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Inheritance issues in France

By Spectrum IFA - Topics: France, Inheritance Tax, Succession Planning
This article is published on: 11th October 2021

11.10.21

As many of you know, in 2015 the European Succession Regulation came into force. Sometimes known as ‘Brussels 1V’, this allowed you, if you deemed it suitable, to elect for the law of your nationality to apply to your Will in France. The principal benefit of this election would be to allow you to leave your property to your spouse for example, and then pass it on to your children after the second death. Another useful application would be when relationships have broken down and you have decided that one or more of your children should be excluded from benefitting from your estate. In effect, you claim the right to leave your assets to whomever you wish.
Now, in a quite frankly bizarre move, the French government has decided to move against European law. At the end of July this year a bill was passed making changes to article 913 of the Civil Code. Here is the relevant wording, with a translation ‘a la Google’.

Lorsque le défunt ou au moins l’un de ses enfants est, au moment de son décès, ressortissant d’un État membre de l’Union européenne ou y réside habituellement et que le droit étranger applicable à la succession ne permet aucun mécanisme réservé à la protection des enfants, chaque enfant ou ses héritiers ou successeurs amoureux peut bénéficier d’un prélèvement compensatoire sur les biens existants situés en France le jour de la sa mort, afin d’être rétablie dans les droits réservés qui leur sont accordés par Français loi, dans les limites de celui-ci.

Where the deceased or at least one of his children is, at the time of death, a national of a Member State of the European Union or is ordinarily resident there and where the foreign law applicable to the succession does not allow any reserved mechanism to protect children, each child or his heirs or successors may make a claim on existing property situated in France on the day of death, so as to be restored in the reserved rights granted to them by French law, within the limits thereof.

Inheritance Tax

There is little scope for doubt that this directly contravenes European law. It has already been challenged once but was passed unchanged. It is likely that there will be a stream of legal challenges that could take several years to conclude. This is France after all. One silver lining is that the new decree will only come into force on the 1st November this year, and will only relate to deaths that occur after that date. For those of us who were contemplating this move, or have already employed it, this will mean that there could be years of uncertainty, and many people are not going to be able to leave their assets on death as they would wish to.

One key aspect of this change is that it can only be applied to assets situated in France which, in some cases, may affect succession plans for the principal residence and possibly French rental properties if no other planning has been put in place. There are tried and tested legal mechanisms in France for establishing property ownership that can better protect the survivor such as the ‘en tontine’ clause (only at the point of purchase), the marriage contract of ‘communauté universelle avec attribution au dernier survivant’, the ‘pacte de famille’ and the ‘donation entre époux’ to name a few.  If you have any concerns about how this new change may impact your existing Wills and estate planning, I recommend that you speak to a Notaire to discuss your options.

UK pensions and tax treatment in France

By Andrea Glover - Topics: France, Tax in France, UK Pensions
This article is published on: 13th September 2021

13.09.21
Andrea Glover

I have had several queries over the last few months about the tax treatment of UK pensions in France, whether they are being received as a regular income or where clients have or are about to take a one-off lump sum to pay for a large purchase. Many of the queries were relating to the completion of French tax returns, but we are also seeing a large number of queries where advice is being sought on French tax treatment of pensions prior to a move to France.

So, in this article, I am going to go back to the basics and go through the different types of UK pension scheme and their tax treatment in France for French tax residents.

UK State Pension
As a French resident, the UK State Pension is taxable in France (not the UK) and where an S1 is held, no French social charges are payable. It is important to note that the UK State Pension can be paid directly into a French bank account, in euros, although the amount will obviously fluctuate due to exchange rates.

Government pensions
UK government pensions are dealt with under the UK/France double tax treaty and apply to those who have previously worked in the Armed Forces, Civil Service, Fire Service, Local Authority, NHS (with exceptions), Police and Teaching amongst others. A full list is available at www.gov.uk/hmrc-internal-manuals/international-manual/intm343040 to help you identify if your pension is classified as ‘government’.

Under the double tax treaty, UK government pensions are taxed at source in the UK. The pension income still has to be declared in your French tax return, but a 100% tax credit is given so that the same tax is not paid twice. It is important to note, that such pension payments are taken into account to calculate your overall income and could have the effect of increasing the rate at which other sources of income are taxed.

Qualifying government pensions are exempt from social charges.

final salary pension review

Private pensions (occupational, stakeholder, SIPP)
Pension payments received from UK private pensions are taxable in France (not the UK) if you are French resident and again, where an S1 is held, the payments are exempt from social charges.

Annuities
Annuities are more complex and advice needs to be sought to establish the type of annuity held, as annuities can be interpreted as investment income in France rather than pension income.

