Tax ruling on taking 2 pension lump sums/7.5% tax rate

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…


What a fascinating and informative post… :+1:

Thanks for the info @george1 George. The ‘over 55’ Uk rule does seem to stymie a pension withdrawal for house purchase / lifestyle change - unemployment reasons. That on it’s own seems worth flagging !

FYI there was one SF poster I know who did do two withdrawals. I think your analysis on what would be ‘all too easy’ is therefore probably likely. Of course the ‘peril’ would be having the whole withdrawal taxed at one’s top marginal rate or beyond, rather than being able to manage the withdrawal.

My only other thought is, what would be the position if you transferred the remaining pension pot to another pension, or indeed a few separate pots? I definitely confirmed with my tax inspector that different pots are indeed separate for the purposes of the prelevement.

So your ‘new’ pension plan would be entirely separate to the one with the withdrawal. Further your new plan would not have had a ‘withdrawal’ because a pension transfer is not a withdrawal.

The only hiccup might be if the source of the funds are requested by the impot to check the funds tax status?

Whether this may be seen as an ‘improper’ avoidance device by the impot, or a perfectly satisfactory set of transactions made according to UK regs and in compliance with the France bulletin requirements / conditions for that pension is of course ‘an interesting question’.

As you mentioned the amount is fairly material, perhaps you it might be worth reaching out to a France / Uk tax person, such as Blevins or Kensington’s - trade your UK pensions knowledge?

Or divide it up into some small sums and try one and see how you get on, then another after a few years…

Or of course go back and ask the impot - they probably didn’t;t consider / were aware of the ease of transferring pension amounts in the UK…

Bon chance!

Firstly George1 thank you for sharing this and explaining it so clearly.

The same thought occurred to me as to Larkswood12 - if only 1 lump sum allowed per pot, then withdraw all you can and transfer the rest still under pension wrapper, to a new or different pot.

I was looking at something similar last year for someone I was helping (this was the “small pots” architecture I posted sometime last year), and someone professional said if you do move to another pot make sure it’s with another provider. This would seem to make sense.

Yes it would be interesting to know whether the regime in the UK allowing multiple pots would attract fiscal contemplation on consequences in France, to put it delicately, but I am not sure whether or not there is any point in hurrying that.

Thank you very much @larkswood12 and @KarenLot for your thoughtful - and thought provoking remarks.

I think it would be perfectly feasible (and I salute your creative thinking!) to transfer the amounts in question to separate funds, particularly with a new provider, and claim the 7.5% treatment.

However after reflecting on it, and discussing it with my wife (also a former international tax adviser - I wonder how we met?!!) I can’t in all honesty pursue this route.

Why? I was trained to apply two tests when considering the appropriateness of a tax position. One - is there a realistic possibility of the tax position being sustained on its merits if specifically challenged by the tax authorities? Two, as a fallback, can the position be advanced in good faith, with full, appropriate disclosures? If you can’t meet either test, we were trained that you should absolutely not proceed.

I think if the tax administration were to look seriously at the claim - which would be very visible on a tax return, and for a material amount, were to consult the rescrit/advance tax ruling (presumably on their files), and were to ask were these funds substantially the same as the ones we ruled out in 2023 as having been the subject of a prior withdrawal, you could hardly reply with honesty other than to say, yes. In substance, even if not in form, these are the same funds. Game over at that point.

The rescrit required me to provide precise details of the amounts in question, copies of pension statements, details of the plans, copies of my payslips etc. It would not take a genius to work out that the amounts in question, being material, come from the same source unless I was so fabulously wealthy that I had other, unrelated pension pots of similar scale. Full disclosure - sadly I’m not!

The downside of getting caught out is huge. Obviously the additional tax liability at @40-45% would be due, but also no doubt penalities (100%+?) and interest - by now amounting to seriously material figures here. No doubt a thoroughly black mark would be entered against you on your tax files - hardly the obvious way to begin a positive, long term relationship with a country. Did you say you wanted to be a French citizen? Forget it Monsieur.

So for these reasons I will grit my teeth and pursue Plan B, which is to withdraw amounts from said pension plans annually, to benefit from the fact that I have zero income for several years, until my real pension kicks in, and benefit from lower tax allowances, rate bands and the like. Safe, predictable, attractively lowish rates of effective tax (@16.5%)…and I won’t fear the knock on the door!


Yes that is what suits your situation George1.

There are other reasons I’d run multiple pots, not to do with evasion. So the problems I was looking at needed this anyway and were looking at organising for the longer term.

In your situation, of course you would definitely not want to evade, but it seems you will be OK with your management over time to avoid.

