I hope you all had a good summer. We spent ten days in Andernos and then enjoyed a much cooler ten days visiting family in the UK. Whilst I was in the UK I saw an advert in the paper for a bank savings account offering around 5% interest on amounts up to £50,000.
Financial update – France September 2023
By Katriona Murray-Platon
This article is published on: 4th September 2023
However, I noticed that in order to benefit from this rate you would have to commit to leaving the money there for two full years otherwise if you took the money out you would only get around 2% interest. A quick scan of the finance section of the paper showed similar offers. Now, leaving aside the fact that once you are French resident you can’t open a UK bank account, with inflation in July being 6.8% in the UK these rates are still far below inflation. IF you were to have one of these accounts and be a French resident you would need to reduce the interest rate by 30% because that is the French tax that you would have to pay on any gains. Also there is exchange rate risk that needs to be considered.
Some other accounts were brought to my attention in Jersey. However there is no double tax treaty between France and Jersey so any interest earned would be taxable in both countries.
I always advise people to take advantage of the French tax free savings accounts like the LDDS and the Livret A and the LEP if you meet the income threshold BEFORE investing. If you add the CEL account to this list it effectively means you can hold around €50,000 readily available cash earning tax free interest. These rates are reviewed quarterly on 1st of February, May, August and November. You will be pleased to hear that there have been no changes to these rates as at 1st August 2023.
One of the key points about investments is diversification. Not only are the investments we recommend very diversified in terms of geographic location and asset class but if you have invested with us this is usually only a part of your assets.
All investments whether it is your house, your bank accounts, or your other investments, involve some level of risk. You only have to look at the history of the rates on the savings accounts HERE or the current concerns about house prices and mortgage rates in the UK, to see that nothing is guaranteed in the long term. But what we can show you from the past performance of the investments we offer is that over the past three or five years they have performed well. And the longer the investment term, the greater the likelihood of strong, positive returns ahead of the rate of inflation.
Another thing we managed to do at the end of July was to complete our wills and make stipulations about the guardianship of our children. I wrote about guardianship HERE but I admit I never got round to doing anything about it until now. The husband of a French financial adviser that I recently met is the Notaire in an office in our neighbourhood so we were able to make an appointment with him. We hand wrote our wills before the notaire, signed and dated them and then handed them in with a cheque for them to be registered. It was all very easy and I’m glad that it is now sorted.
By now you should have been able to view your tax statements in your online tax account, if you have any questions about the figures please do let me know.
After a long and much needed break, I am excited to be back at work and arrange appointments with my clients and those who have contacted me. If you want to speak to me about something please do let me know.
Looking forward to speaking or hearing from you soon!
Preparing for the inevitable
By Richard McCreery
This article is published on: 4th September 2023
A few tips on how planning ahead, as well as looking back, can make a difficult time much easier on our loved ones. It comes to us all, but we devote relatively little time to thinking about it: death.
Unsurprisingly, most people prefer to avoid thinking about their own mortality, but they are keen to ease the pain for loved ones who are left behind. In this short article I’ll take a look at some tips to make this time a little less hard on your family and I’ll even give you an idea of how you can leave behind a moment of happiness for your closest relatives.
Make ‘The Folder’
My colleague Gareth Horsfall has written about the importance of ensuring your paperwork is in order and stored where your relatives can find everything they’ll need to get through the formalities that inevitably ensue from your passing. The Folder is a central location (digital, physical or both) where you keep a record of all your assets, your bank accounts, your pensions and investments, as well as a copy of all your important documents like birth certificates, marriage certificates, your social security number etc. And, finally, a list of all your internet and device passwords, of which there could be a lot!
Modern life can be extremely complicated whilst we are still alive and it becomes even more so when you have to deal with someone else’s affairs that may not be entirely familiar to you. By collecting all the important paperwork and information in one place, you can ease the inevitable administrative burden and show your loved ones that you were thinking about them. And don’t forget to tell them where they can find The Folder.
Close old overseas accounts and companies
I was once asked to help the wife of a client to deal with some of the inheritance formalities that were required for the settlement of his estate after he died. Wealthy people often have assets in various countries and this can lead to significant extra time and expense when attempting to transfer everything from the deceased’s estate to the beneficiaries.
For example, the ownership of a British Virgin Islands company can’t be transferred to someone else before probate is granted in that jurisdiction, which entails securing the services of a local qualified lawyer. If that company is no longer needed once the deceased is gone then further fees will be incurred in BVI for closing that company. Multiply this scenario across various foreign jurisdictions and it can become quite costly and time consuming in order to settle the full estate.