Allowances
Amongst other allowances relating to pension income, there is a general 10% tax abatement on pension income (with the exception of qualifying UK government pensions) with a minimum of €394 and a ceiling of €3,858 (applicable to 2020 tax returns and subject to change). The allowance is per taxpayer, although the ceiling stated is per fiscal household.

The allowance only relates to tax and not social charges, where applicable.

Lump Sums
Lump sum pension payments are an area for discussion in another article. Other than qualifying UK government pension lump sums, such payments (including UK tax free lump sums) are taxable in France.

I would always strongly recommend that you speak to a France based qualified adviser, familiar with UK pensions, before any firm decision is made to take a lump sum payment.

Understanding inflation

By Occitanie - Topics: France, Inflation
This article is published on: 6th September 2021

06.09.21

Following the summer break, welcome to the latest edition of our newsletter “Spectrum in Occitanie, Finance in Focus” brought to you by your Occitanie team of advisers Philip Oxley, Sue Regan, Derek Winsland, together with Rob Hesketh now consulting from the UK.

Following our last newsletter on the subject of inheritance planning, we thought we would turn our attention to the significant column inches in the financial press currently devoted to the growing risks of inflation.

Understanding inflation

What is inflation?
Inflation is essentially the decrease in the purchasing power of your money as a consequence of a sustained increase in the price of goods and services. Therefore, in an environment of rising inflation, unless your income increases at a similar level you may not be able to maintain the same standard of living.

Inflation is typically measured using a wide variety of items that many people would typically purchase. For example, the Office for National Statistics (ONS) is continually monitoring the price of about 600 goods from around the UK. These monitored price increases are weighted based on popularity and value. Also, the items measured are under constant review with hand sanitiser having been added since the onset of the pandemic.

What is happening to inflation now?
Inflation has been rising at a pace in recent months and this level of higher inflation is predicted to remain in the short term, and possibly the medium term. In France, the UK and the US, inflation increases since the beginning of the year can be seen below:

January 2021 July 2021
France 0.6% 1.2%
UK 0.7% 2%
USA 1.4% 5.4%

What causes inflation?
There are several economic theories behind the causes of inflation, the primary ones being the following:

i) Demand Pull: This occurs where demand for goods and services outpaces supply and consumers are prepared to pay more for some items. This scenario is often experienced in circumstances where an expansionary economic policy is present – often evident where there are low interest rates, which encourages borrowing, or recent tax cuts resulting in additional funds in the pockets of consumers.

ii) Cost Push: Often caused by a shortage of supply and/or increases in the costs of production, such as the price of raw materials or increased labour costs which are passed onto the consumer by way of higher prices. A simple example of this is when the price of crude oil increases, this is passed onto consumers at the pumps in the form of higher petrol and diesel prices.

For many businesses, labour costs are a large component of their cost base. When the economy is growing strongly and unemployment is low, labour shortages can arise and companies may be prepared to pay more to secure skilled, well-qualified employees. These costs can also be passed onto the consumer in the form of higher prices.

iii) Increase in the Money Supply: I am sure some of you will remember the 1980’s, a time during which Mrs Thatcher dominated the political scene in the UK and a bedrock of her economic principles was monetarism (the theory or practice of controlling the supply of money as the chief method of stabilising the economy). This economic theory was underpinned by the principle that excessive growth in the supply of money was the primary cause of inflation. In more recent times, Quantitative Easing (QE) has been a policy employed by central banks to stimulate the economy, firstly following the 2008-9 financial crisis and again since the onset of the Coronavirus pandemic. This policy involves central banks purchasing government bonds and other financial assets which injects large amounts of money into the economy to stimulate growth and this could certainly be one of the factors behind increasing inflation rates this year.

Understanding inflation

Why does inflation matter?
If you know anyone who lived in Zimbabwe in the years 2007-2009, they will tell you why. Inflation peaked at close to 80,000,000,000% meaning prices were doubling every day and there were scenes in the news of people using wheelbarrows to carry their money around! The central bank published bank notes of ever-increasing value and at one stage it was reported that a loaf of bread cost the equivalent of $35million!

A colleague of ours who is based in Italy, professes to have a 100 trillion dollar note issued by the Reserve Bank of Zimbabwe in his office.

Of course, this is an extreme example (although not unique), but there are multiple reasons why governments and central banks become a little jittery when inflation starts to increase beyond their targets, not least because of inflation’s tendency to be self-perpetuating. For example, inflation is increasing therefore workers demand higher pay increases. Higher pay increases lead to businesses clawing back these extra wage costs in the form of higher prices for their goods/services. Consumers notice that prices are rising and demand higher pay increases and so on. This is a little simplistic, but hopefully illustrates the point.

In the past, governments and central banks (often through interest rate increases) have acted quickly and decisively to try and control this inflationary process. Currently however, governments and central banks seem a little more relaxed about the matter – at least in the short term. One of the many reasons for this is down to the pandemic-ravaged economies around the world which are recovering, but still fragile..