The other thing that occurred to me is that if someone is no longer resident and no longer taxable in the UK (and, to avoid all ambiguity, ideally not domiciled there either) then, other than a potential temporary withholding of standard rate UK tax (currently providers are under instructions to withhold 20%) to be recovered from HMRC, surely the 25% UK limit on taxfree lump sum doesn’t apply, and what would matter would be the 7.5% (net 6.75%) French tax owed?

I think the 7.5% French rate is intended for someone taking the whole of a fund anyway, rather than a ‘lump sum’ portion of it? Which made the decision you got, that you can’t apply it twice to the same fund, appear consistent. So if the numbers worked you’d not worry about the 25% max allowable lump sum, as you’d recover any UK tax held if you withdrew more than that, and instead count on the 7.5%(6.75% net) being the tax rate that will be the end result payble, and take the whole fund at one time instead.

I completely agree. Knowing what I now know, you wouldn’t take the UK 25% tax free lump sum when UK resident and instead would take the entire plan in a lump sum when French resident, and not resident in the UK (fortunately UK domicile etc no longer matters). Yes HMRC will want their initial withholding which should all be refunded once the tax treaty claim is made. Therefore the 6.75% rate would be the global rate applying. (By the way Standard Life told me yesterday they would have to withhold at emergency rate = @38% which seems very high.)

I simply didn’t have time to properly investigate the 6.75% requirements at the time of leaving for France, and frankly was a little sceptical that I could possibly obtain such a low rate of tax! It seemed too good to be true, at the time.I now know it is true.

If you have anything authoritative on the correct basic or emergency rate SL/HMRC should be withholding, I’d be grateful.

Thanks for your post George.

Well, never mind, you have at least your 25% tax free and a low marginal rate to enjoy for a few years. If fact, we get so hung up about the France pension prelevement that we can overlook that someone perhaps closer to retirement but with no other income yet might be better off taking advantage of the Uk 25% before moving to France - structuring their pension savings accordingly.

I like your two rules - shows your expertise! As with projects, I think there is always a massive ‘optimism bias’ on tax - everyone always seems to just take the answer they want - not necessarily the correct one!

I don’t suppose you will have any thoughts though on how to treat UK government pension lump sums - which are taxable in UK only but declared in France as global income - I don’t really fancy declaring say 50K UK tax free lump sum as global income - it would push all the France taxable income into the stratospheric 45% band… But as not taxable in France, I don’t think I can just opt for the 7.5% flat rate. Maybe there might be some mileage in it being ‘non taxable’ in the UK means it’s not taxable global income…

On tax on withdrawal, t’s the emergency rate which is applied - the formula was posted on the forum somewhere - maybe even in Karen’s small pots thread. There’s plenty of online guidance - here’s e.g. the m&g calculator

But now you can take a small amount out and have SL get a non emergency HMRC tax code from HMRC, so you’ll get some of the emergency tax back quite quickly, while you wait (and wait…) for HMRC to ‘process’ your DTT form.

And to re-emphasise - the tax saving on ‘trying it on’ with taking the 25% Uk tax lump sum before taking the rest in France is of course not worth the candle - one is saving 6.75% of 25% - a mere 1.7K on 100K - totally not worth the risk.

However, there have been posts somewhere (again perhaps on Karen’s small pots) that people were thinking of requesting from the Impot to be allowed to make a token small withdrawal from their pot to obtain the tax code so that they are not ‘penalised’ with the emergency tax for a long time. Nobody ever did say they did that. Perhaps the route you took with a ‘rescrit’ might be a possibility to find out if it’s an option.

@KarenLot - yes the rate can be applied to the ‘capital withdrawal’ part of the pension, with the rest of the pension as an annuity or regular payment if it’s a defined pension scheme. Both parts of course have to be done at the same time.

Agreed. Actual effective global rate of tax on entire pension, including tax free lump sums, is @12.5% which is more than ok to me.

Entirely agree

I rather suspect the strict answer is just as you fear it might be, I can’t see an obvious way way round reporting the lump sum for exemption with progression purposes

Thanks, and I now recall Karen saying similar some time back, I should have been paying more attention. I redid my emergency code calculation, using the tool, and it really is 38% effective rate…I will ask SL if they can do the small first withdrawal only at emergency rates pending a more sensible rate of tax code from HMRC.

I’ll be making sure I have a seance with a tax advisor / accountant well before that pension comes due!

I think it will only take a month or less for them to get a code - just message them in the app? or online?

