The start of the year is when many of us reflect on the last 12 months and look ahead to what the future will bring and what we can do to improve it.
We’ve had another 12 months of living in a pandemic, something we are much more experienced with now, but still feels out of our control. We’ve also learnt how Brexit has and hasn’t affected our daily lives.
With so much out of our hands, it’s good to take steps to control our future where we can, whether it’s diet and exercise, making changes to our lifestyles, or ensuring our long-term financial security is on track. All this can of course be done at any time of year, but the New Year is the perfect prompt to do so.
Stay up to date for a life in France
One key reason to review your savings and investments, tax and estate planning is to check it is all up to date. Anyone who’s lived in France a while knows tax rules can change, especially after a Presidential election.
2022 could be an interesting year tax wise. Succession reforms can also affect your estate planning, as we saw when the French Constitutional Court approved new legislation in 2021, allowing children who are not left their entitled share of French assets to seek compensation.
Changes to UK pension legislation can also affect you from time to time and the investment world doesn’t keep still. Following November’s COP26 meeting in Glasgow, for example, we’ve received more queries about sustainable and responsible investing. ‘ESG investing’ (environmental, social and governance) prioritises a company’s impact on the environment and society along with financial returns.
Your personal and family circumstances are also likely to evolve over time, making it necessary to adjust your financial planning arrangements accordingly.
Strategic financial planning achieves the best results
Many people only consider segments of their finances at a time. They may have bought shares in companies they like and/or invested in funds recommended by a financial adviser years ago. They may speak to a tax accountant to learn about French taxation and a lawyer about setting up a French will. At some point they may wonder if they should make changes to their pensions.
For truly effective financial planning, however, you need to consider all these various aspects together. How you hold your investments can make a difference to your French tax liabilities. Estate planning in France is no simple matter, with its complex succession tax regime and forced heirship rules, and how you own assets can impact on what you can achieve. And, when deciding what to do with your pensions, look at all your retirement savings and what income they can generate for you.
Here’s a summary of three key areas you should consider in your financial planning review.
French residency and taxation
The fact that you’re resident in France, rather than the UK, has a significant impact on your financial planning.
Regardless of how effective your tax planning in the UK was, you pretty much need to start afresh with financial planning for France. What was tax efficient across the Channel is unlikely to be tax efficient here. Explore the compliant arrangements that provide tax benefits in France. The assurance-vie savings vehicle, for example, can provide a range of advantages that go beyond lowering your tax bill.
Being a French resident can offer tax advantages, for example, if you’re in a position to safely take your entire pension as a lump sum. While you’re no longer eligible for the UK’s 25% tax-free lump sum, some people can limit taxation on the whole amount to just 7.5% (with a 10% allowance). This may be possible if your contributions were paid to a contributory scheme and if, after withdrawing a lump sum, you cannot take another capital lump sum from the fund.
Pension income and lump sums are also subject to 9.1% French social charges, but these do not apply if you hold Form S1.
Estate planning for France
Don’t leave estate planning to the final stage of financial planning. The way you own property and investments in France impacts on how you can distribute your assets on death and how much tax your beneficiaries pay. So, take this into consideration early on when buying assets and setting up investment arrangements.
Financial structuring for life in France
Perhaps the key rule for financial planning is that it must be specifically structured around your personal circumstances – your lifestyle today and plans for the future, family situation, income requirements, objectives, time horizon and risk tolerance.
If you don’t already have a strategic financial plan in place, you may need to take a completely fresh look at all your savings and investments and consider if they are suitable for you today. Are they too risky? Do you have adequate diversification? Can they provide income without risking the capital? Could you consolidate shares and funds so they’re easier to manage.
At the same time, consider your tax liabilities on investment income and gains, and whether you could use alternative tax-efficient arrangements to hold your investments. Establish how best to hold your investments so they can easily, and tax-efficiently, pass to your chosen beneficiaries on death. Some assurance-vie allow you to hold your choice of investment assets while providing tax and estate planning benefits. There are various ones available so choose the one that works for you.
Financial planning for France | Under one roof
Every family is different. Your strategic financial planning must be carefully designed for you. All the various aspects should work cohesively together to create an overall wealth management plan that provides long-term financial security for yourself and achieves your wishes for your heirs.
For peace of mind that you’ve covered everything, and that making one financial decision will not have unexpected consequences on another, take expert, professional advice from Blevins Franks.
Contact us today.