Greetings,
I am trying to research the above . My circumstances:
UK resident
Irish National
untouched DC SIPP - all contributions made by employer (my PSC), fund is pretty substantial.
activated/crystallised a completely separate DB company pension providing an passive income
If someone could point me in the right direction to see if I could avail of the above, I’d been really grateful as I’m finding it really difficult to discover details on it, if it’s still in existence, likely to continue to be in existence, and what are the qualification terms around it?
Thoughts:
are there any upper financial limits on it?
do you have to be a resident in France - how long does that take?
do you then have to keep the funds in France for a set period of time or can they flow through the EU?
Does the UK government impose any limits?
Are there any additional taxes paid on the crystallisation (in addition to the 7.5%)
Would you advise engaging a French financial adviser/bank to handle the details or is it reasonably straightforward - allowing for French bureaucracy?
I imagine, given the way the current landscape is evolving in the UK with the Labour government this is likely to be a topic of interest to many. But surprisingly not many people seem to be aware of it so I’m wondering if it’s really as beneficial as it first appears - especially for large pension pots.
The key is it must be a 100% lump sum that is taken out from the scheme. Also you can’t have previously withdrawn funds from the same scheme prior to taking the lump sum.
No, but see below for charges on high incomes…
If you’re a non French resident, you wouldn’t be liable to French tax at all on a UK pension.
The answer is you would have to be a French resident/UK non resident (to also avoid UK tax exposure) to be liable to French tax in the first place…Once French resident you would then potentially be able to benefit from the 7.5% rate of tax (6.75% net of the 10% allowance for foreign pensions etc). To become French resident, for practical purposes, you would need to move to and genuinely live in France, ie France must become your home (simplifying obviously!).
No requirements to keep money in France.
I assume you would be a non UK resident at the time of taking any lump sum…No limits in the UK, but HMRC will seek to tax the lump sum at emergency rates of tax which you will have to apply to have refunded by completing form France individual (refund takes from 2 months - 1 year!)
Yes, unless you have an S1 or are privately insured for medical there will be social charges of approx 9%. Depending on the quantum, there may also be a charge for exceptional incomes of 3% extra for income over €500k, 4% over €1m for married taxpayers, slightly less for single taxpayers. Additionally there is also a new charge for people on similar incomes aiming to ‘force’ a minimum tax rate of 20% if through planning - eg the 7.5% rate(!) the effective rate of income tax is below 20%.
If the sums are as substantial as you indicate, it would absolutely be worth seeking French professional advice to consider your personal circumstances and to assess your likelihood of success. The actual claim is fairly straightforward and mechanical on the French tax return. The authorities would expect to see a clear factual explanation of why you believe you qualify.
There are also several useful threads on this topic on this forum if you use the search facility (click on the magnifying glass icon, top right for more details)
@George1 Thanks a Million - that’s the most information I’ve been able to glean about this structure.
By income I assume you mean the value of the fund - so in effect if there was a very substantial fund the effective rate is actually much higher than the 7.5% advertised as the limit applied to that rate is €500k ?
SO in effect you end paying (6.5%/7.5% +3%+4%)+9% on tiered basis just as you would on income tax.
Yes, if you take a lump sum withdrawal of the entirety of your DC fund, that will be treated as income by the UK. However it should be non UK taxable if non resident and you’ve asked for a refund and a special NT or no tax paye code. More importantly it is considered income by France. The UK/France tax treaty allocates exclusive taxing rights on pensions, including lump sums, to France for French residents.
Here below is a translation of the official guidance on both the exceptional income charge (which is tiered, eg by income thresholds, as you say) and also references the new overall 20% minimum tax charge. This latter is basically the difference between 20% and what you’re paying in tax on 7.5%+ the 3+4% etc. Social charges are ‘extra’, on top of the tax if you don’t have an S1 or private medical insurance…
There may be some mitigation of the tax charge from something called the quotient system that seeks to spread/smooth the charge mathematically - that’s perhaps something to explore with an adviser. Whenever I’ve looked at it for personal interest and impact, it was not something that would have alleviated the overall tax charge in my case.
Finally, a warning for the unwary…If you’re married, and pass say 50% of the resulting lump sum to your wife to be invested in her name, or for example you buy a property in joint names with the proceeds, you will potentially fall straight into a nasty tax trap. You’re then potentially liable to French gift tax on lifetime transfers of assets between spouses, approx 20%. France unusually taxes such transfers but (more conventionally) exempts them if made on death.
George has done a great job answering your questions here.