I know you will be aware once you crystallise (?) the pension your annual allowance shifts to 10K, with no earnings that won’t trouble you, I’d just like to ensure you are reminded that anyone with no earnings can put up to 3.6K per year into a UK pension including those former UK residents in France for up to 5 years. £2880 becomes 3600 and assuming (might be a big if?) you can manage to open a new UK pension to put the money in, when withdrawn at 7.5% flat rate will net a £477 gain for each year after one has paid the France tax. Not a massive beer, but might help to alleviate some of your other extra pension tax.

Yes, it’s great! With the S1 exempting Uk pensioners from social charges France is a very attractive place fiscally to retire - with respect to those not lucky to have benefited from the UK defined pension schemes.

Not that tax is a reason to choose a country… but had you fancied Portugal about 5 (?) years ago it had a rate of 0% for 10 years on income for people retiring there.

It’s now 10% after loads of countries complained!

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So far as I know, unless you’ve already got a tax code assigned to the pot, providers take emergency tax on the first withdrawal.

It was explained to me that accessing a UK pot for the first time is always emergency taxed and the first withdrawal is what normally automatically triggers HMRC to send its provider a tax code for it.
Tge pot’s tax code was apparently arriving within about 2 weeks of the first access when I was told this 1-2 years ago .

Once the admin is done by the provider to attach the code to the pot, then subsequent withdrawals will have normal tax rules including its tax code and withdrawals up to 25% of its total value at the time of any withdrawal, tax free ie the “lump sum” rule.

(So if pot grows by any means, you can keep withdrawing taxfree using ‘lump sum’ rules, provided your total withdrawals with the current withdrawal don’t take it over 25% of the at-withdrawal value of the pot. And conversely, if the pot value drops…)

Hence a UK financial adviser may say to do a first withdrawal of £1 or £100, whatever the pot will allow as a minimum, then wait a couple of weeks for the pot to receive its tax code automatcally from HMRC. Then take the full amount of the withdrawal you want eg up to 25% of pot value minus the £1 you already took, which can be paid out tax free. This avoids emergency tax being taken on your ‘real’ lump sum withdrawal and you having to give the Chancellor a free loan of it for, say, 9-19 months before you get it back.

The moment your total withdrawals go over exactly 25%, that withdrawal onwards will have the pot’s tax code applied so tax withheld by the provider (20% currently, I think) and you are meant to claim any overpayment back, or pay any extra if your own tax rate is higher, direct from/to HMRC.

Of course having to wait until 2nd withdrawal, even if first withdrawal was only £1, is going to disqualify that pot from the 7.5% France tax rate. So that approach is no good for France tax residents.

Apparently very, very few UK pots have a tax code at time of first withdrawal - but I was told a few do. I am thinking perhaps each pot could have its own “France Individuel” tax form stamped by France Impôts, in advance, provided to HMRC with a copy to the pension provider, the same as any other source you might take an income from. But I haven’t had to look into it.

(Remember by a certain date each year you can opt to have any capital gains in that calendar year treated as income in France. It might be worth doing prophylactically, if amounts taken are small and likely to remain smallish each year. Just in case the French have something that makes some types of withdrawal be considered capital, rather than income. Useful especially if your other income is low, but I suspect that might be overkill.)

On domicile if the UK HMRC thinks you are still.domiciled in UK despite being tax resident in France, then I believe if you accidentally peg it then best to make sure it’s at least 3 full tax years after you left the UK.
Property in the UK is a factor amongst others in HMRC deciding you are domiciled in the UK even though tax resident abroad. Although from the point of view of inheritance it would be in some ways nice if the UK wins a tossup with France. I’m looking ahead to when the UK stops pension pots being able to be inherited taxfree up to age 75, for example, although I don’t think this will happen this year 22nd November budget

I am absolutely not an expert but did have to dig up some of this and I’ll ping you my sources.

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Standard Life website snapshot "You might be subject to emergency tax at first, meaning your pension provider might deduct more tax than you actually owe from the first payment they make to you. You’ll need to claim any tax you’ve overpaid back from the government.

But after this first payment, the government will update your provider with your correct tax details. So any taxable withdrawal you make after the first should be taxed correctly."

Came across it whilst googling so it might not have been intended by them for your product. Their following paragraph only mentions 1 type of form to get back excess withheld tax from HMRC but there seem to be at least 4 different types of this form they haven’t mentioned so I didn’t read further but at least it’s Standard Life saying they’ll only deduct emergency tax for the first withdrawal.

The reason why the amount of emergency tax taken off people when they do a first withdrawal from a pot, is so high, is because it’s not only the super-high emergency tax rate%, but the tax is also calculated as though you were earning the amount of that withdrawal every month for a whole year.