Conclusion: if you can simplify your affairs by closing underutilized overseas companies or dormant bank accounts, it can save your family a lot of hassle and money later.
Avoid paying more tax than is necessary
Ironically, inheritance tax is a fact of life. It is often only considered when it has to be paid and it can be surprisingly substantial – in France a house can swallow up any allowances you may benefit from, leaving the remainder to be taxed at up to 45% for children and up to 60% for non-family beneficiaries. By using an assurance vie policy as a vehicle for managing some of your wealth you can substantially increase the tax-free sums your loved ones inherit, they may pay a lower tax rate on the amount that is taxed, you can use the beneficiary clause to choose who gets what and the money can grow free of tax during your lifetime if not withdrawn.
Everyone hates paying inheritance tax, so when you know that your children can inherit an extra 152,500€ each tax-free if the money is coming from an assurance vie policy, it quickly becomes apparent how much you can save them (don’t forget: in order to get the maximum benefit, you should start your policy before you turn 70). They say there are only two things that are certain in life: death and taxes. Whilst you can’t avoid the first, your family might avoid the second with a bit of foresight and planning.
Finally, leave them something really personal
You’ve finished tidying up the loose ends of your life, you’ve done all you can to minimize the tax your family will pay and your affairs have been put ‘in order’. You have made every effort to ensure your passing will be as little of a burden on your beneficiaries as is possible, you have made a difficult time less difficult by thinking ahead. There is also a way to use this moment to bring some joy into the lives of those who love you: by thinking back on your life.
A memory journal is a little treasure that helps you to record some of the most precious moments of your life, to be passed on to your children or grandchildren. It is a guided book that contains prompts and questions such as ‘How did you meet my mother?’, ‘What was your favourite subject at school?’, ‘Tell me about the happiest or greatest memories of your life’ or ‘What did you feel when you first saw me after I was born?’ It gives you the opportunity to leave your family the story of your life, your most intimate thoughts and feelings, perhaps alongside a few photos.
Money and paperwork are important, they have to be dealt with. Put everything in order, in advance, and you will be doing your family a big favour. Leave them as much money as you can tax-free and you’ll ensure they will be better off. And finally, a few of your own words left alongside the admin makes this difficult time more bearable. These things are easily put off, you may not even want to think about them, but if you take action sooner rather than later, I promise you will never regret it.
If you would like to speak me about planning ahead and putting your family affairs in order, please get in touch. I’m here to help and happy to answer any questions with no obligation.
Quarterly financial market update 2023
By Peter Brooke
This article is published on: 4th August 2023
This update is a look back at 2022 and the year so far in 2023! I believe that 2022 was one of the toughest years of the 25 of my career in terms of the very difficult conversations I had with many of my clients. Those 25 years included the DotCom Bubble, 9:11, the invasion of Afghanistan, the second Iraq war and the Global Financial Crisis.
2022 was different for one main reason… it seriously affected Cautious and Balanced investors and as most of my clients are retired and therefore dependent on their capital for income, it means they need to take a more cautious or balanced approach to managing their money.
So what happened?
At the start of 2022 markets were pricing in a low to moderate increase in interest rates for the whole year, how wrong they were … in fact, the US Federal Reserve raised rates by 4% in 2022 and have carried on into 2023 and many other central banks followed suit.
When interest rates rise, the values of government and corporate bonds fall but long-standing portfolio theory states that bonds must always make up a large part of cautious portfolios, hence the very difficult year for cautious investors. Equities (shares) didn’t fare much better but have shown a faster recovery towards the end of 2022 and into 2023.
This chart shows four different typical risk profiles over the last 2 ½ years taking in the recovery from Covid to the inflation spike, invasion of Ukraine and the year so far. Highlighting the tough times that cautious (green line) and balanced (orange line) investors have had over the past few years.
So why did this happen?
Inflationary pressures had started to build up as economies reopened after the Covid pandemic. Supply chain disruption during the pandemic created shortages, which collided with a sudden increase in demand. An under-investment in energy, particularly fossil fuels also contributed to inflation through higher oil and gas prices.
The war in Ukraine shifted this inflation problem to a full-blown cost-of-living crisis. Central banks were slow to act initially, thinking it was all linked to the pandemic, but it soon became clear that rising prices would be more persistent than expected. Central banks had no alternative but to raise interest rates.
