French vs Luxembourg assurance-vie bonds

Assurance-vie life assurance bonds provide many tax and succession advantages in France. Should you use a French or Luxembourg bond?

Assurance-vie life assurance bonds 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. There are many different types of assurance-vie available; they can be based in various jurisdictions and both the type of product and jurisdiction can make a difference to the advantages they offer. So you need to be careful when selecting which bond to use.

At Blevins Franks we recommend Luxembourg based assurance-vie, as all our research and experience shows us that they offer the most benefits for expatriates in France. French banks do offer French assurance-vie, which many people think would be easier to use. This article details the advantages of a Luxembourg bond over a French bond.

1. Denominated currency

A Luxembourg bond can be denominated in a currency other than Euros. This means that the reporting currency may not be in Euros for various reasons, and the growth calculated and then converted into Euros. However, this does give a degree of flexibility not usually available from a French bond.

2. Breadth of assets

A French bond will not usually have the breadth of assets available within a Luxembourg bond, and will often also hold fonds en euro, where the asset is denominated in Euros, rather than expressed as units. Banks will also restrict you to certain investments, rather than having a more ‘whole of market’ general approach. Such funds may not be as flexible or as diverse as funds in a Luxembourg bond, where it is also more possible to ‘custom-style’ assets.

3. Language

The contract language of a French bond is, of course, French. This is not necessarily the case for Luxembourg bonds, so for most expatriates in France, the small print is somewhat clearer than for a French bond.

4. Loi Sapin 2 and freezing assets

Under the Sapin 2 law, the French authorities can freeze withdrawals from French assurance-vie contracts. Additionally, they can set the return to be paid by Euro funds of French life assurance companies.

Provided the life assurance company is not a Luxembourg subsidiary of a French life insurance company, or the fonds en euros are not reinsured in France, this risk is very much diminished.

5. The Luxembourg ‘Super Privilege’

Unlike in France, there is no limit to the guarantee made by the Luxembourg authorities in the event that the insurance company fails. Also, in Luxembourg, investors in an assurance-vie type of investment are preferred creditors, being higher up the list than in France, so are more likely to see a return of their funds if there are any problems.

6. The ‘Triangle of Security’

This is a well-known benefit of Luxembourg that surpasses the security offered by France. This is superior even to the ‘Super Privilege’ mentioned above.

This is a legal requirement in Luxembourg that all clients’ assets must be held by an independent custodian bank approved by the state regulator. 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. 100% of the policy holder’s securities are therefore protected.

7. Wealth tax

A non-French bond is not subject to French wealth tax during the five-year wealth tax ‘holiday’ period.

One point to note

It is generally much easier to invest and top-up a French policy rather than a Luxembourg policy. Initial investments and incremental investment amounts are generally much lower in France than in Luxembourg.

Please contact us if you would like more information or advice on tax-efficient investing for France.

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.