How long will this period of higher inflation last?
This is a difficult one to answer.

Here is what two of our investment partners say on the matter:
“We do not agree with theories of runaway inflation, currently a hot topic among market commentators. To summarise briefly, the main reason for the spikes we are seeing today is that prices were abnormally low a year ago, and the rate at which they have risen since has been exacerbated by COVID-related dislocations in spending, employment, production and logistics. We believe – as US Federal Reserve Chairman Jerome Powell has been at pains to note – that unusually high US inflation will be transitory. But it’s worth clarifying what we mean by transitory. We don’t mean that inflation will be back on target by year end. Instead, we see it peaking in the next month or two, before falling back toward 2% throughout 2022.” Julian Chillingworth, Chief Investment Officer, Rathbones – 7th July 2021.

“Lower for longer’ was a term used to describe the post-credit crunch interest rate environment, a period in which interest rates languished near 0%. The promise of rates being lifted as the global economy strengthened never really materialised: rates stayed lower for much longer than originally planned – a decade – and then came Coronavirus. We’re now seeing a similar story take shape, this time on the subject of inflation. The Central Banks reiterate that accelerating inflation is ‘transitory’ and not a cause for concern, but it’s the Manager’s advice that investors prepare themselves for a different truth entirely: inflation is going to be higher for longer.” VAM Funds, Monthly Market Outlook – July 2021.

And from other sources:
“Higher Inflation Is Here to Stay for Years, Economists Forecast.” The Wall Street Journal, Headline on 11th July 2021.

“The ‘inflation is transitory’ argument is starting to wobble…the debate about temporary or problematic inflation will continue for months and will grow more heated.” Greg McBride, Chief Financial Analyst at Bankrate.com

Is it possible to protect your savings from the impact of inflation?
Yes – to some extent.
If you chose to keep all your savings in bank accounts in the UK, France or elsewhere the chances are that any interest you will receive will be a very small fraction of 1%.

If your cash is in a French bank account, balances up to €100,000 per person, per banking group (€200,000 for joint accounts) are protected. In the UK, cash deposits are protected to a limit of £85,000 per person, per banking group (£170,000 for joint accounts).

These guarantees undoubtedly provide some comfort in relation to the security of your funds, but over time the effective value of your savings will diminish, and this will occur more rapidly in a higher inflationary environment.

For example, if inflation were to average 2.5% for the next 10 years, £100,000 of savings today, would be worth only £78,120 in today’s terms, in 2031. To consider this in a different way, for £100,000 to keep pace with inflation, in 10 years’ time it needs to have grown in value to £128,008. This erosion of value is even more marked over longer timescales.

The simple truth is that there is no certain way of keeping up with or indeed beating inflation, without accepting a degree of risk. Thus, we have a choice, leave our savings in a bank account, and accept the certainty that inflation will erode our wealth if we don’t do something about it, or talk to someone who has the expertise to invest money in a manner that will give the possibility of a positive return within the parameters of your personal objectives and appetite for risk.

It is advisable to hold at least six months of your average monthly outgoings as a contingency fund for unexpected needs. With bank interest rates and inflation at their current levels, it makes sense to look at alternative homes for the excess cash over and above your ‘emergency fund’.

As most readers will know we at Spectrum are big advocators of diversification and the multi-asset approach to investing. We place our trust in our preferred investment partners to look after our clients’ money to help them achieve their financial objectives. Their investment teams are constantly monitoring the global economic, environmental, and political factors that may affect portfolios and act accordingly to produce the best outcomes for clients.

Whether you are a cautious investor or an adventurous investor, or somewhere in between, we are here to discuss the most appropriate investment solution for you. So, if you would like a review of your situation, please don’t hesitate to give us a call.

What next?
If you would like to discuss anything we have covered in this month’s newsletter, please do get in touch at Occitanie@spectrum-ifa.com or contact your Spectrum adviser directly.

We would love to hear from you with any comments and/or questions, as well as suggestions as to future topics for discussion. Finally, please feel free to pass this on to any friends or contacts who you think might find it interesting.

The tax and legal systems in France

By Spectrum IFA - Topics: France, Investments, Tax Efficient Savings, Tax in France, wealth management
This article is published on: 23rd July 2021

23.07.21

There are lots of reasons to love France …
… but the legal and tax systems aren’t high on that list!

How to manage wealth effectively, whilst minimizing administration, requires an experienced adviser with access to solutions purposefully built for the French marketplace, with due regard for t he local taxation and legal systems.

Because knowledge allows us to make better decisions, we invite you to watch the recent webinar with Quilter International.

The webinar considers financial planning options designed to help you keep more of your wealth for longer, ever mindful of the crossover with other countries, such as the UK.

