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Money talk: The advantages of getting an Assurance Vie in France

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Money talk: The advantages of getting an Assurance Vie in France
14:55 CET+01:00
For people living in France, the Assurance Vie (life insurance) is considered one of the best ways to invest money and organise your inheritance. Here, financial advisor Johanna O’Brien answers some common questions about an "Assurance Vie" and its potential advantages and disadvantages.

Johanna O'Brien is an independent financial advisor with Beacon Global Wealth Management.

What is an Assurance Vie?

The Assurance Vie is essentially a life insurance wrapper that holds investments.

What 's the best thing about it?

The Assurance Vie has specific tax rates and grows tax free so it is one of the best ways to hold and grow investments.

It is one of the most versatile and efficient tax structures France has to offer and all withdrawals from the policy are treated in two halves; return of capital and profit; the latter is taxable. The offshore versions can also hold different currencies which is great for those who want to hold onto sterling for the time being.

What can the policy be used for?

It’s a great tool to be tax efficient, grow investments tax free and has huge inheritance advantages, especially for those who perhaps have step children or other relations they want to leave something to. You can actually add life insurance to the policy also so an additional sum is paid out after death.

Is an Assurance Vie good if I just want to save money?

If you have an initial lump sum to invest you can then use this as a savings vehicle. There are also smaller policies where you can add a regular amount.

Can anyone invest in this type of policy, foreign residents too?

Only French tax residents can have an Assurance Vie, this includes expatriates living in France, or they will not benefit from the low taxes if resident in another country.

What are the downsides of an Assurance Vie?

To receive the full benefits of this type of investment it should be set up before the age of 70. If set up after 70 the tax allowance for inheritance is only €30,000 in total and therefore the inheritance benefits are limited.

How does the taxation of an Assurance Vie work?

Investments held within the wrapper are not subject to capital gains tax or income tax while the funds stay inside the policy and no withdrawals are made.

Even when money is withdrawn, it is seen as a return of capital and only the growth element is subject to tax.

For example, if your policy has grown by 5 % and you draw €5,000 only €250 of the €5000 will be taxable at a flat rate of 30%.

So €250 x 30% = €75 tax payable.  

You may choose to pay income tax at your marginal rate, but, most will find that the 30% flat tax rate is a cheaper option. 

Once the policy is over 8 years old it offers even lower taxes, plus an annual allowance of €4,600 per person income tax-free per year, or a €9,200 per couple annual tax allowance, then a reduced flat rate of tax at 24.7% as long as the policy is under €150,000 in value.

And what about using an Assurance Vie for inheritance planning?

In France the rules of Droit de Succession dictate to whom we must leave our estate, the line starts with the children first and favours the children over a spouse, even if this goes against our wishes in our will. 

An example of how the Assurance Vie can be used to lower inheritance tax, would be a stepmother who would like to leave part of her estate to her 3 stepchildren, she may leave €152,500 per beneficiary tax-free.  

Had she not used an Assurance Vie, the tax liability for her stepchildren would have been 60 % each with a tax exemption of only €1,594 per person and a large inheritance bill totalling €279,755.

 Where are they available and what is the best type of Assurance Vie for an expatriate?

They are available in France and offered as an International Assurance Vie in Ireland and Luxemburg. The French ones only offer a solution in euros and the international version offers different currency options and is fiscally compliant within the French tax system.

At Beacon Global Wealth we often recommend for our clients an International Assurance Vie as it is more portable and more flexible. It can often change tax jurisdiction when you move between countries in Europe.

An Assurance Vie set up through a French Bank can often generate a lower return, than a policy arranged by an independent financial adviser, as banks generally work with a limited range of funds, these types of policies are inflexible and are typically for people who will remain in France and not for expatriates who may move back home.

The information contained here is only intended as introduction to Assurance Vie. If you would like more information and advice geared towards your own personal situation you can contact Beacon Global Wealth Management.

 

 
 
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