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Investing In An Assurance Vie For Under 70 vs Over 70

January is often a time for reflection, and this year there has been plenty to consider. Over the last couple of years we have faced a global pandemic, quickly followed by the war between Russia and Ukraine, and global inflation issues. The cumulative effect of global concerns has led to a lot of financial worries for many of us. While the media may regularly report on the severity of the current climate, the reality is that market volatility is normal. And while we may be facing this situation for some time to come, it’s not cause to bury our heads in the proverbial sand.

Now is an excellent opportunity to take time out to review your finances with a professional.

In France, ignorance is not an acceptable excuse when it comes to the law and tax obligations. It is our responsibility to be aware of and fully versed in everything we need to know. And yet, this is easier said than done!

An Assurance Vie is an excellent way to keep your savings and investments tax efficient in France. It’s also a great way to keep things simple where the ‘tax man’ is concerned. Here what you need to know about investing in an Assurance Vie…

What Is An Assurance Vie?

An Assurance Vie is basically a life insurance wrapper designed to hold investments. It’s available for any French tax residents, which includes expats from other countries living in France. It’s one of France’s most efficient and versatile tax structures, offering inheritance tax advantages.

Under 70 Vs Over 70 Investors

In principle, an Assurance Vie is similar to a UK stocks and shares ISA, and potentially very helpful in your future Inheritance tax planning. There is, however, a major difference for investments made before and after the age of 70.

When you invest in an Assurance Vie, under the age of 70, there is a nil-rate inheritance tax allowance of up to €152,500 that can be passed on to any beneficiary you name. This is true whether they are a relative or not. For amounts in excess of €152,500 there a preferential tax rate of 20% for the next €700,000.

In comparison, normal IHT rates, outside of an Assurance Vie investment, are not so favourable to relatives beyond your children and other direct relations. Meanwhile, non-relatives (including stepchildren), will potentially be charged inheritance tax up to 60%.

However, this nil-rate allowance within the Assurance Vie is drastically reduced when you invest over the age of 70. The allowance is one single amount of €30,500. Anything invested over this amount will be subject to the standard Inheritance tax rates.

This does not mean that investing in an Assurance Vie over the age of 70 is a waste of time; you can add the amount to an existing Assurance Vie and this can be given to the same beneficiary. In other words, you can increase the amount for one of your beneficiaries from €152,500 to €183,000, or spread the additional €30,500 over all the existing beneficiaries.

Commencing A New Assurance Vie Over The Age Of 70

The other option is to commence a new Assurance Vie, over the age of 70, with a premium of €30,500. The rules are such that any interest or gains made on this premium are not subject to death duties, so if you are lucky enough to live for a few more years, and your original premium increases to €40,000, then this entire amount can be passed to the named beneficiary free of death duties.

Don’t forget, that as a general investment, the Assurance Vie will remain tax efficient throughout your lifetime and from a point of drawing income, so it is not necessarily all about the inheritance factor!

Is An Assurance Vie Right For You?

Generally, you should look at an Assurance Vie as a medium to longer-term investment, as investments can fluctuate, while some providers have a minimum investment period, and other impose a penalty for early encashment. It is essential that you take proper advice to find the solution that meets your individual needs.

There is one added bonus; an International Assurance Vie can be held in GBP, Euros or USD and is portable, so should you move from France in the future your investment doesn’t necessarily have to be cashed in, but can potentially be taken with you.

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This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity.

Blacktower Insurance Agents & Advisors Ltd is regulated in Cyprus by the Insurance Companies Control Service and registered with ORIAS in France.

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

Other News

Final salary pensions – why now is a good time to cash in

Juicy lottery-sized sums are being offered to savers to tempt them out of gold-plated workplace pension schemes and into personal plans. We’ve explored whether you should consider taking a final salary pension, as well as the benefits and drawbacks of withdrawing.

What is a final salary pension?

A final salary pension, sometimes referred to as a gold-plated pension, is a special style of retirement fund that is based on your final or average salary.

The main difference between this and a defined contribution pension is that a final salary scheme gives you a guaranteed sum annually for the rest of your life when you retire.

To work out the value of your final salary scheme, consider a few factors: 

  1. Your final or average salary at your place of employment (confirm this with your employer)
  2. Your length of service
  3. The final salary scheme’s accrual rate (this is often 1/80th)

Your final salary pension will take each factor into account, and the resulting figure will be the guaranteed annual sum you are entitled to.

For instance, if you worked somewhere for ten years, and leave on a salary of £100,000, with an accrual rate of 1/80th, you will have a guaranteed retired annual income of £12,500.

It is possible to undertake a final salary pension transfer. Depending upon how long you expect to enjoy retirement, this could be a favourable choice. However, it’s important to consult a financial advisor to make your final salary pension transfer values work harder.

What are the benefits of transferring a final salary pension?

Assessing your final salary pension transfer value, you might consider it worthwhile to withdraw. We’ve outlined the main benefits of taking your final salary pension:

Receive the cash value of your final salary pension

Withdrawing from a final salary scheme allows you to receive a cash lump sum in return for forfeiting your guaranteed income in retirement. This final salary pension transfer value is the main reason to withdraw from a scheme, as it offers you financial freedom.

Remove ties with your employer

This is an especially important point if you’re concerned that your employer may not exist throughout your full retirement. For most, the pension protection fund (PPF) will cover your pension, but, for especially high earners, there is a PPF ceiling of £41,461 (as of April 2020).

Enjoy a flexible income in your retirement

A final salary scheme entitles you to a guaranteed annual income when you retire, but if you go down the route of transferring your final salary pension you will be able to enjoy a little more flexibility in how you receive your income. Usefully, by withdrawing from your final salary scheme, you can choose to take more out in your younger years.

Choose how you want to invest your pension

A final salary scheme is controlled tightly to accommodate all employees and their interests. When withdrawing from the scheme, however, you can take complete control over how your pension fund is invested.

The considerations you should make before transferring your final salary pension

While there are certainly benefits of going down the route of transferring final salary pension funds into various other pots, it’s important to consider what you’ll be giving up:

  • Entitlement to a fixed annual income for the rest of your life
  • A safe income that doesn’t fluctuate with volatile markets and share prices
  • Spousal and family benefits that come with a final salary scheme

 Example: Should I cash in my final salary pension?

An example is Mrs Dee (not her real name), 4 years ago she asked for her final salary transfer values, which came in at £250,000 – a nice sum, you may think. After reviewing all the facts and figures available, however, I advised Mrs Dee to leave her final salary pension where it was, which she duly did.

Towards the end of last year, because of favourable market conditions, I applied again to see the value of transferring her final salary . This one came in at just under £600,000.

Read More

Sweden offering expats one of the best work-life balances worldwide

Stockholm WaterfrontIn the UK, the first week of October is National Work-Life Week, which encourages employers and employees to look at how they can improve their well-being at work and strike a healthier balance between family life and their job. The aim is to help reduce stress among a company’s workforce by offering more flexible ways of working, allowing workers to have time for other priorities in their life.

Of course, it’s not just in the UK where this is an important issue. Many workforces worldwide could do with a better work-life balance, and if you are soon to be moving to another country for work, it’s likely you’ll be wondering what the work culture is like. After all, spending long hours at your workplace without much else to do in your free time may mean you miss out on some of the best aspects of moving to a new country, such as forming a new circle of friends. And too much neglect of your personal life may end up affecting your emotional well-being and this is often one of the main stress factors expats have to deal with.

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