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Thank you. That’s the clearest explanation I’ve seen behind this phenomenon of ultra high emergency tax withholdings being applied (to pensioners, to boot). Very much appreciated, as is the time and trouble you’ve gone to…

One of the features of the rescrit I received is the condition set out in it that if I disagree with their findings, they will schedule an independent review panel to reconsider it. They offered me the opportunity to be personally heard by the panel. However they said that no new facts or questions can be introduced - without having to start the whole rescrit process from the beginning again. So, however tempting to go back and ask supplementary questions, I think I’ve probably had enough of rescrits for one year (and don’t want to take up their time more than I already have). Hope that’s ok?!

I totally agree with you, but it’s so counter-intuitive to what France’s (high) tax image is generally, at least in popular imagination!

Hi, sorry I didn’t mean for you to enquire - I meant my and possibly Karen asking the Impot on the possibility taking a ‘token’ pension withdrawal to get a tax code which wasn’t ‘emergency’ - though she seems to now be of the opinion it wouldn’t be a starter for the France lump sum prelevement.

PS @KarenLot I think to generate a tax code would have to take a taxable amount from the pension, i.e. ‘crystallise’ the pension otherwise if there’s no tax the pension provider wouldn’t request a code from HMRC? If I read George correctly, he has only taken the tax free amount and he doesn’t currently have a tax code against his pot?

That was my experience…you’re right, I’ve only taken the tax free lump sums from SL so no code was needed or forthcoming afterwards. Whereas for another providers plan, I actually took more than the 25% once here in France, and they went through the whole emergency tax performance, which took HMRC over a year to refund.

I would have thought this a perfectly respectable, reasonable ‘ask’ of a rescrit ie would taking a nominal £100 then the balance as a lump sum a few weeks later be treated as a single withdrawal for practical purposes, and thereby obtain the 6.75%. As the rescrit is in advance, there is nothing to be lost be asking. If they say no, ie the lump sum would not obtain the 6.75%, then you have to absorb the emergency code, however hideous, on the basis it will all be refunded, eventually, by HMRC. Cash flow is nasty, but just that.

Well Larkswood by default the pot doesn’t have a tax code until the pot is ‘accessed’ ie a first withdrawal is taken from it.

So at that first point of withdrawal HMRC has no idea what is its tax position. So of course the standard HMRC reflex is used as for a new person on a payroll coming without history - ie no P45. The standard HMRC reflex being to tax at max ie apply emergency tax.

I was told even a £1 withdrawal triggers the issue of a tax code for the pot. So even if your pot is only £4 that should be tax free. But I was told it does trigger the code. Probably because at first withdrawal it mighy not be a lump sum, but might be another type of taking money from the pot. A lump sum being technically called an “Uncrystallised Partial Lump Sum…” No part of a pot can possibly be already crystallised before first withdrawal, I’m thinking. So by definition first withdrawal is from an uncrystallised pot therefore, for sure, attracting HMRC’s default tax ie emergency tax.

It’s also interesting that the tax code applies to the pot if done this way and not to you. So you have to reconcile with HMRC after default standard rate tax of currently 20% is taken on later withdrawals if you’re going over the 25% - either ask HMRc immediately if you are unusual ie can prove no other income/not eligible for tax - or more likely reconcile by submitting tax returns at the end of the year.

I came across a reminder yesterday that you can also avoid emergency tax on first withdrawal [if your provider is competent?] by giving your provider a P45 . Many will be in a position to do this…such as if they retire and move straight onto taking their pension. But technically, also, if they just leave an employment… as the provider is not going to question they are just going to apply the P45. At that precise time you would of course, I guess, not be receiving any other income.

Depending what else happens to you subsequently in the course of that tax year you will of course be sorting it all out with HMRC at the end of the year. But has massive liquidity benefits if you are in a position to hand a P45 to your provider as you will avoid emergency tax. Got an idea it’s best if P45 is dated max 4 weeks before you hand it to them.

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Brilliant tip! Thanks Karen.

I’ve been meaning to let you know since our last discussion I did do a Ltd Co and I’ve got a payroll number now. I might be able to engineer something with that when the time comes… Learned enough to think this a total nonstarter as officially things are applied literally here. It would look like you are trying to have your cake and eat it too. “Is our 6.75% not enough for you?”

Even if you got your local tax office to concede, it would be forever unstable and unreliable and potentially rescindable retroactively.

So we’d be back to a rescrit and do you really want to open doors that could lead to greater take than exists already? I am not wealthy enough to be concerned but I’d do as the French do and work within existing rules.

I was recalling our conversation and made the link when I came across the P45 thing on a public advice source yesterday…You’ll note I worded it carefully.