Investment Advice

There is not enough time or space here to go into all the possible investment permutations open to the expat investor looking to preserve and enhance their wealth when they decide to come to France. There is however the opportunity to introduce you to a framework that has enabled over 22 million to invest over €1.4 trillion and at the same time shelter the gain from taxes and social charges. That framework, or tax shelter, is called Assurance Vie.

You are most likely to be fully aware of the concept of tax-efficient investments such as PEPs and ISAs, and you may have substantial holdings of this type in your portfolio. The bad news is that they are not tax efficient in France. Assurance Vie offers a similar tax efficiency and much, much more. Here is a brief look at the benefits offered by this ultra-flexible investment tool:

Assurance Vie and Income Tax

Neither French capital gains tax nor income tax apply whilst the funds remain inside the policy and no withdrawals are made. Even where an amount is withdrawn only the growth element is then subject to income tax, so for example if your portfolio of assets held within the policy had doubled in value only 50% of a withdrawal would be taxable; the remaining 50% would be tax-free. Income tax on the gain is charged on a sliding scale, depending on how long the policy has been in force. After 8 years any gain withdrawn from your investment will be taxed at 7.5% As an extra incentive to let your funds grow for at least eight years, there is an annual tax-free allowance of 4,600 euros (single person) or 9,200 euros (married couple). This allowance relates strictly to capital gain within the policy, so depending on the growth enjoyed during the investment period, relatively large withdrawals can be made completely free of income tax.

Assurance Vie - The Tax Clock

A quirk of the French tax system can work greatly to the investor's advantage with an Assurance Vie policy. The eight year qualifying period for the most beneficial tax regime is governed by what is known as the tax clock. This starts ticking at the instigation of the policy, even if the initial investment is a relatively small amount. It may not be wise to test this system to its limits, but if say €100,000 were invested on day one, and a further €200,000 three years later, the entire fund would still be subject to the lowest tax rates after year eight.

Assurance Vie and Succession Tax

In France succession tax is directly comparable to our inheritance tax, but it works in a slightly different way. In the UK inheritance tax is levied on the estate of the deceased, whereas in France succession tax is levied on the beneficiary (ies) of the estate. Any tax due is then deducted by the notaire from the proceeds of the will. The proceeds paid out from Assurance Vie policies largely override succession law and succession tax. Any number of beneficiaries may receive up to €152,500 completely free of tax, and pay only 20% on any further amounts received. Whilst recent changes to the tax regime regarding spouses and children have undermined some of this advantage, there is still a huge tax saving to be made when bequeathing legacies to unrelated beneficiaries such as friends or step-children, who would normally pay tax at 60%. There are restrictions to this tax largesse however; the policy must be set up and funded before the policyholder reaches the age of 70. After this age the tax advantage is restricted to a total of €30,500 for all beneficiaries combined.

Assurance Vie and Wealth Tax

Generally speaking, the value of an Assurance Vie policy is taken into account in wealth tax calculations, but there are circumstances where Assurance Vie can help mitigate wealth tax liability. This is probably best explained by using an example. If you have a large cash sum, say €500,000 held on bank deposit accounts, this figure will obviously be added to your wealth tax calculation along with the value of property and possessions. The interest earned will also be subject to annual income tax, and be counted as income. If you place this sum within an Assurance Vie investment and leave it there, you are not generating any income from it and it is not being taxed. If you have little other income you can then use another French financial tool, the Bouclier Fiscal, to ensure that your total tax bill, including residential taxes and wealth tax, cannot exceed 50% of your income. If you are asset rich and income poor, you can strategically limit your tax bill in this way.

Also, some investment companies are domiciled outside France, yet still have French compliant Assurance Vie products to offer the UK expat. Under the terms of the new Double Taxation Treaty between the UK and France, contracts entered into on this basis will not be subject to wealth tax for the first five years of residency in France.

Assurance Vie and Capital Protection

The investment world has been turned on its head over the past two years. The failure and subsequent rescue of even our most famous high street banks has led to increasing worries that bank deposits might not be safe. Fortunately, cash or deposit funds available via assurance vie policies are much safer as your investment is pooled with that of thousands of others and spread between a great number of financial institutions in deposit, short term fixed interest and similar assets. We can also arrange for your investment to be placed in a Capital Protection fund, where 80 % of your capital is protected from day one. This protection rises as your investment grows, and you will always be protected to 80% of the highest ever value of the fund. In practical terms this means that when your fund has grown by just over a quarter, all of your original investment is protected - forever.

France Financial will always conduct an in-depth financial review of your circumstances before recommending any investment programme. As part of The Spectrum Group we work to the highest possible UK standards, and we are regulated by the French fiscal authorities.