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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.

French Tax Changes 2019

By Sue Regan - Topics: Assurance Vie, France, Income Tax, Tax, tax advice, Tax Relief
This article is published on: 31st January 2019

31.01.19

2019 has brought a number of changes to the French tax system. Below is a summary of the principal changes affecting personal taxation.

INCOME TAX (Impôt sur le Revenu)
There has been no change to the rates of income tax of the barème scale, but the tax bands have been increased as follows:

Income Tax Rate
Up to €9,964 0%
€9,965 to €27,519 14%
€27,520 to €73,779 30%
€73,780 to €156,244 41%
€156,245 and over 45%

PAYE (Prélèvement à la Source)
PAYE has been introduced in France with effect from 1st January 2019.
The types of income subject to PAYE include:

  • Income from employment
  • Retirement income, including UK private and State pensions, but excluding certain pensions where tax is already deducted at source, such as UK Civil Service pensions
  • Rental income, including that from French properties owned by people who are not resident in France.

For French source income, the employer or pension provider will deduct the tax at source.

Clearly, where income is generated from outside of France there can be no deduction at source by the French authorities. This means that many expatriates living in France will be subject to a monthly withholding tax on their income. Therefore, starting in January 2019, the tax authorities will collect a sum equal to 1/12th of the tax paid in 2018 (based on income declared for 2017).

Excluded from PAYE is investment income, such as bank interest, dividends, capital gains and gains from life assurance policies.

New residents of France who have not yet submitted a French tax return, will have the option of paying a sum ‘on account’, or be taxed in May 2020, following submission of their first tax return.

Everyone will still be required to submit a French tax return in the May of the following year. Thereafter, the final assessment of tax liability will be carried out, and you will either receive a tax refund or be required to pay any additional tax due, over a four-month period.

If you do not currently pay any income tax, you will not be required to pay provisional monthly payments. Similarly, if you anticipate a significant change to your income during the course of the year you can request that the tax authority alter your tax code. However, if you do so, and your income is 10% greater than advised, you could face a tax penalty of at least 10%.

REFORM OF SOCIAL CHARGES (Prélèvements Sociaux)
Some changes have been introduced to certain social charges, which is good news for some taxpayers.

The main rates for social charges remain the same as for 2018, i.e.:

Source of income Rate
Pension 9.1%
Investment and property rental 17.2%
Employment 9.7%

 

Social Charges on Pension Income
The exemption from social charges on pension income still applies if you hold the EU S1 Certificate or if France is not responsible for the cost of your healthcare.

However, those pensioners who do not satisfy the exemption conditions above, but whose pension income is less than €2,000 per month (or €3,000 for a couple), will now pay a lower rate of 7.4% on pension income.

Social Charges on Investment Income and Capital Gains
From 1st January 2019, individuals covered under the health care system of another EU or EEA country are no longer subject to the existing rate of 17.2% on investment income or capital gains. Instead they will now pay a new flat rate of 7.5%. This new flat rate is known as the ‘Prélèvement de Solidarité’ and represents a saving of 9.7%. It applies to investment income, such as property rentals, bank interest, dividends and withdrawals from ‘assurance vie’ policies, and capital gains realised by both residents and non-residents of France.

In summary, taxpayers can benefit from the new 7.5% rate on investment income if:

  • They hold the EU S1 Certificate
  • They are a non-resident of France earning French source income (i.e. rental income, capital gains on the sale of a French property, etc) and are covered by the health system of another EU or EEA country

ASSURANCE VIE
There are no changes to ‘assurance vie’ apart from the social charges reform detailed above which will benefit some policyholders.
For policies held for more than eight years, the annual allowance remains at €4,600 for individuals and €9,200 for married/PACS couples.

This outline is provided for information purposes only based on our understanding of current French tax law. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.

If you would like to discuss how these changes may affect you, please do not hesitate to contact your local Spectrum IFA Group adviser.

As a British citizen living in France who can look after my financial affairs if I become incapacitated?

By Tony Delvalle - Topics: Estate Planning, France, Trusts, United Kingdom, Wills
This article is published on: 14th December 2018

14.12.18

There has been a huge rise in the number of lasting powers of attorney set up as dementia and Alzheimer’s have become the biggest cause of death.

