When retiring in France, one of the most frequent questions from British expats is how their UK pension lump sum will be taxed. The 7.5% tax ruling under Article 163 bis II of the French Tax Code can offer a valuable tax advantage for those cashing in a UK pension. However, this regime applies under strict conditions and only to certain types of pension withdrawals.
Eligible individuals can claim the 7.5% tax rate on qualifying pension lump sums, provided they meet the necessary conditions and follow the correct procedures.
At Harrison Brook, we regularly help clients determine whether their UK pension encashment can qualify for the 7.5% flat tax rate and how to plan efficiently to avoid unnecessary tax exposure.
What Is the 7.5% Tax Ruling in France?
The 7.5% tax ruling applies to eligible pension lump sums received by French tax residents from approved foreign or domestic retirement schemes. When conditions are met, the lump sum can be taxed at a flat 7.5% income tax rate, after applying a 10% allowance.
It is governed by Article 163 bis II of the Code Général des Impôts (CGI). The intention behind this ruling is to encourage individuals to transfer or consolidate their retirement savings into formal pension structures and discourage ad-hoc withdrawals.
This 7.5% tax rate effectively acts as an exemption from the higher progressive tax rates that would otherwise apply to pension lump sums, providing a significant tax advantage for those who qualify.
For many British nationals who have become French tax residents, this regime can significantly reduce the tax burden when encashing a UK pension—provided it is structured correctly.
How It Applies to UK Pension Lump Sums
When you cash in a UK pension as a French resident, the tax treatment depends on both French and UK tax rules and the Double Taxation Treaty between France and the UK.
The treaty generally grants France the taxing rights on private pensions once you are tax resident in France. That means the UK should not deduct income tax at source on a lump sum if it is correctly declared as being paid to a French resident.
Once the funds arrive in France, the 7.5% tax ruling may apply if the following criteria are met:
- The payment is a one-off lump sum rather than a regular annuity.
- The lump sum is paid from a qualifying pension scheme recognised in the UK, such as a SIPP or former employer pension.
- The payment represents the final settlement of your pension rights in that scheme.
- You did not previously benefit from the 7.5% rate on the same pension pot.
- The payment is taxable in France only under the France-UK tax treaty.
If all conditions are met, your lump sum is taxed at 7.5% after a 10% deduction, and social charges of 9.1% may also be payable depending on your healthcare affiliation status.
Comparing the 7.5% Ruling with Standard French Taxation
Without the 7.5% ruling, pension lump sums are taxed under the standard income tax scale, which can be as high as 45% plus social charges. For larger pension encashments, this difference can amount to tens of thousands of euros.
For example:
- A €300,000 pension encashment under normal progressive tax rates could attract over €100,000 in combined taxes, calculated based on the applicable income tax rates and social charges.
- Under the 7.5% ruling, the same lump sum—after the 10% allowance—is calculated to result in a tax bill closer to €20,000–25,000, depending on how social charges are applied.
This difference highlights why professional advice is crucial before making any pension withdrawal as a French resident.
How to Qualify for the 7.5% Tax Rate
To benefit from the ruling, it is essential to structure the withdrawal properly and provide accurate documentation. The French tax authorities will typically require:
- Evidence that the payment was made as a one-off lump sum from a qualifying pension plan.
- Proof that the funds were not subject to UK income tax.
- A statement confirming the final liquidation of pension rights from that plan.
The declaration must be included on your annual French income tax return under the correct category (revenus exceptionnels), applying the 7.5% rate manually.
A cross-border financial adviser such as Harrison Brook can liaise with both your UK pension provider and your French accountant to ensure that all forms are correctly completed and supporting documentation aligns with French requirements.
It is also essential to maintain an up-to-date personal account on the French tax portal, as this allows you to manage your tax submissions and access all relevant documentation efficiently.
Are There Exceptions or Risks?
Yes. Not every pension payment will qualify. For example:
- 25% UK tax-free lump sums paid before moving to France usually fall outside the ruling.
- Regular income drawdown from a SIPP or International SIPP is taxed as ordinary income, not under the 7.5% rate.
- Defined Benefit scheme payments that are not full commutations may be excluded.
If you cash in your pension without following the right process, you risk being taxed at standard progressive rates instead of the preferential flat rate. That is why advance planning and written confirmation from your provider and tax adviser are essential.
The benefits of the 7.5% tax ruling are limited to specific types of pension withdrawals and do not apply to all pension payments.
France vs the UK: Who Pays More Tax on Pensions?
One of the common myths is that France is the most taxed country in Europe. While overall tax rates can be higher, France offers specific reliefs for retirees that are often overlooked, such as the 7.5% pension ruling and exemptions from social charges for certain EU pensioners under S1 coverage.
Tax obligations for pension income can vary significantly between countries, and bilateral treaties between countries play a crucial role in determining where taxes are due.
Compared with the UK, where lump sums above the 25% tax-free allowance are taxed at marginal rates up to 45%, France can be more attractive for those who qualify for the 7.5% flat tax.
For many expats, this makes France not only a lifestyle destination but also a strategically tax-efficient retirement base when properly planned.
How Harrison Brook Can Help
At Harrison Brook, we specialise in helping expats manage their pensions and investments across borders. Our advisers understand the interaction between UK and French tax regimes and can help determine whether your pension encashment qualifies for the 7.5% tax ruling.
We also coordinate with a network of tax advisers and legal specialists to ensure your financial plan complies fully with both jurisdictions.
Before taking any lump sum, we can provide:
- A personalised tax projection.
- Advice on optimal timing of withdrawals.
- Assistance with French tax reporting and documentation.
- Guidance to help you decide on the most tax-efficient way to structure your pension withdrawals.
FAQs – 7.5% Tax Ruling
What is the 7.5% tax in France? It is a flat tax rate applied to qualifying pension lump sums under Article 163 bis II of the French Tax Code, after a 10% deduction.
Do I pay French social charges on a UK pension lump sum? In most cases yes, unless you hold S1 healthcare coverage or are not affiliated with the French social security system.
Can I use the 7.5% rate more than once? No, it applies only to a single one-off payment per pension plan.
What if I receive multiple UK pensions? Each scheme is assessed individually. Some may qualify while others may not.
How can I ensure I qualify? Consult a cross-border adviser before requesting the payment to ensure correct structure and documentation.
Do non residents qualify for the 7.5% tax ruling? No, non residents are generally not eligible for the 7.5% tax ruling, as this regime applies only to French tax residents. Non residents are taxed only on income arising from French sources and on specific capital gains, with different tax rates and social charges applicable.
Get started
Thinking about encashing your UK pension while living in France?
Before making any withdrawal, speak to a Harrison Brook adviser to confirm whether you qualify for the 7.5% tax ruling and how to optimise your overall tax position.
Contact Harrison Brook France today for a complimentary review of your pension options and French tax implications.
