This lengthy post (for which advance apologies) will probably only be of interest to those who have taken (or plan to take) a pension lump sum (‘No 1’) before coming to France AND taking another lump sum (‘No 2’) from the same plan AFTER coming to France. Specifically the issue is whether you can obtain the favourable 7.5% French tax rate on lump sum No2? Ordinarily that rate only applies to single lump sums that distribute the entirety of a plan, with limited exceptions.
The issue has been discussed on SF previously, and @larkswood12 in particular has kindly provided me with references to official Tax Bulletins that explore the French tax administration’s perspectives.
For completeness I made a formal request (‘un rescrit’) in June this year for an advance tax ruling from the tax administration. The question was whether, having taken No1 lump sum whilst UK resident (tax free up to 25% of fund in UK) I was able to take No 2 lump sum, ie the balance, whilst French resident and benefit from the favourable 7.5% tax rate on pension lump sums. I was not confident of a positive response, given my understanding of the Tax Bulletins and circumstances etc. However the amounts in question are material, and it would have been careless in my case not to have fully investigated the issue. Obviously I have not yet taken No2 lump sum.
Short answer: No, I cannot benefit from the 7.5% rate unless No1 and No2 are expressly permitted under the particular country’s (ie the UK’s in my case) pension rules, if any, for ‘hardship/major lifestyle event’ type withdrawals. Examples may possibly include death of spouse, invalidity, bankruptcy, buying a house, marriage, re/starting a business etc.
The ‘rescrit’ was dealt with initially by my local tax office, who rapidly passed the ‘hot potato’ to Regional HQ’s Legal and Disputes team. The result was a lengthy opinion from them, this week, accepting that contributions had been made by my employer to bona fide HMRC approved pension plans, which were not taxed on me as income. So far so good., The lawyers then noted that it was unclear whether my No1 lump sum had been permitted by the UK for hardship/life event reasons (rachat anticipé/early redemption) - which would have satisfied the 7.5% conditions, or simply because the UK permitted withdrawals for any reason after a certain age. The latter applied in my case (on or after aged 55 in the UK). I understand some countries eg Switzerland, US (and probably several other countries) do indeed permit hardship/lifestyle events-type withdrawals from pension plans, so the ruling from the Impôts may help people from those countries contemplating taking more than 1 lump sum from a plan.
A rescrit/advance tax ruling can be sought on any reasonable tax question.The administration has to reply within 3 months, or 3 months after receiving additional information requested. They (just) met those deadlines. Rightly you are required to ‘put all your cards on the table’ in order to be able to rely on the ruling in the event of future contrôles by the tax administration.
It would have been all too easy to take a No 2 lump sum, claim the 7.5% rate, and you would in all probability ‘get away with it’ if you kept quiet about the small matter of the No 1 lump sum. Ethically and legally that was totally and utterly out of the question for me, but others, obviously not SF members, may have ‘forgotten’ - or been tempted to forget - they took a No1 lump sum whilst resident in their home country.
Finally, I’ve been asked before (on SF) why I didn’t take a single lump sum after arriving in France instead of taking No1 and No2, and thereby ensuring a 7.5% tax rate. The answer is that I had a frenetic 3 months from a snap decision to move to France to actually moving, during which time I had to terminate my employment of 35 years, complete and hand over all responsibilities, put our house on the market and sell it, resign from professional institute (of Tax!), obtain removals quotes and actually move, buy a LHD car, say farewell to family and friends, process the considerable additional paperwork from a cross border move during COVID etc etc. I preferred to have the ‘bird in hand’, ie guaranteed 25% globally tax free lump sums to live off for several years until my proper pension kicks in at 65 (I was 57 when I quit work) rather than ‘2 birds in the bush’'. I didn’t want to rely on getting 7.5% treatment only AFTER reaching France, when I was much less familiar with that tax system and had only a limited understanding of the full conditions required to obtain that tax rate. The cost downside of a rejected claim was a major, material issue.
Here is the prior thread for anyone interested…