QROPS France | UK Pension Transfers to France | Retire in France


UK Pension Transfers to France

QROPS France – France is in the unique position of being one of the few countries which has a Double Taxation Agreement with the UK which covers IHT meaning there is no 40% UK inheritance tax (IHT) on death which is fantastic for your property and other assets, however, any existing UK pensions you have, even though they avoid UK IHT, will still face up to 45% tax on death after 75, as well as facing up to 45% income tax in France.

However, British expats resident in France and French expats returning from working in the UK can move their UK pensions offshore to avoid both the tax on death and any income taxation due to a unique tax treaty between Hong Kong and France. Unfortunately, due to new rules by HMRC, there is now a 25% exit tax if you move a pension to HK and live in France. Now, we recommend moving your UK pension to a QROPS in Malta and either taking a small income of around 9,000 EUR per year if you have no further income coming in and paying zero tax on your QROPS or taking the entire amount as a single “one-off” lump sum payment and paying an effective rate of tax of only 6.5%.

But, we will deal with this in a minute, first let’s discuss what are French QROPS / ROPS?

UK Pension Transfers to a QROPS in France

qrops france

You used to be able to transfer a pension to a ROPS in France before 2017 into a PERPS (Plan d’Epargne Retraite Populair), but there are some major drawbacks and since 2017, they have been removed from HMRC’s QROPS list.

“Faites attention toutefois à l’âge de liquidation des droits à la retraite qui diffère entre les 2 pays ; bien que la liquidation ait lieu à 55 ans minimum au Royaume-Uni, vous ne pouvez pas toucher votre rente avant 62 ans en France sauf cas exceptionnel comme l’invalidité, le décès du conjoint ou du partenaire de PACS ou le chômage de longue durée. Il est aussi possible de toucher 100% de son capital à l’âge de la retraite en France pour les primo accédants de leur résidence principale ou si le montant de la rente est inférieur à 480 € annuel. Il existe une autre différence concernant l’imposition sur la sortie à hauteur de 20% du capital lors de la retraite tandis que les 25% du capital au Royaume-Uni sont non imposable.”

For the non-French speakers, a pension in France is limited to a 20% tax-free lump sum and also, you cannot access your pension until you are 62, unless you are in financial hardship or ill health. Also, if you draw these before 55 or allowed to, the question arises whether these French ROPS even are considered ROPS under HMRC rules.

Furthermore, once in the French system, you may not be allowed to move it to another country at a later date.
French ROPS, often established in France as a PERP, are also taxed in France on income. Here is more on Aviva’s PERP in France.

Here is more on investing in a French PERP which is in French only.

Here is a full ROPS list 2016 for QROPS in France, most of which are PERP’s.

Aviva Retraite PERP                                                                            QROPS France
Concordances PERP                                                                            QROPS France
Concordances PERP Advance                                                           QROPS France
Fonds Pension AXA                                                                             QROPS France
Le PERP ERES 163X                                                                           QROPS France
PERP Lignage                                                                                       QROPS France
Plan d’Epargne Retraite Populaire – PERP Confort AXA            QROPS France
Plan Épargne Retraite Populaire (PERP) Gaipare Zen                QROPS France
Plan Elysees Retraite Patrimoine                                                     QROPS France
Swiss Life PERP                                                                                   QROPS France

We think that a UK pension transfer to a QROPS in Malta may be a better solution in many cases than moving to a PERP in France for both taxation, investment freedom and currency freedom.

UK Pension Transfers to Hong Kong for Residents in France

Hong Kong has a Double Taxation Agreement (DTA) with France that gives taxation rights to Hong Kong on any income payments. Hong Kong doesn’t tax any income earned outside of Hong Kong, hence any UK pensions transferred to a QROPS in Hong Kong is paid out gross, tax-free. However, since 9th March, 2017, there is no an exit tax if you transfer a pension to HK and live in France, so we are now recommending move to a QROPS in Malta instead which is part of the EEA and so faces no exit tax as long as you remain in the EEA for five years subsequent to the pension transfer.

