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Tax: Reduce your French Tax Liabilities with Assurance

Blevins Franks – May 2006

If you are considering moving to France or buying French property it would be well worth considering taking out an “Assurance Vie” which may reduce your French tax liability.

And if you take out an Assurance Vie before you move there the savings will be even greater.

Assurance Vie is the French term for an insurance bond, such as a Personal Portfolio Bond. It is a specialised form of life assurance arrangement which allows you to hold your own choice of assets as the investment content of the policy, and to invest very tax efficiently in France.

Advantages of Assurance Vie

  • There is no French income tax or capital gains tax if the income and gains are accumulated within the policy, and no withdrawals are made.

  • Where a withdrawal is made, it is taxed very favourably. Only the 'growth' element of the amount withdrawn is taxable. So if the whole portfolio of assets within the policy has grown by, say, 7%, only 7% of the withdrawal is taxable; 93% of the withdrawal is TAX-FREE.

  • The tax rates which then apply to the element of growth, i.e. 7% in the example above, can be at fixed rates of 46% for withdrawals within the first 4 years, and 26% for years 5 to 8 inclusive, and 18.5% thereafter, inclusive of social charges. If the taxpayer’s marginal rate of income tax is lower than the fixed rates, he can opt for the usual scale rates to apply. The election can be made for each withdrawal.

  • These tax breaks are exceptionally favourable. As an example, if the investment has grown by, say, 40% after 8 years, the effective tax rate on withdrawals would not exceed 7% on any withdrawals whilst no tax is due on monies that remain invested within the Assurance Vie contract.

  • The policy might also help reduce any wealth tax liability.

  • There are considerable succession tax savings if the Assurance Vie was established BEFORE becoming French resident.

  • All purchases and or sales within the policy are normally transacted at no cost. For example, if you were to purchase an offshore fund specialising in fixed interest securities or equities, the cost to purchase such funds directly would normally be up to 6%. This benefit alone can offset the cost of establishing the Assurance Vie. Switches do not attract any tax liability on profits made when switching from one internal fund to another.

  • If your Assurance Vie is outside of France, you may escape wealth tax on the fund for 5 years.

  • The Assurance Vie provider will carry out all the day-to-day administration for the portfolio.

    Income Tax

    With careful tax planning, Assurance Vie can reduce your tax rate on investment income and gains down to between 0-18% typically, which is well below the tax rate of most other EU countries.

    Any monies rolled up and not withdrawn will be free from French income or capital gains tax. So: no withdrawals - no tax.

    Where a withdrawal, either as regular capital or income, is made (other than payment on death) the French tax position is highly favourable as only the growth element is liable to tax.

    For example, on growth element withdrawals received within the first four years, French income tax is 35% and French social taxes 11% making a total tax rate of 46%. After 4-8 years French income tax is 15%, French social taxes remain at 11% making a total tax rate of 26%. Finally, on growth element withdrawals received after 8 years, income tax is 7.5%, plus the 11% for French social taxes making a total tax rate of 18.5%.

    After 8 years, there is an annual deduction available from the taxable element of the withdrawal. This is €9,200 for a married couple or PACS partners, or €4,600 if single or widow or widower.

    So, for example, if a married individual makes a withdrawal of €100,000 after 8 years, and the growth from inception is, say, 40%, the taxable element of the withdrawal is €40,000. The deduction of €9,200 is then applied, reducing the taxable amount to €30,800, and this is then taxed at 18.5%.

    Wealth Tax

    Wealth tax is payable by French residents where your total worldwide assets exceed €750,000 (2006 rates) (including your spouse’s or co-habiting partner’s assets).

    The Assurance Vie may reduce your wealth tax liability. French wealth tax plus income tax cannot exceed 85% of the taxable income. Because the Assurance Vie reduces your taxable income, it may also reduce your wealth tax liability, unless you have a significant amount of other taxable income. If your assets exceed €2.3m, the wealth tax cannot be reduced to less then half of what it might otherwise have been, but this is still a major reduction.


    More pages

    Page 1: Blevins Franks – May 2006
    Page 2: Succession Tax

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