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Brexit: France to cut income tax and open international schools to entice London’s bankers to Paris

The French Prime Minister on Friday laid out a raft of measures aimed at boosting Paris's attractiveness to high finance in order to cash in on Britain's exit from the European Union, including cutting income tax for high earning bankers and opening international schools.

Published: 7 July 2017 17:10 CEST

Brexit: France to cut income tax and open international schools to entice London's bankers to Paris

Photo: AFP

France continues to make eyes at London's bankers and on Friday the Prime Minister Edouard Philippe laid out a raft of measures to attract financiers who may have to leave London when the UK leaves the EU.

Among them are scrapping a plan to widen a current 0.3 percent tax on financial transactions, eliminating the top income tax bracket for top earning bankers (those picking up over €150,000 a year), and keeping bonuses out of the calculation of severance pay for “risk-takers” such as stockbrokers in order to make redundancies less expensive.

Those measures might have been unthinkable in France under the previous government of former President François Hollande, who famously declared the world of finance was his “enemy”, but given the fight for the scraps from the Brexit fallout, France under former banker Emmanuel Macron seems prepared to do whatever it takes to fight off the competition.

“You can regret this (Brexit) decision or welcome it, but it's a fact,” said Philippe, speaking on the roof of the Monnaie de Paris — the national mint — with the city's glass-and-steel La Defense financial district visible in the distance. “You have to deal with it.”

“Welcome back to Europe”

Paris regional president Valerie Pecresse said in English: “To investors, and to those disappointed by Brexit, I want to say that we are ready to roll out the blue, white and red carpet for you. Welcome back to Europe.”

In another step aimed at attracting foreign businesses, the Paris area is to open three more international high schools by 2022 (Lycée Internationales).

The Lycee Lucie-Aubrac de Courbevoie near the La Defense business district to the west of Paris will become a Lycee International next year, meaning classes are taught in several languages on top of the French curriculum.

By 2021 another Lycee International will open in Saclay to the south of Paris, which is aiming to become a “global innovation cluster” and finally another one will open at Vincennes to the south east of Paris.

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Prime Minister Philippe also announced that work had begun to establish an international tribunal in Paris to handle financial cases in English.

Most international financial contracts are written in English and make reference to British law.

It will be possible “to plead in English and British law will be applied,” according to senator Albéric de Montgolfier, who wrote a report on how Paris could benefit from Brexit.

Also in the pipeline is the “CDG Express”, a rail line linking Charles de Gaulle airport to the city.

French President Emmanuel Macron has pledged to relax France's rigid labour laws to free its economy from red tape and excessive taxation.

In another carrot for businesses tempted by a move to Paris Macron has also pledged to cut corporation in tax from the current level of 33 percent to 25 percent by 2022.

The French financial sector currently represents about 4.5 percent of national output and employs around 800,000 people.

Paris is competing with Dublin, Frankfurt and other centres for an expected shift in finance jobs out of London as a result of Brexit.

Several banks, especially Asian institutions, have recently announced that they would move European headquarters from London to Frankfurt in response to Brexit.

Bloomberg News said Thursday it would move investment banking activities from London to its Frankfurt headquarters.

With Britain at risk of losing the “passporting rights” financial firms use to deal with clients in the rest of the European Union when it leaves, employees in direct contact with customers may need to be based on EU territory in future.

Other jobs will need to move to deal with business that must be booked in the European Union, as will risk management workers, who must be based in the EU to satisfy banking supervisors' requirements.

So far Brexit has had a limited impact in Paris, apart from banking giant HSBC's decision to relocate 1,000 employees from London to the French capital. JP Morgan Chase, for its part, is moving to Dublin, Frankfurt and Luxembourg.

“At this stage there are no commitments besides HSBC's,” said junior finance minister Benjamin Griveaux. “We're working on it. Today is an important signal to investors.”

The French government and Paris city chiefs have already carried out several charm offensives aimed at wooing talent and companies from London.

In November last year the government announced itwas opening a one stop shop to provide firms everything they and their staff need to relocate across the Channel.

It will be located at 11 Rue Cambrai in the 19th arrondissement of the city and will essentially help businesses and staff overcome the administrative hurdles of resettling in France.