In particular, this is covered by article 17 of the HK-France DTA:

Pensions

1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration paid in consideration of past employment to a resident of a Contracting Party [France] may be taxed in the Contracting Party where they arise [Hong Kong].
2. Pensions shall be deemed to arise in a Contracting Party [Hong Kong] if paid by or out of a pension fund or other similar institution providing pension schemes in which individuals may participate in order to secure retirement benefits, where such pension fund or institution is recognised for tax purposes or regulated in accordance with the laws of that Contracting Party [Hong Kong].

Since Hong Kong is both tax recognised, regulated and an occupational pension scheme, pensions that arise in Hong Kong are taxed in Hong Kong and not France.

Tax on Hong Kong QROPS for Residents in France

chateau-dordogne

When considering tax on a Hong Kong QROPS for members of France, you have to be very careful about the intricacies of the tax treaties and you should also consult a local tax attorney in France.

But, a HK QROPS avoids tax on growth and death. The taxation rights are given to the Hong Kong pension scheme, so HK pension income also avoids income tax.

However, if full flexible drawdown is allowed in Hong Kong, similar to the flex-drawdown rules in the UK, then any lump sums over and above the 25% tax-free lump sum, may be taxed as capital in France.

So, you must make sure, that you transfer a UK pension to Hong Kong and only take a pension income stream and not take further drawdowns / lumps sums if you want to minimise tax on your pension scheme.

However, if you were to take a one-off single lump sum, your tax can be decreased and likely you will only pay 7.5% tax on the lump sum.

Payments from a HK QROPS are paid out directly to your local bank account in France. Investments can be made in EUR or kept in GBP.

Benefits of a HK QROPS / ROPS for Residents in France

  • Note there is now a 25% exit tax that HMRC imposes in the UK if you move a pension to HK and do not live in Hong Kong
  • Registered by the Occupational Retirement Schemes Ordinance (“ORSO”) (Chapter 426, Laws of Hong Kong) to provide a formal system of retirement protection
  • A HK QROPS is a tax registered, occupational and unvested pension scheme in a recognised OECD country with 36 Double Taxation Treaties with countries around the globe including France and the UK
  • Both British expats moving to France and French expats or other foreign nationals with UK pensions can transfer their final salary pensions or defined contribution pensions to a QROPS in Hong Kong
  • UK pensions transferred to Hong Kong are taxed in Hong Kong at a zero rate of income tax, as France gives the pension income taxation rights to Hong Kong
  • There is no tax on death, income or growth of a HK ROPS
  • 25% tax-free lump sum allowed at 55. This lump sum may be taxed as capital in France, so you may wish to take any lump sum before you move your pension or don’t take the lump sum and just take it as income from within the HK QROPS, giving you a higher annual pension income
  • If you do take a lump sum, it will be charged at 7.1% income tax, and 7.5% social charges
  • If you ever return to the UK, Hong Kong has a DTA with Hong Kong giving the taxation rights to Hong Kong
  • You can invest in the currency of your choice: EUR, GBP or USD
  • Freedom of investment choice: choose from a large universe of unit trusts, UCITS, mutual funds, ETF’s, bond funds or shares

Full Flexible Pension Drawdown in Hong Kong – New Pension Freedoms

  • Currently, full flexible drawdown is only allowed in the UK, but this may be allowed by the beginning of 2016 in Hong Kong. However, any drawdown or cash lump sums will likely be taxed in France, so you are better off taking your HK ROPS as pension income in France.
  • Seeing as this is what a pension was originally designed to do anyway, you should consider this as protection for yourself to give you a stable income stream in retirement.
  • However, if you choose to take it and you have form S1, tax on your lump sums will be just 7.1% under current law.

