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Tax Free Pension Lump Sum


andyasj
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As a teacher I receive a tax free lump sum on retirement at 60.  If I go to live in France before this I am told that I have to pay tax on the lump sum.  This, if true, seams most unfair since not all the lump sum is profit but capital I have in effect invested.  Can anyone confirm this and if so is there any way around it.

Cheers, andyasj

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If you live in France then you are tax resident in France and your worldwide income and assets are declared in France, regardless of where they originate or what currency they are in. There are some exceptions, but that's the general rule. The up-side of that is that any tax you pay in one country should get credited against your liability in your main country of residence thanks to double taxation agreements and unilateral tax reliefs.
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Andy

clarify for me

You are a teacher in the UK

You will retire at 60

You will get a lump sum

But you are planning to be in France when that happens. 

By my reckonning you can only be in France for a few weeks in which case the solution is easy, only declare yourself as tax resident after you receive the lump sum.  Or did I miss something?

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I plan to go to live in France about 5 years before I can take my pension, so I will be a France resident when I receive my lump sum.  I remember reading somewhere that local government pensions are exempt from this ruling.  Is this so?  Does a teachers pension classify as such?

Has anyone heard about this Hague ruling mentioned above?

Cheers, andyasj

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 "Or did I miss something?"

Yes lots!!!
Of course there are "ways" round this, but just in case the EU ruling that is surely out there somwhere????  does not surface before the guy moves to France, he will pay tax on his "UK income tax free" lump sum if he has moved to France when he receives it.

What you missed Andy is that you don't choose when to become tax resident in France, you are the day after you set foot here.  It still amazes me the number of people I hear saying "we have chosen or decided to pay our taxes in France", there is no choice[:-))] even if you are a civil servant, teacher etc, you still have to pay tax here on other income like savings interest etc and declare what you were taxed on in the UK.

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I was faced with the same decision when I moved here.  I decided in the circumstances to take no lump sum, but a bigger pension and got round it that way.  Is this option open to you?  If you need the lump sum to purchase a propery then your only alternative, unless things have changed as suggested above, is to move here the day after you get your lump sum (which is what my husband did!)

Ours are  railway pensions, which I think are treated in the same way as teachers' (ie they are not civil service pensions, and are taxed here.)

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I will be faced with this option in 2 years when i am 50 and have decided i will not take the lump sum as i don't want to pay tax on it here. I have the choice. There is an option if you need the money though; it won't suit everybody but it does allow one to have a lump sum on retirement and is a good option if you are still (relatively!) young when your pension appears.  Go to your french bank and get a loan for the equivilent of the lump sum. The interest you will pay on the loan will almost certainly be less than the tax bill. Even if it isn't (and for my circumstances the saving at current interest rates for a loan taken over 10 years is 5000 euros)  you still have the advantage that after the loan has finished, your pension is back to the full amount as you will not have had the reduction in annual pension from commuting a lump sum. Whether this will work will depend on your circumstances. But provided you can get the loan ( and if you commute 25% of your pension for a lump sum, the repayments on the equivilent loan would fall below the limits in france for lending) this option is great if you get your pension early and live a long time after the loan has finished!!!!

mike

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Ron

I understand entirely what you are saying, but read what I wrote, I had assumed (wrongly) that Andy would be in France for a few weeks at most before retiring.

In this case your strict interpretation of the rules has a get out since the authorities would have to prove that you were in France with the intention of remaining there.  You could equally argue for a few weeks, that you were on holiday and then decided to make your maison secondaire your primary residence.

 

For 5 years of course that does not wash at all.  And you are perfectly right you cannot choose, but you can sometimes make small steering adjustments.

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Earlier this year we tried to find an answer as to whether the lump sum was taxable in France. We came to a dead end but luckily still have a couple of years to investigate. This thread has prompted me to find out something definite, re reading the email received from one of the UK tax advisors operating in France they state the lump sum should not be subject to French Tax. That means nothing so will start there and ask them for clarification.

Has anyone paid french tax on the lump sum?

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I worked in Local Government before taking early retirement three years ago.  I understood that if you are in receipt of a pension paid by the government, this type of pension is liable for tax in the U.K although must be declared on a French tax return as it is taken into account when assessing the tax level in France.  I was told this by Newcastle and have also posted about this on various forums and have been advised that this is so. I understand this only applies to pensions paid by the government.   If this is correct would this not also apply to the Lump sum also paid by the government?  In Local Government only amounts under £30000 were not liable for tax when I retired. I'm not sure if this amount is still the same.
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  • 2 months later...
[quote user="NigT"]

Hello Poppy,  Just picked up this via the search facility as I will be in the same situation soon.  Before I start further research did you find anything more on this topic?

 

Thanks

[/quote]

Sorry NigT still haven't been able to find out anything definite, lots of shouldn'ts. Not in France at the moment but seriously thinking of going into the local Impots when we return mid February and asking them if they will tax the lump sum.

Poppy

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Poppy

Why are you making this so complicated when it is so simple?

Which part of : 

"If you receive a lump sum when you live in France then it is taxable as French tax rules apply not UK ones. The way round it is to "live" in the UK until you receive the lump sum."

is difficult to understand?

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Ron, I'm not trying to complicate it I'm trying to simplify it by asking the French tax man.  Just looking through this forum there are so many different answers to the question.

I have asked several tax advisors and a couple said it shouldn't be taxable which obviously means nothing. Another all French firm said it wasn't taxable. They all based their assumption on the fact that the pension was taxable in the UK therefore UK tax rules were applicable to the lump sum.

Has anyone out there  received the lump sum from a UK Government pension while resident in France and was tax payable?

Poppy

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