Power of attorney arrangements allow an individual’s financial and health affairs to be looked after by someone else, the attorney, if they lose mental capacity in the future.

Several million “lasting” agreements have been registered since 2008, when they replaced “enduring” power of attorneys, amid concerns that the rules were too easy to abuse. There are two types of agreement – one covering finances and property, and another for health and welfare. Finance and property is far more popular.

The sharp rise in new agreements – which are set up on average when the donor is 75 – comes as the Office for National Statistics reveals deaths from dementia and Alzheimer’s accounted for almost one in eight deaths in 2015 – a total of 61,686 people – overtaking heart disease as Britain’s biggest killer. It is steadily on the increase.

Many people are still exposed as the majority of people have not appointed a power of attorney. It is possible for someone to take control of your financial or welfare decisions after an individual becomes mentally incapable, this can be a lengthy and complicated process with extra cost, which can cause distress at an already difficult time.

Without power of attorney, friends and family have to retrospectively apply to the Court of Protection and prove why they should assume responsibility. This process incurs court fees and can take up to 16 weeks, leaving money locked into accounts until a decision is made. Add to this an international dimension and it is certainly a complicated problem.

As a British citizen in France you can do either a UK lasting power of attorney or a French mandat de protection future. The choice between which one is best will depend where you intend to live now and the future and where is the main part of your estate.

Let’s look at the UK and French legal systems available in cases of incapacity. The two different types of lasting powers of attorney in case of incapacity in England are Health and Welfare, and Property and Financial, whereas in France there is only one the mandat de protection future.

UK Health and Welfare covers

  • Daily routine
  • Moving into a care home
  • Life sustaining treatment

UK Property and Financial covers

  • Managing bank or building society account
  • Collecting benefits or a pension
  • Selling their home

French Mandat de protection future covers all aspects of a persons financial and health well being.

1) As a British citizen living in France, which law would govern the administration of your estate in case of incapacity?
– French law will be applicable under the provisions of the Hague Convention

2) What does French Law use to protect people from incapacity? The Mandat de protection future is one choice and covers all aspects of a persons financial and health well being.
* Trusteeship
* Guardianship

3) Could you prepare for a physical or mental incapacity by appointing somebody you trust to administer your estate, pay your debts, manage your income in France?
Yes of course.

4) Would that power of attorney be applicable and enforceable abroad?
Yes it would be efficient in most countries and in 100% of the countries who ratified the Hague Convention such as England and Wales. In other words you could prepare a LPA or mandat de protection future and both should be applicable.

5) Does the French power of attorney have a limited scope? Can the attorney sign a deed of sale on your behalf?
a) Notarial mandate (notarial deed extend the power of the guardians up to the possibility of selling the estate)
b) Mandate not supervised by the Notaire (mere administration by an appointed trustee + the Judge)

So both are legal and which one is best for you may depend on a number of factors. What your assets are, where they are held and in what way, jointly, individually, what you want from them, inheritance planning etc.

The most important thing is to do something. Taking good legal and financial advice before you do to see what is best for you and avoid potential future problems when you least need them is imperative.

Le Tour de Finance autumn events

By Spectrum IFA - Topics: Events, France, Le Tour de Finance
This article is published on: 23rd November 2018

23.11.18

The latest Le Tour De Finance seminar, which was held on the 15th November at the magnificent La Chartreuse du Bignac hotel near Bergerac, was yet again a successful event with maximum attendance.

Attendees, who were a mixture of existing clients of The Spectrum IFA Group and those wanting to hear more about the services and financial solutions presented, had travelled both locally and from other regions in France.

Presentations were given by representatives from Prudential International, Tilney Investment Management Services, Currencies Direct and The Spectrum IFA Group. Topics discussed included recently introduced changes to Assurance Vie (the most tax efficient savings and investment vehicle available in France), the suitability of transferring UK pensions to overseas schemes, investment market outlook and the current sterling to euro exchange rate and solutions available to help mitigate exchange rate volatility.

Unsurprisingly, Brexit featured widely in the informative question and answer session that followed. Although many answers are yet to be determined, attendees were left reassured that The Spectrum IFA Group and its partners were well informed on both the technical detail of Brexit and the practical implications for anyone living or working in France.