And in February this year the government sent a raiding party across the Channel to woo bank and finance chiefs.

In September it announced it was cutting red tape for British based businesses and even President Emmanuel Macron got in the act when during a campaign trip to London in February he brazenly urged French expats and British talent to move across the Channel.

His message was “France is changing”.

But it still has a way to go before it might be seen as the best option for banks and finance centres.

A recent study by the World Bank ranked France below the likes of Georgia, Macedonia and Latvia for ease of doing business.

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6 pension questions British people should ask before retiring to France

Retiring to France is a dream for many, but before turning that dream into reality there are some serious financial questions that you need to ask yourself to ensure that your retirement is a financially comfortable one.

For most retirees, their main or only income will be a UK pension, so it’s important that you understand how your pension will work once you make the move.

There are some specific rules and restrictions on taking pensions out of the UK, while there is also the question of how UK pensions interact with the French tax system.

Financial adviser, Maeve Hoffman, from Spectrum IFA Group, emphasised that people should not take these decisions lightly, telling The Local: “Figuring out what to do with your pension should be part of your wider financial plans for your life.

“This may be your most important asset, besides your home, and the best answer for what to do with your pension is highly individual. There are no sweeping generalisations when it comes to advice on private pensions. Everyone’s situation is different,” she said.

This article is intended as an overview of how the system works for UK pensioners and is not intended as a substitute for individual financial advice. The article is aimed at people who have worked most or all of their career in the UK and then intend to retire in France – the situation is slightly different for people who work in France and then retire here.

You can find an overview on French tax rules for pensions HERE.

Long-term or short-term

The first thing you need to carefully consider is whether or not your move to France will be for the long-term or short-term.

When it comes to your UK pension, there are some options that may be advantageous for French residents looking to stay here permanently, but they could make your life very complicated if you end up returning to the UK in the future.

Do not be afraid to ask yourself the tough questions – is there any chance you will have grandchildren in the future that you will want to be geographically close to? Have you ever spent a significant time in France, aside from short holidays? Do you have roots in France, such as friends, family or a home? If your health deteriorates, will you want to be cared for in France or the UK?

If are unsure about the answers to these questions, then take some time to really think about them. There are alternatives to permanently moving to France if you are unsure – for example, you could spend a few months a year here on a short-term visitor’s visa.

Understanding the different tax rules

British retirees should be aware that the UK and France have very different tax systems.

Once you become a tax resident in France, you have to file a yearly declaration, including your global income. The country that gets to tax that income is determined based on the tax treaty between the UK and France, which seeks to eliminate double-taxation.

As for your UK-based pension, the treaty states that if you have a UK government or civil service pension (eg a state school teachers’ pension), then this will remain taxable only in the UK. Some old NHS pensions were considered ‘government pensions’, but modern ones might not be. You can check if your pension is classified as ‘government’ here.

You still have to declare this income to the French tax authorities, but you will not be subject to tax in France on it. That being said, it will count towards your total household income, and could end up pushing you into a higher tax bracket which is something you should carefully consider, particularly if you want to take a large sum at once.

The same is not true of private pensions: these are taxed in France, not the UK, as soon as you become a tax resident here. Confusingly, the UK state pension is also considered a private pension, even though it is paid by the government.

You can find a complete guide to how UK pensions are taxed in France HERE.

As a result, you will want to think about whether your previous plans for your private pension were only advantageous to you as a UK resident. Once you become a French tax resident, they could have unforeseen implications.

You can find more information about tax rates in our tax guide.

Get reliable, expert financial advice before doing anything

If you have decided you want to be in France permanently, then you will need some expert tax and pension advice – but you need to be careful who you take advice from, this is a highly specialist area and it’s unlikely that high street financial advisers will have the knowledge that you need.

Brexit has also made getting financial advice more complicated, with fewer experts available.

Maeve told us: “Because of Brexit, you cannot use a UK-based financial adviser anymore – you have to use an EU-registered one. This has made things more complicated. When picking an adviser, seek out someone who has expertise on the local taxation rules in France. They should also be regulated with the financial regulator where you live and where they work.”

