Q We have a big dilemma. We are in our mid-60s and we both get basic state pension with a little extra but not much. We would like to spend our retirement somewhere a little warmer than the west coast of Wester Ross and are looking at South Brittany/Charente areas.

But, we have a very small income and we have no spare capital at all. Would we be better staying in Scotland and ‘making do’ as they say – or would we be better moving to a house which is perhaps £100,000 cheaper, and have some capital to live on?

Also, is the cost of living in the French countryside comparable with the UK, or cheaper – ie, could one exist better on a basic pension in France than in Scotland for example?

And finally, I enjoy selling and buying stamps on eBay, which I declare on my tax return. Would this complicate life in France? We understand that the tax system is very complicated?

We both speak French, by the way, and have lived in Switzerland for some years, with weekends in Haute Savoie.

Mr and Mrs Cowell

A Without full knowledge of your circumstances, it is impossible to answer your question categorically; after all, quality of life is not the same for everybody.

However, although the tax system is more complicated in France, it is not necessarily going to leave you worse off. As French tax residents, you will be taxed in France on your worldwide income (including pension income), but you are taxed on your household income, not individually, as in the UK. The household income will be divided into two parts, and the tax rates are applied to this half-share of the income. The resultant figure is multiplied by two to give the tax liability for the household, meaning that you receive each of the tax bands twice.

Whilst there is no personal allowance in France, the lowest rate of tax is 0 per cent, applied to the first €5,015 (£3,388) of each share of the income. In addition, although your pension income will be taxable in France, you will be entitled to a household deduction of €3,325 (£2,246) from the pension income.

Income from trading in stamps will be taxable in France. If the gross turnover does not exceed €27,000 (£18,245) per annum, instead of calculating the taxable profit as the income less the expenses of the business, you may apply a simplified deduction scheme, known as the Micro-BIC. Under this scheme, an automatic deduction of 45 per cent is given from the gross income, regardless of actual expenditure. If you apply the Micro-BIC, you will not need to prepare accounts or complete a separate tax form in respect of the business, saving on these costs.

Any investment income, including that from UK tax-efficient investments such as ISAs, PEPs or Premium Bonds, will be taxable in France. If you downsize your property, you should consider investing in tax-efficient investments available to French residents, to minimise your tax liability whilst maximising your income.

In addition to French income tax, social charges are payable on all forms of income. These are 11 per cent on investment income (and therefore investing tax-efficiently can minimise your liability to social charges), 8 per cent on earned income, such as the trading income. Social charges of 7.1 per cent are due on pension income, but, as you are both in receipt of your UK state retirement pensions, you are entitled to Form E121 (available from the UK Department for Work & Pensions), which will exempt your UK pension income from social charges.

Furthermore, possession of Form E121 will give you access into the French state healthcare system, according to the World Health Organisation, one of the best in the world. However, the French state healthcare system does not generally cover the full cost of treatment, and therefore you should consider taking out additional top-up insurance to meet the difference between the cost of the treatment received and the French state cover. Once in France, you may find many ways to economise: the food that you eat, the wine that you drink; however, you should not economise on your healthcare provision.

In France, you would pay local taxes, which should be lower than your current UK council tax liability, and the overall cost of living is likely to be lower in France than the UK, although this does depend on your lifestyle.

Finally, it is important to get the most out of your pounds, and one way to maximise your wealth and income is to ensure that you transfer your pounds into euros in such a way as to take advantage of beneficial rates, whilst minimising your exposure to adverse exchange rates. You should discuss this with a currency broker.

While I hope that you find this answer helpful, it is no substitute for professional advice. You should seek personal advice relating to your entire circumstances to establish what would work best for you.

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