Retiring to France
As you know France is an extremely popular place for many Irish & British to holiday due to its rich culture, beautiful countryside and fabulous food and wine. There are tens of thousands of expats who have settled in France over the past 20-30 years and have made France their home to work and retire in.
Pros and cons of Retiring to France for Irish expats
- Excellent healthcare system.
- Reduced cost of living that can be lower than Ireland and other Northern EU countries
- Warm climate, hot Summers and mild Winters have attracted Northern EU retirees.
- French property is more affordable if buying in rural towns and villages.
- France is easy and inexpensive to get to/from for Irish retirees and their families.
- France can be complicated from a tax and financial planning perspective.
- French generally tax on world-wide assets.
- French tax authorities look through any Trust based structures which can lead to potential tax planning issues for English speakers.
- Pension lump sums can be taxable albeit at a reduced tax rate.
- Some knowledge of the language would be beneficial but less of an issue in the cities.
- The facilities are better in the larger cities than the countryside
How much do I need to Retire to France?
The cost of living in France can be relatively inexpensive compared with Ireland or the UK. Excluding the cost of accommodation (rental or to purchase) most retired couples could live comfortably on €3,000 per month. The cost of living in France will depend on where you choose to live and your lifestyle. If you chose to live in the countryside the cost of accommodation, food and services is far lower than the cities. If you wish to have a yacht and socialise in the swanky southern port cities then that’s a different financial matter altogether. These retirees are definitely the ones who have planned for their golden years in the sunshine.
If you plan to retire in France, you will need a Residence Visa which is now an major hurdle for many British passport holders. Irish or other EU resident retirees however have the right to permanently live and work in France without a visa.
Top 5 Financial Planning idea’s if Retiring to France
- Utilise a French ‘Assurance Vie’ for any investment money you have saved.
- Avoid the use of any trust structures to shield tax.
- Structure your Private Pension to ensure you don’t get unnecessarily taxed on the lump sum or taxed in UK/Ireland (depending on origin of your pension).
- Inheritance tax planning – if the future beneficiaries are outside of France
- Non-French rental income, Premium bonds, ISA’s, State savings bonds amongst other European or USA financial structures can cause French tax liabilities if not planned for properly.
French ‘Assurance-vie’ (Life Assurance) policies offer tax and estate planning advantages and are commonly used by millions of French residents and especially expats residing in France. Many British and Irish expats utilise them to protect and grow their long term savings.
The French income Tax thresholds can look eye wateringly high when directly compared to British or even Irish tax thresholds but most don’t realise that it is relatively easy to reduce your income tax by using solutions such as an Assurance Vie.
French income tax bands
French tax rate
Up to €10,084
€10,085 – €25,710
€25,711 – €73,516
€73,517 – €158,222
A more detailed synopsis can be viewed on the PWC website https://taxsummaries.pwc.com/france/individual/taxes-on-personal-income
Using the correct compliant life assurance structure with in-house fiscal reporting services can help you significantly lower your tax bill.
French tax benefits of an Assurance-vie
- Tax deferral – income, dividends and capital growth are tax-free within the policy.
- Withdrawals from the policy are taxed very favourably (tax rate depends on timing & growth levels)
- Substantial tax allowance from year 9 on withdrawals
- Inheritance tax benefits for you and your heirs both in & outside of France
- Access to thousands of funds
- Estate planning benefits
- English speaking providers of Assurance Vie based in Ireland & Luxembourg
There is no income or capital gains tax to pay unless you withdraw money from the policy. You only ever get taxed on the growth and not the principal invested.
Therefore, if the policy which starts at €100,000 and has grown by 10%, and you are taking a withdrawal of €10,000, you only pay tax on approximately €1,000 and around €9,000 is considered principal and therefore not taxed.
Policies set up after 2017 have a flat tax rate of 30% which comprises of 12.8% income tax and 17.2% social charges. Total tax of 30% on the pro rata gains portion of the withdrawal.
If you invest for longer than 8 years the income tax rate is lowered to 7.5% rather than 12.8%.
These beneficial reduced tax rates and calculations are only applicable for compliant French Assurance Vie’s and not if you have invested or are taking income from an investment policy that is not French compliant.
Most compliant Assurance Vie providers will calculate the tax applicable on withdrawals and pay this to the French tax authorities on your behalf.
You need to be very careful if investing through an Irish, UK, Isle of Man or USA insurance vehicle that is not French compliant. Income from these policies will likely be taxed using your marginal rate threshold and social charges and not avail of any of the tax benefits detailed above.
Tax-free allowance of €4,600 each year
For investors who own their policy for longer than 8 years the following can be considered tax free. (social charges will apply however).
- €4,600 – Single person
- €9,200 for a married couple
This can be used effectively especially for investors on lower levels of income each year.
Inheritance Tax benefits
An assurance-vie can be used efficiently to reduce French inheritance taxes especially for anyone who has beneficiaries outside of France.
There is a €152,500 exemption for each beneficiary if the policy was set=up prior to the policyholders 70th birthday. If the beneficiary is due to receive above €152,500 then they will be taxed at 20% up to €700,000.
- Above €700,000 there is a 31.25% tax.
There is an extensive range of investment options available in many Assurance Vie’s but few have flexible currency options. There are thousands of funds to choose from and getting your risk level correct is imperative.
Imperius Wealth work with a select handful of Irish & Luxembourg Life assurance companies that are tailored to servicing English speaking expats in France.
These policies from companies such as Utmost Group (Ireland), Prudential International, Quilter Ireland, SEB Life and One Life (Lux) can be structured with commission or without. It’s important for anyone with an Assurance Vie to understand that these pricing variations can have a significant impact on your future returns.
Ideally you should have a plan in place before you become resident in France so you can ensure you don’t fall into any of the tax pitfalls. It is never too early to start planning and we can help you avoid some of the common mistakes.
If you would like to learn more then please email firstname.lastname@example.org to request a call from one of our financial planners.