Misinformation, not just a problem for politicians?
By Spectrum IFA
This article is published on: 14th May 2015
Oh my, what to talk about this week? Whatever you do, don’t invest in opinion polls. Amazingly, we already have a new government; non-committal about staying in Europe, but firm on staying out of the Euro, and we have an EU country, Greece, firmly committed to staying in Europe, but possibly about to be forced to leave the Euro due to profligate bankruptcy. Actually not only bankruptcy, but the next stage on from that; running out of friends, or in fact anyone, who will now lend them money. This is beginning to look like a one way street for the Euro, but beware. Nothing is ever as clear cut as it seems.
Misinformation. Clearly a problem for politicians, but a big problem for us too. What I want to talk about today is the worrying number of new clients that I’ve seen so far this year who have previously accepted financial advice that is clearly flawed. If you took advice on investments before you came to France, or maybe have sought advice from unregulated sources since you got here, you may well be the proud owner of an offshore bond. If this sounds like you, then please keep on reading. You have the wrong investment for successful tax efficiency in France, and it can have severe consequences.
Don’t get me wrong, there is nothing illegal about holding a Jersey or Isle of Man domiciled bond in France, as long as you declare it to the ‘fisc’, but you may well be in for a nasty surprise when you start to draw money as regular income or one-off cash injections. And whatever you do, don’t die. Not that it will bother you too much at this point, but it will only add to the consternation of your beneficiaries if your local tax office turns its nose up at your non-European, definitely non assurance vie bond.
If your bond is not a true assurance vie, it will not be set up to jump through the tax hoops that the French tax system presents. How do you tell if your bond will be able to jump through the hoops? Well, you’re off to a good start if you talk to a regulated and approved adviser registered in France, who offers you an assurance vie. This must be compliant. Anything else, and you should start to worry. There are a few ‘litmus’ tests you can use. The first is elementary geography. Is your bond issued in Europe? If not, forget it. You do not have an assurance vie, or anything like it. Secondly, ask your bond provider if he will be able to give you certified tax information to enable you to make your French tax return. Unless you can be completely satisfied that you will be told exactly how much of your withdrawal is taxable, in Euros (even if the bond is in sterling), you have a problem, and you have the wrong bond. You will pay more tax on the gain and you will lose out on various other benefits than if you had structured the exact same underlying investments inside an assurance vie. You have, in short, been badly advised. This is not necessarily through deceit or bad practice, but almost certainly through ignorance; both of the French financial system and of its products. Most likely the advice will have come from a UK IFA trying to keep a grip on a client moving abroad, or an international IFA operating outside of his usual area.
Help is available. Spectrum financial advisers are registered and regulated in the countries in which we work. Unlike back in the UK, we do not charge for our advice or time. Taking advice from registered advisers is a no-lose situation. You will get good advice; you won’t be hassled or coerced into doing anything at all that you’re not entirely comfortable with, and you won’t be charged.
A good way to meet advisers is to attend a financial seminar, such as those currently taking place under the ‘Le Tour de Finance’ banner.
You must, in short, satisfy yourself that your financial adviser is qualified to advise you about the conditions that exist in the financial regime in which you are going to live and pay taxes. There are various loopholes that allow non France-based IFAs to operate here from a number of European countries. Please make sure that you choose an IFA who lives and works in your local community.
You have two such advisers writing for the ‘Flyer’ at the present time. Why on earth would anyone in their right mind rely on an IFA in Chipping Sodbury or Crete to advise them on the most important financial decisions of their lives?
Tax efficient saving in France with Livret A & Assurance Vie
By Amanda Johnson
This article is published on: 17th October 2014
When I was a UK resident I was able to take advantage of tax free savings schemes. Are there French products that will allow me to save, tax free, now I live in France?
There are two main tax efficient saving products you can take advantage of as a French resident, Livret A & Assurance Vie.
Livret A is a deposit based account which all banks and the post office offer. It gives you instant access however this is balanced by a modest rate of interest of around 1% p.a. There is also a maximum amount of 22,950 Euros per person you can hold within a Livret A.
An Assurance Vie is an investment which again all banks and financial institutions here in France offer.
I have written about this before yet I think a reminder of the important aspects of the mechanism of “assurance vie” is probably in order here:
- An Assurance Vie (“AV”) is a type of insurance however unlike a life insurance policy you may have experienced in the UK, these policies shield any investments from virtually all forms of tax while the funds remain inside the AV. (some funds receive dividend income that has had withholding tax deducted).
