Taxation of Pensions in France Made Simple
Are you a UK or overseas pensioner living in France? Did you know that you may be liable to pay French tax on your pension income? In this blog post, we will explain how the French tax system works and look at some of the ways that you can reduce your taxable income. So, whether you are a retired expat living in France or are about to retire and move to France, read on for all the information you need!
The French tax and pension laws are complex, so it’s essential to seek up-to-date advice from an international financial or a certified public accountant. Make sure that you use one of the reputable firms that can help with both your local law as well as those found in France!
Is my pension subject to tax?
Firstly, as a French tax resident, all global income, including your UK or overseas pension, may be liable to tax.
Upon becoming a French resident, all overseas income and investments must be declared on your annual tax return. A pension payment includes a lump-sum pension as well as a monthly, quarterly, or annual pension income. It doesn’t mean that all of this income will be taxed or that it will be taxed twice, however. Many countries, including the UK, have double taxation agreements with France to prevent this.
Tax on pensions in France
In France, pensions are subject to income tax after the deduction of a 10% allowance per household (capped at €3858 based on 2021 figures). After you pass your tax-free allowance (€10,084 based on 2021 figures), income tax rises to 11%, rising to 45% for high-income earners.
The French tax system is based on the fiscal household rather than the individual, so married couples must file joint tax returns. Married couples count as two units, married couples with children as 2.5 units, etc. The tax scale and tax-free allowance are then calculated based on the number of units in the family. One important point to note is that widows over 74 are also granted an additional 0.5 units (and are therefore deemed 1.5 units), which offers tax reductions.
UK or overseas state, government, or military pensions
There are some state, government, and military pensions that are taxed at source, meaning that the tax is automatically deducted in the country of origin before the pension payment is made. All UK government service and military pensions, for example, follow the same principle. Pensions are not exempt from taxation in France, however, so you must declare them and pay taxes.
You may be able to apply for tax relief for some state pensions in order to pay your taxes in France. You may also receive a tax credit that will be offset against your French taxes (see How to Pay Tax on My UK Pension in France for more information).
Unlike pensions from many other countries, American pensions received by retirees in France, including 401K and IRA plans, will be taxable in the United States under the France/United States double tax treaty. In France, your pension will not be taxed; however, you must still declare your US pension income on your annual French tax return.
French residents are subject to two types of income taxes: income tax (as described above) and social charges (prélèvements sociaux). These fees differ slightly from those imposed on employees and employers, but they apply to income sources such as investments, rentals, and capital gains, as well as pensions. Unless you have an exemption, the following will generally be charged on your pension for expats and will grant you access to the French healthcare system:
- La contribution sociale généralisée (CSG) at a rate of 8.3%, 6.6%, or 3.8%, depending on your income.
- La contribution pour le remboursement de la dette sociale (CRDS) at a rate of 0.5%.
- La contribution de solidarité pour l’autonomie (Casa) at a rate of 0.3%
The rates shown above are based on 2022 (2021 income) rates and represent a total of 9.1% social charges levied on your pension.
EU or UK retirees receiving a state pension who have an S1 form are an exception. In this case, your pension income is exempt from social charges, and you can use your S1 form to join the French healthcare system.
Lump-sum pension payments
Many French residents receiving a foreign pension may be able to pay lower taxes if they withdraw their entire pension as a lump sum, which may be of interest to expats in France.
This is detailed in French tax code article 163 bis and is dependent on two factors:
Contributions to the pension fund must have been made with taxable income or with exempt income (which would include most employer and personal pensions, SIPPs, and many other overseas pensions). The payment cannot be split; instead, it must be withdrawn in one lump sum.
If you withdraw your entire pension in this manner, you will receive a 7.5% fixed rate, after a 10% allowance that is not capped. With French tax rates reaching up to 45%, plus possible social charges levied on your pension income (see above), this could result in significant savings, allowing you to reinvest the capital in France.
A critical point to remember for UK retirees is that the entire pension pot must be taken in one payment (see point 2 above). When reaching pension age, UK residents can withdraw up to 25% of their pension tax-free, and many retirees do so before moving to France (after which the tax-free option becomes irrelevant as you would no longer be a UK tax resident). However, doing so would eliminate the fixed-rate tax option.
How to pay tax
If you have a UK state or workplace pension, you can continue to receive it when you move to France.
Pensions from the government and from the workplace.
