Assurance Vie Reforms In France

Assurance Vie contracts are a popular savings vehicle in France and offer significant tax benefits. A government commissioned  report recommends adapting Assurance Vie to benefit the economy.

Assurance Vie contracts are a popular savings vehicle in France. They offer significant tax benefits, especially the longer you hold them. President Hollande has implemented various tax reforms since he came to power but so far Assurance Vie contracts have remained untouched.

However, this may be about to change.

The government commissioned a report, Dynamiser l’épargne financière des ménages pour le financement de l’investissement et de la compétitivité, to find ways of boosting household savings to finance investment and competitiveness. It recommends adapting Assurance Vie to benefit the economy, which the government will consider when drafting the 2014 Finance Bill.

Current Tax Advantages

Income and gains accumulated within the Assurance Vie (and not withdrawn) are tax free and only the growth element of withdrawals are taxed.

French approved Assurance Vie policyholders can then choose to have their withdrawals taxed at the scale rates of income tax or at special fixed rates. The fixed rates (before social charges) are 35% for the first four years of ownership, 15% for years five to eight inclusive and from the ninth year onwards, the first €4,600 for individuals and €9,200 for couples of growth withdrawn is tax free and the tax rate applied to the balance is just 7.5%.

Currently the tax treatment of withdrawals is based on when the contract was established, rather than when premiums are received.

Where a policy is established when the life assured is under age 70, there is a succession tax exemption of €152,500 per beneficiary. Tax is then payable at a fixed rate of 20% up to €902,838 and any excess is then taxed at a maximum rate of 25%.

Changes recommended in the report

1. Extend the number of years a policy needs to be held to obtain the tax free allowances and the 7.5% rate, from 8 years to 10 or 12 years, which would encourage subscribers to keep their policies for longer periods.
2. Remove the fixed tax rate option in the first four years.
3. Date supplementary payments (tops ups) to the policy, which means the tax treatment of withdrawals will be based on the date payments are made to the policy, rather than the date the policy was originally established.
4. Reduce the tax free exemption for succession tax to €100,000.

What will happen?

We cannot know which of these recommendations will be adopted, if any. The general view is that any changes will not be retroactive. While this cannot be guaranteed, if you have capital that should be invested in an Assurance Vie, there is a strong argument to do so now, before any changes are implemented.

At Blevins Franks we design and set up bespoke Assurance Vie for our clients, which enjoy favourable tax treatment.  This will continue even after the new reforms, since there are no plans to reduce the significant advantages of tax-free roll up of income and gains, or the tax treatment of withdrawals where only the gain is taxed.  With our advice Assurance Vie provides financial benefits both for yourself today and for your heirs in the future.  We personalise Assurance Vie for each individual client.  This is vital, especially with cross border wealth considerations.

Blevins Franks are pre-empting the impact of these proposed changes.  If you are considering establishing or adding monies to an Assurance Vie contract, we recommend you take advantage of the exceptionally favourable current tax regime.

If you would like to discuss your situation with one of our Partners in a complimentary meeting or phone call, please contact your local Blevins Franks office CLICK HERE. We look forward to hearing from you.

18 July 2013

The 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 should take personalised advice.