- AV’s become more tax efficient over time. After 8 years funds can be withdrawn from the AV and taxed at just 7.5% on the gain element only. Funds can be accessed at any time before that, with the gain declared on your annual tax return. Standard social tax remains payable on all gain, but only when drawn.
- After eight years your gain is not only tax efficient, but it can be offset against a tax free allowance of (currently) €4,600 per person (€9,200 per couple) per annum. I would be happy to run through this with you as part of a free financial health check.
- AV policies are not subject to succession law. Proceeds from an AV policy can be shared amongst any number of beneficiaries. Although the succession tax benefit is reduced when the subscribers are aged over 70, there are still worthwhile benefits to be gained in this area.
What should I ask for in an Assurance Vie?
- Portability – Can I take it with me if I move back to England or to another country?
- Regulation – Is the company advising me on an Assurance Vie regulated in France?
- Fees – No up front entrance fees apart from the money I use to establish the policy?
- Social Charges – If & how are Social Charges applied to my AV ?
- Currency – Can I invest in Sterling? Euros?
Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
CGT and social charges applied to rental income and investments in France
By Amanda Johnson
This article is published on: 14th September 2014
I often get asked to explain how French Capital Gains Tax is applied and when & if they can expect social charges to be levied on their investments. These are two very interesting areas for expats:
Capital Gains tax
A capital gain arises when an asset has been sold for more than it was originally bought for. For example if you originally invested £50,000 in a unit trust and now sell it for £75,000. Your gain is £25,000 and therefore has a potential liability for Capital Gains Tax. Different levels of relief apply depending on how long you have held this investment, so not all of the gain is subject to tax.
Capital Gains Tax is also due is when a house is sold for profit which isn’t your primary residence. You may live in France permanently in rental property however, if you have sold your UK home and made a profit, this profit is subject to Capital Gains Tax in France. This applies even if it is the only property you own. Again there are different levels of tax relief depending on how long you have owned the property.
There are tax efficient investments and savings for expats that shelter your liability to capital gains and now you are living in France you should be taking advantage of them.
Social Charges
Social Charges are applied to all income, irrespective of where it is earned. There are as several exceptions to this, namely Government & UK State Pensions. If you rent out property in the UK, although you may pay your income tax in the UK you will have to pay Social Charges on the income in France. Social Charges also apply if you receive an income from savings, investments or a private pension.
There is a double taxation treaty in place which means you won’t pay income tax twice when you complete your tax return here in France but income tax should not be confused with Social Charges.
Social Charges can also be charged on certain Assurance Vies’ and this depends on the type of fund that you are invested in. If your Assurance Vie is invested in a Fonds en Euros, where growth is physically applied periodically, social charges will be due. This is not the case on several other Assurance Vie options, where social charges are only levied once a withdrawal is made & only apply to the gain proportion of the withdrawn amount.
If you have existing investments whether in France or in the UK it is worth contacting me to chat about the most tax efficient way to hold your savings and keep the tax you pay to a minimum.
Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please contact me below and & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
Inheritance and expats living in France
By Spectrum IFA
This article is published on: 4th August 2014
Quite a few of my meetings with clients new and old recently have focussed on the thorny issue of inheritance. I think most of us are aware that this can cause problems for expatriates living in France. More recently some of us seem to think that the problem is about to go away. It isn’t.
What is true is that we will be able to adopt the laws of succession of the country of birth over the country of residence from August next year. What we have to realise though is that although this is indeed a relaxation of the strict Napoleonic succession code, there are no plans to change the taxation structure that goes with it. Whilst we will then be free to write estranged children (a sad but relatively common problem) out of our Wills, leaving substantial amounts of money or property to non-blood relatives will arouse glee in the ‘fisc’ as they will pick up 60% tax on the vast majority of it.
At this point many of you will be expecting me to veer off on my favourite tangent and harp on about how assurance vie can be the answer to all these ills, but I’m not going to. If that disappoints you, please feel free to drop me a line and I’ll rectify that situation.
Instead I’m going to stay on inheritance, because there are a few other aspects to this inevitable situation that some of you aren’t sure about. At present, children are ‘reserved heirs’. They enjoy special rights, and they have relatively generous tax free allowances that they can use from both parents. Rather unfairly though, step-children do not share these rights. If you die and leave an estate to your stepson or stepdaughter, he or she will pay the full tax rates, with no child tax free allowance.
