Thousands of British expats are living in France during their retirement, and many of them are blissfully unaware that they may be paying too much tax on the income their pension provides. Since 2006, HMRC has been allowing British citizens not living in the UK to transfer their pensions to offshore schemes. Overseas pension funds provide a number of benefits to expats living in France; the most significant of which is the ability to pay less tax to the British government. Anyone living in France or who is planning to move there is eligible to join an offshore scheme.
The Benefits of an Offshore Pension for Expats in France
There is no need to purchase an annuity when a QROPS scheme is in place, as a regular income can be ‘drawn-down’ at a rate that suits the individual. Expats in France can now withdraw up to 120% of the Government Actuary Department (GAD) rate; a figure that cannot exceed 100% in the UK. This rate is calculated using the fund holder’s age and the interest rates at the time of retiring. An expat in France will also have the distinct advantage of being able to take up to 30% of their pension as a lump sum; the current figure allowed by the UK government is only 25%. However, the ability to do this depends on the jurisdiction where the offshore pension is based.
Expats who are spending their final years in France may have concerns regarding their family’s inheritance. However, by transferring a UK pension into an overseas pension scheme, inheritance tax can sometimes be completely avoided. In some cases, a pension fund left to a loved one can be liable for up to 55% tax, so using an offshore scheme can save beneficiaries thousands of pounds. An offshore scheme also offers flexibility, as a number of investment opportunities from around the world can be exploited – instead of just those in the UK. The fund holder can also design a bespoke package of investments that suits a particular lifestyle.
The Potential Drawbacks
Many expats in France have made the mistake of purchasing annuities in the past when there was absolutely no need to do so. This means giving up the capital in a pension permanently in exchange for a regular income for life. As annuities are based on the interest rates at the time of purchase, the income such schemes have provided expats recently has been low due to historically low interest rates. Unfortunately, not all pensions are eligible for QROPS transfers; among those not eligible are state pensions and most final salary schemes. Since 2011, France has been able to tax the lump sum payments of UK pensions under the ‘loi de finances’ act. However, any lump sum under EUR6, 000 will not be penalised.
Recent crackdowns by HMRC have meant previously popular jurisdictions – such as Guernsey – are no longer suitable for expats in France. A financial advisor with specialist knowledge will be able to steer people in the direction that best serves their retirement needs.