The new tax year in France starts on 1 January. If you live in France, or if you receive income generated in France, this is a reminder to start getting your paperwork together to submit your tax return. You could also review your tax affairs to make sure all is in order, and perhaps rearrange your finances to make them more tax efficient – it would be a happy new tax year if you are able to lower your tax bill.

For those who are planning on moving to France, this is a good time to research what your tax situation will be in France and ensure your financial planning is set up efficiently from the outset.

When you arrive in France with the intention of making France your home and intending to stay there permanently or indefinitely, you become a French tax resident from the day after your arrival, ie the first full day spent in France.

As a tax resident of France you are liable to pay French taxes on your worldwide income, gains and assets (non-residents are only liable to French taxes on French-source income, gains and assets).

It is your responsibility to make yourself known to the French tax authorities when you arrive in France or have French-source income. You do not need to specifically register for tax purposes in France but simply ensure that your French tax returns are completed and submitted on time. Tax residents will deal with their local hôtel des impôts (tax office), and non-residents will deal with the Centre des Impôts des Non-résidents, Noisy Le Grand, 10 Rue du Centre, TSA 50014, 93465 Noisy Le Grand Cedex.

Tax returns are made a year in arrears in France, ie income earned in 2007 is reported on the tax return due for submission in 2008. In recent years the submission dates have varied, and for residents have been 31 May and non-residents 30 June, although submission dates are usually earlier than this.

As returns are declared a year in arrears, tax due is paid in the year after the income is earned. There is no PAYE system in France so if you are employed, tax will not be deducted at source; you need to put aside money each month in order to be able to pay it to the tax office yourself.

Income tax can be paid in three equal instalments or by ten monthly instalments from January to October. Unless you opt for monthly payments, you must make payments on 15 February and 15 May, each equal to one third of the amount of the previous year’s total income tax. The final payment is due after the actual assessment is received (normally in the autumn) for payment by 15 September. Income tax for the initial year of residence in France is usually not due until the autumn of the year following arrival, since no February or May payments are required.

The taxable income to be assessed is the total income of the entire household, which is divided into a number of parts, depending on the size of the household. A married or legally registered couple are always entitled to two parts, and further parts are available if you have children. The income tax scale rates are then applied to each part, and the resultant figure is then multiplied by the applicable number of parts to find the tax due from the household.

Unmarried couples who have not entered into a legal relationship in France are taxed as separate households for income tax purposes. A UK civil partnership is not recognised in France, and those who have this will still need to register a pacte civil de solidarité (PACS – the French equivalent to a UK civil partnership, although in France this is open to both same and opposite sex couples).

If you marry or enter into a PACS during a tax year, three income tax returns must be completed for the year: one each for the period of the tax year before marrying or entering into a PACS, and one joint return for the portion of the year remaining after the marriage/PACS.

After calculating the taxable income and applying the tax rates to that income, various credits are available against the calculated tax liability on that income, rather than being deductible against the income before calculating the taxable income.

Social charges

Social charges are only payable by French residents and are effectively another form of income tax in France; they are not to be confused with social security contributions even though they are levied to make up a social security deficit. Social charges are payable on all forms of income received, including pension and rental income, and are also payable on capital gains.

The rates are 11 per cent on investment income (including rental income) and capital gains, 8 per cent on earned income (ie employment or self employment income), and 7.1 per cent on pension income. UK pension income of holders of Forms E106 and E121 is exempt from French social charges. A proportion of the social charges paid on income taxed at the progressive scale rates is tax deductible.

The calculation period for social charges is that declared on your tax return, but the social charge base is different from the taxable base, and exemptions available against social charges are not as generous as those against tax. The charges are payable in the autumn following submission of your tax return.

Capital gains

Capital gains tax is charged at two rates; 16 per cent for EU residents, including French residents and 33.3 per cent if the seller is resident outside the EU. In addition, French residents must pay social charges of 11 per cent on any gain arising.

Gains on property are calculated on the sale proceeds less the acquisition cost and incidental costs of acquisition and disposal. Gains arising on the disposal of the main home are usually exempt from French capital gains tax, provided it is your habitual abode at the date of disposal. Regardless of your residence position, on other property, for each complete year of ownership in excess of five years, there is a 10 per cent reduction in the capital gain so that after fifteen years, no French capital gains tax liability will arise.

French-source income and any French-source gains for non residents of France are also likely to be taxable in their country of residence.

Wealth tax

Wealth tax is an annual tax payable on the value of your assets as at 1 January each year. Your wealth tax return must be filed by 15 June, together with payment.

Departing the UK

When leaving the UK, you should notify HM Revenue and Customs (HMRC) of your departure on Form P85 which can be downloaded from www.hmrc.gov.uk.

Interest received from a UK bank or building society account will be taxable only in France once you become French resident. You can arrange for the income to be paid gross in the UK by submitting Form R105 to your UK bank.

UK government service pensions (not NHS) are subject to tax only in the UK and you may claim your UK personal allowances to set against this income. All other UK pension income will be subject to tax only in France. You can arrange for gross payment of pension income by completing and submitting form FD5 (FRA/Individual) to your French tax office.

Income from UK tax efficient investments, such as PEPs and ISAs, is taxable in the hands of French residents. You should therefore review your investments to ensure that they are tax efficient in France – you could make it your New Year resolution to review your financial planning to see where you could lower your tax bill!