Another inheritance issue that trips some of us up is what happens when we inherit from our own relatives. Succession tax is payable by a French resident who receives a gift or inheritance and who has been resident in France for at least 6 out of the 10 previous tax years. That’s the bad news. The good news is that under specific provisions laid down by the UK/France Double Taxation Treaty, we are exempt from this tax law as long as the relative was not also a French resident. So if we inherit from a parent, or in fact from anyone who lived in the UK, we do not have to declare this for tax purposes in France. If that benefactor was a French resident though, be prepared to fork out a substantial amount in succession tax.
These are just three of the common areas of confusion that I come across regularly in my discussions with clients. There are many more complicated issues that need to be addressed if you want to have a trouble free transfer of assets when you or your loved ones die. This can be a self-educating process, especially if your family circumstances are relatively straightforward. If not, the best person to approach to establish the facts is your notaire. If your French isn’t up to it, find a notaire who speaks English. There are plenty of them about.
In many cases your financial adviser should be your next port of call, specifically to put in place financial strategies that can help circumnavigate many of the problems. Assurance vie will probably figure highly in this process. It is the ‘aspirin’ that cures many a financial headache.
Do I have to pay French Social Charges on my Assurance Vie?
By Amanda Johnson
This article is published on: 14th April 2014
Under the most recently approved & ratified legislation the French Government announced that certain Assurance Vie’s should be subject to annual social charges of 15.5% for gains on the investment and this charge is to be deducted at source.
This is not the case for every Assurance Vie in circulation however, so it is worth reviewing any Assurance Vie you hold to understand whether yours will incur this additional taxation.
This amendment here in France, coupled with recent UK budget changes around private pensions may make now an ideal time to have a free financial review. I am happy to sit down with you, at a convenient time and consider your current situation in France. We will cover:
- changes in legislation
- inheritance tax planning
- current investment returns
- achieving maximum tax efficiency
- pension planning & options
At The Spectrum IFA Group, we believe that regular face to face reviews are important to ensure that your financial situation is aligned to your current needs and plans, so if you have not considered your position recently, the month of May could be a good time to remedy this.
Whether you want to register for our newsletter, attend our June road show in San Loup sur Thouet, or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
Delaying Savings
By Peter Brooke
This article is published on: 12th April 2014
No one wakes up in the morning and thinks, “I must start my pension planning today.”a “I must start my pension planning today.” I’ve not even done that, and it’s my job! Perhaps if someone had pointed out to me 15 years ago what the impact this thought process may have had on my own financial future, I may have listened and (may have) done something about it.
Let’s consider the rather simple examples of two people who joined the yachting industry at the same time, with similar careers, but different saving scenarios.
Scenario 1: James took his first job as a deckhand at the age of 23, earning €2,000 per month. His income went up by a healthy five percent each year, every year until he left yachting at 45 with a final salary of €7,300 per month.
From the very start of his career, James invested 25 percent of his salary every year. This means that by the end of his yachting career, he had earned a total income of €1.25 million and had put aside €310,000. He had managed to achieve an average annual growth rate of five percent on his invested money, which meant his savings pot was now worth €495,000. If he leaves this to grow for another 15 years before using it as a pension scheme, he will retire at 60 with a fund of just over €1 million — a very healthy fund.
Scenario 2: John had a very similar career, but only started saving 25 percent of his salary after being in the industry for 10 years. Even though he still had earned €1.25 million over his career, he only had put away €225,000, which, with the same growth as James, was now worth €290,000 due to the lesser amount of time to compound the growth. Leaving this amount to grow for another 15 years would give John a pension fund of €600,000 — quite a bit shy of James’s healthy fund.
In the real world, yachting salaries rarely grow in a straight line, but this simple example shows how delaying the start of a long-term savings program has a massive effect on your long term wealth and control. In order to retire with the same fund as James, John would have to save approximately €1,500 per month, every month from when he leaves yachting. If he is now working on shore, this could be difficult to achieve as costs normally not associated while aboard will now be added, such as rent, food and every day expenses.
It’s interesting to note that James still actually spent more than €930,000 over his 23 years in yachting, which is an average of €3,400 per month for that period. Are there many yacht crew who actually spend this much on living costs, and if not, could he have saved even more for his long-term future? The answer is obvious.
