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French Tax Situation


mrmulliner
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I hope somebody can help me with this question. I intend to sell my English home and move to France with the equity.As I understand this, I will not be liable for CGT in Britain because it is the sale of my principal residence. Once I get to France, I will rent for a while and look for a property. In this gap between selling my English property and reinvesting the equity in a French one (and I have no idea exactly how long that will take), will I be liable for further tax on my equity/savings which will be sitting in a savings account in France? I have a fear that the fisc will see it as income and tax accordingly.

 

I hope somebody can help me with this query, I've looked on the boards and have not found anything that matches my situation.

 

Mr Mulliner

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You will only be taxed on your equity/savings if your worldwide assets exceed 750.000€. This is a wealth tax.

You will be taxed on any interest you receive on your savings.

Have you investigated not having your savings invested in France? It is not a requirment to invest in France just because you are resident here.

Benjamin

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Hi

We did the same thing ie sold up in the UK and rented until we found the right thing.  We left our equity in a high interest English account until we needed it (which had internet access to it) and then transferred it over when we bought our house.  You then wouldn't have savings in France and therefore may not be liable for further tax??? Hope this helps, good luck with your move

 

Dee&Tom

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[quote user="Sunday Driver"]

Given that interest rates on savings are so much better in the UK, you'd be best off leaving your money there.  You'd still need to declare the UK interest earned for French tax purposes.

 

[/quote]

That does of course depend to some extent on what you think is going to happen to the exchange rate in the near future.

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[quote user="Sunday Driver"]

Given that interest rates on savings are so much better in the UK, you'd be best off leaving your money there.  You'd still need to declare the UK interest earned for French tax purposes.

 

[/quote]

The only problem with this strategy is the volatility of the exchange rate, a 3 cent fall in the value of the pound would wipe out any gain from investing in UK pounds, although conversely any increase would improve the return on a UK pound investment.

When we arrived the pound was at 1.6008 to the €, since then at it's lowest it has fallen to 1.3776 to the €, a fall of 22.3 cents and the average over the period has been 1.4693, a fall of 13.1 cents.

Against todays rate of 1.48590 it would show a fall of 11.5 cents all of which would have more than wiped out any benefit in leaving the cash invested in the UK rather than investing in €'s in France.

The current rate is close to it's highest level over the last year and 6.1 cents above it's lowest level -

so the question is, do you want to take a gamble and do you feel lucky?

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I agree that keeping savings in one currency and spending money in another is always going to expose yourself to currency fluctuations but long term interest rates have been higher in the UK than on the continent for as long as I can remember. This can have a significant impact on the cumulative value of your savings.

I will make several assumptions here although I'm not trying to be deadly accurate, just trying to illustrate a different point of view. Leslauriers doesn't give any dates but let's assume the rate of 1.6008 was available at the beginning of 2003. Also let's assume that the average UK gross instant access savings account has paid 4.5% and the French equivalent has paid 2.75%.

Say you have £100 to invest at the start of 2003 in the UK, by the end of 2006 with cumulative interest that would amount to £119.24.

If instead you had transferred that £100 to France you would have 160 euros in your savings account at the start of 2003 which, by the end of 2006 would have grown to 178,34 euros. If you then convert the euros back to pounds at todays lower rate of 1.48590 you end up with £120.02, an insignificant difference of  78 pence. Of course if you then did the same calculation for the end of 2007 you would find that even against the adverse exchange rates used in this little exercise you would actually be winning by having left your money invested in the UK.

It can work against you if you fail to take into account the potential effects of higher interest rates on a cumulative basis.

Benjamin

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Benjamin, You make a good point about the effect of cumulative interest over a number of years.

The 78p is in itself insignificant however if your investment was say £300000 then the 78p's add up to £2340 so depending upon the amount invested, in this case the proceeds from the sale of a house then it could be  a significant amount.

In my own case my capital safe French investments have grown as follows;

2002 - 5.51%, 2003 - 5.11%, 2004 - 4.75% and 2005 - 4.50%  all of which has so far been tax free growth.

It is a difficult call and the larger the sums involved the greater the risk of gain or loss - it really is a gamble. For me the decision to change at 1.60 to the pound has been to my advantage but the rates could, just as easily, have gone against me.

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Somebody commented: "You then wouldn't have savings in France and therefore may not be liable for further tax???"

From when I looked into this (and I'm not 100% so please check or others, please do correct me) but, if you come to France with the intention of residing here (France) then you immediately become a resident for tax purposes - i.e. you do not have to be here 183 days, etc. Thus you immediately become liable for tax on your worldwide income and assets (i.e. on income and if above the wealth tax threshold, wealth tax as well). It thus makes no difference if your savings are in the UK or France - tax will be due in France. Due to the dual taxation agreements you will not have to pay both in France and the UK - but a lot of the higher interest rate savings account often allow you to be paid gross anyway (which I would have thought would simplify your French tax return). I think it works that the tax paid in the UK is offset against the tax due in France - but others can comment better on how this works in practice.

I agree that UK interest rates for savings are far better than € zone rates (at the moment) and it is fair comment about being exposed to exchange rate fluctuations. I guess where you keep your money will depend on how "tight" your budgets are and how risk averse/cautious you are.

Ian
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Ian and Leslauriers

As in everything to do with savings and investing (and many other things)  it's all to do with timing.

Ian, you raise the point of gross interest paying savings accounts in the UK. For anyone contemplating the move from the UK to France and wishing to keep their savings in the UK this is quite an important point.

If cosidering a move it is best to arrange a gross paying savings account before you move. This will not save you any tax but it will save you applying to HM Revenue and Customs for a retrospective refund of tax paid. If you are unlucky enough to get "lost" in the UK tax system, then waiting several months for the refund can be very frustrating.

I suppose the second point to mention here, although it's been flogged to death on another thread, is that you might find it very difficult to open the savings account of your choice in the UK after you have left.

Benjamin

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