Friends Retiring

[Gardian]

Sorry folks - I think that I know the answer, but just need to check.

Long phone conversation with an old pal tonight. They've had a residence secondaire down here for years and are now reaching retirement age (he 64, she 59).  By the way (I think / sure that), I can advise them accurately on health cover (E forms etc, so OK on that).

He expects to retire at ye2010, with income from various pensions: some from the public sector, some from the private. (Not enormous amounts - he says! - but that's irrelevent to the question). he will move out here permanantly wef 2011.

She will continue to work for the immediately foreseeable future in the UK on a contract basis to organisations providing advice to local authorities. She'll zip back & forth for dollops of 2-3 wks depending what's on and how much time she wants to spend with her daughter & grandchildren. Other pension income from former employment in the state sector.

My view is that they will be regarded (and should seek to be treated) as a married couple, with all their income taxable here in France. Obviously, the amount of time she will actually spend in the UK is undefinable at this point in time, but my take is that you can't hop around from one tax regime to another.

Or can you?  Any advice much appreciated.

 

[Araucaria]

I believe that the answer is a bit more complicated than just "all their income taxable here in France".

Her income will be from an employment, or conceivably she'll be self-employed, in the UK. That will mean that the UK will have the first taxing rights over her income, with the French also having the right to tax it and give a credit for the UK tax. Whether employed or self-employed, if the activities giving rise to the income are performed in the UK, it won't matter how much time she spends in the UK or in France, the UK will want its taxes and will have the right to levy them.

As for him, if his public sector pensions are from the central government or from a local authority, the income will be taxable only in the UK. Although it won't be taxed in France, it will be taken into account for determining how much tax they both pay in France.

Both these answers are simplified versions - they'd be sensible to get advice. They will probably end up paying about the same tax as they would if in fact all their income was taxable here in France, but they will find doing their UK and French tax returns a bit more complicated.

You don't say if they actually are married, but perhaps it won't make any difference.

The starting point for the technicalities is the tax treaty between the UK and France. This one: new 2010 France-UK tax treaty

[Will]

We are in a similar position tax-wise, though not retired. I work in England, and pay tax and NI there, though spending a reasonable amount of (officially non-working) time in France; Mrs Will works in France, where she pays French social security. As England taxes us as individuals, Mrs W is of no interest to HMRC (other than the fact that she used to work for them, so we know this answer is correct, and it broadly agrees with the response from Arucaria). France taxes us as a couple - there isn't any choice - so under the terms of the double taxation agreement we declare all of our income from both countries in France, and the tax already paid in England is, effectively, credited against our French liability. The effect of that is that we actually end up paying more tax in France than we would if Mrs W's income was considered on its own, so it's not true when people tell you you won't have more to pay in France if you have already paid tax in UK, but that's by the by.

And having survived a French tax investigation with nothing extra to pay (much to the chagrin of the dragon at the hotel des impots) I am satisfied that this is correct from the French side of things too.

It will be slightly more complicated from your friends' point of view, because the public service pension is taxable in UK whereas other pensions will be taxable in France, but the principle is much the same. I agree that they would do well to use the services of a professional in France because most tax officials don't seem to have much understanding of dual residence and cross-border working and tend to treat cases like ours with suspicion and look for things to pick up upon (such as Mrs W's legitimate business expenses in our case) which can cause a lot of hassle.

You will no doubt have made sure that the French healthcare will be covered by a S1(E106) or S1(E109) before the UK state pension kicks in, in order to avoid having to take out private health assurance.

[PaulT]

[quote user="Will"]

because the public service pension is taxable in UK [/quote]

Just to clarify for some people - a public service pension from the NHS is not taxable in the UK but in France. Each individual trust is the employer within the NHS and not the Government.

Paul

[Will]

P2 - Thanks for the clarification.

[Gardian]

Araucaria, Will & Paul ...................

Thank you very much indeed for your concise replies.

My friend was in the 'I'll need to decide whether to pay tax in France or the UK' camp, until I disillusioned him the other night!  I really don't know where this misapprehension comes from.  

[BIG MAC]

This is a really stoopid question but I have to ask (and no...I am nowhere near retiring worst luck) If you 'retire' to France and have UK pensions paying into a UK Bank account ....which then pays a lesser sum into a French one as 'Living expenses' do you pay French tax on only the money that arrives French side and UK Tax on the UK money?

Stoopid I know! ;-)

[cooperlola]

Big Mac this is in the tax FAQs but broadly for the fully retired - you pay tax on all your income in France when you live in France, unless it is a UK public sector pension.  It matters not one jot where the money is paid - into a UK bank account or a French one or one in Timbuktoo, or a combination of all the above.

[Will]

Not stoopid...

As a French resident you are obliged to declare your worldwide income from all sources. So if a pension sum was paid to you in England, and you transfer part of that to France, you are liable for French tax on the whole amount, not just the part transferred to France. As a French resident you would not be liable to tax in UK on pension income. The exception is public service pensions which under the double taxation agreement are taxable in UK, not France.

[Gardian]

Today's posts prompt me to update re our friends.

Things remain a bit flakey as to exactly what they're going to do re retirement, and that of course will be their decision as to when they make it. However, from the advice given above, I was able to give them a reasonably definitive position on where they might stand re tax sometime in the future.

I knocked up an Excel spreadsheet for taxation over here, which caters for couples with income from the UK, one or both of whom may have had tax already deducted there (see above posts). I had already submitted my own tax return here online, but then plugged those numbers in to the spreadsheet.

Retrieved my assessment online yesterday and the Impots got it right! [6]

Happy to send the s/s to anyone it might help. Only good for straightforward pension / capital interest income.  Talk to an accountant for more complex situations. Email me: no liability accepted for errors by you or me. 

[AnOther]

In the current issue of Connexions there is a piece about the wealth tax being challenged as unconstitutional and the High Court are expected to lay down a ruling in September.

France is the only EU country which imposes such a tax and the thrust of the argument is that it unfairly penalises people who are property rich but income poor. Frankly though I think if I were sitting on worldwide assets of €790,000 but struggling to live on my income I'd do something positive about it !