| Tax and estate planning figure prominently in the | | | | restricted to income tax or CGT. In France |
| list of priorities of many financially secure | | | | succession tax is directly comparable to our |
| expatriate residents of France. The Napoleonic | | | | inheritance tax, but it works in a slightly different |
| code which forms the base of succession law in | | | | way. In the UK inheritance tax is levied on the |
| France produces a fiscal inheritance environment | | | | estate of the deceased, whereas in France |
| which is totally alien to most of us. We cherish | | | | succession tax is levied on the beneficiary (ies) of |
| our right to leave our estate to whomsoever we | | | | the estate. Any tax due is then deducted by the |
| please, and are not happy to discover that in | | | | notaire from the proceeds of the will. The |
| France our choice is strictly regulated. Worse still, | | | | proceeds paid out from Assurance Vie policies |
| our spouses do not rank highly in the portio | | | | largely override succession law and succession |
| legitima in French law. Real estate and capital are | | | | tax. Any number of beneficiaries may receive up |
| the two major concerns, and we should be | | | | to EUR152,500 completely free of tax, and pay |
| relieved to learn that there are mechanisms | | | | only 20% on any further amounts received. |
| available to us in both areas to help alleviate our | | | | Whilst recent changes to the tax regime regarding |
| worries. I would like to concentrate here on the | | | | spouses and children have undermined some of |
| preservation and development of capital, and | | | | this advantage, there is still a huge tax saving to |
| explain the huge benefits offered by the French | | | | be made when bequeathing legacies to unrelated |
| life assurance product, Assurance Vie. | | | | beneficiaries such as friends or step-children, who |
| There are three major taxes that threaten the | | | | would normally pay tax at 60%. There are |
| unprotected capital of even the moderately | | | | restrictions to this tax largesse however; the |
| well-off expatriate in France. Income tax; wealth | | | | policy must be set up and funded before the |
| tax, and inheritance tax are all queuing up for a | | | | policyholder reaches the age of 70. After this age |
| slice of our capital, and if we do not take steps to | | | | the tax advantage is restricted to a total of |
| prevent it they can make serious inroads into our | | | | EUR30,500 for all beneficiaries combined. |
| net worth. Ever resourceful in terms of personal | | | | There is a huge range of funds to choose from. |
| finance, the French have over the decades | | | | Most Assurance Vie providers will include as |
| evolved and steamlined a product that is capable | | | | diverse a selection as they can, ranging from the |
| of both protecting accumulated wealth and | | | | standard equities through to commodities and |
| promoting its development for the future | | | | other fixed interest products. There will also be a |
| enjoyment of the investor's heirs. Effectively an | | | | range of risk on offer to cater for all from the |
| investment within a life assurance wrapper, this | | | | most cautious to the highly adventurous. There |
| product has been so successful that today there | | | | are a small number of assurance companies now |
| are over EUR1.3 trillion invested in Assurance Vie | | | | offering funds which protect a large percentage |
| policies. Over 22 million individuals or couples have | | | | your capital and accrued gain. |
| either invested lump sums or save regularly using | | | | Of great interest to the expatriate investor is the |
| this instrument. | | | | potential advantage of starting an Assurance Vie |
| To understand the success of this product we | | | | policy before becoming resident in France. As |
| need to look no further than the tax concessions | | | | things stand at present, such an investment will |
| that it offers. Neither French capital gains tax nor | | | | not be subject to the normal restrictions on the |
| income tax apply whilst the funds remain inside | | | | amount that can be bequeathed to any |
| the policy and no withdrawals are made. Even | | | | beneficiary on the death of the insured. This is of |
| where an amount is withdrawn only the growth | | | | course of great benefit when there is a relatively |
| element is then subject to income tax, so for | | | | large asset to pass on, and a small number of |
| example if your portfolio of assets held within the | | | | potential beneficiaries. There is no guarantee that |
| policy had doubled in value only 50% of a | | | | this loophole will remain unplugged forever, but |
| withdrawal would be taxable; the remaining 50% | | | | changes to Assurance Vie legislation tend not to |
| would be tax-free. Income tax on the gain is | | | | be retrospective, so it is to be hoped that policies |
| charged on a sliding scale, depending on how long | | | | started in the past and near future would be |
| the policy has been in force. Nominally the tax | | | | unaffected. |
| rate is 35% for a policy less than 4 years old, | | | | Generally speaking, the value of an Assurance Vie |
| 15% for policies between 4 & 8 years old | | | | policy is taken into account in wealth tax |
| and then 7.5% for all policies over 8 years old. | | | | calculations, but there are circumstances where |
| Whilst this may seem punitive for the first four | | | | Assurance Vie can help mitigate tax liability. This is |
| years, you can elect to have the gain added to | | | | probably best explained by using an example. If |
| your taxable income and declared via your annual | | | | you have a large cash sum, say EUR500,000 held |
| tax return, making it subject to tax at your | | | | on bank deposit accounts, this figure will obviously |
| prevailing rate. This is obviously advantageous if | | | | be added to your wealth tax calculation along with |
| you have a relatively low income. As an extra | | | | the value of property and possessions. The |
| incentive to let your funds grow for at least eight | | | | interest earned will also be subject to annual |
| years, there is an annual tax-free allowance of | | | | income tax, and be counted as income. If you |
| 4,600 euros (single person) or 9,200 euros | | | | place this sum within an Assurance Vie |
| (married couple). This allowance relates strictly to | | | | investment and leave it there, you are not |
| capital gain within the policy, so depending on the | | | | generating any income from it and it is not being |
| growth enjoyed during the investment period, | | | | taxed. If you have little other income you can |
| relatively large withdrawals can be made | | | | then use another French financial tool, the Bouclier |
| completely free of income tax. A quirk of the | | | | Fiscal, to ensure that your total tax bill, including |
| French tax system can work greatly to the | | | | residential taxes and wealth tax, cannot exceed |
| investor's advantage with an Assurance Vie policy. | | | | 50% of your income. If you are asset rich and |
| The eight year qualifying period for the most | | | | income poor, you can strategically limit your tax |
| beneficial tax regime is governed by what is | | | | bill in this way. |
| known as the tax clock. This starts ticking at the | | | | There is one final point in favour of Assurance |
| instigation of the policy, even if the initial | | | | Vie. Some assurance companies domiciled outside |
| investment is a relatively small amount. It may | | | | France have French compliant Assurance Vie |
| not be wise to test this system to its limits, but if | | | | products to offer the UK expat. Under the terms |
| say EUR100,000 were invested on day one, and a | | | | of the new Double Taxation Treaty between the |
| further EUR200,000 a year later, the entire fund | | | | UK and France, contracts entered into on this |
| would still be subject to the lowest tax rates | | | | basis will not be subject to wealth tax for the |
| after year eight. | | | | first five years of residency in France. |
| The benefits of Assurance Vie policies are not | | | | |