Guide to changes in France's QROPS legislation
British workers wishing to retire to France should note that their pensions are subject to French regulatory authorities, even those who have transferred their funds to QROPS.
British workers who hope to retire to France need to understand the consequences of their move on their retirement funds. The pensions of retired UK expatriates living in France are subject to the French regulatory authorities and their tax laws. This includes those retirees that have transferred their funds to Qualified Recognised Overseas Pension Schemes (QROPS).
QROPS were initially created in 2006. In 2012, HMRC made adjustments to the rules in order to reign in ‘system abuses’. This included extended and more frequent reporting periods, limitations on tax-free drawdowns – strictly 30% now – for pension funds, and tighter guidelines for those who establish a QROPS and then return to the UK at a later date.
This article provides an overview of how QROPS are currently treated in France, along with some general information that expats should be aware of.
QROPS legislation in the UK and France today
Whether you live in France now, or plan on retiring there at a later date, you should be mindful of changes in French pension legislation. Both pension and tax legislation in France can differ significantly from the British laws that many of us are familiar with.
Currently, any UK pension funds that have been transferred to a QROPS while resident in France can grow without being subject to French taxes. These funds will only be taxed when you take the benefits. However, it should be noted that pension fund withdrawals are regarded as income in France. For those with very large pensions, you should be aware that income taxes and taxes on wealth can be quite high.
For example, income exceeding EUR 71,400 is taxed at 41 percent; income above EUR 151,200 is taxed at 45 percent; income above EUR 250,000 will qualify you for the contribution exceptionnelle sur les hauts revenus, where an additional 3–4 percent will be taxed.
Last year the Loi de Finances Rectificative was enacted in France. The law required UK personal pension schemes to be reported to French authorities if those vehicles offered any tax advantages. This effectively mandates that the pension fund trustees report the market value of the assets of expatriates to tax authorities in France.
Those with very high levels of taxable assets (greater than EUR 1,300,000) should contact a financial advisor regarding the levels of “wealth taxes” in France. Those looking to avoid the 55 percent death tax in the UK should be mindful that there have been several changes to the treatment of expatriate pension income since 2011, and future changes may well occur.
In France, the minimum retirement age is 62. However, individuals are allowed to begin taking benefits from a QROPS at age 55. This corresponds with the current minimum age which people can receive pension benefits in the UK.
Even though UK rules now restrict tax-free, lump sum withdrawals from QROPS to 30 percent, this is still higher than the 25 percent threshold for UK residents themselves.
Uses of a QROPS in France
QROPS don’t have the same level of benefits today that they had in 2006. Regardless, France still remains an attractive retirement destination for many British expats, and QROPS still retain several key advantages, including:
- Tax-free, lump sum payment of 30 percent, rather than 25 percent in UK
- Possibility of taking benefits at age 55
- No required annuity purchases
- Increased investment options
- Reduced exchange rate risk
- Ability to avoid 55 percent death tax in UK
Please note that these advantages aren’t necessarily reason enough on their own to ensure that a QROPS transfer is right for you. Your own personal taste, risk-tolerance, life circumstances and timing should all be carefully considered.
Sean Ross / Expatica
For more information about QROPS and Financial planning, visit Axis Strategy Consultants.
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