the UK, this will be a first for France. Whilst the French authorities are doing everything they can to ensure this reform goes smoothly, it is still a huge change for French tax payers.

Social charges on salaries, pensions and unemployment benefits are already paid at source. Income tax, however, has always been declared on the tax form by the end of May of each year and paid either monthly or quarterly the following year. The problem with this situation is that where there is a significant change in the taxpayer’s life, for example a wedding, divorce/separation, loss of a partner or birth of a child, which would affect the tax payable, these changes were not taken into account until much later.

Those who do not pay tax because their income is too low or, for example, those with UK source income that is not taxed in France (Civil Service pensions, UK rental income, UK salaries) will not be affected and will continue not to pay tax.
From 1st January 2019, the income that will be subject to the pay at source system includes, French salaries, French pensions, French job seekers allowance, benefits, and sickness/maternity pay. The employer or authority responsible for the payments will also deduct the income tax and pay it directly to the tax authorities. Auto-entrepreneurs, micro-entrepreneurs, business owners and the self-employed will pay a monthly amount to the tax authorities. Income tax and social charges on French rental income will be paid monthly or quarterly, directly from the taxpayer’s bank account.

The rate of tax which will be applied was calculated by the tax authorities based on the income declared in 2017. This rate, which is either an individual rate, a joint rate or the neutral rate, appeared on tax statements in 2018. In homes where one partner’s salary is significantly more than the other, they have the option of having individual rates based on their own income. This rate will be communicated by the French tax authorities to employers, pension bodies and the French job centre.

The tax which would have been paid in September 2019 on the income received in 2018 will be cancelled out by a one-off tax credit. This however will not affect dividends, capital gains or withdrawals from assurance vies made in 2018 as they are considered “one-off” benefits.

The self-employed, whose income may change from one year to another, will be able to adjust their monthly amounts on the impots.gouv.fr website in a way which will be simpler than the current payment situation.
What will not change is the rates of tax, the tax credits and tax reductions, and the obligation to declare all worldwide income every year before the end of May. If your income has changed then a new rate will appear on the tax statement in September 2019 and it will apply to your monthly payments from that September.

The new system will not really affect those receiving income from capital. The flat tax introduced in January 2018 will continue to apply in 2019 to interest, dividends, assurance vie withdrawals and capital gains. The tax will be taken at source when the interest is paid into the bank account, or at the time of withdrawal on the gain element of an assurance vie investment. For withdrawals from assurance vie policies which were created or topped up before 27th September 2017, the policy holder may opt to be taxed at the old system (35% tax in the first 4 years, 15% tax after 4 years and 7.5% after 8 years with the abatements of €4,600 per person or €9,200 per couple) or their marginal rate. Withdrawals from assurance vie policies created or topped up after 27th September 2017 (if the amount exceeds €150,000 of capital) will be taxed automatically with the flat tax unless and until the tax payer opts for their marginal rate. However, unless you don’t normally pay tax, in most cases the flat tax is more tax efficient as it essentially reduces the income tax to 12.8%. Social charges at the new rate of 17.2% will continue to apply to all capital income.

For any questions on the above or how you may be affected please do not hesitate to contact your local Spectrum adviser.

Is Buy To Let still a good investment?

By Katriona Murray-Platon - Topics: Buy to Let, France, Property, UK property
This article is published on: 11th April 2018

11.04.18

Given concerns over the effect of Brexit on UK house prices, together with recent changes to the tax treatment of UK rental income and the various tax increases and reforms applicable to French property rentals, now may be the time to reconsider if Buy to Let is a good investment, both in France and the UK.

General arguments against rental investments
Most of us have an opinion on property as a means of generating long term investment returns. For some, a tangible asset such as property represents security, for others it is simply an inflexible and physical tie to a specific location.

Rental properties need regular maintenance and repairs, which can be expensive, and meeting such costs can divert cash from savings and other investments. Private landlords often underestimate the costs of maintaining a rental property, one consequence being that net returns fall short of (sometimes) unrealistic expectations.

It is a basic investment principle that we should not rely exclusively on property (or any single asset) for our future financial security, yet frequently we do, particularly where Buy To Let is involved.
Liquidity, or access to capital, also needs to be considered. Whilst you can usually withdraw funds quickly and easily from an investment portfolio (in France one often uses the Assurance Vie structure), you cannot generally sell part of a house. Re-mortgaging or equity release are possibilities, but for some the only option for capital access is sale of the property and acceptance of the associated expense and possible delays. Furthermore, a forced sale will typically result in lower than market value being achieved.

