Assurance vie is one of France's most popular investment wrappers, offering potential benefits for long-term investing, tax planning and inheritance. This guide explains how assurance vie works, the eight-year tax rules, investment options, inheritance benefits, costs and what happens if you leave France.
An assurance vie is a French investment wrapper that allows you to hold a range of investments within a tax-efficient structure.
Although the literal translation into English is "life insurance", this tends to cause confusion, especially amongst foreign nationals living in France.
While an assurance vie does contain a life insurance element, it’s primary use is as an investment and estate planning vehicle rather than to provide life cover.
You can think of it as a flexible investment account with favourable French tax treatment. Inside the wrapper, you can invest in cash-like funds, investment funds and other financial assets depending on the provider and the type of contract.
This article provides general information only and must not be considered financial, tax or legal advice. The suitability and tax treatment of an assurance vie depends on your personal circumstances, including your country of tax residence, nationality and long-term plans. If you have investments in multiple countries, significant assets or complex financial affairs, consider seeking advice from a suitably qualified professional before making any decisions.
Assurance vie products are widely used because they combine investment flexibility with attractive tax treatment and inheritance planning opportunities.
Tax efficient investing is the most significant reason that they are considered a key part of an investment strategy for French residents.
Rather than paying tax each year on growth within the wrapper, taxation occurs when money is withdrawn. For long-term investors, this can allow investments to grow more efficiently than they might in a standard taxable investment account.
Once an assurance vie has been open for eight years, withdrawals can qualify for more favourable French tax treatment, including an annual allowance on the taxable gains withdrawn.
Assets held within an assurance vie may receive favourable inheritance tax treatment and can sometimes be passed to named beneficiaries more tax efficiently than assets held outside the wrapper.
Unlike some long-term savings products, such as pensions, an assurance vie does not normally lock your money away until retirement which means you can make additional contributions, withdraw money and choose between different investment options as your circumstances change.
Unsurprisingly, if you do not live in France and have no plans to move to France, an assurance vie is unlikely to be suitable as it has been designed for French tax residents and therefore is treated different once you are a tax resident of a different country.
If you live in France or plan to live in France in the future then assurance vie might be worth considering. Below are some typical scenarios when assurance vie might be particularly interesting for foreign nationals.
If France is likely to remain your long-term home, an assurance vie is often worth considering as part of your overall investment strategy because the longer you remain invested, the more likely you are to benefit from the product's long term tax advantages.
People who want to pass assets efficiently to children or other beneficiaries often use assurance vie alongside wills and other estate planning arrangements. Exactly how this works will depend on individual circumstances and French succession law.
Those with significant investment portfolios frequently use assurance vie as one element of a broader wealth management strategy, tax advantages become increasingly valuable as investment portfolios grow.
If you only expect to live in France for a relatively short period, the long-term tax advantages may never become fully relevant. Other investment structures may be more appropriate depending on where you expect to live next.
Similarly, if you are planning to permanently move away from France in the near future, an assurance won’t continue to provide the same benefits after moving abroad. This is because once you become tax resident elsewhere, different tax rules will apply even though the wrapper itself usually continues to exist.
How the investment is treated from a tax perspective, including withdrawals, depends on your new country of residence and there may be more tax efficient investment options in your new country of residence.
US citizens should exercise particular caution because the IRS taxes its citizens regardless of where they live and many foreign investment products can create additional US reporting obligations or unfavourable tax treatment.
Before opening an assurance vie, US citizens should obtain advice from someone who understands both French and US taxation.
If your objective is simply to keep cash readily available, other savings products may be more appropriate because an assurance vie is an investment product designed for longer term investment.
Ultimately the investments you can make within your assurance vie and how they are made will depend on the provider and the contract you choose. How you invest within your assurance vie will depend on a combination of factors which are primarily balanced between your short/medium/long term objectives and your risk appetite.
Higher rewards often come with greater risk, while stable (but lower) growth will typically come with less risk and more certainty.