Swedish and living in France
By Tim Yates
This article is published on: 19th February 2014
“I wish I had known about this five years ago when I moved here!”
The subject of this quote from one of your compatriates was “Assurance Vie” (AV) but more of this later. If you attended our seminar at Villa Ingeborg at the beginning of November you will know all about it. If you are tax resident in Sweden and just have a holiday home here in France then it is largely irrelevant to you and you can stop reading now – unless of course you plan to move here permanently at some time in the future.
Many people are hesitant about spending too much time here, and therefore becoming tax resident (even if you would like to make this your home), because the perception is that the tax regime in France is punishing. This is a valid perception if you work here and your income is “earned” income because the social charges are high. However if you are retired and your income is derived from pensions and investments then you could be pleasantly surprised to find out that actually your tax and social charge liability is not as high as you thought it would be – particularly if you take advantage of the various tax efficient opportunities that exist here in terms of structuring your wealth.
If you live here and are tax resident here then AV is definitely something you should be aware of and be familiar with because it could save you a substantial amount of money.
If you have decided to live and work, or have decided to retire, here in France it probably means you are financially comfortable. That being the case you have probably commissioned your bank and/or a financial adviser in Sweden to manage your money in an investment portfolio. They are undoubtedly doing a good job for you (otherwise you wouldn’t still be using them) and they are investing your money wisely. You are holding a well diversified portfolio with exposure to equities, bonds and all the other asset classes. The problem you now have is that your adviser is now suggesting you sell something that has given you substantial capital growth. Whilst you have no need to take the money out of your portfolio to spend never the less if you follow their advice you will have a significant capital gains tax liability on the sale. You could have “wrapped” your investment portfolio in such a way that would have meant that you wouldn’t have had any tax liability until you decided to take the money out of the portfolio to spend it – and even then it would have benefitted from a lower rate of tax depending on how long it had been wrapped.
That seems too good to be true? – I hear you say – and what happens if the rules change. It is true that the French government could change the rules and it is rumoured that they will reduce the tax benefits of assurance vie (AV). However it is highly unlikely it will be retrospective and to understand why we need to look at when and why this all started. Back in the 1970’s most western European governments wanted to encourage families to take out life assurance to ensure that, on the death of the income earner, the family was not going to be a financial drain on the state. To do this they introduced a preferential tax regime for life assurance policies.
However they didn’t define life assurance quite as precisely as perhaps they intended. You have life assurance that is pure protection – i.e. you pay your premium each month but it has no value during your lifetime but will pay out a lump sum when you die to make sure your family are financially looked after on your death. You also have life assurance investment plans where the money you have put into them is always available to you during your lifetime but on death will pay out 101% of the value of your investment portfolio. This extra 1% means it qualifies as a life assurance policy and a preferential rate of tax is applied to the proceeds on death. This was clearly not the intention so why haven’t successive governments not closed this “loophole” where you have an investment portfolio masquerading as a life assurance policy? The simple reason is that politicians generally will not do anything to disadvantage themselves and their families even if this means compromising their ideological principles. There are 22 million AV policies in France and it is highly likely that all the members of our present government will have some of their capital wrapped in one.
There is another advantage of having your assets wrapped in an AV policy – unlike unwrapped assets they do not have to follow the French forced heirship rules. If you want to leave your estate to your spouse then you can if it is AV wrapped. Otherwise if you have one child they have to inherit half of your estate. With two children it is 2/3 and with three or more children it is 3/4 divided equally between them. This may not be a problem for you but whilst everything you leave to your spouse is tax free only the first €100,000 you leave to each of your children is free of tax. If you have re-married and have children from a previous marriage then it gets really complicated because anything your children from your previous marriage receive from a “step parent” is liable for 60% tax as there is no blood relationship between the two. With AV wrapped assets you are free to leave them to whoever you choose and the tax they pay (if it is not a spouse) is not determined by how closely related they are.
The bottom line is that investment management is only part of wealth management and that what you have done in Sweden, in terms of structuring your investments, to mitigate tax may not be as tax efficient in France. Clearly assurance vie is more complex than I have space to cover comprehensively in an article like this. However if it is a subject that is of interest to you please contact me and I am more than happy to detail how it could be relevant to your financial planning and remember that existing portfolios can be wrapped without you having to sell everything and then buy it back.