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.
UK pensions and tax treatment in 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.
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.
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 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.
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 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.