Expat Financial Advice in France and Assurance Vie
Fine food and wine, beautiful countryside and lower property prices attract thousands of expats to France every year.
As a high-tax country, it's vital to review your financial affairs as the tax benefits of your previous investments may not apply.
Resident expats in France can enjoy the benefits Assurance Vie, whilst also protecting their loved ones from hefty succession taxes when they pass away.
Investments For Expats in France
The allure of a life in France is undeniable, but as a highly-taxed country it's important not to ignore your fiscal obligations and get your financial affairs in order. Arranging your finances correctly can also present investment opportunities, which should be considered as tax-efficient products in other countries (such as ISA's in the UK), are often not tax-efficient in elsewhere.
Assurance Vie For Expats
Assurance Vie policies are usually the go-to product for expat financial advisors in France. 'Assurance Vie' translates into 'life insurance', but differs from standard life cover as it also provides an investment wrapper for French tax residents in which assets can grow tax-free. Social charges, income and capital gains tax are assessed only when withdrawals are made, and then applied only on the growth as part of withdrawals are classed as return of capital, reducing the overall tax rate on redemptions.
As long as your policy is set-up by a fee-based advisor without lock-in periods or exit charges, unlike a pension, you can access your capital whenever you wish without incurring fees.
Assurance Vie policies can play an important role in inheritance and tax planning as assets within the policy can grow free of capital gains tax, social charges and income tax, whilst potentially reducing or even removing hefty French inheritance tax liabilities for your chose beneficiaries when you pass away.
An Assurance Vie product differs to a pension in that you can take money from your policy whenever you wish, and you are then subject to a tax assessment. When withdrawals are made, the overall tax rate is significantly reduced by part of the funds you receive being seen as a return of the initial capital you invested and part being growth, and tax is due on the growth element only.
Taxation Of Assurance Vie
The longer an Assurance Vie policy is in force, the more tax-efficient it becomes. The income tax rate applied to withdrawals reduces after 8 years have passed, in addition to the introduction of an annual allowance of €4,600 (€9,200 for married couples) tax free growth.
An assessment for tax is made on withdrawals from Assurance Vie policies based on the following:
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Social Contributions Tax: 17.2%
IN ADDITION TO
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Income Tax (for policies opened less than 8 years ago): 12.8%
OR
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Income Tax (for policies opened more than 8 years ago): 7.5%
Tax For Your Beneficiaries
Succession taxes in France can be significant if you don't plan ahead, and are one the most important reasons expats choose an Assurance Vie policy. While there are numerous allowances to take advantage of under French lax law to facilitate the transfer of assets to family members after your death, an escalating rate of tax applies beyond those thresholds and are applied to your estate, and the larger your estate, the more expensive it becomes.
Rates of succession tax vary considerably depending on your relationship to the deceased, with children, siblings, nephews, grandchildren and non-related persons all falling into different tax bands. The biggest concerns arise when assets are left to a non-related beneficiary and is when French inheritance tax can be at its most unsympathetic.
Once the tiny threshold of only €1,594 has been exceeded succession taxes of up to 60% are applied, so without planning ahead for the unexpected and depending on the size of your estate, over half of your wealth could be lost in tax instead of being inherited by your loved ones.
An Assurance Vie policy allows any number of beneficiaries and equalizes taxes for all of those nominated, including non-relatives who can receive €152,500 each tax-free (on investments made prior to the policy holder's 70th birthday). Beyond this threshold, a flat-rate of 20% applies up to a value of €700,000 and beyond that, 31.25%.
Premiums invested after the life assured's 70th birthday, after an allowance of a €30,500 are subject to inheritance tax of up to 60% depending on how they are related to the deceased.
Your Investment Options
You can open Assurance Vie policies in a choice of major traded currencies with thousands of funds to choose from, including UK domiciled funds. The investment decisions made by either yourself or your adviser will determine the returns of your policy so it's important to do due-diligence on the funds being recommended.
Many advisers still choose to work on a commission basis so always ask how your adviser is being paid and by who. If' it is 'by the institution' it is likely you will be locked into your investment for a minimum of 5 years so be aware. It is also possible for some fund managers to pay hidden rewards to advisors for purchasing their funds so again, confirm the fund performance, underlying costs and that no exit charges apply. Further information on why checking underlying fund costs is so important can be found here.
A good advisor will select a suitably diversified portfolio based on your risk profile which can be rebalanced with changes in the market. You also have the option to choose a discretionary fund manager who will manage your portfolio for a fee.
To learn more about the benefits of investing in liquid, low-cost securities within an Assurance Vie investment policy, get in touch today and we'll provide regulated expat financial advice to guide you through the process.