Both the French and UK governments are under pressure to boost national housing supply so are taxing second homes and rental properties in an effort to bring more residential property to the open market.

By comparison, for French residents (including expatriates), Assurance Vie remains as possibly the single most flexible and tax efficient investment available – a valuable planning opportunity which can be overlooked when property is perceived as a ‘safe bet’.

Keeping your UK property and renting it out
Legislative changes introduced in April 2017 significantly increased tax liabilities for residential landlords. Previously, allowable expenses and mortgage interest payments could be deducted from rental income as part of the tax calculation. However, the phasing out of tax relief on mortgage interest payments means that by 6 April 2020 mortgage costs will no longer be deductible, instead replaced with a 20% tax credit.

For many people, once settled in France, a UK rental property becomes impractical and difficult to maintain. Frequent trips back to the UK, for a variety of reasons, just don’t seem worthwhile. Being a landlord can be stressful and time consuming, especially when you want to be enjoying a more relaxed life in France and/or you are busy running your business here.

If your UK property remains vacant for occasional use during trips back to the UK, you could be affected by measures introduced in November 2017 which allow councils to charge a 100% Council Tax premium on homes that have been left empty for two years or more.

Additionally, since April 2015, non-residents are liable for capital gains tax (at either 18% or 28%) on the increase in property value since 2015. And from April 2019, the UK government plans to introduce capital gains tax for non-resident landlords of commercial properties.

Whilst house prices in some parts of the UK have increased substantially over recent years, there are wide regional variations and prices can of course go down as well as up. Flooding from adverse weather conditions has negatively impacted prices in many parts of the country. Brexit brings its own uncertainty for the housing market and there is also exchange rate risk to consider, with GBP/EUR volatility likely to continue in the short term at least. Finally, even with carefully managed quantitative tightening by central banks, interest rates appear to be going in only one direction from here.

Things to be aware of when renting property in France
Whilst the Finance Law of 2018 has increased the micro threshold from €33,200 to €70,000 (with a 50% abatement for costs), and from €82,800 to €170,000 for seasonal “classement” rentals (with a 71% abatement), it has also made furnished rentals more complicated for landlords, particularly for those offering short term lets.

To receive the higher abatement for furnished rentals, there is the challenge of arranging an official visit to obtain a recommended star rating. Since 1st December 2017, Paris requires property owners renting for short seasonal lets to register this activity and to display registration numbers on rental advertisements. Lyon did the same in February 2018, Bordeaux in March 2018 and Lille is in the decision process. Only 12,000 properties have been registered whereas 100,000 or more appear on rental websites. On 11th December 2017, Paris officially notified the largest rental sites (Airbnb, HomeAway, Paris Attitiude, Sejourning and Windu) that advertisements for unregistered properties were in breach of regulations.

Recent Finance law also approved a proposal to increase the taxe de sejour which today represents between 20 and 75 centimes per person, per night – it could increase by 1% to 5% if local authorities so decide.

The French government recognises that rental income made via websites such as Airbnb or HomeAway has often not been declared. Since 1st July 2016 these websites must inform members of their tax obligations and in January each year must send a document showing gross income received through reservations made via their site in the previous tax year.

There is also the risk that between November and March tenants will stop paying rent, with landlords powerless to evict until the winter period is over.

2018 changes to Wealth Tax have been particularly unfavourable for property holdings. Note too that social charges, which don’t apply to UK rental income but are chargeable on French furnished rentals, have risen to 17.8%. And that tax offices sometimes mistakenly apply social charges to UK rental income, which is then time-consuming to recover. However, since the Finance Law of 2018, social charges on investments are included in the flat tax of 30% thus reducing the income tax liability to only 12.2%.

Whether to sell or retain a rental property can be a difficult decision, for both financial and emotional reasons. For practical guidance on this complex matter, please contact me to arrange an initial discussion or meeting, free of charge and without obligation.

Wills for Expats in France

By Katriona Murray-Platon - Topics: France, Wills
This article is published on: 1st March 2018

01.03.18

If you have been reading the news recently you will know that a legal battle is about to start between the wife of the much beloved deceased French Rock Star Johnny Hallyday and his two children from his previous relationships, Laura Smet and David Hallyday. Johnny Hallyday’s children will reportedly contest the decision in his will to leave all his property and artistic rights to his widow Laeticia and their two adopted daughters. Whilst many of us do not have the same level of wealth as Johnny Hallyday, this case does highlight the issues around proper legal wills and more especially in situations where one has assets in more than one country.