As one of the leading providers of wealth management solutions, Quilter International works primarily with expatriates in around 40 countries, including France. Their speaker, David Denton, is a Fellow of the Personal Finance Society and Trust and Estate Practitioner, and has spent almost three decades in wealth management, training professional and lay audiences world-wide, on the subject of wealth preservation.

    The Spectrum IFA Group is committed to building long term client relationships. This form collects your name and contact details so we can contact you about this specific enquiry. For further information, please see our Privacy Policy.

    The Celtic Golf Society – Brittany

    By Michael Doyle - Topics: France
    This article is published on: 18th June 2021

    18.06.21

    The Celtic Golf Society
    Domaine des Ormes, Brittany
    Friday 11 June

    Michael Doyle of The Spectrum IFA Group sponsored today’s event.

    The Celtic Golf Society has been running for a few years now in and around Brittany. When Michael moved to Brittany back in 2015 he became an active member of the society, helping increase the number of participants.

    The society is not a club, so there are no membership fees and it’s organised on a pay as you play basis.

    Today’s event was attended by 27 competitors (both male and female) and another 8 partners who joined for lunch afterwards, with index ranging from 3 to 36. The atmosphere was fantastic and everyone welcomed the fact that we could have a meal together after the friendly round of golf.

    Michael Doyle made sure there was a prize for everyone who attended.

    If you’d like to join us for a round of golf at some point, then please feel free to drop Michael an email and he’ll put you on the email distribution list: michael.doyle@spectrum-ifa.com

    Further, if there’s anything he can help you with by way of financial planning he’d be more than happy to have an initial informal chat with you about your situation.

    The Celtic Golf Society
    The Celtic Golf Society

    French Tax declarations in June – Trusts & Wealth Tax

    By Katriona Murray-Platon - Topics: France, tax advice, Tax Declarations, Tax in France, Wealth Tax
    This article is published on: 1st June 2021

    01.06.21

    Oh what a month of May! So despite the old adage of being able to do as we please, the weather clearly didn’t get the memo! May has been a whirlwind of enquiries and questions on taxes with lots of people requesting the Spectrum Tax Guide. Hopefully, by now most of you have filed your tax returns, but those living in department numbers 55 to 976 as at 1st January, still have a few more days, until 8th June to file theirs. Also, if you have appointed an accountant to do your tax return, they have a special extended deadline until the end of June to file all remaining returns.

    If you had a go at your own tax return, but would prefer to hand it over to a professional either for future returns or to check that what you filed this year was correct, it would be best to try to contact them after the end of June. If you think you made a mistake on your tax return, you have until the end of the year to correct it. You will soon know if there is something not quite right with what you have declared when you receive your statement at the end of August/beginning of September. At that point, if you are quick you can submit an amended return before the payment deadline; otherwise you may have to pay the tax payable on the original statement whilst awaiting the amended return to be processed and a new tax statement to be issued, with any tax reductions if applicable.

    French Tax declarations

    This month, my family and I set off for our first mini-break since the lockdown in March last year. I have to say we were a bit nervous venturing out of our house, preparing the suitcases and worrying that we hadn’t forgotten anything. We stayed in the lovely village of Coux-et-Bigaroque, about 45 minutes east of Bergerac. In spite of the weather we were able to take the children to the Perigord Aquarium, the Caves of Grand Roc and the Chateau of Milande, formerly owned by the singer and entertainer Josephine Baker. Whilst I love visiting this chateau and the birds of prey show in the grounds, it always makes me feel a bit sad. It is an example of how someone with such talent and a kind heart didn’t have the right advisers to help her make the best financial decisions.

    Tax Calendar

    In June there is another tax deadline that still needs to be considered:

    Which is that all Trust declarations need to be declared by 15th June. I wrote an article many years ago which you can find HERE

    There have been no significant changes to the treatment of trusts since the law of wealth tax was amended to include only immovable property. A trust can be recognised in France and perfectly valid in France provided that it doesn’t go against public policy (ordre public) and in particular the rights of heirs under French law. Income from a trust is subject to income tax depending on the nature of the income (rent from an apartment or capital income) and can be subject to tax credits under a double tax convention. Trusts (excluding charity trusts and pension trusts) must be declared in France if any of the settlor, trustee or beneficiary are French residents or if the trust contains an asset situated in France on 1st January. According to a press release by the Ministry of Finance on 5 July 2016, 16,000 entities had been identified and notified as trusts to the French administration.

    Another change this year is that the Wealth Tax declaration which normally had to be submitted by middle of June if you have assets over a value of €1,3million, this year has to be submitted at the same time as your tax returns by way of a tax form called 2042-IFI. Those of you resident in departments numbered 55 and above still have until 8th June to submit. If you French tax residents who came to live in France, after having spent 5 years abroad, you are not taxable on your non-French assets until 5 years after you became resident. Non-residents also have to declare if their French assets are over €1.3million.

