Headdon Consulting is a French registered company offering independent legal advice and assistance to English speaking people around the world who are purchasing, selling or own real estate property in France, whether it be a holiday home, a principal residence or in connection with a small business.

It would appear that an increasing number of people are retiring to France with occupational or state pensions being their only or principal source of income.  This issue of the week deals with some of the basic taxation aspects of pensions. 

Tax Residency
Those people physically present in France for more than 183 days in a year are deemed to be tax resident there (be the presence continuous or discontinuous).  It should also be borne in mind that even those physically present for less than this period may be deemed to be tax resident in France should France constitute their centre of economic interests, for example. 

If tax resident, it is your obligation to make an annual tax return.  France does not operate any distinction between tax residency and domicile (as in the UK, for example) so all of one’s income, wherever it arises and even if not repatriated, is liable to French tax and must be declared.

Tax Treatment of Pensions
The taxation of a pension, be it state or occupational, of somebody resident in France receiving a pension from another country will be governed by the double taxation treaty between France and the country where the pension is based. 

For example, the taxation treaty between France and the UK specifies that the pension is to be taxed by the country where the person receiving the pension is resident (save for certain pensions paid to government servants which are taxed solely in the UK ).  Therefore, if you are French resident, you will need to declare your UK pension on your annual French tax return.  It is advisable to apply to the Inland Revenue to request that your pension is not taxed at source.  Although you will not be subject to double taxation, you will receive a tax credit for the UK tax paid so taxation in both countries will increase the administrative burden unnecessarily (as you are liable to pay French tax anyway, regardless of whether the UK has taxed first, it is easier to proceed on this basis).  More information about this (as well as forms) can be obtained from the UK Inland Revenue’s website at: www.inlandrevenue.gov.uk.

Certain types of private pension can be tax inefficient in France and it may be advantageous to consider early draw down or some other arrangement prior to becoming tax resident in France (you will effectively be French tax resident from the time that you move to France).  Specific advice from a financial adviser may need to sought in this regard.

Calculation of Tax in France
A French resident pays tax in accordance with his or her personal situation on a sliding scale.  There are a number of reliefs and allowances that may be applicable.  For taxation treatment of pensions, a deduction of 10% is normally applied to arrive at the taxable amount.  For income up to 4,191 Euros, the tax rate is 0.  Between 4,191 Euros and 8,242 Euros it is 7.05%; between 8,242 Euros and 14,506 Euros it is 19.74% e.t.c. (figures for tax return in 2002).  By simply taking the taxable amount and applying a percentage, a vague idea of where one is on the scale can be arrived at but a more meaningful indication would require a much more complex calculation.

It should be noted that this article is only a basic guide and that full personalised advice should be sought from a suitably qualified professional.

© Headdon Consulting

Headdon Consulting Sarl
Le Moulié, 32190 Rozès (Gers), France
Tel: 0033-(0)5-62.68.00.81
Fax: 0033-(0)5-62.68.01.49

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