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.
Expat retirement transfers have the potential to play a critical, and beneficial, part of an expat’s financial planning. However, this is only if the process is undertaken in a considered fashion with reliable, regulated and trustworthy advice that investigates all of the options, including the possibility of a QROPS or SIPPs transfer.
If you are resident in Spain (if you live here more than 183 days in a calendar year, the Spanish tax authorities and in turn the UK HMRC will class you as Spanish resident) and held assets outside Spain as at 29 December 2017 worth over Euro 50,000, and you haven’t already declared them on a Modelo 720, you need to so by the end of March.