If its of help to you I work with a tax adviser who specialises in UK and France advice, so if you ever fancy a quick chat to run through the details and get some clarity, just let me know. They will also assist with the UK NT tax code/ reclaiming.
But you are right , it is surprising how few people are aware of it, especially considering the potential benefits for those with larger pension pots. It is definitely something worth exploring in more detail.
Many thanks, @George1 , this has lifted the headline-veil considerably.
Reading this then it looks like as a single person
I still get 10% tax free from the fund as a whole
I only get 7.5% on the first €250k, thereafter it’s tiered - to 11.5% (7.5%+4%)
on top of which I will pay the social taxes (%?) if I don’t have private medical insurance (€pa ?)
but beyond all that there may be a minimum 20% tax charge (have to get me head around this as that looks to override everything else above (?))
Still I guess it’s better than getting a 55% tax charge in the UK - but not as initially good as I thought from the Headline rate.
Yes, that’s absolutely the intention of the new legislation, (apart from revenue raising, obviously). In other words they intend the measure to counter tax planning that would otherwise reduce the effective tax rate on high incomes to low amounts (eg 7.5%!) by placing a ‘floor’ of a minimum 20% effective tax rate. (They’ve no doubt borrowed this concept from the US which has long had an Alternative Minimum Tax to successfully address aggressive planning). It will therefore override the tax planning appeal of a low flat tax rate on lump sums - if you fall into the income levels that ignite the 20% charge.
Roughly 8-9% as a crude estimate of social charges.
I pay about €3400 for private medical pa for a couple, mainly for hospitalisation, and excluding cover for outpatient care, routine doctors fees and medicines.
There are genuine potential savings to be made from choosing private medical cover, especially on substantial pensions, in that the premiums+ routine medical costs may well be much less than the 8-9% of social charges that would otherwise arise.
Split your pot into two or more to manage the yearly income - then when France resident and taxable take one pot each year to ensure income is less than 250K single or 500K married…
Thanks @George1 yes I can see the benefits of taking out pvt health insurance at least temporarily to avoid a potentially massive one-off social tax bill.
I assume you’d still be entitled to the 10% tax free benefit for the entire fund even with the 20%?
Okay the finance model is becoming a lot more complicated but at least I’m a lot clearer.
interesting @larkswood12 I assume you can only Crystallise one pot per year - so it’s reflected in the annual tax return
I guess the issue here then becomes that they may change the rules again as you’re half-way through a multi-year crystallisation process.
Can you tell I work in Risk?
Ha, in risk never assume anything! (Can you tell I work in Audit )
No you can cash in multiple pots in a year. it’s just the overall total per year which will affect the tax calculation. And having many smaller pots will help ease the pain of the HMRC emergency tax.
We can never know the future, but I think the France prelevement forfaiture is kind of designed for people saving in a pension to then purchase a house or help purchase a house. So it might be unlikely that the rules change, as there could me millions of French screaming having made plans over years for such a house purchase on retirement. Of course, on the rate set…
Edit - I see you asked George about the 10% allowance - yes it’s unlimited, unlike regular pensions taxed on scale rates where it’s limited to 4200 odd euro’s. It makes the prelevement rate actually 6.75% (to whet your appetite).
PS, if you have a defined benefit scheme with a lump sum, you can use the prelevement for the lump sum, as that is also a ‘single payment extinguishing your rights in the pension scheme’. Of course in your case, best to take that in the UK tax free before moving to France.
Given the large number of foreign born pensioners in France (2.62m) a fair proportion of them will no doubt be receiving pensions from overseas, and therefore can benefit from the uncapped 10% relief. It surprises me that this relief has not been targeted by the French government, which is intent on finding €40bn of savings for next year. They initially targeted the 10% capped relief for regular pensions, with the aim of eliminating or reducing it ,but changed ther mind. You’d think it would be politically fairly painless to target the 10% tax relief for overseas pensions, many of whose recipients will be non voting foreigners’…
I personally hope the 10% relief for overseas pensions continues for many a year…!
I guess @George1 the potential multiplier effect of the 10% within the economy is probably more beneficial than the short-term (because they never collect as much as they think they will, and people adjust their plans) tax collection increase.
Many thanks for all your insights guys, it’s great to have intel from the front, t’would have taken me forever to extract this piecemeal from official sources.
thanks @larkswood12 it’s very interesting - the multiple pot theory. I noted that one of the requirements was that contributions had to be made under UK rule from employer or self - I guess you’d have to go back to the original pot to demonstrate that, as the new smaller pots would simply show one transfer - rather than built up over contributions. It’s an extra layer/requirement.
Do you know people who’ve actually gone down that route?
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