Carefully planning your finances and retirement pension will enable you to make the most of living in France when you retire.
With France’s climate, excellent food, wine and laid-back lifestyle, not to mention the excellent health care system, value-for-money properties and the fact that older people are really respected, France remains high on the list of dream destinations for expat retirees. In a recent survey of 1,500 people, 15 percent said that France was their ideal retirement destination.
However gorgeous the wine and weather, you still need money to live on – and you don’t want it to run out. So it’s important to think about how much money you’ll need in your retirement, and how to plan your finances so that you have enough.
You won’t have the costs associated with employment, such as commuting and work clothes for example, but the cost of living in France may be different to what you’re used to, and you may need to factor in trips back home and money for unexpected costs like house repairs or medical bills.
It’s important that you make your money work for you. You may be eligible to improve your pension fund and earn more from it; you may want to make new investments. You’ll also need to protect your income by paying as little tax as possible. And what will happen to your estate when you die?
Here’s our brief guide to financial planning for retirement in France.
Who can retire in France?
First of all, unless you’re from the EU, if you want to retire in France, you’ll have to prove to the French authorities that you have a pension or other means of financial support, as well as a health plan to meet the cost of healthcare. While citizens of EU/EEA/Switzerland enjoy some health benefits (see below), it’s still a good idea to take out extra cover.
Pensions from your home country
If you quality for a UK state pension, you can claim it in France and have it paid directly into a French bank account in euros without incurring any transfer fees or bank charges. Private pensions are normally paid in sterling into a UK bank account and you have to convert and transfer it into your French account. Setting up an international account with both sterling and euros avoids transfer fees. It’s sometimes possible to agree a fixed rate of exchange for up to a year in advance via a currency broker (but check they are authorised by the Financial Conduct Authority).
US citizens can also take their US-based pension to France. You’ll have to inform the US tax authorities that you’ll be paying French income tax on it.
Expats from other countries (including the EU/EAA) should check the situation with the state pension service in their home country.
Final salary scheme pensions, where the pension is based on your final salary and years of employment, are increasingly rare but are often the best value as they are guaranteed and inflation-linked. So it’s probably best to keep those where they are.
Private pensions often provide a lump sum on retirement. While these may be tax-free in the UK, the sum is taxable in France. As UK pensions don’t have a surrender value, they are not liable for French wealth tax (see below).
UK citizens: QROPS
If you’ve got a private or workplace UK pension, think about transferring your pension to an overseas pension scheme – Qualifying Recognised Overseas Pension Scheme (QROPS) – in France or offshore (e.g Isle of Man). HM Revenues and Customs (HMRC) started up QROPS in 2006 and since then have received over GBP 1.3bn in transferred funds. You cannot transfer your state pension, or some final salary schemes, into a QROPS.
Transferring out of the UK system can protect your money against currency fluctuations
Benefits of QROPS
- You can ‘draw down’ your income as and when you need it rather than taking an annuity, which often provides a much smaller pension. The amount you draw down can vary too.
- The tax-free cash lump sum is 30 percent with a QROPS-approved scheme, rather than the 25 percent of the UK schemes. However, it might be better to take this while you are still a tax resident in the UK if possible, as you may be taxed in France if it is over a certain amount.
- The tax liability at death can be greatly reduced or removed completely with QROPS. Your beneficiaries could pay up to 55 percent on a UK workplace pension if the amount is over the lifetime allowance of GBP 1.5 million (2013–14 amounts).
- You will extend your choice investments beyond the UK, which is important in the current economic situation.
- You won’t incur charges to convert sterling into Euros.
Remember: You may still pay UK tax charges on payments made from the QROPS if you are UK resident when the payment is made, or earlier in that or any of the five previous tax years. If you’re under 75, and the transfer will use up more than your lifetime allowance, you will be taxed 25 percent on the excess.
You must use a qualifying recognised company
You must use one of the recognised schemes otherwise you will pay tax on the transfer – and in any case, your UK pension may refuse to make the transfer. The HMRC has a regularly updated list of qualifying schemes in France and other countries around the world that comply with their conditions. Not all schemes will be on the list, so check with individual companies.