You will need to contact the International Pension Center to claim your UK non-government state pensions and workplace pensions, which you can do here, as well as fill out an International Claim Form. You must also complete a France Individual DT Form, which allows you to apply for UK Income Tax exemption under the UK/France Double Taxation Convention. This form must be submitted to your local Service des Impôts Particuliers in France before being returned to HMRC in the United Kingdom.
If you receive a government service or military pension (a full list of pensions is available here), you must also contact the International Pension Center as described above. However, no tax exemption is available; instead, your pension will always be taxed at source in the UK. This means that UK taxes will be deducted from your pension payments before you receive them.
You must still declare your gross pension income on your annual French tax return, and you will receive a tax credit to offset any tax previously paid in the United Kingdom against any tax liabilities in France.
The French tax and pension rules are complex but there are many ways that you can reduce your taxable income. You should seek up-to-date advice from an international financial or a certified public accountant who is familiar with both the local law as well as those found in France. SJB Global is a reputable firm that can help you navigate French tax laws so that you can make the most of your retirement. It is important to note we are not tax experts and would always recommend you seek tax advice. Give us a call today to learn more about how we can help you!
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This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
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In France, pensions are subject to income tax after the deduction of a 10% allowance per household (capped at €3858 based on 2021 figures). After you pass your tax-free allowance (€10,084 based on 2021 figures), income tax rises to 11%, rising to 45% for high-income earners.Will my US pension be taxed in France? ›
If you're a U.S. citizen with a U.S. retirement account (no matter where you live) that money is only taxable in the U.S. If you're a U.S. citizen living in France with a French pension, that pension would only be taxable in France.What were the 3 types of taxes in France? ›
In France there are three categories of taxes on income: the corporate tax, the income tax for individuals and taxes for social purposes (CSG and the CRDS, paid by the households). Taxes paid by employers on wages, namely social contributions, are not considered as taxes by the French central government.How are US citizens living in France taxed? ›
Because of the US-France tax treaty, most Americans living in France are already exempt from double taxation. However, the IRS also offers several other tax credits and deductions for expats, such as: Foreign Earned Income Exclusion. Foreign Tax Credit.How does the 55% pension tax work? ›
You'll pay up to 55% tax on payments from your pension provider if they make an 'unauthorised payment'. This is a payment made outside of the government's tax rules and usually includes: any payments before you're 55 (there are exceptions)How much is the retirement pension in France? ›
The average of your best 25 years salary whilst paying cotisations in France (capped at a maximum figure of 40,000) is used to calculate your pension. Payment rate means the percentage of your average salary used to calculate pension. The maximum is 50%.How is my US pension taxed if I live abroad? ›
Distributions from your 401(k) and pensions are still taxed as income, albeit they're treated as unearned income—meaning you won't be able to claim them under the Foreign Earned Income Exclusion.Do retirees have to pay US taxes when overseas? ›
Americans who retire overseas still have tax obligations. Typically, you will have to file a tax return with both the US government and your new host country. You may even have to file a tax return with the US state you used to live in.What happens to my pension if I move to France? ›
What happens to my State Pension if I move abroad? As long as you've paid enough National Insurance, you can claim your State Pension while living abroad. The main difference is that if the State Pension increases, you may not benefit from the extra amount if you're living in certain countries.What was France's major tax problem? ›
The nobles and the clergy were largely excluded from taxation while the commoners paid disproportionately high direct taxes. The desire for more efficient tax collection was one of the major causes for French administrative and royal centralization.
Individual taxpayers in France pay two types of taxes: national and local.What is the tax burden in France? ›
The tax-to-GDP ratio in France has increased from 43.4% in 2000 to 45.1% in 2021. Over the same period, the OECD average in 2021 was above that in 2000 (34.1% compared with 32.9%). During that period, the highest tax-to-GDP ratio in France was 46.1% in 2017, with the lowest being 41.5% in 2009.Is it cheaper to live in France or USA? ›
The USA's national index is 71.05 while the French national index is 74.14. Therefore, the cost of living is 4% higher in France than it is in the USA.How long can a US citizen live in France? ›
For any stay in France exceeding 90 days, you are required to apply in advance for a long-stay vis. In this instance your nationality does not exempt you from requirements. Whatever the duration of your planned stay, the duration of your long-stay visa must be between three months and one year.Can you be resident in France without being tax resident? ›
People in France who are not tax residents are only taxed on income from French sources. Residents of France are taxed on the entirety of their income earned from French sources or from foreign sources. International tax treaties may also provide for specific arrangements.How do I avoid paying 55% tax on my pension? ›
- Options at retirement.