QROPS France Vs. HK QROPS Vs Malta QROPS Vs UK Pension Scheme

UK Pension Scheme or UK SIPP

  • Usually in GBP only
  • 25% tax-free lump sum
  • Flexi-access drawdown allowed only for Defined Contribution pension schemes, but you can be taxed at emergency code of income tax rate of up to 45% in the UK if you do not inform authorities of your tax code or 10% if taken in France
  • A single one- off lump sum can be taken in France and is taxed at a flat rate tax of 7.5% as well as 7.4% social charges if applicable, although the law may be rewritten to see these taxed as income in future
  • Expats resident in France will have their worldwide annual pension taxed on the French scale of income tax with a 10% tax deduction or personal allowance “set at a minimum of €352 per pensioner, or a maximum of €3,711 per household”
  • French income tax rates are between 0% and 45%
  • No tax on death before age 75
  • Tax on death of any lump sums passed on at 45% for any beneficiaries or taken at their highest marginal rate of tax if taken as income after age 75
  • Investments are often limited, depending on the type of pension scheme you hold
  • Final salary pensions normally have a guarantee tied to inflation and flexi-access is not allowed

QROPS France – PERPS (Plan d’Epargne Retraite Populair)

  • No longer available as HMRC stuck all the French QROPS from its list
  • You cannot access your pension until you are 62
  • Only 20% tax-free lump sum
  • Pension is in EUR only
  • You will likely be stuck in the French pension system if you move elsewhere
  • You will pay French income tax of up to 45%

Malta QROPS

  • 30% tax-free lump sum allowed, this is reduced to 25% if full pension flexibility allowed; any lump sums may be taxed in France as capital
  • You must stay in the EEA for five years after transfer or suffer a retrospective 25% exit tax if you can’t transfer out to another QROPS in your new country of residence outside the EEA
  • Malta has a Double Taxation Agreement with France, meaning your pension is taxed in France on income, but there is no tax on death
  • A single one-off Lump sum in France is taxed at  a flat rate of 7.5% and 7.4% social charges; however the 10% deduction means your effective tax rate is only 6.75% on a single lump sum taken from a Malta QROPS
  • Expats resident in France will have their worldwide annual pension taxed on the French scale of income tax with a 10% reduction “set at a minimum of €352 (£260) per pensioner, or a maximum of €3,711 per household” Freedom of choice of investments and currencies
  • French income tax rates are 0% – 45%
  • Malta pension regulations which have just been strengthened

HK ROPS

  • Occupational, tax-recognised and unvested pension schemes
  • Regulated in Hong Kong with stringent conditions under their ORSO HK rgulations
  • 25% tax-free lump sum allowed
  • Now a 25% exit tax if you move to a HK QROPS and do not live in Hong Kong
  • Future lump sums just taxed at a rate of income tax of 7.5%, and 7.4% social charges; You are exempt from these social charges if you hold an S1 form, which is a certificate of entitlement to health care in another European Economic Area country, provided via the NHS which also entitles you to free French healthcare. Click here to find out more about the French healthcare coverage and S1 form.
  • No tax on income, growth or death
  • Freedom of choice of investments and currencies
  • Hong Kong has a DTA with both the UK and France, giving taxation rights to Hong Kong, so even if you return to live in the UK, the pension should be taxed in Hong Kong rather than the UK

French Income Tax Rates 2017

retirement-in-france-park

The tax bands and rates for 2014/15 are as follows:

Income Tax Band        Tax Rate

Up to €9,711                    0 %
€9,711 to €26,818          14 %
€26,819 to €71,898        30 %
€71,899 to €152,260       41 %
From €152,260               45 %

See here for more on French income tax rates, thresholds and allowances.

Conclusion

Tax agreements change quickly, and the advice before 2017 was to transfer to Hong Kong, but under new rules, you are better off investing in a UK SIPP and taking your full pension as a one off single lump sum and paying an effective rate of income tax of only 6.5% plus your social care tax of 7.4%  or if you want to pass your pension on to your heirs, you can just wrap it into a Malta QROPS which faces no tax on death. Then, you can take a small pension income during your lifetime to maximise the tax rules in France.

Click here to ask a QROPS Specialist a question on pension transfers