I understand that no tax is payable on Gov't pensions because of the double taxation agreement, but does this also apply to the lump sums? We were hoping to defer drawing our pensions for one year, but as we will be French residents from January perhaps that's not such a good idea?
Can anyone give us some advice?
My advice is get professional advice.
Hi John. good comment. Just to be clear....The government status of this pension is different to normal pension lump sum rules. French do not tax this directly[see earlier reply]. If a "normal" pension lump sum, it will mean a 7.5% tax if taken in France as a tax resident, and without an S1 [comes with Uk state pension for example] has a 7.4% social charge too. This rate can also apply to taking ALL your pension fund at once, in one go, not several bites. It needs individual evaluation for sure if this is a good move, but tax wise, it could be a reasonable rate for some especially with an S1 exemption. However, it is SO important to assess why and what you are moving it all out for, and where you will put it instead. Lets not chance it to deciding from blogs with respect to all.
Unless things have changed in the past 18 months it’s the tax free status of the Government pension lump sum that is the problem as France does not recognise tax free payments. A tax free lump sum received in the UK while you are a French resident will be due for tax in France as no tax has been paid on it. I see that Wendy is getting professional advice which seems to be the best idea in her situation.
Thank you! Will send a message.
It certainly is a complicated subject! I do mean occupational pension; teachers for my husband, civil service and local government for me. I’m getting some advice from Blevins Franks, so hope I’ll be able to understand the situation and make the right choices before we move.
I am a retired UK IFA and things have changed since I left the industry. Sounds as though some advice from Mary might be the order of the day when the time comes.
I am a professional adviser UK/& France. There is no lump sum with a state pension. OAP is taxable in France. Government pensions as discussed here are for example Civil Service, Teachers, Local Government Superannuation,Military, Police etc. Always income arising in the UK and thus physically taxed there. The amounts are taken into account on a notional abases to decide your ultimate band of tax in France on income that IS taxable in France, and a tax credit on the amount of French tax that would have been payable on that pension if it was taxed in France. Phew! Yes it is complicated.
Its a big subject Wendy. Although I understand you are interested in the State Pension. Mary is talking about occupational and/or personal pensions. If these are involved then it would be best to take professional advice from an international IFA as Mandy suggests.
Phew hope we have been helpful and I am sure the others will join me in wishing you well.
Under the France/UK double tax treaty pensions from Governmental service funds are only taxable in the UK. This applies to government service lump sums.
Although not directly taxable in France (i.e. you get a credit for the French tax), governmental service pensions (and lump sums) are usually taken into account to calculate the effective rate of tax on your other French taxable income. This may increase overall French income tax liability.
However, this could be avoided if your take your full available lump sum at once (provided the fund was uncrystallised), and opt for the French lump sum treatment. No tax will be due in France on the lump sum in this case (i.e. you get a credit for the French tax), and the lump sum will not be taken into account to calculate the effective rate of tax on your other income.
As is usually the case with questions such as this there is a lot of conflicting advice and information, particularly as people are not sure if you are asking about the state pension or a government pension (ie ex-employees of government agencies eg NHS, teachers, army etc). The only way to get proper advice for your particular circumstances is to seek professional help.
I think my government pension you mean state pension. They are two different things. There is a double taxation agreement which means you don't pay tax twice - sort of! Your state pension will not be taxed in the UK as it represents part of your tax free allowance if you are resident there and this income is transferable to France for the french taxation system. Easy peasy.
If you have a government pension ie my husband is a retired PO the agreement states that these pensions can be taxed in the countries at source, UK and France. This income is now declared to the Revenue who then calculate the tax due. This is then partly offset by an allowance, the amount you would pay in France on the pension (this is less than you have paid in the UK) and reduces your french tax bill accordingly. This system was introduced to stop us having two tax free allowance. One in each country.
Twas a great pity as at one time we did not declare the UK government pension to the french revenue. The change cost us about €300 annually! Hope the above helps.
Of course you can choose. You are still fiscally resident in the UK until you declare your residency in France and formally leave UK. This can be done at a time of your choosing - it doesn't happen automatically when you sell in the UK.
Yes, I would have thought that too Stan.
That link is very helpful, thanks John. I’ve not managed to take it all in yet and my head hurts! Definitely going to get professional advice, but it’s good to try and understand as much as possible first.
I don't understand how "you can choose the date to suit yourself" of being fiscally resident in France. Surely if you have upped sticks, sold or rented out your UK home, and moved here you become fiscally resident on the day you arrive. Otherwise, I and many others would never have bothered :-)
It really is worth getting professional advice on this. I’m sure that tax will be due on your UK lump sum if you are French resident but that there are a number of ways that it can be declared which will affect the tax rate due.
It is also worth reading this,
it might help you to avoid the problems that the poster has encountered by becoming eligible for a French pension through his AE income.
Just wondering, following Dick’s comment below, which year did your husband receive his lump sum? I’m still hoping we’ll have the same good fortune as you.
Oh dear! More research needed I suppose. I think we need to be resident in France straight away so we can register vehicles and set up as auto entrepreneur. It seems that French rules on tax-free(uk)lump sums changed in 2011, but it’s impossible to find concrete proof. I’m getting the impression that decisions can be arbitrary.
Lump sums are ONLY tax free in UK. I would delay becoming fiscally resident until after the money is safely in the bank. That’s what I did. You can choose the date to suit yourself.