- Tax-free lump sum.
- SIPP drawdown.
- Lump sums (UFPLS)
- Pensions and retirement hub.
You can take 25 per cent of any pension pot as a tax-free lump sum. However, it is possible to cash in an entire pension pot as a single lump sum.Are pensions tax free after 60? ›
Overall, though, the income tax rates are comparatively reasonable, and residents age 60 and older can exclude up to $12,500 of pension and other retirement income (including dividends and interest, capital gains, IRA and 401(k) distributions, etc.).Which country has the best pension in the world? ›
- Best countries for pensions. Following Finland, the best countries for pensions are Poland and Sweden. ...
- Average retirement age. ...
- Highest pension contributions.
Yes. There is nothing that precludes you from getting both a pension and Social Security benefits. But there are some types of pensions that can reduce Social Security payments. Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.What happens to my Social Security if I move to Europe? ›
If you are a resident of a country that has a U.S. social security agreement, (other than Austria, Belgium, Denmark, Germany, Sweden, or Switzerland), we will continue your U.S. Social Security payments.How long can a retired US citizen stay out of the country? ›
How long can a retired U.S. citizen stay out of the country? SSI benefits will stop if a recipient is outside the United States for more than 30 days, and benefits won't start up again until the recipient is back in the country for at least 30 days.Can I receive my US pension overseas? ›
If you leave the U.S., we will stop your benefits the month after the sixth calendar month in a row that you are outside the country. You can make visits to the United States for specific periods of time, depending on how long you've been outside, to continue receiving your benefits.How does IRS know about foreign income? ›
One of the main catalysts for the IRS to learn about foreign income which was not reported is through FATCA, which is the Foreign Account Tax Compliance Act. In accordance with FATCA, more than 300,000 FFIs (Foreign Financial Institutions) in over 110 countries actively report account holder information to the IRS.Does a US citizen living abroad have to pay state tax? ›
Do US Expats Pay State Taxes? The answer is yes— If you're living abroad, you might not realize that you're still considered a resident of your home state and are subject to paying state taxes. This includes income tax, property tax, and sales tax.Can a retired US citizen move to France? ›
Yes an American can retire in France. For visits longer than 90 days you will need to apply for a visa de séjour temporaire (a residence visa). You cannot apply while on vacation in France, you ust apply for this residency visa from your nearest French consulate in the U.S.What happens to my old age pension if I move abroad? ›
Can I get my pension if I live abroad? Personal or workplace pensions can be paid to you wherever you live.Can I live overseas and still get the pension? ›
The full amount of age pension that a person is eligible for is payable while overseas for 26 weeks.What are two major issues in France? ›
- Poverty and Inequality.
- Migrants and Asylum Seekers.
- Rule of Law.
- Law Enforcement and Police Abuse.
- Children's Rights.
- Discrimination and Intolerance.
- Women's Rights.
- Disability Rights.
France is a welfare state : Primarily, France is a welfare state. Welfare is a concept that aims to support the poorest in our society so that they can meet basic human needs like housing, getting enough food, etc.Which estate was angry with the tax system in France? ›
King Louis XVI, aware of the injustices of the French tax policy, tried to reform the tax code to make it more fair, but was repeatedly thwarted by the overrepresented nobles and clergy. This angered the Third Estate, which refused to vote in the Estates General, and formed instead the National Assembly.How much is social security tax in France? ›
French social security contributions
The contributions are shared between employer and employee; on average the employer's share of contributions represents 45% of the gross salary. For 2022, the employee's share of French social contributions represents approximately 20% to 23% of the remuneration.