Most assurance vie policies offer a combination of two broad investment types which accommodate a range of objectives and risk appetites:
Euro funds are designed to provide greater capital security with lower risk.
While returns are generally lower than higher-risk investments, the value is typically much more stable and are traditionally more popular with cautious investors.
Unit-linked investments can include:
Unlike euro funds, the value of these investments can rise and fall and higher potential returns usually come with greater investment risk.
An assurance vie can hold a combination of euro funds and unit-linked investments, with the appropriate balance depending on the investor's objectives, timeframe and attitude to risk.
Establishing a suitable balance can be difficult and easy to get wrong, so it’s always advisable to get advice from an independent financial advisory who can help you establish what balance would achieve your financial objectives before making any decisions.
The tax treatment of assurance vie is the primary reason that they are so popular, although the rules can become technical and it’s important to understand the tax treatment before making decisions.
While your money remains invested within an assurance vie, investment growth is generally not subject to French income tax.
Instead, income tax becomes due when you make a withdrawal and only the proportion of that withdrawal representing investment gains is taxable. This allows investments to grow within the wrapper without an annual French income tax charge on unrealised gains.
However, French social charges may be collected earlier on some investments, particularly returns from euro funds, where they can be deducted as returns are credited to the policy.
Generally, your investments will grow free of tax.
If you leave France, you can generally keep your assurance vie and, as a non-French tax resident, you will normally no longer be liable for French social charges on its investment income.
However, France may still tax the gain element when you make a withdrawal, potentially at a reduced rate under a double tax treaty.
More importantly, your new country of residence may treat the assurance vie very differently, so its French tax advantages should not be assumed to continue after you move abroad.
When you withdraw money, only the investment gain element of the withdrawal is taxable which means that the original capital you invested is not taxed again.
How much tax you have to pay on the gains will depend on a number of factors including:
French social charges are separate from income tax and are levied on certain types of investment income and gains. For assurance vie, the applicable social charges are currently 17.2% and are calculated on investment gains rather than the original capital you invested.
When the charges are collected depends partly on the investments held within the assurance vie. For euro funds (fonds en euros), social charges are generally deducted as returns are credited to the policy. For unit-linked investments (unités de compte), they are generally collected when gains are realised through a withdrawal or when the policy ends.
This means that although investment growth within an assurance vie is generally not subject to French income tax until you make a withdrawal, it should not be described as completely tax-free while invested because social charges may still apply.
Once you have held the assurance vie for eight years, withdrawals receive more favourable French tax treatment.
For premiums paid since 27 September 2017, gains included within withdrawals made during the first eight years are generally subject to French income tax at 12.8%, in addition to applicable social charges. Be aware that different rules can apply to older contributions.
After holding the assurance vie for eight years, the income tax rate on qualifying gains can fall to 7.5% for the portion associated with premiums up to €150,000.
Gains attributable to premiums above the €150,000 threshold can remain subject to the 12.8% rate. The €150,000 threshold is assessed across the individual's assurance vie contracts rather than separately for each policy.
Also, there is an annual income-tax allowance on gains withdrawn of €4,600 for an individual or €9,200 for a married couple or those in a French civil partnership (PACS) who are taxed jointly.
This means that you can withdraw €4,600 or €9,200 before you pay tax on the gains.
|
Assurance vie age |
Income tax rate |
Social charges (prélèvements sociaux) |
Combined rate |
|
Under 8 years |
12.8% |
17.2% |
30.0% |
|
Over 8 years, qualifying gains associated with premiums within the €150,000 threshold |
7.5% |
17.2% |
24.7% |
|
Over 8 years, gains associated with premiums above the €150,000 threshold |
12.8% |
17.2% |
30.0% |
Please note: These rates apply to the taxable investment gains included within a withdrawal, not to the original capital invested. After eight years, French tax residents can also benefit from the annual €4,600 allowance on gains, rising to €9,200 for married or PACS couples taxed jointly. Different rules can apply to premiums paid before 27 September 2017.
