The most efficient way to live off a lump sum in France?

[malheureusement]

We live in the UK and are considering a move to France. We don't intend to work, just live off the interest from a lump sum. We have not reached pension age.

In the UK the tax on our savings is 20% but in France the deductions appear to amount to a lot more.

I believe we could become resident in France but leave the cash in the UK for better interest rates and have the interest paid gross and then have it taxed in France. As bank interest is "unearned income" I believe this results in social charges of 11%. Then health charges of 8% (plus top-up policy).

I have read about Livret's which are small amounts and Assurance Vies which seem to have poor interest rates and penalties for withdrawing cash in the earlier years. I have been burned with shares before so don't fancy those via a PEA.

I am aware of succession issues but aren't worried about those yet and am just interested in establishing if living in France is financially viable.

I would be grateful for any suggestions of how to use the lump sum to reduce the deductions.

 

  

[Bob T]

Don't forget that in the UK each of you has a pesonal allowance before you pay tax, wheras here you have a combined allowance. On my pension of around €8500 per annum, I pay tax in the UK as it is a military pension, but if I could have it taxed here I would probably pay nothing. I don't have any social charges to pay on that, and have not been asked for any health charges yet. I was on an E106 till the end of last year, so may have a demand for health charges this year.

[Gluestick]

One anomolie and incorrect assumption.

CRT (Composite Rate Tax) is the withholding tax deducted by a bank or other institution in the UK, on investment income which is outside any sheltered scheme (e.g. PEP, ISA).

Your income tax is in fact due on the gross interest, less any personal allowance; then the CRT is deducted, since you only pay tax once.

In order to live from your investment income in this way, you must firstly decide on two critical matters:

1.    How long do you plan to do this?

2.    Will you need all or part of this capital in the future?

Living from an interest stream seems attractive, however always remember that if you take out ALL the interest, then over time, your capital is rapidly depreciating due to inflation.

As always, there's a choice!

Investments are classed as "Income" and "Performance"; income is obvious: performance simply means capital growth.

Most good investment offer both: i.e. capital growth and an income stream.

That's why a good mixed stock portfolio is popular, since with careful selection of shares, over time they increase in value above inflation, plus the dividends provide income.

That said, markets have been far too uncertain for over ten years to meet these objectives.

That's precisely why Buy to Let became so popular in the UK: the rental income provided an income stream: and the capital value increased well above inflation. This trend has now reversed and those BTL portfolios which are highly leveraged (borrowed) are finding it difficult to meet their mortgage obligations as rent rolls decrease: mainly since there is now a glut in many locations.

Personally, at this moment, I would be very careful in making your plans: lots of uncertainty in global capital markets at present!

 

[malheureusement]

Gluestick,

I'm not sure what you mean by the incorrect assumption. What you say is what I thought, perhaps I just didn't express myself correctly.

I understand your comments re living on investment income but have no worries as I have done that for some years already.

 

 

 

[Gluestick]

[quote]Gluestick,

I'm not sure what you mean by the incorrect assumption. What you say is what I thought, perhaps I just didn't express myself correctly.[/quote]

Simply this comment.

[quote] In the UK the tax on our savings is 20% but in France the deductions appear to amount to a lot more.[/quote]

The tax on any form of income is according to the ruling tax rates less personal allowances.

CRT is charged in fact at 22%: the tax paid is offset against core income and tax due.

Thus those on limited income can receive all of the CRT back: or apply to HMRC for a waiver.

 

[allanb]

[quote user="Gluestick"]Your income tax is in fact due on the gross interest, less any personal allowance; then the CRT is deducted, since you only pay tax once.[/quote]But if you become resident in France, this will no longer be true.

[Gluestick]

In which case one would apply for a waiver from CRT.

As I suggested.

 

[allanb]

[quote user="Gluestick"]In which case one would apply for a waiver from CRT.  As I suggested. [/quote]So you did, but I think you may have given the impression that the waiver has something to do with having limited income.

My point was that if the OP becomes a French resident his UK interest will be taxable only in France, and any tax deducted in the UK will be reimbursable, regardless of the amount of his income.

Of course a waiver will avoid the need to claim the reimbursement, but I don't know how long it takes to get a waiver implemented by a bank.  I suppose tax will continue to be deducted while the waiver process is going on.