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Expat Pension Tax France

Pension Tax

Are you a retired expat in France and receiving your pension? Are you aware of the tax that you may have to pay?

What You Need to Know

Initially, for those from the UK, when you relocate to France you will be taxed at source by HM Revenue and Customs. You will later need to make an application to be taxed in France and to receive a rebate of tax paid in the UK.

Those in receipt of a government service pension from the UK have no choice in the matter, as the pension is taxed at source in the UK.

Nevertheless, you will still need to declare the gross income on your French income tax return but get advice on how to complete the form, as errors are frequently made.

A ‘government service pension’ is paid to former members of HM Forces, ex-Civil Service and Foreign and Commonwealth Office employees, as well as ex-local authority employees. National Health service pensions are not considered to be a ‘government service pension’. Neither are university pensions, except for those from Oxford University.

Social Charges in France

Marginal Rate:

You can choose to make no specific provision and have the lump sum taxed in accordance with tax rates and bands applicable at the time of receipt. Prior to 2014 for those whose marginal rate of income tax in France was only 5.5% this was an attractive option, but since then this lower tax band has been abolished. The lowest tax rate is now 14%, albeit after a zero-rate allowance of €9,690 on total household taxable income.

Four Years:

You can request that the lump sum is taxed as an ‘exceptional payment’ under which you can divide the sum by four equal parts, with each quarter part added to your other income for each of the four years. This is called the Système de L’étalement.

Quota Part:

You can similarly request income tax is calculated by adding a quarter of the net taxable lump sum to your other net taxable income and then by multiplying by 4 the tax then due. This is called the Système du Quotient.

Fixed Rate:

You can opt for the whole of lump-sum pension to be taxed at a fixed rate of 7.5%. The lump-sum is not then considered in determining the tax payable on other income. This fixed rate option is called the Prélèvement Forfaitaire Libératoire. It is only available if you receive the whole of the lump sum to which you are entitled so that no part is deferred for payment later, known as ‘flexible drawdown’. Accordingly, if you are considering taking your pension in more than one lump sum payment you cannot use this option.

There are rules governing eligibility to opt for the Prélèvement Forfaitaire Libératoire:

It is only available where you receive the whole of the lump sum to which you are entitled so that no part is deferred for payment later, known as ‘flexible drawdown’.

It is only available where expressly demanded when the decision is then irrevocable.

Whichever option you choose, the pension is subject to a 10% allowance before becoming liable to income tax. So, the 7.5% fixed rate method of taxation equates to a rate of tax of 6.75%.

What to Do Next

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