One invaluable wealth planning structure in France is Assurance-Vie. Used correctly, it can provide you with benefits of wealth today, plus peace of mind for your family’s future. Be careful though, as not all Assurance-Vie are the same.
There are many benefits to moving to France, but being an expatriate also presents some challenges, including a higher degree of complexity when it comes to your wealth management. You may have property in more than one country, have children and heirs in various jurisdictions, and have savings and investments managed in many different countries. You may also return to your home country one day and have to keep that in mind.
You need carefully structured wealth planning, designed around your personal situation and wishes for your family. You want to protect your wealth for your retirement years and as it is passed down to the next generations. This is becoming more and more challenging, with increased regulation and scrutiny on tax collection resulting in the re-evaluation of corporate structures.
One invaluable wealth planning structure, which has proved itself over and over, is life assurance – Assurance-Vie in France. Unit-linked life assurance is well established in many countries including France and the UK, and is recognised and regulated by local tax authorities.
Used correctly, it can provide you with benefits of wealth today, plus peace of mind for your family’s future.
Assurance-Vie is the largest form of savings plan across France. It is used by both French nationals and expatriates to save considerable tax, and it also provides estate planning benefits… provided you get it right.
Not all Assurance-Vie are the same
What many people do not realise, however, is that there are many different types of Assurance-Vie. And they are based in different jurisdictions. The tax costs of choosing the wrong one can be significant.
For example, many of the tax advantages are only available to European Economic Area policies. Once you have held your policy for four years you can elect to have withdrawals taxed at a fixed rate of 15%, instead of the scale rates of income tax. After eight year this falls to 7.5%, plus you get a tax-free individual allowance of €4,600 (€9,200 for spouses or PACS partners). This is only on the growth element of your withdrawal.
If however your policy is outside the European Economic Area – and this includes those held in the UK offshore centres of Isle of Man, Jersey and Guernsey – you have to pay tax at the income tax scale rates of up to 45%. (In both cases social charges, currently 15.5%, are payable on top.)
Another example is in relation to succession tax. Your heirs can receive an extra €152,500 tax-free allowance from your Assurance-Vie, plus improved tax rates. However, these considerable savings are only possible where your policy allows you to name beneficiaries. If your policy does not, your heirs pay considerably more tax. Many policies domiciled in the Isle of Man, and even in the UK and Ireland, do not provide the defined beneficiary clause.
We often come across British expatriates living here who have been sold life assurance policies by their UK adviser – policies that do not provide all the tax and estate planning benefits available in France. In most cases they do not realise they are missing out.
There are significant costs to using the wrong Assurance-Vie and getting your wealth planning wrong. You should take personalised advice from an adviser who lives in France and is familiar with all the nuances of French taxation.
Life assurance arrangements are available from different jurisdictions, including France. So why are policies from Luxembourg so popular?
Luxembourg is a very strong financial centre, founded on a modern regulatory framework which is continually updated. It has attracted banks, insurance companies and investment companies from around the world. It has an AAA rating and retains a small sovereign debt of only 23.2% (under Maastricht criteria it needs to be under 60%). It is a robust life insurance centre, with over €21 billion of assets under management.
Importantly, Luxembourg is in the EU, so an Assurance-Vie domiciled there benefits from the French tax advantages. Yet Luxembourg life assurance is a foreign asset in France and this has benefits – it is excluded from wealth tax for the first five years.
One key element of protecting your wealth is to safeguard it from institutional failure as much as possible. As we saw over recent years, financial institutions can fail and investors do lose money.
There is an investor protection regime in France. Cash deposits in the bank are guaranteed up to a maximum of €100,000 per person and per bank (no matter the number of accounts in the bank). A portfolio (stocks, bonds etc) in a bank are guaranteed up to €70,000. There is also a guarantee for life insurance, maximum €70,000, per person and per company (limited to the sums paid as premiums).
In France, investors are never privileged creditors in case of failure of banks or life insurance companies. Clients are creditors among the others and come after the privileged creditors of employees and the French State.
Luxembourg provides a very robust protection for life assurance policyholders. The cornerstone of its investor protection regime is the legal requirement that all clients’ assets must be held by an independent custodian bank approved by the State regulator, the Commissariat aux Assurances (CAA). This arrangement involving the CAA, custodian bank and insurance company is known as the “Triangle of Security”.
The bank is required to ring-fence clients’ securities (investment funds, shares, bonds etc) so that they are off its balance sheet. If the bank fails, these securities remain in segregated client accounts. All of the policy holder’s securities are therefore protected (note that cash deposits are not securities, but cash held in monetary funds is treated as such and so is protected).
Assurance-Vie can successfully help you with various aspects of your wealth planning, but remember that your and your family’s situation is unique, so you need to take personalised and specialist advice to establish the unique solution for you.
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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.