UK Pension lump sum in France, 7.5% PFU & Rescrit Fiscal

Banking & Financial Tax & Social charges
41

It is indeed cumulative. This amount is ‘reset’ every 15 years. Taxpayers are supposed to fill out a form to send to the Impots, even if the amounts given from one spouse to another are below the €80k threshold. This is to enable the Impôts to keep track of the amounts donated cumulatively, especially if they come to exceed the €80k. It must be one of the most overlooked tax forms!

It seems the thinking behind the droits de donation threshold is (probably) inheritance tax avoidance..An example might be to prevent A giving money tax free to spouse B, for the latter to pass tax free to B’s children (who are not A’s children). Or to enable B to utilise the €100k inheritance tax free donation allowances for gifts to each of their children but B has insufficient funds to make the gifts, so A passes funds to B etc etc.

1 Like
42

Interesting that you raised this point George 1, because the ‘nature’ of the withdrawn pension capital is another aspect I have been trying to understand. I hadn’t wanted to hijack Expat’s thread (!) but the issue is specifically relevant to these DC pensions, so perhaps worth mentioning whilst all these knowledgeable people are commenting.

Briefly, once – if - our pension capital is withdrawn, my main income/transmission strategy would be to invest in a series of Assurance Vies, both individually and jointly with my wife. However, it seems important that, depending on our marriage regime, we know whether we are subscribing with personal or joint funds each time – as this has a number of potential implications (such as the gifting issue).

We went to see a couple of local notaires for initial advice, and each confirmed that when we arrived here in 2007 we were under séparation de biens (SdB) as we married in the UK. However, after 10 years of habitual residence, we had automatically moved into France’s default communauté réduite aux acquêts (CRA). And for good measure, our house was carved out in communauté universelle (CU) with an ‘attribution integrale’!

I described our DC pensions and asked how they would be viewed in the CRA regime once withdrawn as capital, and was given a written answer by the second notaire. He claimed that they were each initially personal assets (biens propres), having been constituted under SdB, until 2017 when we entered CRA. At that point, any subsequent growth in the funds was a community gain. And, because within the pension funds we could no longer separate the fongible personal and community amounts, the effect was that the whole pension funds have now ‘fallen into community’ but with a récompense back to each spouse for the values as at 2017 - which is not an immaterial difference as, with the pensions invested in equities, the value has virtually doubled since then.

My feeling is that the notaire is wrong on this and both pensions are still personal. All of our contributions were made in the SdB phase and the increase in value has been capital appreciation. My understanding is that such funds are propre by nature. But the notaire is adamant. And we are running out of local notaires to ask for a second opinion :).

My wife feels this is all a bit abstract but I feel we need to understand the full implications before potenially investing significant sums.

Presumably this type of issue will be increasingly relevant as couples increasingly withdraw DC pots and reutilise the funds. My nuclear solution is just to change our whole regime to CU, which would apparently cost about €4k and render it a non-issue.

Apologies for the convoluted explanation but interested to hear any thoughts? Perhaps I am over-thinking this…

1 Like
43

I follow the “hope for the best, prepare for the worst” when it comes to identifying the sources of funds used to invest…

I regard the flows of funds from DC pension withdrawals as clearly belonging to the person who earned/contributed to that pension. Amongst my wife and myself, I am the sole ‘holder’ of DC pensions. We too were married in the UK.

When taking pension withdrawals I have been very careful to ensure that any funds transferred to my wife to enable her to invest in Assurance Vie (AV) do not in total exceed the €80k threshold, for donation de droits reasons outlined in earlier posts..

Incidentally I understand from our AV providers that investments cannot be joint - each individual invests separately. I wasn’t quite sure if you were referring to joint AV investments, apologies if you weren’t.

44

Thanks for the response, it’s helpful to hear that you also regard the flows of funds from DC pensions as belonging to the holder. And also to be aware of the €80k threshold.

Re AV funds, I believe that if you are in a community marriage regime (eg CRA or CU) then joint subscription in a couple is possible, with unwinding specified at either first or second death (eg contrat en co-adhésion avec dénouement au second décès).

