Tax Efficient Investments for Expats in France
With it's cheap properties, vast areas of unspoilt countryside and fine food and wine, France has been one of the most popular expat destinations for many years. It's also considered a high-tax jurisdiction so it's vital not to focus solely on lifestyle and overlook the financial aspects that should be addressed for a happy life in France.
In any new location, lack of language skills can deter anyone from arranging their finances. But ignoring your obligations could be costly if you find that the tax advantages you enjoyed previously, with UK ISA's for example, no longer apply, so using locally compliant tax wrappers will help avoid complications and unwanted surprises from the tax authorities.
Assurance Vie Investments in France
'Assurance Vie' is a literal translation of 'life insurance', but it differs from typical life cover in that it acts as an insurance investment wrapper for French tax residents. Assurance Vie policies can play a key role in tax and inheritance planning, with investments growing free of income tax, social charges and capital gains tax within the wrapper, and excessive French inheritance tax liabilities being reduced or even removed for beneficiaries when you pass away.
Unlike a pension, you can take money from your Assurance Vie policy whenever you wish. It is only then you are assessed for tax, and as withdrawals are deemed to be part return of capital and part growth (with tax due on only the growth element), the overall tax rate reduces significantly.
How Am I Taxed With Assurance Vie?
When you make withdrawals from an Assurance Vie policy, taxes will be deducted as follows:
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17.2% Social Contributions Tax
PLUS
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12.8% Income Tax (for policies in force for less than 8 years)
OR
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7.5% Income Tax (for policies in force for more than 8 years)
Further tax benefits also apply after the policy has been in force for 8 years, when you become entitled to an annual allowance of €4,600 (€9,200 for married couples) of tax free growth.
How Are My Beneficiaries Taxed?
One the principal drivers for using Assurance Vie is the generous tax benefits for beneficiaries. There are many allowances available under French lax law which allow the transfer of assets to family members at varying rates on death. Beyond those allowances, a tiered system applies on an escalating scale as the estate increases in size.
It is when the deceased leaves assets to a non-related person that French inheritance tax is at its most damaging. After a meagre allowance of just €1,594, succession taxes of 60% apply meaning without careful planning, vast amounts of wealth will be paid in tax instead of going to loved ones.
Using an Assurance Vie policy enables you to nominate any number of beneficiaries, including non-related persons who can each receive €152,500 tax-free (on investments made before your 70th birthday). Beyond this amount, a flat-rate of 20% applies up to €700,000, and 31.25% thereafter.
Below is a list of French just some of the succession taxes which would apply on death without the use of an Assurance Vie policy:
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No inheritance tax applies between spouses and PACS (civil partners), but lifetime gifts can be taxable at rates between 5% and 45% with an allowance of €80,724
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An allowance of €15,932 usually applies between brothers and sisters, after which tax applies of 35% or 45% .
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Children (both natural and adopted) can each benefit from an allowance of €100,000 and then they'll pay tax on a progressive scale between 5% and 45%
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The same rates of tax apply for Grandchildren, but they don't benefit from any allowance specifically for assets received as inheritance and therefore, an allowance of just €1,594 applies.
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Grandchildren can however, enjoy lifetime and cash gifts free of tax up to €31,865
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Nephews and nieces qualify for an allowance of €7,967 with a 55% tax rate thereafter
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Others receiving an inheritance will pays tax at 60% after an allowance of just €1,594
What Can I Invest In?
As with any investment, the choice of adviser and their underlying fund recommendations will determine the outcome, so do your due-diligence. Many insurance wrappers still pay commission to advisors so it's crucial to ask how your adviser is getting paid. Furthermore, some funds still pay hidden incentives to advisors for using them, so it's useful to know what to look out for when selecting assets.
A good advisor will determine your attitude to risk and select a suitable portfolio, which usually contains a mix of equity and bond funds and ETF's which can be altered at any time. Assurance Vie products also allow the use of discretionary fund managers which, for a fee, will monitor and rebalance your portfolio according to the prevailing investment climate.
Choosing an Expat Advisor
As with investments in any country, it is vital you speak with qualified and regulated advisors to ensure you get the best advice. It's also crucial your advisor works on a transparent fee-basis and not by taking undisclosed commission from your investment, so always clarify the following points:
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If fixed periods and redemption fees apply or the advisor is 'paid by the institution', confirm how much they get paid and how
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Look for fee-based investment advice with transparent and understandable set-up and ongoing fees that are fully disclosed and agreed before continuing
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Advisors should look to reduce platform charges and receive remuneration only for the services they provide and not from institutions
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Clarify underlying fund charges. Your advisor should minimise these to give you every possibility of a positive outcome
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Do due-diligence on funds being recommended and check regulations, track record and key statistics
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Take a look at our page on 5 simple questions you should ask you expat financial advisor
To speak to a qualified and regulated advisor about the benefits of Assurance Vie in France, get in touch and you'll get the local expertise you are looking for.