Portability of financial products, such Assurance Vie, for an expatriate returning to the UK, was another area of interest in the question and answer session and guests were provided with example scenarios regarding the flexibility that such products offer.

The key message that came out of this event was the importance and benefit, even for the financially experienced, of seeking professional, independent advice. The audience was reminded, in these uncertain times, that it is critical to ensure that all aspects of our personal finances are properly structured, for both legitimacy within the French fiscal system and for maximum tax efficiency ahead of any potential changes in the months and years ahead.

Questions and discussions continued during an informal lunch (in the chateau’s beautiful dining room), during which guests and speakers alike found no shortage of topical subjects for conversation.

Feedback from the event has been very positive. One guest commented “”I enjoyed the day and found it helpful and thought provoking. I also liked the format and thought it much better than the usual sales pitch that one often encounters with perhaps some other organisations. The interactive exchanges added real value.”

We are planning to hold further seminars next year and will provide details on Le Tour de Finance website. See www.ltdf.eu for further information.

Le Tour De Finance Bignac hotel near Bergerac
Le Tour De Finance Bignac hotel near Bergerac
Le Tour De Finance Bignac hotel near Bergerac
Le Tour De Finance Bignac hotel near Bergerac

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.

Are you thinking of selling your UK property or have you sold one recently?

By Tony Delvalle - Topics: France, Property, Tax, UK property
This article is published on: 17th September 2018

17.09.18

Some UK solicitors have failed to inform clients of changes in UK legislation from April 2015, resulting in unexpected late payment penalties from HMRC for failure to complete a form following the sale of their UK property.

Recap of the new legislation
Prior to 6th April 2015, overseas investors and British expats were not required to pay Capital Gains Tax (CGT) on the sale of residential property in the UK, providing that they had been non-resident for 5 years. New legislation was introduced on 6th April 2015 that removed this tax benefit.

Since 6th April 2015, any gains are subject to CGT for non-UK residents. The rate of CGT for non-residents on residential property is, as for UK residents, determined by taxable UK income i.e. 18% basic rate band and 28% above, charged only the gain.

Reporting the gain and paying the tax
You must fill out a Non-Resident Capital Gains Tax (NRCGT) return online and inform HMRC within 30 days of completing the sale.

Those who do not ordinarily file a UK tax return must pay the liability within 30 days. Once you have notified HMRC that the sale has taken place, a reference number is given to make payment.

As a French resident you must also declare to the French tax authority.

The Double Taxation Treaty between the UK and France means that you will not be taxed twice as you will be given a tax credit for any UK CGT paid, but you will be liable to French social charges on any gain.

There is little to mitigate French tax on the sale of property that is not your principal residence. So, it is important to shelter the sale proceeds and other financial assets wherever possible to avoid unnecessary taxes in the future.

One easy way is by using a life assurance policy, a Contrat d’Assurance Vie, which is the favoured vehicle used by millions of French investors. Whilst funds remain within the policy they grow free of Income Tax and Capital Gains Tax. This type of investment is also highly efficient for Inheritance planning, as it is considered to be outside of your estate for inheritance purposes and you are free to name whoever and as many beneficiaries as you wish.

Le Tour de Finance – Saumur 49400

By Amanda Johnson - Topics: France, Le Tour de Finance
This article is published on: 13th September 2018

13.09.18

The Le Tour de Finance roadshows give those either living in France, or in the process of moving here, a great opportunity to speak directly to industry experts who are not normally in direct contact with the public.

Where – Château Gratien Meyer, Route de Monstsoreau, Saumur 49400 (www.gratienmeyer.com/en/ )
When – 14th November, 2018

The event starts at 10.00am and ends at 1.30pm after a free buffet lunch.

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Next step for the PEPP saga

By Daphne Foulkes - Topics: France, PEPP, tax tips
This article is published on: 4th September 2018

04.09.18

To date, many organisations have submitted detailed responses to the European Commission’s (EC) draft PEPP Regulation, which was published on 29th June 2017. There is strong consensus for the merit of the PEPP, both by the Trilogue participants (European Commission, European Parliament and the Council of Europe) and other stakeholders. However, potential obstacles still exist and, unless pragmatic solutions are found, there is the risk that the PEPP could be launched but the take-up may be low.

