Guide to pensions in France

With its laissez-faire lifestyle, France is the perfect place for British expats to retire to, but what happens to UK pensions?

State retirement pension

A UK state pension is always paid gross and if you are a tax resident in France, you will be taxed on this income in France only at the French progressive scale rates up to 45%. Under French law, a pension arising from a professional activity is taxed in the same way as salaries (as are disability pensions, child support and alimony payments). The balance is then included as part of the household’s taxable income and taxed under the Parts system at the usual income tax scale rates.

Social charges are payable in France at a rate of 7.3% unless you have a S1 form. State pensions are taxed in France even if the income is paid into a UK bank account. These pensions can be paid directly into a French bank account in euro is preferred, but it will be exposed to variances in exchange rate fluctuation.

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Government service pension

UK government service, civil and military pensions remain taxable only in the UK, unless there has been a transfer out before the pension commences (and usually before the age of 59). However, you still need to declare the income. It is included in the calculation of your taxable income and you are given a credit equal to the French income tax and social charges that would have been payable.

Private pension

The taxation of UK personal pensions in France is somewhat of a grey area, as there is nothing similar under French tax law. There are two possibilities:

1. As a pension

2. As an annuity

If treated as a pension, the income will be taxed at the normal income tax rates and social charges of 7.3% will be payable, unless you have a S1 form. If the income is treated as an annuity in France, its capitalised value will be subject to wealth tax.

Lump sums

If you are a French resident and take out a cash lump sum, it becomes liable to French tax. If the lump sum is from a government service pension, it will be exempt from French income tax and social charges. For all other types of pensions, lump sums are taxable in France. It’s possible to limit French tax on your UK lump sum to a fixed rate of 7.5% with an uncapped 10% allowance. This will only be if the pension contributions have been deducted from your or your employer’s taxable income and if you take out the whole pension fund at once. If you do not meet the conditions for a lower fixed rate, any lump sums will be taxed at the normal French scale rates of income tax up to 45%.

Beside tax rates mentioned above, all pension income is subject to social charges at 7.4% each year. However, this is waived if you don’t have access to the French healthcare system or have an S1 form.

How will my pension be calculated?

If you have been insured in state pension systems of more than one country where EU regulations apply, two pension amounts will be calculated by each country:

– Pension according to rules of country concerned called ‘national pension

– Pro rata share of the ‘EU pension’

The result of this calculation is your pension entitlement from the country under the EU rules, which involves a readjustment to allow for the fact that you have lived elsewhere in the EU. When the EU pension is calculated, all periods of insurance in the EU are aggregated, so as to determine the amount of the full pension in the country doing the calculation. The result is then proportioned, according to the actual period of insurance in the country.

How could Brexit affect pensions?

It is unclear whether these arrangements will continue once Britain has left the EU. Pensions arrangements for Brits living in France will depend upon the outcome of negotiations. Keep up to date with the latest on how Brexit will affect British expats in France