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Tax: How your UK pension will be taxed if you retire in France

Blevins Franks – June 2006

Your pension will greatly contribute to your quality of life in France if you retire there. It is therefore a good idea to look into how pensions are taxed in France sooner rather than later to see what steps you should be taking to get the most from your pension.

As a general rule, if you become a French tax resident your worldwide pension income will be taxed at the French progressive scale rates of income tax (which currently range from 0% to 40%). A deduction of 10% off the gross amount (maximum €3,325 per household) is allowed against pension income. If you receive more than one pension you will need to add them together to calculate this deduction.

On top of income tax, France also has a social charge of 7.1% applicable to pension income. This effectively makes the top income tax rate 47.1%. However, anyone in possession of healthcare Forms E121 or E106 will be exempt from social charges on UK pensions. You must apply for Form E121 as soon as you are eligible to do so (i.e. on reaching UK state retirement age and commencement of receipt of your UK State Retirement Pension.)

The above rule is a general one and taxation of UK pensions in France actually varies according to the type of pension you have. There are four different types of pensions for these purposes:

1) State Retirement Pensions

2) Occupational Pensions

3) Government Service Pensions

4) Private Pensions

State Retirement Pension

Your pension will be taxed in your country of tax residence, regardless of where it is paid. In other words, if you are tax resident in France but choose to have your pension paid into your UK bank account, you will pay French tax on it. Note that UK pensions are always paid in Sterling, but you can have them transferred to Euros if necessary. In this case the amount received will vary according to foreign exchange rate movements.

Occupational Pensions

Like the state pension, these will also be taxed in France if you are tax resident in France. Beware, though, that not all occupational pension schemes permit payment into foreign bank accounts, so if you would like your pension paid in France you need to check this out with your pension provider.

Government Service Pensions

These are pensions from the civil service or local authorities. This may include teachers, police and fire brigade pensions, but as this is not always the case you should seek advice if you fall in these categories. Note that NHS pensions do not count as government service.

Usually, pensions arising from UK government service are always taxed in the UK, regardless of whether you are tax resident in France (or anywhere else). Note that while Government pensions are not taxed directly in France, the income is taken into account for the purposes of determining the rate of tax payable on other French source income (taux effectif).

The only way to avoid French tax on your UK Government service pension is to transfer your pension out before it commences (and usually before age 59).

More pages

Page 1: Blevins Franks – June 2006
Page 2: Personal Pensions

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