Once you leave the UK to go and live in France, you have to take several factors into consideration regarding your investments, protecting both the funds and the income from the twin perils of inflation and exchange-rate fluctuation for example. After all, you have worked hard for your money – it’s time it worked as hard for you.

Many Britons who move to France find it easier to retain their UK savings accounts and investments, rather than investigate the investment structures available in France. These are familiar, and, of course, many pay much better rates of interest than French bank accounts, so appear to be more inflation busting; however the devil is in the detail and once the tax liability is taken into account, these are not necessarily the best investments for you.

Your UK investment income will be taxed in France (even that which is tax free in the UK) so it is very possible that you will end up paying more tax than necessary. If you have moved to France, or are taking steps to do so, you should review your financial planning to ensure it is appropriate for your new life.

This is especially important if you are retiring to France because besides the fact that you will no longer be a UK resident, your current financial planning was set up to suit a different stage of your life and it is likely that it will no longer suit your new circumstances and objectives. Your aim has changed from earning money to fund your move to France, to maintaining the value of your savings to help you enjoy your retirement.

Rules for residents

As a French resident you are taxed on your worldwide income, including UK investment income. Investments that are tax efficient in the UK are not tax efficient elsewhere, such as France. Any interest or dividends that you receive, including those from PEPs and ISAs (which are tax free in the UK), will be taxable in France at the progressive scale rates of French tax (0 per cent to 40 per cent in 2007), as well as being subject to French social charges (11 per cent on investment income). However, in order to avoid tax in both countries (double taxation), tax paid in the UK can be offset against the French tax liability on that same income.

Dividends from companies based in the EU are taxed beneficially in France. The amount of any dividend subject to taxation is the ‘gross’ dividend – for UK dividends, this is the dividend received plus the 10 per cent tax credit treated as being attached to the dividend. Various deductions are given from this amount, including a deduction of 40 per cent of the net (actual) dividend received, and also a further, small abatement. Once the tax on this income has been calculated, you may deduct any tax paid at source on the dividends from the French liability (ie the 10 per cent tax credit treated as being attached to the dividend in the UK) in order to avoid double taxation, and also a small French tax credit of 50 per cent of the tax due on the dividend income (currently limited to a maximum of €230 (£156) for a married couple or PACS partners).

Any Premium Bond winnings will also be fully taxable in France at the progressive scale rates of income tax – these are seen as interest in France because you can reclaim your original stake.

You will have to report any UK investment income on your annual French tax return. In addition to French income tax and social charges, you will also have to pay 8 per cent health contributions unless you pay French social security contributions or are exempt from health contributions under Form E106 or E121.

Income from outside France

Income received outside of France must be analysed and declared on Form 2047 as well as being declared on the standard tax return 2042. This includes income that might be exempt from direct taxation in France under a tax treaty but which is relevant for the taux effectif (ie the applicable rate of tax on other income which is directly taxable in France) and/or the social charges, or even where a full tax credit is available equal to the French tax (rather than just the overseas tax).

’Outside of France’ means income and capital gains of any nature banked or directly received outside of France and the DOM (Guadeloupe, Martinique, Réunion, Guyana). In other words, income not immediately banked or received in France or French territories.

Where received in a foreign currency it (and any overseas tax credit) should be converted into euros at the official Paris exchange rate for the day of payment (ie the day of receipt or credit to an account).

In addition, you must declare in France any non-French bank accounts opened, closed or used during the tax year in question or face fines of up to €750 (£509) per undeclared account.

UK bank interest will only be taxable in France under the terms of the UK/France Double Tax Treaty, and so there will be no issue of double taxation (unlike the dividend position). You can arrange for any UK bank interest to be paid to you gross at source using Form R105 from HM Revenue & Customs, or the bank’s own form, if they have one. Some banks may not allow non-residents to hold certain types of high-interest savings account, and you should check this with your bank before leaving the UK.

Dividends

If you have dividends, those from PEP or ISA investments are not taxable in the UK, but those from other shareholdings and investment trusts will be. If your UK taxable income (ie not including income that is taxable only in France) remains below around £39,800 per annum, including the UK personal allowance, the 10 per cent tax credit treated as being attached to the dividends will satisfy your UK tax liability on such income.

You can retain UK PEP and ISA investments if you move abroad, but you are no longer permitted to make any further contributions. There are alternative tax-efficient investments available to French residents which may be preferable to UK tax-efficient investments, and in these alternative investments any income and gains roll up tax free. Tax is only payable on withdrawals and only the growth element of the withdrawal is taxed. Therefore, if you have say £100,000 of investments, and the growth is 5 per cent on this, after one year, your growth would be £5,000. If this was held in say a bank account, these are taxed in France at say 14 per cent plus social charges (11 per cent) and health-care charges (8 per cent), so on that £5,000 of income, you would pay £1,650 of tax each year on that income in France. With these beneficial investments, in that same year, the taxable income would be just £250 (£5,000 x 5 per cent), taxable at the same rates would be £82.50 – a tax saving of over £1,500. These investments avoid French succession law and can be useful in reducing French succession (and UK inheritance) tax on your death, and thus may well be worth considering.

Whatever you do, it is also important to consider the potential effect of currency fluctuations on your investments and retaining funds in UK investments may not be the most cost-efficient option, because if sterling drops against the euro, your investments are worth less and your income is worth less in terms of euros – giving you less income to live on.

Transferring your UK investments into a more appropriate investment vehicle for France is likely to be a sensible move. Consult with a financial adviser based in France, or a UK financial advisory firm specialising in French taxation, to establish what changes you need to make to your financial planning for your new life in France.

Bill Blevins is Managing Director of Blevins Franks International, one of the largest independent financial advisers, which specialises in advising retired  expatriates in southern Europe