It can be especially complicated to parse out who you can and cannot take advice from – for example, some UK-based advisers have continued to give advice to EU-based clients, even though this can be particularly risky if the investments they recommend do not follow EU regulations.

There are also expat-oriented financial advice services that are located outside of France, but seek to offer tax advice to people in France.

She added: “Be smart and sensible. If you choose an adviser in Dubai or Spain for example, you will now be adding another regulatory organisation into the mix, plus another language.

“There are free, government-based services in the UK that can help you understand your private pension – Pension Wise and Money Helper. Before doing anything, you should consult the free services. Any financial adviser worth their salt would recommend this too.

“These services have begun to have longer wait times, so be sure to book well in advance of when you plan to draw from your pension.”

Deciding whether to transfer your pension

Another question that is important for Brits to think about is whether or not to transfer their pension into either a UK-based SIPP for non-residents, or a QROPS (Qualifying Recognised Overseas Pension Schemes).

The SIPP will keep your pension in the UK, while the QROPS moves it out of the UK, to Malta specifically.

These options can be helpful for French residents, but you need to familiarise yourself with their benefits and drawbacks.

“The QROPS is not for someone who is unsure of their future in France, as if you return to the UK within five years of the pension transfer HMRC will seek their tax back as if it was a full encashment,” Maeve said.

In France, a QROPS is considered a trust, you may also have additional reporting requirements to fill out along with your annual declaration (more info here).

You should beware of scams on this subject, as the post-Brexit period saw many scammers seeking to persuade Brits that it was now mandatory to transfer their UK pension – always be wary of any cold-calling or unsolicited financial advice.

Determining how you will want to draw from your pension

The next question is how you want to receive your pension – either as regular income or as a lump sum. The option that you chose will have tax implications in France.

If you receive it as a regular income, when doing your yearly French tax declaration, you will add up your pension income for that year and you will be taxed at the normal marginal rates for income (the barème). These rates go up to 45 percent (for the highest earners only) plus social charges if they apply (more on this below).

Pension income can also benefit from a 10 percent tax deduction, as long as it does not exceed €4,123 or fall below €422 per household.

Lump-sums are more complicated. Technically, French tax authorities would allow a return of once off pension capital to be taxed at a flat rate of 7.5 percent.

But in reality, Hoffman explained that anyone seeking to do this would need the express, written confirmation from French tax authorities that this rate will be applied.

She also explained that the type of private pension matters when seeking to get the lump-sum flat rate.

“There are plenty of different types of private pensions in the UK, but the old ‘defined benefit schemes’ have been the gold-plated standard. These are the types of pensions that give you a portion of your salary for the rest of your life.

“In principle, you should be able to take out lump-sum of 25 percent of your ‘defined benefit scheme’ pension and be taxed at the 7.5 percent flat-rate. That being said, some people get refused, so you cannot make any assumptions and you need clarification from the French tax office.

“As for all of the other types of private pensions in the UK, like the money purchase or personal pension schemes, these are considered to be ‘funds’. If you want to benefit from the lump-sum then you would have to take out the entire pension. You would not be able to just take out 25 percent and get the lump-sum rate.

“For anyone considering taking their whole pension and seeking to use the 7.5 percent rate there are conditions to be met, so I advise people to write to their French tax office and explain their own situation in detail. Be sure to clarify the tax rate you are seeking to have applied and ask what documents they would need from your UK pension company to confirm that the contributions to this pension have been tax deductible.”

Healthcare and social charges

Deductions in France come in two types – impôts (income taxes) and prélèvements sociaux (social charges).

People who retire to France (and have never worked in France) and have already reached the state pension age can apply for the S1 – this means that the UK continues to pay for their healthcare costs and they would not be charged prélèvements sociaux. Non-working spouses of an S1 holder can also benefit from this.

People who take early retirement and make the move before they reach state pension age may have to pay social charges in addition to taxes until they reach the state pension age and can apply for their S1. However, there are several exemptions to social charges, so even if you expect a bill, you may not end up being charged. More information in our guide.

Social charges help pay for a lot of services from the French government, including access to healthcare. In France, you can access the state healthcare system (and get a carte vitale) after three months of residency.

READ MORE: Why you might get an unexpected French health bill

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