    Finally, 30th June 2021 is the deadline for Brits who were resident in France before 31st December 2020 to apply for their residency permit under the Withdrawal Agreement. If you haven’t already done so or know of someone who hasn’t, and they were resident before 31st December 2020, please do try and encourage them to go to the following website:

    Inheritance Planning and French Residency

    By Occitanie - Topics: France, Inheritance Tax, Succession Planning
    This article is published on: 18th May 2021

    18.05.21

    Welcome to the latest edition of our newsletter ‘Spectrum in Occitanie, Finance in Focus’, brought to you by your Occitanie team of advisers Sue Regan, Philip Oxley, Derek Winsland, together with Rob Hesketh now consulting from the UK.

    As a very important part of any financial planning review, we thought we would re-visit the subject of inheritance planning in this newsletter for the benefit of newcomers and as a reminder for those of you who are already settled in this fabulously diverse and beautiful region of France.

    Despite the importance of making sure one’s affairs are in order for the inevitability of one’s demise, very few actively seek advice in this area and, as a result, are unaware of the potential difficulties ahead for their families and heirs, not to mention potential tax bills which can be quite substantial for certain classes of beneficiary.

    The basic rule is, if you are resident in France, you are considered also to be domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend upon the relationship to your beneficiaries.

    Fortunately, there is no inheritance tax between spouses, PACSed or civil partners, and the allowance between a parent and a child is reasonably generous, currently €100,000 per child, per parent. For anything left to other beneficiaries, the allowances are considerably less. In particular, for stepchildren and non-related beneficiaries, the allowance is a measly €1,594 and the tax rate on anything above that is an eye-watering 60%!

    There are strict rules on succession and children are considered to be ‘protected heirs’ and, as such, are entitled to inherit a proportion of each of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, then three-quarters of your estate must be divided equally between them.

    You are free to pass on the rest of your estate (the disposable part) to whoever you wish through a French will and, in the absence of making a will, if you have a surviving spouse he/she would be entitled to 25% of your estate.

    You may also be considered domiciled in your ‘home’ country and if so, this could cause some confusion, since your home country may also have the right to charge succession taxes on your death. However, France has a number of Double Taxation Treaties (DTT) with other countries covering inheritance. In such a case, the DTT will set out the rules that apply (basically, which country has the right to tax what assets).

    For example, the 1963 DTT between France and the UK specifies that the deceased’s total estate will be devolved and taxed in accordance with the person’s place of residence at the time of death, with the exception of any property assets that are sited in the other country. By the way, the UK–France Treaty is not affected by Brexit.

    Therefore, for a UK national who is resident in France, who has retained a property in the UK (and does not own any other property outside of France), the situation would be that:

    • any French property, plus his/her total financial assets, would be taxed in accordance with French law; and
    • the UK property would be taxed in accordance with UK law, although in theory, the French notaire can take this asset into account when considering the fair distribution of all other assets to any protected heirs (i.e. children).

    If a DTT covering inheritance does not exist between France and the other country with which the French resident person has an interest, this could result in double taxation if the ‘home’ country also has the right to tax the person’s estate.

    Hence, when people become French resident, there are usually two issues:

    • how to protect the survivor; and
    • how to mitigate the potential French inheritance taxes for other beneficiaries
    Succession tax in Spain

    European Succession Regulation No. 650/2012
    Many of you will no doubt have heard about the EU Succession Regulations that came into effect in 2015 whereby the default situation is that it is the law of your place of habitual residence that applies to your estates. However, you can elect for the inheritance law of your country of nationality to apply to your estate by specifying this in a French will. This is effectively one way of getting around the issue of protected heirs for some expats living in France.

    There are a number of other ways in which you can arrange your affairs to protect the survivor, depending on your individual circumstances, such as a change to your marriage regime (yes, France matrimonial law provides for couples to select a particular type of contract under which their assets will be devolved on divorce or death) and we would always recommend that you discuss succession planning in detail with a notaire experienced in these matters.

    Mitigation of Inheritance Tax
    On whichever planning you decide, it is important to remember that the French inheritance tax rules will still apply. So, even though you have the freedom to decide who inherits your estate, this will not reduce the potential inheritance tax liability on your beneficiaries, which, as mentioned above, could potentially be very high for a stepchild. Hence, there may still be a need to shelter financial assets from French inheritance taxes.

    By far and away the most popular vehicle in France for sheltering your hard-earned savings from inheritance tax is the assurance vie. The assurance vie is considered to be outside of your estate for tax purposes and comes with its own inheritance allowances, in addition to the standard aIllowance for other assets. If you invest in an assurance vie before the age of 70 you can name as many beneficiaires as you like, regardless of whether they are family or not, and each beneficiary can inherit up to €152,500, tax-free. The rate of tax on the next €700,000 is limited to 20% – potentially making a huge saving for distant relatives or stepchildren.

