Move from uk to french tax regime

IF you are resident in the UK, most income will suffer taxation at source as this is how the British tax system works. Conversely, the French tax system does not operate a

'tax-at-source' system, waiting to tax income once the annual declarations have been submitted. Accordingly, when moving from one system to the other there will be issues. The

general principle is that, as a result of moving from the UK to France, most UK income will cease to be taxed at source in the UK and will then be taxed by France at the end of the tax year

- once the annual French déclaration de revenus is submitted. However, in order for this to be effected properly - the change of fiscal residency has to be correctly notified to both the UK

and French tax authorities. Therefore, when someone moves to France from the UK, ideally, they should do the following to ensure they change their country of tax residency. First, complete

the HM Revenue & Customs (HMRC) form FD5 Individual in both English and French (you can find it on their website). Retain both the English and French originals. Send a copy of the

English version to the HMRC's Centre for Non-Residents in Nottingham for their information, and pending the original's eventual arrival via the French tax office. Send a copy of

the French version to the local French tax office, together with a recorded delivery letter (with proof of reception), that simply states that you (and your family) have taken up French

residency at the address on the letter. Wait until you submit your first French tax return showing worldwide income and send with it both the original English and the French FD5s as well.

The local French tax office will retain the French copy of the FD5 and send the English version to their international department in Paris. These, in turn, will send the English form to the

Centre for Non-Residents in Notting-ham, which will eventually authorise the non-UK residency status. As a result, they will notify the taxpayer's main tax district in the UK, this main

tax district will then have to notify any other UK tax districts dealing with the taxpayer's income in order that it is all paid gross, that is to say without the deduction of UK

income tax. However, the following incomes will always be paid net of UK income tax: UK 'GOVERNMENT' PENSIONS Under the French tax system, 'government' pensions, while

taxed in the UK, are not taxed anew in France, but this income can adversely affect the tax rate at which any other income assessable to French income tax will be taxed at - essentially by

increasing that tax rate. UK BANK INTEREST AND DIVIDENDS UK bank interest is now paid net in the vast majority of cases due to the reluctance of banks and similar interest paying

institutions to be caught incorrectly paying someone gross when they should have been paid their interest net of tax. This said, it is possible to reclaim manually the income tax paid on

bank and building society interest from HMRC’s Centre for Non-Residents. However, it is then the gross interest income that has to be declared on the French tax déclaration des

revenus'. It is invariably cheaper in tax and social charges overall to declare the gross interest and reclaim it back from the UK. UK LIFE ASSURANCE INVESTMENT BOND WITHDRAWALS

Unfortunately, tax suffered withdrawing UK investment bonds cannot be accounted for in France, and so the chargeable amount included in the withdrawal will be taxed twice: in the UK within

the contract and in France by direct assessment. With regards to how long it takes for the FD5s to filter through the system - it is a variable issue. It is around the start of the summer

holiday season when the French Fisc will raise the assessment on income before the HMRC have had a chance to refund the UK income tax. While there is nothing incorrect with submitting the

FD5 as soon as you wish, the French tax offices increasingly refuses to deal with them as there is no proof of the change in fiscal residency to France. This only comes when the French

déclaration des revenus is submitted in the following May, and showing worldwide income. Accordingly, it can be seen that ensuring transition from the UK tax system to the French one can be

a long drawn-out affair, sometimes causing cash-flow issues as tax assessments are issued before tax refunds are obtained. The final situation will nevertheless be that incomes will, in the

main, be paid without tax deduction from the UK to then be taxed at the end of the year in France. This leads to another issue - that of the currency conversion rate to be used with regards

to foreign income. Whether a rate of exchange is required is dependant on whether the income is paid from the UK to a UK bank or one in France. If to a French bank, then there is no issue as

the exchange will have occurred in the banking system and the euro value will already be available. If income is paid in sterling, then the total income for the tax year in question has to

be converted into euros at the average exchange rate for the year. While some incomes can only be paid in the UK, such as interest on bank deposit accounts, other income - such as pensions -

can be paid directly in euros. Many taxpayers ask their pension provider if they can pay the pension in euros and usually get a negative response. This is because the question implies that

the pension provider will have to engage in currency exchanges - which they are not prepared to do. However, if the taxpayer asks the pension provider to pay the pension into a French bank

account then the pension provider has no option but to agree and the exchange will occur in the banking process. While it is true that a lower exchange rate may be obtained with this latter

method, there are two benefits: The fact that a whole year's income is not converted at one average exchange rate may result in a small pecuniary benefit, but then it may not, depending

on the movement of the currencies in question during the year. French banks are not supposed to make banking charges for the receipt of regular foreign pension income each month, possibly

creating small savings in bank charges. As always the case in these instances, it is best to discuss the matter as it relates to you, individually, with an appropriate professional. HUGH

MACDONALD WISHES TO THANK MICHAEL ANNETT OF THE ANNETT CONSULTANCY FOR HIS INPUT. The information above is of a general nature and you should not act or refrain from acting on it without

taking professional advice on the specific facts of your case. No liability is accepted in respect of this article. Financial planning is a complex subject and these articles are intended

only as a general guide. Nothing herein constitutes actual financial advice.