Many British continue to hold the same investments they had set up while UK resident, but in most cases they are not suitable for their needs now and not tax efficient in France.
The news that the prize money from UK Premium Bonds has been cut is a useful reminder for British expatriates that they should review their investments now that they are living in France. Many UK nationals continue to hold the same investments they had set up while UK resident, but in most cases they are not suitable for their needs now and not tax efficient here.
Your investments and tax planning should be set up according to your personal circumstances and objectives. When these change you need to review your arrangements accordingly. Moving to a new country is a major change and should prompt a complete review of your wealth management to ensure it is as effective as possible for your new life.
From 1st August, Premium Bonds will pay out almost 14% less money each month, after the prize pot reduced by £7.8 million. At the same time the total number of prizes was cut by 150,000, so you have less chances of winning.
The £1 million prize will still be given away each month, but the number of £100,000 payouts is reduced from five to three. Likewise there are now only six £50,000 prizes, compared to nine previously. Fewer prizes will also be distributed lower down the prize scale.
The bonds are issued by the state run National Savings & Investments (NS&I), who said they had no choice but to cut the prize fund. As announced in June, interest rates on NS&I’s Income Bonds, Direct Saver and Direct ISA will also be reduced from 12th September.
This is another blow for savers in the UK. Private sector interest rates have fallen over the last year as a result of the government’s Funding for Lending scheme. Many NS&I products jumped to the top of the “best buy” tables and around £1.7 billion poured into NS&I, which was not actually good for the institution. It is currently not required to raise money for the government, and would be accused of abusing its position if its rates are too high. It has to balance the interests of savers, competitors and the government and so had to take action.
The average yield on Premium Bonds is now 1.3%, but of course you cannot know when or if you are going to earn anything, or estimate what sort of return, if any, you may see on your investment.
Premium Bonds are one of the most widely held investments in the UK – 22 million people have £46 billion invested in them.
One key attraction is that they have always been tax free. So even if you are lucky enough to win the £1 million jackpot, you do not pay any income tax on this – if you are UK tax resident, that is!
On the other hand, unless you have a big win, your capital is losing spending power each year because of the effects of inflation.
UK investments and tax efficiency in France
You can continue to own Premium Bonds when you move to France, but as soon as you become resident here they stop being tax free, and all your winnings are subject to tax.
Many British expatriates also have Individual Savings Accounts (ISAs) and Personal Equity Plans (PEPs). The income derived from them is tax free for UK residents, but again, they are not tax efficient investments for French residents. The income from both cash ISAs and share ISAs and PEPs are fully taxable here in France.
Investment income is now taxed as general income in France at rates of to 45%. You then pay another 15.5% in social charges.
If you have a big Premium Bond win, you could lose up to 60.5% of the winnings to tax!
You are obliged to declare the earnings on your annual French tax return. The local tax authorities are likely to find out about it anyway, considering the high level of exchange of information between European countries these days.
You also need to look at your other UK investments, such as shares, unit trusts, OEICs and investment bonds and consider how they are taxed here, both in terms of income and capital gains. Are they the most tax efficient way of holding your capital? It is unlikely.
However there are very tax-efficient investment vehicles available to residents of France that can reduce taxable income, and thus income taxes. With specialist professional advice, you could enjoy favourable tax treatment on your capital investment and other assets.
31 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.