    The more beneficiaries nominated (e.g. grandchildren, siblings, etc) the greater the potential inheritance tax saving, depending on the value of the policy at the time of death. Beneficiaries can be changed or added at any time during the life of the assurance vie. Remember also, that beneficiary nominations are not restricted to family members, so, whoever you nominate gets the same allowance.

    The inheritance allowance on premiums paid to assurance vie after age 70 are less attractive, at €30,500 of the premium (capital investment) paid plus the growth on the capital shared between all named beneficiaries, and the remaining capital invested is taxed in accordance with the standard inheritance tax bands. Nevertheless, an assurance vie is still a worthwhile investment after the age of 70 as, in addition to the inheritance tax benefits, assurance vie offers personal tax efficiencies to the investor such as gross roll-up of income and gains whilst funds remain in the policy and an annual income tax allowance of €4,600 for an individual, or €9,200 for a couple, after 8 years.

    So, in order to ensure that your inheritance wishes are carried out some planning may be required and there are investment opportunities to mitigate the inheritance tax for your chosen beneficiaries. Please contact us if you would like to discuss your particular circumstances.

    Spanish Inheritance Tax

    Inheriting From a Non-French Resident
    The tax position of a French resident beneficiary inheriting from the estate of a non-French resident is worthy of a more detailed explanation.

    The good news for UK nationals is that, due to the aforementioned DTT on inheritance between France and the UK and providing the deceased did not have any assets situated in France at the time of death, then there is no French inheritance tax payable if you are resident in France.

    Where there is no specific tax treaty on inheritance in place between France and the country of residence of the deceased, then the obligation to pay French inheritance tax is determined by how long you have been fiscally domiciled in France at the time of death. You are considered domiciled fiscally in France if you are resident in France and have been for at least six years out of the last ten years preceding the death. If you fall within scope for inheritance tax then the allowance and tax rate will be in accordance with your relationship to the deceased.

    If you have received an inheritance, then you may well need some advice on what to do with it and how best to shelter it from both personal taxes for you and inheritance taxes for your beneficiaries. We can help you with that.

    Pension Funds and Inheritance Tax
    Death benefits from bona fide pension schemes are excluded from your estate for inheritance purposes and are therefore not subject to French inheritance tax. Generally speaking, it is possible to leave your pension fund to the beneficiary of your choice, although some defined benefit (final salary) schemes will only pay death benefits to certain beneficiaries.

    It is important to bear in mind that if you are considering encashing your whole pension pot under ‘Pensions Freedom’, once the funds are removed from the pension wrapper, they will be included in your estate for inheritance purposes. You could subsequently shelter these funds in an assurance vie but we strongly recommend you seek our advice before fully cashing in your pension funds as there may be any number of reasons why this would not be in your best interests.

    Tax in France – what needs to be declared

    By Katriona Murray-Platon - Topics: France, French Tax Changes, tax advice, Tax in France
    This article is published on: 6th May 2021

    06.05.21

    No-one needs reminding that 2020 was a year like no other. Our lives were changed in many ways and this had an effect on our finances. Luckily there were many government schemes and initiatives to help people overcome the financial difficulties suffered in lockdown and because of the health restrictions. However now that 2021 tax season is upon us, what now needs to be declared?

    Salaried workers bonus is tax exempt
    Last year some salaried workers may have received a consumer bonus which is exempt from tax up to €1000 (or €2000 if there is an interest agreement/“accord d’intéressement”) Public workers and health workers also received a bonus which is exempt up to €1500.

    Overtime hours are usually exempt up to €5000 per year, however the exemption threshold has been increased to €7500 for those hours carried out between the beginning of lockdown (16th March 2020) and the last day of the emergency health state set at 10th July 2020. This applies to salaried workers in the public and private sector as well as those under special regimes. All exempt overtime must still be declared on the tax form and will be included in the tax income reference rate for the tax household.

    The Ministry for Economy and Public Accounts has announced that the payments paid by companies to their employees to cover the costs of working from home are exempt from tax up to €2.50 per day worked at home and up to €50 per month for 20 days and €550 per year.

    Salaried workers who choose to deduct their actual costs rather than applying the flat 10% abatement on their salaries, can still choose this options without supplying supporting documents however these deductions may not be so beneficial depending on your level of salary. As always it is best looking at both options and seeing which works best for you.

    tax deductions

    Charitable gifts in 2020
    Although things were hard for many people last year, it was also a year, more than ever to help those less fortunate. Gifts given in 2020 to humanitarian organisations and victims of domestic violence result

    in a tax credit of 75% of the amounts donated up to a maximum threshold of donations of €1000. Over this threshold and for donations given to other organisations (including political parties), the rules haven’t changed, the tax reduction is 66% for such donations and he maximum threshold is 20% of the taxable income. The excess can be carried over over the next 5 years and results in a tax reduction under the same conditions.

