The Spectrum IFA Group Quarterly Newsletter

In addition to being an advertiser supporting this dynamic and vibrant magazine, Spectrum advisers – Philip, Sue and Derek – have agreed with P-O Life to produce articles on a quarterly basis.

In our first article, we provided an overview of different French bank accounts. For our second edtion, let’s look at the tax-efficient investment option of assurance vie.

Investing tax-efficiently in France

In most countries, tax-efficient savings and investment schemes exist, with the aim of encouraging people to save for their medium and long-term goals. However, the problem when we become resident in France, is that the tax-efficiency that we enjoyed from our ‘home’ schemes (e.g. in the UK, ISAs and Premium Bonds) is usually lost.

This is because as a French resident, you are liable to French taxes on all your worldwide income and gains, except for anything that might be exempted by the terms of a Double Taxation Treaty between the home country and France.

In our last article we covered tax-free cash deposits available in France for short-term needs and liquidity. For the medium to long-term, there is one product that stands ‘head and shoulders’ above the rest and that is an Assurance Vie.

What is an Assurance Vie?

An Assurance Vie (AV for short) is an insurance-based investment in a tax wrapper. It can be as simple or as complicated as you wish to make it, and it has some rather special properties:

• The investments that you place within your AV are never touched by French income tax or capital gains tax as long as they stay inside the tax wrapper.
• The AV is never locked. You can take your money out whenever you like (although as AVs are designed for longer term investment, withdrawals in the early years will reduce tax efficiency and may incur exit penalties in some circumstances)
• If you keep the AV going for at least 8 years, you then qualify for a special income tax-free band on top of your normal allowances, together with a low withholding tax rate.

Millions of French people use the AV as their standard form of saving and investment and many billions of Euros are invested this way via French banks and insurance companies, which offer their own branded product. However, we work with providers across the European market and favour international providers of an AV typically situated in highly regulated financial centres, such as Dublin and Luxembourg.

Some of the advantages of the international AV product compared to the domestic French policy are:

• It is possible to invest in currencies other than Euro, including Sterling and USD.
• There is a larger range of investment possibilities available, providing access to leading investment management companies.
• Documentation is in English, thus helping you to better understand the terms and conditions of the AV policy.
• The AV policy is usually portable, which is of particular benefit if, for example, you moved back the UK.

How do I choose what to invest in inside my Assurance Vie?

You may have strong views on this yourself, or you may have no ideas at all, but in all cases, it helps if you have a good financial adviser at hand. His or her job is to help you understand the whole concept of investment and to help you establish your attitude to investment risk.

Your adviser will show you different types of investment options, explain how they work, and how much risk is involved. You make the final decision, but his or her help can be invaluable, and your adviser will be with you to provide ongoing support and advice.

Does an Assurance Vie have other advantages?

Without doubt, the AV is effective for inheritance planning. AVs are considered to be outside of your estate and you can leave them to your chosen heirs on your death (not just the ones Napoleon thought you should leave them to). You can leave each individual beneficiary a sum completely free of French inheritance tax which is in addition to the standard inheritance tax allowances.

To maximise this attractive inheritance benefit, an AV should be established and funded before age 70 since, for sums invested before age 70, your chosen beneficiaries are each entitled to an inheritance tax allowance of up to €152,500. For amounts invested after age 70, inheritance benefits still exist but are much reduced.

Can I take income from an Assurance Vie?

Yes, you can use the funds in your AV to provide income if required and, when the policy is 8 years’ old, it becomes particularly tax efficient since an additional tax-free allowance of €4,600 for an individual or €9,200 for a couple, is available to offset against any taxable gain in relation the amount withdrawn – this is in addition to the usual personal allowances.

Is an Assurance Vie right for me?

An Assurance Vie is a valuable asset, helping you to shelter your capital and income from unnecessary taxation during your lifetime and protection for your loved ones when you are gone. However, everyone’s circumstances are different, and it is essential that you take professional financial advice before investing into this type of product.

If there are any subjects you would like us to cover in one of these articles or if you would like to contact one of our advisers for a financial consultation (no fee), then please get in touch at info@spectrum-ifa.com