Why is it important to have a will?
No one is legally required to have a will; however, most people want to be able to leave instructions on how their assets should be handled in the event of their death. A will is a legal document allowing you to communicate what you would like to happen to your personal possessions after you die. When you purchase a high value, physical asset, such as a house, it becomes even more important to be able to decide who would receive such assets should something happen to you.

If you are resident in France and do not have a valid will in place, then your property would be shared out according to the French rules of intestacy, granting automatic inheritance rights to any children you may have had, your surviving spouse, or to other relatives in the absence of a surviving spouse or child. If you do not have children and are not married or in a civil partnership, your assets would go to your nearest relative.

Do I need to re-do my English will now that I have bought a property in France?
If you have bought a property in France and not updated your UK will it would be advisable to speak to a UK cross border specialist who would be able to advise on whether your existing English will is suitable, or whether it may need replacing or updating in any way.

An English will – if properly drafted and executed in accordance with the UK Wills act of 1837 – would be recognised in France. France has signed the 1961 Hague Convention concerning wills and therefore recognises wills that are valid under UK law. Your French assets could therefore be dealt with together with your English assets under a carefully drafted English will, however this is not recommended in every case and you should seek proper legal advice to ensure that this would be the best solution in your personal circumstances.

When drafting a new will, it is important to inform your lawyer or notaire of the existence of any previous wills in any other country, to avoid revoking a will you have already made in the other country. They would be able to assist you in drafting a new will which takes into consideration any other wills specifically dealing with property in another country.

Do I need to do a French will?
This will depend on your individual circumstances and you should always seek professional advice from a properly qualified lawyer experienced in dealing with cross-border matters. “The inheritance and tax laws of the two countries are very different and each case needs to be examined individually before making a decision” says Matthew Cameron, Partner at Ashtons Legal, specialist in French law and cross-border legal issues. For example, whilst trusts are used very frequently in UK wills, they can cause all kinds of additional administrative and filing obligations in French law. A UK testator usually appoints executors to administer his/her estate after death and distribute the assets to the beneficiaries. In French law the notary is responsible for distributing the estate and assets can be held “jointly” or in “indivision” until the estate is wound up.
You should also note that under French law you cannot leave your estate to whomever you wish. The children have priority over the estate and the surviving spouse is only entitled to a fraction of the whole amount. So whilst you can, in a French will, give certain assets to friends and relatives, you cannot override French inheritance laws in the terms of your will.

I have heard that I can have English law apply to my French will is this true?
The European Succession Regulation 650/2012, also known as ‘Brussels IV’, which came into force on 17 August 2015, allows one law to apply to the whole of the deceased’s estate regardless of the location of the asset. International private law states that French law applies to immovable real estate assets situated in France and English law applies to real estate assets situated in England. Under this regulation the laws of the country in which a person is habitually resident at their death will apply to them unless they have made a declaration during their lifetime. This means that if you wish to elect for the law of your nationality to apply to the disposal of your estate, and for it to be recognised in France, it must be written into your will. However, the inverse cannot apply as the UK opted out of this EU regulation, so only English law can apply to an English estate. As Caroline Jeanson, notaire in Bordeaux who worked for over 12 years with English speaking clients in the Duras area, said “I have never yet, since the Regulation was enacted, advised a British national resident in France to opt for English law in their French will”. Whilst in theory you can choose which law will govern how you leave your assets, this will not avoid French inheritance tax. Under French tax law, if you leave your assets to someone who is not a direct blood relative, there can be substantial tax consequences. That beautiful chateau you own would probably have to be sold to settle the tax liability.

Do I need to do a will with a French notaire?
Strictly speaking you do not need to go to a French notary to write your will. You can do a hand written will called a “Testament Olographe” (holographic will) which is perfectly valid under French law. There is no legal requirement for it to be in the French language, it does not need to be witnessed nor does it have to be registered anywhere, however it is advisable to have it registered with the Central Wills Registry (Fichier Central des Dispositions de Dernières Volontés) which would enable any notary to access it. In any case it is best to seek the advice of a French notary before drafting a will. The first consultation is free and once the notary fully understands your specific situation they would be able to advise you on how best to draft the terms of your will.

Anyone who has ever lost someone will tell you that not only is it difficult to manage emotionally, but just at this very difficult time, there are a whole range of administrative matters that have to be dealt with. If the person did not make provisions in their will it is left to their friends or loved ones to deal with their assets, causing further upset and difficulty. To avoid this and to fully understand your personal situation it is best to seek professional advice from an independent financial adviser specialised in French tax matters, a UK solicitor specialised in French law or a French notary with several years’ experience advising English speaking clients.

For any questions or to make an appointment, please do not hesitate to contact us.