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Assurance vie: a detailed guide for expats living in France

For expats living or retiring in France, an assurance vie is a tax efficient investment product which should be considered if you intend to live in France for a long time.

Written by E4E Editor on 25 April 2019

For people living in France, assurance vie is one of the most important financial products they should consider. But what is an assurance vie and what opportunities does it provide to people living in France?

For most people, regardless of where they live, improving tax efficiency and effective estate planning are high on the priority list – especially when living abroad.

In France, the Napoleonic code dictating succession law to French residents can go against peoples’ actual wishes. Most people believe that deciding who will ultimately inherit your estate when they die to is a fundamental choice of life and so having succession laws dictated to them can seem a bizarre concept.

It is not always possible to give the perfect inheritance solution to every given estate as for example property can be difficult to distribute as you would have hoped. This is especially true for people that have estates spanning multiple jurisdictions, as many expats do.

Fortunately, for people living in France there are some financial options available, particularly for private investments, that can go some way in helping to reduce future tax bills and in the distribution of your estates when you die – one of which being assurance vie.

What is an assurance vie?

In the simplest terms, assurance vie is a financial product that acts as a tax efficient investment wrapper that contains one or more underlying investments.

Assurance vie are available as a French investment product, but they are also available from Luxemburg, and both products can provide excellent tax advantages to people looking to make investments while living in France.

As a guide, a French assurance vie will cost less, but also offer less flexibility, security and options compared to the Luxemburg products.

Tax benefits of assurance vie

The first point to note is that funds remaining within an assurance vie grow free of French income and capital gains tax meaning that your funds are able to roll up without having concerns of paying these taxes on an annual basis. There is no limit on the amount that can be invested this way. Also, any withdrawal from an assurance vie for example investment income on which to live is taxed in an effective and fair manner.

The authorities will look at any withdrawal and decide how much of any withdrawal was return of the original capital you invested and how much was actual taxable growth again reducing future tax liabilities. If you were to simply leave the money in the bank, you would be taxed annually on any interest made whether you take it out of the bank as income or leave it there to grow.

Tax changes introduced from 2018 have meant that there is a different tax treatment on gains depending on whether the premiums were paid before or after 27th September 2017.

Tax on gains if premiums were paid after 27th September 2017

For gains arising from assurance vie products where the premiums were paid after 27th September 2017, there is a flat rate of 30% tax applied – made up of 12.8% income tax and 17.2% social tax.

The tax allowances of €4,600 for individuals and €9,200 for married couples still applies, but once the allowance has been accounted for, the gains are treated as interest and dividends.

The exception is if the contract duration is eight years or more, in which case the income tax is only charged at 7.5% instead of 12.8%. The exception is if the premiums paid exceeded €150,000 – in which case the full 12.8% income tax is charged.

Tax on gains if premiums were paid before 27th September 2017

For gains arising from premiums paid before 27th September 2017 and once the taxable element of your withdrawal has been decided, over the first eight years of the plan there is a reducing rate of taxation applicable to this withdrawal at source. Years 1 to 4 are at a flat rate of 35%, years 4 to 8 at 15% and years 8 and beyond only 7.5%. In the early years it may well be your actual marginal rate of tax is lower than the withheld rate. However, it is possible to be paid gross and add the withdrawn amount into your tax return so you pay your natural rate. If the withheld rate of tax is lower than your marginal rate of tax then this is of great advantage to you paying a lower rate of tax on only part of any withdrawal.

As an added advantage, after year 8, €4600 can be withdrawn annually free of tax (€9200 for a married couple) and anything over this then subject to the above rules and taxes. Clearly this product therefore can become a very efficient way of generating high levels of investment income whilst keeping tax bills low.

Assurance vie for over/under 70s and inheritance tax

For inheritance, assurance vie offers some further substantial advantages. Effectively assurance vie is a life insurance product it is subject to a different set of rules than your normal estate.

In theory, an assurance vie falls outside of your estate and can therefore be left directly to beneficiaries and not be tangled up in French legal process once you have gone.

As it is subject to its own rules it also offers its own additional allowances.

As long as the policy is established before your 70th birthday you can name as many beneficiaries as you want to the plan each receiving up to €152,500 tax free on death of the assured and anything over this amount only taxed at 20%.

Even if you are over 70, there are also still some advantages to setting up an assurance vie. For over 70s your beneficiaries will not receive the above allowances, however, the first €30,500 will still be tax free.

 

It is also important to remember that only the amount you paid into the policy is subject to tax and any gains made within the policy will be tax free.

What is the difference between an assurance vie from France and one Luxemburg?

