QROPS and International SIPPs – How they impact on you
Be careful when you take advice about UK pensions while resident in France and ensure your advice is suitably qualified and regulated to provide the advice required.
Double tax treaty with France means there may be no reason to transfer your pension
Transferring your pension offshore may not provide any tax advantage as it is the tax treaty that decides how the tax will arise and not the product.
If you live in France, have a UK pension, QROPS or have been advised to take out an Investment Bond or wish to receive high quality investment advice taking into account Double Tax Treaties, then we are able to assist you.
For many expats living in France the key issues or concerns are summarised by us, with some pointers as to how you can avoid the mistakes that we commonly see, and consider the things that make a difference to every French expat.
We regularly blog on the latest matters affecting you, and within these pages we have put together French specific pension information for expats. We also focus on the main tax considerations for expats in France and then go onto to discuss specific investment strategies including the pro’s and con’s of investment bonds.
There were 148,800 UK-born people with residency in France in 2016, according to the French statistics agency Eurostat, which used figures reported by The French Labour Force Survey. Of these, around one-fifth of them receive the UK state pension.
For expats that need advice on pensions and investments, the investment regulator is here www.amf-france.org
For those that need advice on insurance, whether that be car insurance, health insurance or life insurance, the insurance regulator is here www.amf-france.org.
Aisa Group is registered for both insurance and investment advice for expats resident in France.
France Specific Pension Information
Pension Income - This is taxed as normal income unless deemed to be an annuity. It is questionable as to whether the French will accept a UK pension as an annuity unless an actual annuity is being paid by a recognised annuity provider, for example. In other cases, the pension is more likely to be taxed as normal income.
KEY POINT: Pensions - the lump sum from a UK pension (or a pension anywhere outside of France) is taxable and should be declared.
Pension commencement lump sums that are “tax free lump sums” in the UK, are taxable in France. A lump sum from a UK pension fund will be taxed at a flat rate of 7.5%. Pension income is additionally subject to 7.4% social charges, unless you hold an EU Form S1. If so your pension income is exempt. A Form S1 can be obtained once you start receiving your UK state pension, is issued by the Department for Work and Pensions.
KEY POINT: Compliant investment bonds are known as Assurance Vie but DO NOT work with pensions as the pension trustees are the owners, not the individual.
KEY POINT: For those expats who were advised to take out a trust based pension in Malta/Guernsey or Gibraltar or other jurisdictions and who put the investment into an Investment Bond for tax efficiency reasons – you must review this arrangement through a combined UK and French regulated wealth adviser who has Inheritance Tax specialities (such as ourselves).
France Tax considerations
If you go to the UK Revenue and Customs site (www.hmrc.gov.uk), you will be able to find both an English language version of the current UK-France Double Taxation Treaty www.gov.uk (articles 18 and 19 refer to pensions).
Given that France does not recognise trusts, our position is to advise caution when being recommended any trust which often includes pension QROPS in jurisdictions in Malta and Gibraltar even where some of the trustees claim to be “contract-based”. To our knowledge, neither the trust based or contract based QROPS have been tested in court as bona fide pensions.
KEY POINT: Trusts - The French do not recognise trusts and could well look through a trust structure and tax it accordingly.
Pension income is additionally subject to 7.4% social charges, unless you hold an EU Form S1. If so your pension income is exempt. A Form S1 can be obtained once you start receiving your UK state pension, is issued by the Department for Work and Pensions.
France specific Investment Strategies
There is a saying ‘Don’t let the tax tail wag the investment dog’. Investors should be interested in the best strategy to get the highest net return after tax AND fees.
France does not recognise insurance bonds if not French Compliant. There is a suggestion that the sale of non-compliant insurance bonds (whether outside a pension or not) is not legal and will lead to additional potential taxes.
KEY POINT: Compliant investment bonds are known as Assurance Vie but are expensive and have limited investment portfolios. They also do not work when used within pensions that have trustees as owners.
KEY POINT: If the fees for a tax strategy are higher than the tax saved, then it would be sensible to look at taxed options with lower fees. Some clients would have been better off not taking out the supposedly “tax-efficient” investment bond!
The adviser should look at alternative strategies, suggest options to discuss with you, finalising a best solution for you, the client, based on investment, fees and the overall tax liability.
Key issues / concerns
Insurance bonds, even Assurance Vie, sold within a QROPS or SIPP, are to be avoided as they do not work. The main consideration should be the balancing of tax efficient advice which takes into account future plans, and charges of products and only Assurance Vie products should be considered outside pensions, along with other investment products.
The vast majority of expat advisers (differ from regulated French advisers), providing investment or pension investment advice to UK expats, do not have investment licences and are circumventing this by selling insurance wrappers that are expensive and commission laden.
Trusts do not exist under French civil law. However, trusts governed by foreign law are generally analysed by applying conflict of law rules. As a result, in France, trusts can be subject to both income tax and gratuitous transfer taxes.
Investments not regulated under EU rules will not be protected under the Financial Services Compensation Scheme. If these investments go bust then the client will lose all their money and have no protection.
What should you be considering?
1. If you are confident enough, then do your research, and place investment directly.
2. If you need assistance, then seek advisers who are regulated themselves in the UK for pensions advice, and / or regulated for INVESTMENT advice in France.
3. Consider not only tax efficiency, but also costs!
4. Point 4 – is, make sure the costs are accurate! If you are told the costs are 1% or 1.5% per annum in total and there is no fee up front, then you are probably being lied to in 95% of cases.
5. Don’t get taken in by the great claims over QROPS and Insurance bonds or investment platforms that are really investment bonds. These add layered charges and are usually not the best outcome for clients (although we accept that in around 15% of cases they are).
6. Don’t be a sheep. Just because your best friend was advised to do something, never assume this is the right thing. Each person is an individual and requires individual solutions. If your friend were to walk off a cliff, would you follow them?
Our Empirical evidence from clients we have spoken has shown us that many expat sales advisers in France, just sell a product to their clients for commission and do not provided financial solutions. The product is often a QROPS or an International SIPP or an investment bond, which may or may not be the best advice but this is not really considered. Don’t listen as 85% of the time you would be better off doing something else with your hard earned money or pension.
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European Economic Area regulation: Aisa Financial Planning, a U.K. limited corporation, is authorised and regulated by the FCA – Reg.189652, for provision of intermediary services through the EEA under both the IMD and MiFID, including a branch called Aisa International.
Trading Names: Pensions for Expats is a registered trading name, but does not provide expat pension advice in that name. This website is aimed at individuals not resident in the UK. Please see www.aisagroup.org in order to ensure that you are dealing with the most appropriate group company.