    Independent workers
    Companies and individual tradespeople benefitted a lot from the government help last year. Fortunately the financial help granted by the solidarity fund to companies most affected by the health crisis, the exceptional financial help to independents (CPSTI RCI COVID 19) and those paid by the additional pension schemes of independent professionals and lawyers (CNAVPL and CNBF) are all exempt from income tax. The other help from public or private entities are taxable if there is no specific legal provision that exempting them otherwise.

    Auto-entrepreneurs and micro-entrepreneurs who were exempt from paying part of their social charges must include in their tax declaration the turnover figure that was not declared to URSSAF because of this exemption.

    Home help tax credit – changes to the conditions
    The home help services normally give rise to a tax credit of 50% of the amount paid out. These expenses are deductible up to €12,000 (plus €1500 per dependent and person over 65 years, up to a maximum of €15,000). However in 2020, during lockdown some of these services had to be temporarily suspended or even cancelled, or in certain circumstances could be carried out online.

    If you employed someone carry out a service in your home, you may have benefitted from the partial compensation for the hours that your employee was unable to carry out during lockdown. These compensated hours cannot benefit from the normal tax credit and if you nonetheless paid your employee their salary even though they couldn’t actually work, this cannot be used for the tax credit (it is classified as a solidarity donation).

    Exceptionally, some services, which in principle took place in the home, but were in fact carried out remotely because of the health crisis, still give rise to the tax credit under the same conditions as other home help services. These include online additional schooling support lessons and individual lessons (gym, music etc) given to adults or children. The Ministry of Economy and Finance has specified that these services “must have involved a minimum amount of effective interaction, implying a physical presence of the person supplying the service at one end of the screen/telephone line and the be specifically given to the person paying for the service at home”. This therefore does not include online group lessons or watching pre-recorded videos online. This derogation applies throughout the time that people were not allowed to go out either because of lockdown or curfew.

    property rental income

    Professional landlords who waived rent
    If you are a professional landlord and you waived the rent of your tenants for a commercial or professional premises rented to a company that was difficulty because of the Covid crisis, you can still deduct your

    expenses (ownership expenses and mortgage interest). You also can carry forward your rental loss, up to €10,700, on your overall income. The additional loss – and the part of the deficit arising from the mortgage interest – will be carried forward and deducted from your income over the following 10 years.

    There is also a specific tax credit if you definitively waived rent for November 2020 only (not any of the other months in 2020). The tenant company must have employed at least 5000 employees and have been closed to the public (even if they were able to do click and collect) or to have carried out its business in one of the sectors of business that were eligible for the solidarity fund as listed in Decree no 202-371 of 30.03.2020 (hotels, travel industry for example).

    Furthermore the tenant company must not have been in financial difficulty on 31st December 2019 or have been under court ordered administration proceedings as at 1st March 2020. The tax credit is equal to half of the unpaid rent if the company employed less than 250 employees. If the number of employees was between 250 and 5000, the 50% is calculated on the two thirds of the rent. If the tenant company is managed by an ascendent, descendant or member of your tax household, you must justify the cash flow problems in order to deduct your expenses and get the tax credit.

    Voluntary retirement contributions
    You can deduct from your total income the sums paid into a retirement scheme such as PER, PERP or Préfon up to the normal deduction limits. If you have opened a PER for your child (whether a minor or of age but still within your tax household) you can deduct the payments even if they payments were paid by your own parents (the child’s grandparents) Children have their own deduction amounts even though it is not necessarily stated on the tax return.

    Are you a French tax resident who owns a house in the UK?

    By Andrea Glover - Topics: France, Tax in France, UK property
    This article is published on: 4th May 2021

    04.05.21

    UK Property Matters

    I thought I would write this month about the topic I am asked most frequently about at the moment by clients and prospective clients, which is the subject of owning property in the UK as a French tax resident. 

    There are many reasons for deciding to keep properties in the UK when moving to France. Whether it be a ‘bolt hole’ to go back to for those that frequently return to the UK for family or work, or as an investment to generate rental income to supplement retirement. 

    There are several potential French and UK tax consequences to consider, when owning property in the UK, which I will cover in general terms by each specific tax area.

    UK Property Tax

    Wealth Tax

    Wealth tax in France is called Impôt sur la Fortune Immobilière (IFI). The assets that are taxable under IFI are all worldwide real estate and investments in real estate which includes, amongst others, the main home as well as second homes. Business property assets are exempted subject to certain conditions.

    The tax is triggered by eligible net property wealth of more than €1.3 million. For UK expatriates living in France, foreign assets are exempt from wealth tax for the first 5 years.

    Capital Gains Tax (CGT)

    As a French tax resident selling property in the UK, you are liable to CGT both in the UK and in France.