There are a few main differences between French and Luxemburg assurance vie listed below:

  • The minimum investment amount for a Luxemburg assurance vie is €50,000, while strictly speaking there is no minimum for the French product
  • A Luxemburg assurance vie is available in multiple currencies, while a French product is only available in Euros
  • Luxemburg assurance vies contracts and agreements are available in English, while French products are only available in French
  • You cannot transport a French assurance vie, but you can with a Luxemburg product

A Luxemburg assurance vie is typically more expensive than a French product, primarily due to the flexibility on offer. A Luxemburg assurance vie will normally cost around 2.5% NET of the total investment amount.

Frequently asked questions about assurance vie

How do I avoid paying French tax on my investments?

Investments in Assurance Vie grows free of tax, while the income you receive will be very tax efficient.

Do I have access to my money?

If money is required it is possible to get access. However, as with any investment, this should be viewed a medium to long term investment options.

Which is the better option: a French or Luxemburg assurance vie?

As with any investment, the best option for you can only be determined by a qualified advisor who would be able to establish your most suitable options based on your personal circumstances.

Do I have to invest in euros?

The jurisdiction of the Assurance Vie will determine whether you can invest only in euros or alternative currencies. At this time, a French assurance vie is only available in euros, however assurance vie from Luxemburg are flexible which means that you can invest in euros, sterling or US dollars.

Is the paperwork going to be in French as I need to be sure I know what I am agreeing to?

This will depend on the jurisdiction of the Assurance Vie itself. All French Assurance Vie agreements and contracts will be written in French. However, Luxemburg Assurance Vie agreements can be written in English.

I don't want to take investment risk with my money?

Assurance Vie is a way of holding money not an investment style. Your portfolio will be held in accordance with how you want your money invested. This could range from capital value guaranteed to high risk funds. Before making your decision your financial adviser will conduct a risk assessment on your situation and make a recommendation, however it is still your choice and should be based on your views and needs.

What happens when if I die with money invested in Assurance Vie?

You name who you want to get the funds when you go when setting up the plan or at a later date. Each named beneficiary will receive 152,000 euros tax free with anything over this amount only taxed at 20%. There is no inheritance tax in France between husband and wife or PACS couples.

How did Assurance Vie come about, is it legal?

Assurance Vie is the solution the French have developed to the financial problems they face and are the same financial problems you face as a French resident. It is a cornerstone of French financial Planning and the default investment option of a huge swathe of the French investment market for the tax and inheritance advantages it offers.

Typical examples of how assurance vie works

Take two examples:

1. Mr Smith dies equally leaving €450,000 to three children in an assurance vie. Each would receive €152,500 free of tax and leaving their full circa €100,000 inheritance allowances to be offset against say their deceased Father's property. If this money had simply been in the bank then the full amount would have fallen directly into their Father's estate, used up all of the children’s inheritance allowances and seen a massively increased inheritance tax bill.

2. Mr Clark leaves €200,000 to his step child in an assurance vie plan as he has no children of his own. This would in simple terms see a 20% tax bill on €48,000 being €9,600 total. Imagine the situation where this money was in the bank and would be for the most part subject to a 60% inheritance tax charge as there is no blood line between the two parties giving a tax bill in the region of €120,000 and making the French tax man the biggest beneficiary.

A few final thoughts about assurance vie

Assurance vie offers French residents a tax efficient way of investing/withdrawing money with distinct inheritance tax advantages.

What needs to be remembered is that an assurance vie is simply a special "wrapper". It is not in itself an investment fund or style, it’s a blank piece of paper where an individual can establish a portfolio of investments within a tax favourable environment.

Investments made can range from low risk through to high risk depending on an individual's attitude to risk and their long-term expectations and needs for these funds are.

Luxemburg plans can be held in Euros, Sterling or Dollars so a trade into Euros is not obligatory if you have for example Sterling funds and wish to remain in this currency. Further, many of these plans are also tax compliant should you move elsewhere within Europe as an example back to the UK later.

If you are a foreign national living in France, assurance vie should be a key investment consideration especially if you are anticipating living there for the long term.

Connect with an independent financial advisor to get unbiased advice about assurance vie

If you would like more information about assurance vie, we offer a free introductory service to a qualified financial advisor who will be able to provide independent advice to you about assurance vie, along with other financial matters.

This service is ideal for British expats (and other foreign nationals) living in France – or French nationals living overseas.

As part of our free introduction service, the advisor will provide an initial free consultation that will provide general guidance about your situation and answer any questions you have about assurance vie.

Following the consultation, you will be able to decide whether to formally engage the financial advisor, following which they will detail their fees, services and offer to conduct an investigatory risk analysis on your situation. They will then be able to produce a report that details your options in full and enable you to make a qualified decision about an assurance vie as well as any other options they have presented to you.

Connect with a fee based independent financial advisor

Our free introduction service will connect you with a hand-picked independent financial advisor that fully understands assurance vie and can help with your financial planning, investments and retirement plans.