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 Even where an amount is withdrawn only the growth element is then subject to income tax, so for example if your portfolio of assets held within the policy had doubled in value only 50% of a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 After 8 years any gain withdrawn from your investment will be taxed at 7.5% based on an investment threshold of €150,000 (€300,000 per couple), and 12.8% thereafter. 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. Should you wish to leave more than this amount to any one beneficiary, they will pay tax at a rate of 20% on the next €700,000, and then at 31.25% above that. 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.

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.

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