You can contribute to an IRA (Individual Retirement Account) but you must have earned income not excluded by Foreign Earned income Exclusion (FEIE) and the Foreign Housing Exclusion (FHE) in order to do so. If there is no US tax liability then there would be no tax benefit in contributing to an IRA but would be taxed when withdrawn in retirement. In this case, it makes sense to make contributions to a Roth IRA, which offers no immediate tax breaks but can be tax-free in retirement. You can also convert an IRA to a Roth IRA.
For more information on IRAs and Roth IRAs, see Retirement planning for American expats.
If you’re an EU resident in France, you qualify for retirement when you reach the retirement age set by your home country (not the French retirement age). As long as you have a Form S1 you will receive health cover and pay nothing into the French Social Security System.
Investments in France
Fonds en Euros
This is where the company decides where to invest on your behalf but guarantees not only that your investment cannot go down in value but also that it must increase by a certain amount every year. Most of the fund is invested in long-tem government securities and the return is secure but very low (currently around 3 percent).
Life assurance bond (Assurance Vie)
French residents can take out an Assurance Vie, which is a life assurance investment bond. These offer preferential tax treatment and inheritance advantages. Investors choose specific investments from a list of funds provided by the company or can create a tailor-made portfolio via an investment manager, if they have larger sums (over EUR 500,000 for example) to invest. You can pay lump sums or regular payments and access the fund throughout its life provided you leave a minimum sum intact.
You don’t pay any income tax if you allow the income and gains to accumulate and you don’t make any withdrawals. When you do withdraw funds, only the growth element is taxed. So, if the policy has grown by 8 percent, then you’ll be taxed on that 8 percent and the other 92 percent is tax-free. The tax rates can also be fixed at different levels over the life of the policy. Assurance Vie can also reduce your wealth tax liability, as this tax plus your income tax cannot exceed 50–85 per cent of the taxable income (depending on individual circumstances) – and the Assurance Vie reduces your taxable income.
On your death, your beneficiary will inherit under extremely favourable tax conditions, even tax-free if you took out the policy under a certain age, for example, 70.
Capital redemption bond (Bon de Capitalisation)
Bon de Capitalisation is similar to the life assurance bond but there are no inheritance advantages. When the holder dies, the value of the policy on death becomes part of their estate. It can also be gifted to someone during the holder’s lifetime.
For French wealth tax purposes, the amount you declare is the initial investment or current value (if lower).
Don’t’ forget to inform the tax authorities in your home country that you’re moving to France. As French residents you must pay tax in France. Most UK pensions are taxed in the UK but you will still have to declare these on your annual tax return. Your tax liability will then be assessed by the French tax authorities.
US citizens coming to retire in France will still have to file a tax return every year, even if all their assets are in France and despite the fact that the US and France have a double taxation agreement. You can only forego US income tax responsibilities if you renounce your US citizenship.
Pensioners are treated favourably, with a 10 percent reduction on income up to EUR 36,600, so you pay tax on only 90 percent of your income. You are also taxed as a household so you probably end up paying less tax than you might elsewhere.
If you have an EU state pension, you don’t have to pay contributions for social taxes or health. If you retire early, you will continue to pay these until you reach the official retirement age.
French wealth tax
You may be liable for French wealth tax, impôt de solidarité sur la fortune (ISF) if you have assets over EUR 1.3 million; you will then be liable for tax on anything over the first EUR 800,000. This includes property, money, shares, cars, household contents and personal possessions.
Your assets are determined by you, not assessed by an independent authority, although if the tax authorities decide you’re liable, they can collect arrears going back 10 years. If you became a resident in France after 6 August 2008, for the first five years you are liable for assets only in France; after this period, you are liable for assets worldwide. There’s a 30 percent allowance against the value of your main home.
New rules about wills and inheritance
If you live in France permanently, under French law you cannot leave your assets to whom ever you choose. If you have children, they will have certain rights over your estate, regardless of what you have set out in your will. Under new 2015 European inheritance rules, expats will be able to nominate either French succession law or the succession law of the country of their nationality to apply when they die. If you do not nominate one of these, the French inheritance rules will automatically apply.
Finance and tax tips
- Know what you have by keeping a detailed, up-to-date spread sheet of your investments.
- Maximise non-euro income by checking exchange rates and negotiating better fixed deals.
- Always take independent professional advice from your bank or pension specialist with knowledge of French and English finance, law and tax matters before making major financial decisions.