Depending on when contributions were made, the beneficiaries and your wider circumstances, assets held within the policy may receive favourable treatment compared with assets held outside the wrapper.
Under the current French rules, money paid to named beneficiaries from an assurance vie is generally treated outside the deceased's normal estate.
The tax treatment then depends heavily on whether contributions were made before or after the policyholder's 70th birthday.
For the standard rules applying to modern contracts, each beneficiary can receive up to €152,500 free of the special assurance-vie death levy.
Above €152,500, the beneficiary's share is generally taxed at:
Crucially, the €152,500 allowance applies to each beneficiary.
So, for example, if someone has €450,000 in an assurance vie and leaves €150,000 each to three children, potentially the entire €450,000 could pass without this French death levy, assuming the relevant contributions were made before age 70 and the other conditions are satisfied.
That's considerably different from ordinary French inheritance tax, where a child generally has a €100,000 parent-to-child allowance, after which progressive inheritance tax rates can reach 45%.
It's potentially even more significant when leaving money to someone who isn't a close relative. Ordinary French inheritance tax can reach 60% for unrelated beneficiaries, whereas qualifying assurance-vie proceeds use the separate 20%/31.25% regime.
On contributions made after the holder is 70, the rules change significantly.
There is a €30,500 allowance, but this is shared across the relevant contracts and beneficiaries rather than being €30,500 per beneficiary. Contributions above that amount are generally brought back into the inheritance-tax calculation and taxed according to the beneficiary's relationship with the deceased.
However, the investment growth generated by those post-70 contributions is generally exempt from inheritance tax. It's the relevant premiums above the allowance that are brought into the estate, rather than the subsequent growth.
A surviving spouse or PACS partner is generally already exempt from French inheritance tax. As a result, the inheritance tax advantage of assurance vie can be particularly significant when the intended beneficiaries are children, other relatives or people who are not related to you.
Firstly, moving abroad does not mean your assurance vie must be closed and the policy can remain in place after you leave France.
What will change is how your new country of residence will treat the assurance vie once you become a tax resident there, and there are some countries who may recognise the wrapper in a broadly similar way. However, other countries may tax investment gains differently or require additional reporting.
As with any move abroad, you must review all financial assets before moving country rather than assuming any tax advantages will travel with you. This means that the value of keeping an assurance vie after leaving France depends largely on where you move next and your wider financial circumstances.
There is no definitive list of countries with favourable or unfavourable tax treatment of assurance vie, so it’s important to get advice from both a tax specialist and financial advisor to ensure you know how your investments will be treated and what alternatives might exist.
The costs of an assurance vie vary considerably between providers and contracts. Depending on the policy, you may pay an initial fee when investing money, annual management charges, fees associated with the underlying investment funds and, where applicable, financial advice or discretionary management fees.
Some traditional contracts can charge several percent on contributions, while lower-cost and online providers may charge little or nothing for making payments. Unit-linked investments can also have their own ongoing fund charges in addition to the assurance vie provider's management fee.
These differences matter over the long term and should be considered as part of the decision making process. Be sure you always know all the fees and costs before signing any agreements.
If you are resident only in France, have modest investments and straightforward objectives, you may be comfortable researching your options yourself before deciding whether an assurance vie is appropriate.
Professional advice often becomes much more valuable if you have:
In these situations, the question is rarely just whether you should open an assurance vie. It is whether it fits into your wider financial and tax planning strategy.
A financial adviser or tax specialist who understands both French rules and your home country's tax system can help you understand whether an assurance vie is appropriate, how it should be structured and whether alternative solutions may better suit your long-term plans.
If you would like help evaluating whether an assurance vie is appropriate for your circumstances, choosing and setting up a suitable policy, or understanding how it could fit alongside your wider investments, pensions and financial plans, we can introduce you to a financial adviser with experience of working with expats and international finances.
Request an introduction and tell us a little about your circumstances and what you would like to achieve. We'll review your requirements and connect you with a suitable specialist from our network for an initial conversation.