    Since 2015, the UK has applied CGT on the sale of property of former residents noting that private residence relief, if applicable, is available for the final 9 months of ownership. It is only the gain from April 2015 that is taxable and the normal tax free allowance (currently £12,570) also applies.

    French CGT and social charges are applicable in France on the sale of a UK property and are based on duration of ownership. Some exemptions do apply, for example when the property was the principal residence in the previous 12 months, although certain conditions apply.

    Under the UK/France double tax treaty, UK expatriates can receive a credit in France for any UK CGT paid on the sale of the UK property, but they cannot offset any UK CGT paid against a social charge payment.

    UK property rental income

    UK Property Rental Income

    Rental income from a UK property, when resident in France, still requires the completion of a UK tax return.

    As a result of the UK/France double tax treaty, income tax and social charges are not payable in France. However, it is important to note that this income is still declarable in France and is taken into account when establishing the tax bands applicable for all other declarable income.

    Inheritance Tax on a Property Held in the UK

    The subject of French inheritance tax is a complex subject that could justify an article in its own right, but in general terms, under the UK/French Double Tax Treaty on inheritance tax, the UK property would fall under UK inheritance rules and applicable taxes.

    In summary, owning property in the UK has potential tax consequences in both the UK and France and as with all such matters, I would recommend that you seek the advice of a suitable expert in all circumstances.

    French Tax Returns 2021

    By Katriona Murray-Platon - Topics: France, Tax in France
    This article is published on: 3rd May 2021

    03.05.21

    The right to make mistakes

    There is an expression in France which goes “In May, do what pleases you” (en mai fait ce qui te plait). This refers to the fact that any frosty weather will have gone by the end of April and you can go out and enjoy the warm weather. However, there is something very important that needs to be done before we can go out and enjoy ourselves and that’s the tax return. Although the tax return is available online in early April, personally I’m not psychologically ready to deal with my tax return until May and then not even that much! As a former tax adviser I used to do around 200-300 returns for clients between March and June, but I have to admit that doing my own tax return is quite a task and requires preparation. It’s a bit like deciding to do a full Sunday roast; you need to make sure you have all the ingredients because you don’t want to get the meat in the oven and discover that you’ve not bought the gravy!

    French Tax Changes 2019

    If you think French tax is daunting, you’re not alone. The French themselves find their tax returns difficult and the French authorities know that it isn’t easy. Moves have been made in recent years to simplify the system with information being automatically declared by employers and banks so that it appears in the tax return, but there is still information that needs to be checked and other information (like expenses or tax credits) that must be included to calculate the tax correctly.

    The preferred method of declaration is online, or even through an app on your smartphone or tablet. However, whilst the French authorities would prefer an online declaration, if this is your first year declaring or you really can’t do it online, you can submit a paper return.

    Tax Calendar

    The deadline for a paper French Tax Returns 2021 declaration is 20th May this year whereas the online deadlines are:

    • 26th May for departments 1 to 19 and for non-residents
    • 1st June for department 20 to 54
    • 8th June for departments 55 to 976

    These dates relate to the place where you were resident on 1st January 2021.

    Even though the French tax authorities are trying to make the system simpler, even introducing an “automatic declaration” this year for those 12 million French tax payers with income and expenses already known to the authorities, the Finance Minister knows that people still make mistakes. The most common of which is failing to declare a child who is in college, lycee or university. Another is that if you opted for the marginal rate on your interest and dividends before, the option is carried over and the box 2OP already ticked on the declaration but an alert message will appear if this regime is not the most favourable. The ten most common errors can be found on the website oups.gouv.fr. Costs for childcare for children under 6 years old, confusion over who includes the child when the parents are separated or divorced and tax deductions for charitable gifts are among the most frequent mistakes.

    Since a law introduced in 2018 to help improve the relationship between the administration and the general public, you now have official permission to make mistakes in your declaration. You are presumed to be declaring in good faith and you have the right to make a mistake when making your declarations without being penalised from the outset. Any individual or company can amend, either voluntarily or if requested by the authorities, their mistake if it has been committed in good faith and for the first time. This doesn’t cover fraudsters or repeat offenders and whilst it means you can avoid a fine you will still have to pay any extra taxes that are due. Tax advisers and accountants are mad busy at the moment, so if you haven’t already found one to do your tax return they will be very reluctant to take you on now. However, some tax offices may allow you to make an appointment and bring your papers and information to do your tax return with them. You have an official right to make a mistake and as long as you submit something before the deadline, you can then correct it later.

    The first time I did a roast dinner as a student I had to call my grandma (a former professional cook) and I am happy to say no one got food poisoning! Like many things in life, these things can seem daunting to begin with, but if you do your best and follow the instructions, you will be proud of yourself once it is done and then you can go out and enjoy the sunshine with a large glass of wine!