I mentioned the weather last month as being one of the key reasons we moved here. So typically, for the first time we’ve probably experienced a period of weather worse than that enjoyed in the UK since living here. I suppose it proves that no matter how much we plan, things have a way of surprising us and that the only thing we can successfully plan for is the certainty of change.
What was once tax free is no more!
For UK and other nationals taking up residence in France it is important to grasp the fundamentals of the French tax system. Quite simply, the French tax authorities regard that all “Global” assets and incomes held or earned by a person resident in France are subject to taxes and social charges according to the appropriate levels determined by French law.
In summary, the French authorities do not recognise other nations’ tax efficient investment and saving schemes. For UK nationals this means your ISA’s, Tessa’s and even premium bonds can no longer be held or drawn down tax free as in the UK. However, all is not doom and gloom for those seeking to legitimately protect and enhance their wealth in France. Contrary to expectations, the new French government has resisted abolishing the most efficient and flexible French Tax free savings and invest scheme – “Assurance Vie” and has maintained its upper allowances limit.
Assurance Vie and what are the advantages?
Assurance Vie is a type of Life Insurance scheme in, which you can invest in a huge range of different managed funds, enabling you to invest very tax efficiently as a French resident. From an inheritance tax point of view, a policy is of greater benefit if it is started before becoming tax resident in France, because it will then be free from French succession tax. Unless the life assured is over the age of 70 at the time the policy was set up, or at the time any top-ups are made.
But even if the Assurance Vie is arranged after you have become French resident, any named beneficiaries to the policy in the event of death enjoy a succession tax exemption of the first €152,500 per beneficiary, after which a flat-rate tax of just 20% normally applies.
French capital gains and income tax do not apply if the income and gains are made within the policy and no withdrawals are made. Even where an amount is withdrawn only the growth element is taxable. Be aware that any gains are liable to 'social charges' of 11% when they are drawn down, plus taxation on a sliding scale depending on how long the policy has been in force.
You then have the choice of having the applicable tax deducted 'at source', or being paid gross and declaring the gains on your tax return. This is obviously advantageous if you are paying less than this rate of tax. Also after 8 years, there is an annual tax-free allowance of 4,600 euros (single person) or 9,200 euros (married couple) of GAINS. So the 7.5% tax would not apply if you staggered the withdrawals (e.g. to supplement your pension).
Spectrum does not charge clients for advice given, which is independent, regulated and indemnified.
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