Background
The client had built up various pension rights in the United Kingdom: a UK State Pension, a Defined Benefit occupational scheme, a Defined Contribution scheme and a Self-Invested Personal Pension (SIPP).
Depending on the scheme, his benefits could be paid as a pension, as a lump sum or through successive withdrawals.
He wished to know how they would be taxed in France, choose the most suitable way of drawing them and anticipate the net income he would have once settled.
Our approach
- 01
Identifying the different pension schemes
We drew up an overview of the client’s rights, distinguishing the State Pension, the defined benefit and defined contribution occupational schemes and the SIPP.
We then analysed the features of each scheme: origin of the contributions, tax relief granted during the accumulation phase, terms of payment and the option of drawing benefits as a pension or as a lump sum.
Key point. British labels do not, on their own, determine the French tax treatment. A SIPP, an occupational scheme or a QROPS must be characterised according to its own features. - 02
Determining the country of taxation
We reviewed each pension under the tax treaty between France and the United Kingdom.
Pensions received by a French tax resident, including the State Pension, are in principle taxable in France. Specific rules apply, however, to pensions paid in respect of past government service.
We also identified the steps needed to avoid or correct taxation in both countries.
- 03
Determining the applicable French tax treatment
Where they qualify as retirement pensions, regular payments are subject to the progressive income tax scale, after the 10% allowance for pensions, within the limits set by law.
Retirement benefits paid as a lump sum are also, in principle, taxable under the rules for pensions. They may in particular be subject to:
- the progressive income tax scale, possibly with the quotient system for exceptional income;
- by election and subject to conditions, a flat-rate levy of 7.5%, calculated after a 10% allowance.
The 7.5% levy requires in particular that the lump sum be paid in a single instalment and that the contributions paid during the accumulation phase were deductible from taxable income or related to exempt income.
Key point. A portion presented as a tax-free lump sum in the United Kingdom is not automatically exempt in France. Its treatment depends on how the scheme is characterised and on the conditions under which the rights were built up. - 04
Comparing the ways of drawing benefits
We compared drawing benefits as a pension, as a lump sum or through phased withdrawals, taking into account:
- the amount and timing of the payments;
- the client’s tax residency when they are received;
- the household’s other income;
- possible eligibility for the 7.5% levy;
- the social charges that may apply.
Foreign pensions may be subject to CSG, CRDS and CASA where the recipient is tax resident in France and covered by a compulsory French health insurance scheme.
- 05
Organising the move to France
Finally, we drew up a roadmap covering:
- the date of the change of tax residency;
- the order in which the different schemes would be drawn;
- the steps to take with the British pension providers and authorities;
- the first French tax return;
- the reporting of accounts and investments kept in the United Kingdom.
Outcome
The client obtained a consolidated view of his British pensions and of their tax and social security treatment in France.
He was able to compare the different ways of drawing his benefits, plan the timing of the payments and prepare his move on the basis of the expected net income, rather than the gross amount of his pensions alone.
This case is inspired by a case handled by the firm, in light of the law and case law in force at the time of the engagement, and in the light of circumstances specific to it. It is presented for illustration purposes only: it does not constitute advice and does not predetermine the treatment that might be adopted in another matter.