1st January 2016
New Year Financial Planning Review
By Mary Taylor, Partner, Blevins Franks
The New Year is an excellent time to carry out a ‘wealth-review’ to make sure your money is working as well as it can for you. Spending a little time now will help you preserve your wealth over the long term to meet your financial objectives. You should check that you are up to date with the latest developments in France and internationally that affect you, bearing in mind that your own circumstances may have changed since your last review.
Once you have assessed your tax planning, succession planning, investments and pensions, you will then be able to discuss any necessary adjustments with your financial adviser.
French tax regulation changes constantly and it pays to be on top of things. The French government’s draft budget bill for 2016 showed no change to the income tax rates themselves, but the income bands for each rate increase slightly. For example, the top rate of 45% is now charged on income over €152,108 (up from €151,956).
Another major incentive to review your tax affairs now is that the Common Reporting Standard (CRS) goes live in January. The French tax authority will receive information on every resident of France, without having to ask for it. There has never been a better time to consider your tax planning and, more importantly, the use of a fully tax compliant structure in France, to ensure peace of mind.
Make sure your investments and wealth are placed in the most suitable arrangement to limit your tax liabilities. Take advice from someone who is well-versed in the nuances of French taxation, otherwise you could see your investment returns slashed by French taxes that could have been avoided or mitigated. It is important to ensure your tax planning is up-to-date and designed to take advantage of tax planning opportunities in France.
In February 2015 the European Court of Justice ruled that social charges on unearned income paid by French residents working in another EU Member State, and subject to the social security in that Member State, were discriminatory.
This decision applies to:
French residents subject to the social security of another EU member state (Form S1 holders), on unearned income.
Non-French residents living in another EU Member State, on French unearned real estate income (capital gains and letting income).
If you fall into either of these categories and unduly paid social charges on unearned income in 2013, 2014 and 2015, you can make a claim to recover the tax. Contact your French lawyer or accountant for help in filing the claim.
The 2016 social security budget amends the social charges legislation to be in line with EU rules, which mean they will be due on unearned income again from 2016, for everybody, but in another form.
Estate planning is about ensuring that the right money is in the right hands at the right time, to give you peace of mind.
The first step is to establish your goals:
- Who would you like to benefit from your estate?
- Do you want them to have control over the money or not?
- How quickly would they need to be able to access the money?
- What impact will tax have?
- Would you like to try and avoid probate on some of your assets?
There are major differences between UK and French succession law. For example, in France children are protected heirs, inheriting up to 75% of the parent’s estate, even in preference to the spouse who is generally not protected.
However, the new EU succession regulation, known as “Brussels IV”, that came into force in August 2015, allows you to choose between French or UK succession law to apply to your estate. French succession law will apply by default, unless you have a will saying otherwise. This is a new, complex area and you need to carefully examine how the law works for your personal circumstances. Seek specialist advice.
It is important to remember that Brussels IV does not cover tax laws. French succession tax continues to apply as it does now. You may be free to pass assets to whomever you wish, but with tax rates up to 60%, the French taxman could well be the biggest beneficiary.
Savings and investments
Are you sure your investments, and the mix of them, is suitable for your life in France? You may have built up a portfolio of shares and funds over the years, without really considering how they work together or whether they suit your aims. Consider the principles for successful investing below.
- Your appetite for risk Obtain a clear and objective assessment of your appetite for risk, or your portfolio may not be suitable for you.
- Match your risk profile to the optimum portfolio Make sure your investment portfolio matches your attitude to risk.
- Diversification It is critical to ensure your investments are suitably diversified, so you are not over-exposed to any given asset type, country, sector or stock.
- Yearly review Your portfolio can shift away from the one designed to match your risk profile and objectives, and your circumstances may have changed.
Deciding what to do with your pension fund now, following the new ‘pension freedom’ in the UK, is of fundamental importance. There are more choices than ever before and expatriates have further levels of complexity to contend with.
Whether it is investments, pensions or tax planning, seek advice to ensure you do what works best for your personal situation. Use an adviser who can guide you on all these aspects and provide holistic solutions so you can enjoy a healthy, wealthy 2016 and beyond.