A wage received by a pupil or student under 26 years of age is exempt from income tax up €4,936 (2022 income). An apprentice with a contrat d'apprentissage is also exempt from income tax up to €19,744 (2022 income). If they earn more than this amount they only need declare the excess sum.What type of taxes were paid by the people of France? ›
The French administration had taxes like Tithes (giving one-tenth of the agricultural produce to the Church) and Taille (tax to the State). They also levied taxes on salt and tobacco.What is the highest rate of income tax in France? ›
|Taxable income band||National income tax rates|
|EUR 10,065 to EUR 25,659||11%|
|EUR 25,660 to EUR 73,369||30%|
|EUR 73,370 to EUR 157,806||41%|
|EUR 157,807 +||45%|
France's diversified economy is led by tourism, manufacturing, and pharmaceuticals. The government has partially or fully privatized many large companies but maintains a strong presence in such sectors as power, public transport, and defense.Where do most American expats live in France? ›
The seven best places for expats to live in France are: Paris, Brittany, Lyon, Montpellier, Luberon, Dordogne, and Provence. These choices are based on what we think will matter most to those of you that are thinking about moving. Check out the table below for our summary, and read on for further detail!What are the disadvantages of living in France? ›
- High living costs.
- Old houses.
- High taxes.
- Complicated bureaucracy.
- Language barrier.
- Shortcoming of jobs.
- High housing tax.
- Too many strikes.
Moving to France from the United States to enjoy the country long-term is an involved process. You'll need to secure a visa, inventory your belongings and find a place to live before you arrive. If you can't work remotely or don't already have a job, you'll need to find employment as well.
U.S. law does not mention dual nationality or require a person to choose one nationality or another. A U.S. citizen may naturalize in a foreign state without any risk to his or her U.S. citizenship.Can a U.S. citizen own a house in France? ›
U.S. citizens/residents may purchase French real property in their individual names. If they do so, the French real property, as immovable property and under international private law rules, will be governed by French inheritance and tax laws. This includes forced heirship rules.Where is the best place to live in France? ›
The resident card of a non European national loses its validity after at least 3 consecutive years of residence: Outside of France for the resident card; Outside the territory of the Member States of the European Union for the resident card with the wording “long-term resident – EU”.What state is exempt from paying taxes in France? ›
The members of the first two estates, that is, the clergy and the nobility, enjoyed certain privileges by birth. The most important of these was exemption from paying taxes to the state.Can a non resident have a bank account in France? ›
France allows both local and foreign citizens to open bank accounts here. Also, there also several types of accounts one can set up, in accordance with their needs. The French banking system is a modern one allowing for certain transactions to be carried out online.Do expats pay taxes on pensions? ›
Distributions from your 401(k) and pensions are still taxed as income, albeit they're treated as unearned income—meaning you won't be able to claim them under the Foreign Earned Income Exclusion.Do I have to pay tax on foreign pensions? ›
Foreign pensions are generally subject to US taxation. Taxpayers may have to report their foreign pensions on additional tax forms, such as a FATCA report or the FBAR.How much tax do I pay when taking my pension? ›
When you take your entire pension pot as a lump sum – usually, the first 25% will be tax-free. The remaining 75% will be taxed as earnings. If you're thinking of doing this, it's important to contact Pension Wise first.What happens to your Social Security if you move to another country? ›
If you leave the U.S., we will stop your benefits the month after the sixth calendar month in a row that you are outside the country. You can make visits to the United States for specific periods of time, depending on how long you've been outside, to continue receiving your benefits.
- Panama. Panama tops most lists of the best countries to retire in, and there are good reasons for that. ...
- Costa Rica. ...
- Portugal. ...
- Ecuador. ...
- Greece. ...
- Belize. ...
- Nicaragua. ...
- The Philippines.
Tax on your pension lump sum
You can withdraw money from your pension pot as a lump sum. However only the first 25% is tax-free and doesn't affect your personal tax allowance. Withdrawing anything more than this is taxable. It's also added to any other income you have, which could push you into a higher tax bracket.
Is your pension subject to French tax if you retire to France? The simple answer is yes. Once you become resident in France, all overseas income and investments must be declared on your annual tax return. That includes any monthly, quarterly, or annual income from pensions and lump-sum pension payments.How is foreign pension income taxed in the US? ›
U.S. Taxation of Foreign Pension Plans
In general, while a foreign pension plan will usually grow tax-free or tax-exempt in the country of source (such as a UK SIPP) — the growth may not be considered tax-exempt under the US Tax Code and 402 rules. In general, U.S. persons are taxed on their worldwide income.
- FinCEN 114 (FBAR) if you held over $10,000 in foreign accounts, including your foreign pension plan, at any time of the year.
- FATCA Form 8938 if your combined foreign accounts and assets are worth over a certain value.
- Form 8621 if your pension qualifies as a PFIC.