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, food, and laid-back lifestyle, 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% say that France is their ideal retirement destination.
However gorgeous the wine and weather, you still need money to live on. 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, but the cost of living in France may be different to what you’re used to. 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?
Unless you’re from the EU, 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, it’s still a good idea to take out extra cover.
Pensions from your home country
If you qualify for a UK state pension, you can claim it in France and have it paid directly into a French bank account without incurring fees. Private pensions normally pay in sterling into a UK bank account; you have to convert and transfer it into your own 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 if they are authorized 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. Still, they’re 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 a Qualifying Recognised Overseas Pension Scheme (QROPS) in France or offshore. 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 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% with a QROPS-approved scheme, rather than the 25% 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.
However, 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% on the excess.
You must use a qualifying recognized company
You must use one of the recognized schemes otherwise you will pay tax on the transfer. In any case, your UK pension may refuse the transfer. The HMRC has a list of qualifying schemes in France and other countries around the world that comply with 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). 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 citizen in France, you qualify for retirement when you reach the retirement age set by your country of citizenship. As long as you have a Form S1, you receive health insurance and pay nothing into French social security.
The Form S1, which you get from your own country, is evidence that you’ve reached retirement age, paid social security taxes there, and are receiving a state pension.
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 invests in long-term government securities. The return is secure but low; this is currently around 3%.
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 €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 don’t make any withdrawals. When you do withdraw funds, taxes apply only to growth. So, if the policy grows by 8%, then you pay taxes on that 8%; the other 92% 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% of the taxable income (depending on individual circumstances). The Assurance Vie reduces your taxable income.
On your death, your beneficiary inherits under extremely favorable tax conditions, even tax-free if you took out the policy under a certain age.
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. You may also gift it 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 pay tax in the UK. You still must declare these on your annual tax return. The French tax authorities then asses your tax liability.
US citizens coming to retire in France still have to file a tax return every year. This is the case 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 favorably, with a 10% reduction on income up to €36,600; you pay tax on only 90% of your income. You also pay tax 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 €1.3 million; you will then be liable for tax on anything over the first €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% 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 whomever you choose. If you have children, they have certain rights over your estate, regardless of what you set out in your will. Under new 2015 European inheritance rules, expats may 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 spreadsheet of your investments.
- Maximize non-euro income by checking exchange rates and negotiating better fixed deals.
- Always take independent professional advice from your bank or pension specialist.