When planning your investments as a British expatriate in France, it’s crucial to consider not only what assets to invest in but also where to hold these investments. Utilising neutral jurisdictions like Luxembourg and Ireland can offer significant tax efficiency, and protection and currency benefits, while being fully compliant in France.
When considering where to invest your capital, you may focus on what you should invest in – which assets, shares, companies, funds, etc, and how much of each you should own for a balanced portfolio. Another important consideration, however, is how and where you should hold your investments directly, or within an assurance policy, and which jurisdiction they should be managed in.
Blevins Franks will often discuss moving assets out of the UK if you intend to live in France long-term, and this includes your investments. Few UK-based financial advisers and institutions remain regulated to provide advice to French residents since they lost EU passporting rights with Brexit. Tax is another key consideration, more so following the UK budget.
But does this mean you should bring all your wealth and assets into France? While you may buy your French home, have a local bank account and perhaps some small French savings, investment structures in a neutral jurisdiction can provide more benefits. You don’t need to invest in French arrangements to optimise tax efficiency in France. This is not a criticism of French offerings, but rather a reflection of the significant advantages some other jurisdictions can provide.
What are ‘neutral jurisdictions’ and why consider them?
‘Neutral jurisdiction’ simply refers to a country or territory that is neither your country of nationality nor your country of residence. It’s commonly referred to as offshore investing, although that is not technically correct given that some of the most popular jurisdictions share a land border with France.
To be clear, we are not talking about far-flung exotic places that conjure up images of hidden accounts and shady, complicated business structures. Rather, these are highly reputable financial centres close to home, which are fully French compliant and report directly to the French tax system. In fact, they often facilitate an investor’s tax compliance.
Investor protection
Whoever you choose to look after your money, you need to establish what level of protection/deposit guarantee they have in the event of institutional failure. Not all jurisdictions have equal protection for clients. In France and the UK, the formal government protection with each institution is limited to €100,000 and £85,000 respectively. In the Isle of Man and Channel Islands, it is just £50,000.
If your investment capital is higher than these limits, you can spread your money across multiple banks and institutions to increase your overall level of protection. The downside is having many different accounts to manage and declare for tax purposes. Alternatively, and for many people as a preference, you can use a regime and investment arrangements that provide a significantly higher level of protection for your invested capital.
The likelihood of a major financial institution failing is low, but it can and does happen. We had Credit Suisse and Silicon Valley Bank not too long ago, not to mention the collapse of Northern Rock in the UK some years before that. Having a good investor protection scheme provides valuable peace of mind.
Currency and investment strategies
Another reason to opt for a neutral jurisdiction is currency. Many British expatriates living in France still keep their savings and investments in Sterling rather than their daily spending currency Euros.
Neutral jurisdictions often allow investments to be held in multiple currencies. So, for example, if you have sold a UK property or cashed in UK investments, you don’t necessarily have to convert everything to Euros right away if you feel it is the wrong time to do so. You can time switching currency when exchange rates are favourable or continue to invest in Sterling for as long as you wish. You may be able to hold more than one currency, to suit both your current circumstances and future plans.
The reality, also, is there is generally more flexibility and variety of investment strategies outside of France. This is another reason why even French nationals often choose to situate their wealth outside the country.
Tax planning advantages
More often than not, the most common reason for opting for a neutral jurisdiction is reducing your tax liabilities. Investment structures are available that present legitimate tax planning opportunities for residents of France. They can also be particularly useful when planning to move from one country to another.
For example, many British retirees here believe they will return to the UK in their later years. During their years in France, they can accumulate and grow their wealth with limited ongoing tax liability by holding their portfolio in a specific type of French-approved structure in a neutral jurisdiction. When the time comes to move back to the UK, they can liquidate and realise all of this accumulated growth with no French or UK tax liability. Of course, this will revolve around careful planning and timing, and ensuring they use the appropriate tax relief.
There is another opportunity now for expatriates returning to the UK. As announced in the UK autumn budget, the rules around UK inheritance tax and domicile are being significantly reformed from 6 April this year. Now, if you return to the UK after 20 years of living in France, investments held offshore will be exempt from UK inheritance tax for a period of 10 years following your return.
Crucially, using structures outside of France can also give French residents tax planning advantages. Setting up a French-approved structure, notably an assurance-vie, can provide dramatic reductions not only to your ongoing tax liabilities but also to the tax bill your children or beneficiaries face when you die.
Which jurisdiction should you use?
Ensure the jurisdiction you select is appropriate for a French resident. It must be seen as cooperative by the French authorities, which immediately disqualifies countries such as Panama which does not provide structures that are compliant here in France.
Furthermore, a structure must be based in the European Union to qualify under the favourable French assurance-vie rules. This rules out popular offshore jurisdictions such as the Isle of Man, Jersey and Guernsey. They might work for UK-based investors, but cannot provide the tax efficiency for residents of France.
The two most popular jurisdictions for French residents, aside from France itself, are Luxembourg and the Republic of Ireland. They offer numerous advantages for investors living in France while offering total transparency and compliance with the French tax authorities.
Which one is most suitable for you will depend on your particular situation, plans and objectives, and the various features of the structures available in these two countries.
This is where a detailed financial analysis will prove invaluable. At Blevins Franks, we carefully assess each client’s situation to determine where and how is best for them to hold their wealth. Our strategic financial planning provides integrated solutions covering investments, cross-border tax and estate planning, and pensions.
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All advice received from any Blevins Franks firm is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation and/or investment advice.
