How is my UK pension taxed in France?
If you are a British national retiring to France, you may be wondering how the French government will tax your UK pensions. UK pensions come in different forms: State, government and personal. The tax treatment differs depending on what type of scheme you hold.
It’s important to know what taxes are due on what schemes. This is not only to ensure you report the income correctly on your French tax return, but also to plan in terms of drawdowns/retirement income.
S1 Form
As a former UK national who is now resident in France, if you applied for your form S1 prior to 1 January 2021, you will be exempt from social charges on pension income. Considering social charges are included at between 3.8% -9.1% on pension income exceeding €11,408, it can significantly reduce the overall tax you pay on pension payments.
Unfortunately, you cannot retrospectively apply for the S1 form and receive the social security exemption.
State Pensions
State pensions are taxable in France and not the UK. No withholding tax is taken in the UK when your state pension is paid, therefore the income is received gross.
The income from the UK state pension is taxed according to the below marginal rates:
- Up to €10,225: 0%
- €10,225 – €26,070: 11%
- €26,070 – €74,545: 30%
- €74,545 – €160,336: 41%
- Above €160,336: 45%
Government Pensions
UK government pensions are pension schemes for individuals who have worked for a government entity such as the NHS, police or fire service etc. They operate in the same way as a defined benefit scheme as they pay out a guaranteed annual income that is index linked.
They are the outlier as they are taxable in the UK under the dual taxation agreement. HMRC will therefore tax the income at source when it is paid out. Although the tax is paid in the UK, the income still needs to be declared on your French tax return. Luckily however, you receive a credit against your French tax return for 100% of the UK tax paid.
Personal Pensions
Personal pensions vary in the forms they come in. You may have an occupational scheme, which could be a defined benefit or defined contribution pension. Or you may have a self-invested personal pension (SIPP) that you took out personally and contributed too.
Personal pensions are taxable in the UK under the dual taxation agreement. However, the tax treatment options differ based on whether you have taken the pension payment as a lump sum or not.
Lump-sum Payment:
For a lump sum pension payment where you have not accessed any of the benefits within the scheme, you can elect for a fixed rate of tax. This is known as the ‘Prelevement Forfaitaire’ and the whole lump sum is taxed at a rate of 7.5%.
Most people prefer to take their pension benefits using a phased withdrawal approach. However, if you have significant other income, it may be beneficial to make the election considering the low tax rate. The downside of this approach however is that the pension is no longer invested and cannot benefit from capital growth.
Non-lump Sum Payment:
Similar to the way the UK state pension is taxed, a UK personal pension that has already been accessed does not benefit from the ‘Prelevement Forfaitaire’ rules. It’s therefore subject to the marginal rate of tax rules as above. Planning can be taken with drawdowns by ensuring you take income from your scheme that doesn’t push you into the higher rate tax bands.
Pension Transfers
For state and government pensions, they cannot be transferred. Considering they provide a guaranteed income that’s index linked, it’s usually a good thing.
It may be the case that you have a personal pension that you are looking to transfer now that you are non-UK resident. This may be because of restrictions on flexible access, currency risk or high fees within your policy. If that is the case and you are looking to assess your options, please do not hesitate to get in touch with our team for a free, no obligation chat regarding your situation.