One advantage is that spouses are often beneficiaries of AV policies when they are over 70 themselves, and thus lose the key transmission benefits of an AV when they reinvest; whereas the joint subscription AV keeps going, allowing the survivor to make withdrawals but not ending the policy.

1 Like
45

You do seem very on the ball @Dom65 I am well impressed !

46

So, just an update as promised on how are meeting at the SIP went. As a recap, we were previously told by a tax officer that we needed to provide historic pay slips to justify that our pension contributions were tax deductible and so eligible for the 7.5% treatment. So we went back armed with a naturalisation-esque size folder of documents to demonstrate this.

I am writing this wearing my bright red George1 Was Right About Everything cap. We had a different officer this time, curt and formal, and after a couple of minutes of trying to understand our request, he asked us what the amounts involved were and - when we showed the valuations -said there was no way in a short meeting he could advise on the appropriateness of the treatment for such substantial amounts. Which was a very fair point.

Instead, he explained we needed to submit…a rescrit générale! And was then very helpful in showing us the process and saying that if we were waiting long for the response we should contact him. And equally, come back if we had an unfavourable response, as we could get it looked at a second time or take it to tribunal. The chap also said it would take 30 days to get a response, which would be great (I know the official limit is 3 months, but just hope this might be an office that processes them quickly).

So, it was a bit of an anti-climax not to even open our folder. But, I now realise this is the only appropriate approach in our situation, as George1 recommended. And IF we get the go ahead, we can be much more confident in making the withdrawals.

So we’ve spent the weekend preparing the rescrit and are about to submit it, with all the supporting docs as evidence. We’re trying to do this asap so as to possibly make the first withdrawal this year.

One minor question, if anyone has any thoughts, is just on the timing? Obviously the rescrit is mostly factual but I think it’s relevant to include some intention of when we will make these withdrawals, otherwise our demand may just seem hypothetical and they would be giving an indefinite approval.

That said, I obviously don’t want to give them the impression we expectthem to hurry. And we also need some flexibility. If we don’t get the approval in time in 2025, then we would withdraw in 2026 and 2027 to mitigate the CEHR.

So as a compromise we’ve drafted: “Nous souhaiterions commencer le processus dès que possible, tout en respectant les contraintes pratiques liées à ce rescrit et aux administrateurs du régime. Notre préférence serait de procéder sur deux années fiscales consécutives, par exemple avec le contrat de Monsieur vers la fin de 2025 et celui de Madame au début de 2026. «

Any thoughts on that ?

1 Like
47

Thanks very much for the update on your Impôts meeting. I think your proposed approach is perfectly pitched. I think you can also be pretty confident you’ll get the right answer, albeit the timing of their response is a little unpredictable. It would not altogether surprise me if they respond with a routine request for (yet) more info, since that gives them more time, legally. However as there doesn’t seem to be a controversial point of principle here, you might be fortunate with the timing. Best of luck and do let us know the outcome if you have a moment…

One afterthought - in my rescrit they obsessed over whether it is even possible to take a 100% lump sum from a UK scheme, so I ran the HMRC guidance on how you can indeed take a full lump sum through Google translate and included that.

48

Thanks for the quick response , reassuring to hear that wording sounds okay. I did crib from some of your earlier posts and have included as much relevant documentation as possible, together with translated explainers, so as to hopefully limit any further requests.

Useful tip on the 100% lump sum. I have already mentioned “Le Taxation of Pensions Act 2014 a donné aux titulaires de pensions à cotisations définies le droit de retirer la totalité de leur fonds de pension à partir de 55 ans.” But perhaps I will add a further excerpt from the guidance just to emphasise the point.

I will submit this afternoon and post our progress in due course. Thanks again for the feedback.

49

Hi there. Thanks a lot for sharing your experience with French tax authority. I am in the same situation. I have had a look at my payslips from the various companies I have worked for. But I am not sure these will suffice to prove my pension meets the requirements. Unfortunately the employer contributions do not appear on most of my payslips. I can get a statement from the pension showing the employer contributions but I struggle to see how this can prove they were not taxed (i.e. no tax was paid by the employer). The statement only shows the date and contribution.

