By Mary Taylor, Partner, Blevins Franks

You need to carefully consider all your options for receiving pension income, and how they affect the transfer of any balance to your spouse and heirs on your death. You also need to consider all the French tax implications, as well as the UK ones.

With pensions and tax legislation changing frequently, this is a complex area and you need to assess all your options and ensure you have all the latest rules to hand.

Tax in France

Under French domestic law, a pension deriving from a professional activity is taxed the same as salaries, so at the income tax scale rates, after a 10% deduction (minimum €374, maximum €3,606 per household). Social charges are also payable at a rate of 7.1%, but if you have Form S1 all your UK pension income is exempt.

Government service pensions are taxable only in the UK even though you are tax resident in France. The income is taken into account for determining the effective rate of tax payable on your other income in France.

Purchased annuities benefit from tax free allowances depending on your age when the annuity started. The capitalised value is subject to wealth tax.

Pension lump sums are taxable in France at a rate of 7.5% (for UK lump sums).

Pension funds in a Qualifying Recognised Overseas Pension Scheme (QROPS) can grow free of any French income tax and are only taxed when you take benefits. If you have been non-UK resident for five consecutive UK tax years when you die, QROPS escape the 55% charges on lump sum death payments.

UK Pension Options

The various options for your UK pensions are:

  • Leave your pension funds as they are
  • Consolidate multiple schemes into an existing one
  • Buy an annuity
  • Transfer to a new UK pension scheme (Income Drawdown or Flexible Drawdown)
  • A cost effective Self Invested Personal Pension (SIPP)
  • A suitable QROPS (for non-UK residents).

You can start to draw an income from your pension fund after the age of 55, known as Drawdown Pension. There are two categories: Capped Drawdown and Flexible Drawdown.

A 55% tax charge will be deducted from any lump sum paid to your beneficiaries when you die if you have started drawing benefits or are aged 75 or over.

Under capped drawdown, within HM Revenue & Customs limits, the level of income you can choose to take each year is based on Government Actuary’s Department (GAD) figures. The minimum and maximum income is 0% and 120%.

Before opting to take the maximum GAD income, you should take potential investment performance, inflation, longevity and medical/long-term care costs into consideration. You do not want to deplete your fund in later years.

You may take a pension commencement lump sum of up to 25% of the fund value (some QROPS schemes may allow 30%).

Under flexible drawdown there is no limit to the amount of income you can draw each year. You can only opt for flexible drawdown if you have a secure pension income – “minimum income requirement” (MIR) – of at least £20,000 in payment that year. Not all pension income counts.

There are other conditions so you need to carefully weigh the pros and cons.

UK tax residents receive the 25% lump sum tax free, but the rest of the income is fully taxed. In France the whole amount is taxable. If you return to the UK within five years you have to pay UK tax on all the withdrawals made in France, at your highest marginal rate, with no credit for French tax.

QROPS have been very popular, but the landscape changed significantly in April 2012 when HMRC introduced changes to make the QROPS regime operate in line with policy intention.

There is now less choice in the QROPS market, and more complexity than people realise. QROPS are not a ‘one size fits all’ solution. They can be advantageous for some people, but are not necessarily for everyone. You need to look at how QROPS work, the jurisdictions (the rules can vary considerably), the alternatives and your personal situation to establish the most effective individual solution for you.

To establish what all your pension options are, the tax implications and how they affect you personally, you should seek specialised advice. You need an adviser who is au fait with all the UK pension rules as well as taxation in France, and is authorised and regulated in the conduct of pension business by the UK Financial Conduct Authority.

Contact your local Blevins Franks Partner Mary Taylor for more information on your pension options and the tax consequences, as well as on the various tax reforms in France including the latest news on Assurance Vie.

Mary Taylor TEL 05 62 30 51 40 EMAIL mary.taylor@blevinsfranks.com

To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com

 

Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should take personalised advice.

Blevins Franks Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided overseas, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. Blevins Franks Tax Limited provides taxation advice; its advisers are fully qualified tax specialists.

Share it!

Leave a Comment