Therefore, as the PEPP enters its next stage of Trilogue discussions, it is important that the voices of the potential PEPP providers and distributors are still heard, since these stakeholders are well-placed to highlight practical difficulties that would adversely affect the success of the PEPP. A cross-section of these stakeholders came together at the FECIF European Pensions Institute’s (FEPI) inaugural meeting in June. A FEPI position paper has subsequently been produced, which provides detailed analysis, whilst a brief summary of the FEPI’s views is shown below.

Tax Incentives:

It is very important that a pragmatic alternative solution be agreed by the Trilogue, rather than being left until after the Regulation has been enacted. Theoretically, a fully separate tax regime – i.e. a 29th regime – applicable across all of Europe would be ideal in terms of simplicity and portability. However, it is understood that this is not likely to be accepted by Member States.

Therefore, the FEPI recommends that sub-sections can initially be limited to EET (exempt/exempt/taxed) and TEE (taxed/exempt/exempt), as these would align with the majority of Member States’ local taxation rules. If desired, EEE & TTT sub-sections might also be created for alignment with other Member States, as demand arises. Obviously, the tax regime applicable to any PEPP participant is based on the participant’s tax residency, as is the case for all retirement products today, backed up by the rules of existing Double Taxation Agreements.

Default Investment Option: Two possibilities are now on the table:

A nominal ‘guarantee on capital’, to cover at least the contributions paid (net of fees and charges) as a minimum, which can be extended by the PEPP provider to include inflation protection.
An ‘investment strategy directed at ensuring capital protection of the saver on the basis of a risk mitigation technique’ – more simply known as a life-cycle approach

The opinion of the FEPI is that the PEPP framework should allow for both of the above, if necessary shaped at a local level, according to national rules or custom. As detailed in the FEPI position paper, the guarantee on capital should be real (not nominal). In addition, there is merit in using life-cycle investing as the basis for a default option for retirement planning, even for investors that may have a more cautious attitude to investment risk, depending upon the time horizon of the investor.

Decumulation Options:
Whilst a single regime for the PEPP would be ideal in terms of simplicity and portability, it is understood that this could present issues for Member States if, for example, this resulted in the PEPP being granted a more favourable treatment than a local Personal Pension Product (PPP). Likewise, if a local PPP had more favourable treatment than the PEPP, this would serve as a deterrent for someone investing in a PEPP.

Therefore, the general consensus of the FEPI is that within the framework of the PEPP, decumulation options should be broad, covering all potential pay-out variations, allowing for PEPP providers to shape the PEPP according to local rules.

Notwithstanding the above, the more complex the product, the greater the costs of administration, which will directly impact on the investment returns to the consumer and so an appropriate balance must be found.

Distribution & Advice:
It is arguable that PEPPs should only be sold on an advised basis, even if the saver has chosen the default investment option – whether this be a real capital guarantee or a lifecycle investment option. The impact of national pension entitlements, varying decumulation options and retirement ages, particularly if the PEPP saver has cross-border accumulated benefits, strengthens the need for the PEPP saver to receive appropriate advice, regardless of the amount being saved.

At the very least, the requirement for an appropriateness test should be a pre-requisite in all situations, as a minimum level of saver protection is always necessary. Decisions concerning pension products are numbered amongst the most important that each saver is expected to make in his/her life.

The question now is will the Trilogue be able to reach a consensus on the PEPP that is acceptable to all stakeholders?

Due to the importance of the PEPP, a round table will take place at FECIF’s forthcoming Annual Conference taking place on Wednesday, 17th October 2018 at the Renaissance Brussels Hotel, Belgium. This is a major event and, amongst other issues, will address two significantly important and relevant areas:

Personal retirement planning across the EU, not least the Pan-European Pension Plan
The rise, development, importance and future role of Fintech

The event will ask, and look to answer, numerous key questions, such as: how can we stimulate private pension provision and motivate consumers to take personal responsibility for their financial futures; can the PEPP provide a solution and is a truly pan-European pension possible; can Fintech assist in these areas and, if so, how?

Speakers and participants will be key individuals from EU regulatory bodies and consumer associations, academics and MEPs, as well as numerous major industry figures.

This article first appeared on FECIF website

Daphne Foulke is the Chairperson of FEPI, Board Member of FECIF and Partner at The Spectrum IFA Group