Not All Assurance Vie Are Equal

Will your investment structures in France provide the tax benefits you expect them to?

Assurance Vie are a popular and effective savings vehicle in France, used by many French nationals to save considerable tax. They are also successfully used by expatriates for tax and succession planning, but I often come across UK nationals who have policies which are actually not suitable for French residents and do not provide the benefits they are expecting.

There are many different types of Assurance Vie; you may have them as life policies, endowments or insurance bonds. They can be based in various jurisdictions, and both the type of product and jurisdiction can make a difference to the advantages they offer.

Here are some examples of the differences.

Assurance Vie provide various tax advantages. One of them is that the longer you own the policy, the less tax you pay. Once you have held the policy over four years you can choose to pay tax at a fixed rate of 15% instead of at the income tax rates up to 45%. After eight years this tax is just 7.5%, and the first €4,600 (€9,200 for a couple) of growth withdrawn is tax free. But this only applies to EU policies, and so not to Isle of Man and Channel Island policies. You could also have difficulties getting the necessary information for your tax return from non-EU arrangements.

If you set up a policy before age 70, on your death each beneficiary receives an extra €152,000 tax free allowance on distributions from your Assurance Vie. They also only pay 20% tax on the excess (rising to 31.25% for amounts over €700,000). These are considerable savings, but they are only possible if your policy allows you to nominate beneficiaries. Many policies domiciled in the Isle of Man, and even the UK and Ireland, do not provide a defined beneficiary clause, so you miss out on these tax breaks and your heirs could pay significantly more tax.

Another issue to be aware of with UK policies is that you pay tax within the funds that cannot be reclaimed, and you could also have problems getting the information needed for your tax return.

We meet too many people who have been sold policies which are not suitable for France, usually by UK advisers. The result is that they, and their heirs, pay much more tax than necessary. If you have a good relationship with your UK adviser it is understandable that you want to continue using them, but most do not have the in-depth and up-to-date knowledge of the French tax regime needed.

So you need to take local advice. Check if your existing arrangements are set up in the most efficient manner to gain the full tax and succession benefits, to ensure they comply with the requirements of the French authorities. Do not risk missing out on considerable tax advantages.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.