50

Hi Eddy,

Yes, agree it can be hard to ‘prove’ tax deductibility, especially for employer contributions. One point to note is that if even a single contribution for the year – employee or employer – was tax deductible, then the condition is satisfied for that year. At least, that’s my reading of the following:

BOI-RSA-PENS-30-10-20 S90

Comme pour les pensions de source française, la circonstance que, au titre d’une année, la déduction ou l’exonération soit plafonnée ou limitée à une partie des versements est sans incidence : il suffit que la déduction ou l’exonération des versements soit autorisée, même partiellement ou forfaitairement, pour que la condition tenant au caractère déductible des cotisations soit respectée.

Regarding evidence, we just used all the documents we had to build up the picture that contributions were tax deductible, of which payslips were one element. We haven’t heard back yet so I can’t say if we got it right. And it will be quite dependent on your schemes – ours had member contribution %s & AVCs, also employer regular and matching %s, and occasional bonus sacrifices too – so we illustrated reconciling all these for a 3 month period, plus included the scheme booklet, leaving summary and annual statements and highlighted/translated all the text and legal references throughout that mentioned tax deductibility.

On the payslips themselves, no employer conts appeared but we showed how the cumulative taxable pay figure reconciled to salary less employee contributions. And then we tied these contributions to the percentage of salary reported in the annual pension statement, calculated the employer’s contribution %s, and showed how that figure was used to purchase fund units in a particular month; with the months and years tallying into the final statement. Hopefully belt and braces.

51

Hi Dom,

Thank you for confirming the evidence you provided. I will try and follow your approach by gathering payslips, pension leaflet and statements to prove my scheme is eligible.

I hope you will be successful!

Best,

Eddy

52

Hi - I am now 55 and have been living in France for four years and am a tax resident, based here in Nice. I have a UK private pension pot with Aviva of around £180k which I’ve decided I would like to withdraw in its entirety, but I have no idea what to do other than that (!) and would be grateful on what steps I need to take to initiate the withdrawal. I know I’ll be subject to the 7.5% flat tax and social charges (how are these calculated and how much?) so I’m allowing 20% in tax but don’t know more that that. HMRC know I live in France and have sent a letter in the post - with the form downloaded from hmrc - to my local tax office but heard nothing and it’s been 6 weeks now.

Many thanks in advance for your insights

53

Hi Rodeo

Is the box requiring the French tax office’s stamp still in the lower left corner of page 1 of the form?

If so, try sending the tax office a scanned copy of the form via the messagerie in your personal tax space. Accompanied by a message worded roughly as follows:

“Chère Madame, Cher Monsieur,

Veuillez trouver ci-joint un formulaire prérempli, qui concerne la convention fiscale franco-britannique. Avec ce formulaire, l’objectif est de rendre une pension d’un régime de retraite britannique (insert name of provider) imposable uniquement en France, en vertu de l’article 18 de la convention fiscale susmentionnée.

Pourriez-vous, s’il vous plaît, signer et dater le formulaire dans le coin inférieur gauche de la page 1 et appliquer votre cachet ?

Il faudrait me renvoyer le formulaire une fois signé, daté et tamponné, soit par courrier électronique, soit par courrier postal, à l’adresse suivante : (insert address).

Je vous remercie d’avance pour votre collaboration.

Avec mes meilleures salutations,”

1 Like
54

Welcome Rodeo. In addition to @helenochka ‘s helpful wording and suggestions, you might like to work your way through the linked thread above for next steps on your Form France Individual (FFI) journey (and I hope you’ve also had a chance to read all of this very useful actual UK pension lump sum thread.)

My rough rule of thumb is that social charges are about 9% for estimation purposes.

From sending the FFI to HMRC and its receipt by them, it can currently take anything from 2 -12 months to obtain a refund of UK PAYE withheld from the lump sum. You will get your refund, but major reserves of patience are currently required!

Good luck and do let us know how you get on.