Some statistics rank London as the fourth largest 'French' city by population, and the number of French individuals moving to the UK is growing. This is not surprising - the UK offers a highly favourable tax regime for 'non-domiciled' individuals moving to the UK, while entrepreneurs, professionals and high net worth individuals in France are subject to tax rises.
However, crossing the Channel is not always plain sailing. Without careful planning, individuals moving to the UK may continue to have French liabilities and may not be able to take full advantage of the UK's favourable regime.
In this briefing note we set out ten key tips and traps which should be considered as part of any plan to move to the UK. Charles Russell Speechlys' Private Client tax specialists in London and Paris are ideally placed to advise individuals considering such a move.
Make sure you cease to be resident in France
This requires more than boarding the Eurostar at the Gare du Nord. Breaking French residency also does not simply mean spending less than six months of the year in France. You also need to take steps to demonstrate that your home has moved from France to the UK, and that your centre of personal and economic interests has moved. Factors that will be taken into account for these tests include where you have property available for your use, where your spouse and children are living, from where you manage your assets, where is your wealth mainly located, where you hold bank accounts and where your statements are received, for example.
Make sure you become resident in the UK
Similarly, you cannot assume that stepping off the Eurostar at St Pancras will cause you to be UK tax resident. The UK has a complex residence test, which is broadly based on the interaction between the number of nights spent in the UK and other connections with the UK. The UK tax year runs from 6 April to 5 April and if you arrive towards the end of a tax year, you may find that you will not meet the conditions to be regarded as UK resident during that year. Conversely, in other circumstances you may arrive part of the way through the year and find that you are treated as having become resident from 6 April. Detailed advice is essential.
Structure your accounts to take advantage of the UK remittance basis of taxation
UK residents are generally liable to tax on their income and gains on a worldwide basis. However, non-domiciled individuals (those who come from outside the UK
and do not intend to make the UK their permanent home) can choose to pay tax on the remittance basis. This means that they are only liable to UK tax in respect of their non-UK income and gains to the extent that they "remit" (ie bring) such funds to the UK.
Complex rules determine the tax treatment of remittances to the UK from "mixed" funds, ie non-UK accounts containing a mixture of capital, income and capital gain. By setting up a series of non-UK bank accounts in the correct manner, UK resident non-domiciliaries can ensure that their foreign income and gains remain outside the UK, while "clean" capital which is not subject to tax can be used for UK expenditure. If implemented correctly, this can enable UK resident non-domiciliaries to live in the UK at a very low tax cost.
Review investments and investment wrappers
Many French residents hold investments through an assurance vie, ie life insurance "wrapper". The UK has a special regime for the taxation of life insurance products. Unless the policy has been designed with UK tax rules in mind, it is likely to be taxed as a "personal portfolio bond" meaning that policyholder will be subject to highly punitive tax charges in respect of gains which are deemed to arise on an annual basis. Individuals holding such policies should consider encashing them on arrival in the UK, or altering the terms to make them UK compliant.
More generally, certain directly held investments may receive unfavourable UK tax treatment. For example, gains realised on the disposal of "non-reporting" funds (including hedge funds and most non-UK collective investments) are subject to income tax rather than lower capital gains tax rates. It is advisable to review investment mandates in light of UK tax considerations.
Consider the French exit tax
Individuals holding shares giving a right to 50% of a company's net profit or with a global value exceeding € 800,000 are subject to an exit tax in respect of unrealised gains, on ceasing French residence. The tax is automatically deferred if you move to another EC country such as the UK, but will be crystallised if certain triggering events occur within 15 year such as leaving the EC or, sale of the shares.
It may be possible to restructure a shareholding in a family business through a non-French holding company in order to mitigate the consequences of the exit tax for a future sale of the business. This might involve establishing a Luxembourg holding company having sufficient substance, which we can implement through our Luxembourg office.
Check company directorships
If you are a director of a non-UK company, then there may be a risk that following your move to the UK, the company could be regarded as "managed and controlled" in the UK and thereby subject to UK corporation tax. Even if you retire as a director, you could still be treated as a "shadow director" if the board
acts in accordance with your instructions. It is essential that corporate structures are reviewed carefully to protect against this risk.
Protect UK real estate from inheritance tax
London property is expensive, and the purchase of a property is often easily the single largest item of expenditure by individuals moving to the UK. UK property is subject to 40% inheritance tax on death and so the tax bill can prove costly. There are, however, opportunities to structure the purchase of a property in such a way that its value is protected from inheritance tax. It is essential to take advice before the purchase because the opportunities for tax mitigation are severely limited once a property has been bought.
Review marriage contracts
A French marriage contract will not generally be respected in English divorce proceedings. In certain circumstances, the starting point for the division of assets between a couple in the English divorce courts will be a 50/50 split. Our Family team can advise on putting in place a "mid-nuptial" agreement to protect your assets.
Put in place a Will
If you acquire property in the UK, you should put in place a suitable Will to ensure that it will pass to your chosen heirs smoothly and in a tax efficient manner.
Your move to the UK may also have implications for your estate outside the UK. From August 2015, an EU regulation will alter succession laws in France. The operation of this regulation is not straightforward but, broadly, it could result in English law governing the disposition of your French assets, if you are resident in the UK at the time of your death. It is therefore important to review your estate planning, following moving to the UK.
Don't forget France when estate planning
Much tax and estate planning in the UK involves trusts. However, trusts can have very disadvantageous consequences where assets or beneficiaries in France are involved. A typical UK estate plan might result in punitive tax charges for French heirs or in relation to French assets. Estate planning needs to have regard to both the French and UK systems.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.