Financial Markets in 2022
2022 was a year most investors would rather forget, with bond and equity markets seeing significant falls and uncomfortable volatility. Importantly, holding a portfolio of bonds and equities provided little protection, as both asset classes proved correlated to high inflation.
The year also saw a considerable rotation from “growth” to “value”, ending the long dominance by the technology sector. In particular, many of the stock market darlings of the previous decade saw weakness – Meta Platforms, Amazon, Alphabet and Netflix. At the same time, investors had assumed the strong performance of areas such as e-commerce during the pandemic would persist in a normal environment. It didn’t, earnings fell and share prices were hit hard.
Energy was the only obvious victor at a time when commodity prices were high, though share price rises slowed in the second half of the year as governments demanded a share of their windfall profits. Nevertheless, the sector remained the best performing of 2022.
The UK stock market outpaced most of its international peers due to a bias in the year’s most popular sectors such as mining, commodities, oil and gas, and the shift away from growth sectors such as technology, which are only lightly represented in UK equity markets.
It was a grim year for bond markets, which had to contend with rising inflation and interest rates. Where the US led, other bond markets followed. The UK has its own idiosyncratic problems, when an ill-judged ‘mini-budget’ under new Prime Minister Liz Truss in September 2022 crashed the pound and caused a spike in UK borrowing costs.
As discussed above, rising yields meant significant losses for investors. Most bond investors saw double-digit falls in their bond investments over the year. It may be little reassurance, but bond prices have recovered from those lows and yields are now at more reasonable levels reflecting the interest rate environment more accurately. They may once again be able to fulfil their traditional role in portfolios – as a source of income and a diversifier from equities.
Financial Markets so far in 2023
So, with this backdrop and a difficult year behind us how have things fared so far in 2023?
Firstly, the gloomy scenario envisaged by many economists at the start of the year has not come to pass. The much-anticipated US recession has been deferred, while financial markets have remained resilient.
The IMF is now predicting a rise in global growth for 2023 though much of this growth won’t becoming from developed economies while emerging markets economies are expected to expand led by China and India.
Inflation has come down but has proved far stickier than many expected, with labour markets remaining healthy across most major economies. This has forced central bankers to continue raising interest rates. While the US Federal Reserve appears to have paused with central bank rates of 5.25%, the UK and eurozone central banks are still raising rates and have indicated further rises may lie ahead.
Financial markets have been resilient. The disruption created by the collapse of several banks proved short-lived, with swift action from policymakers and regulators preventing wider problems.
The US stock market has seen a surprising surge from the technology sector. After a grim year in 2022, against expectations, they roared back in 2023. The galvanising force has been generative artificial intelligence, with excitement around Chat GPT creating interest in semiconductor companies such as Nvidia as businesses look to invest in this new technology.
The US economy continues to deliver mixed messages. A buoyant labour market has continued to reduce expectations of a deep recession.The Fed has remained resolute on interest rates, although it paused rate rises in June, it has made it clear that it is willing to raise them again should inflation continue to rise.
Recession appeared an inevitability for the UK economy at the start of the year. As it is, it has not materialised, with falling energy prices, government support and a resilient consumer all acting to shore up growth. Inflation has remained stubbornly high and so the Bank of England has been forced to keep raising interest rates, which are now expected to peak at around 6%.
The UK stock market had a weak start to the year as commodity prices fell and the banking sector was hit by the failures of Credit Suisse in Europe and Silicon Valley Bank in the US. The resurgence of US technology stocks also impacted the UK market as investors swapped from “value” back to “growth” companies.
It was a stronger period for stock markets in Europe as company earnings improved and outstripped the US early in the year. A mild winter and prompt action by governments across the region saw an energy crisis averted. The region was also lifted by the resurgence of China, which is an important export market, particularly for Germany and Spain.
The European Central Bank raised interest rates to 3.5% in June, their highest level in 22 years. Eurozone Consumer price inflation declined steadily from over 10% in October 2022.
The outlook for Asia has been dominated by China. The country’s reopening in October 2022 led hopes of galvanising global economic growth at the start of the year. However, the initial stock market rally petered out as growth has not bounced as many had hoped. Confidence has not yet returned to pre-pandemic levels.
Asian markets have continued to lag their global counterparts as expectations of a swift return to economic growth in China have receded. Nevertheless, there remain plenty of reasons to be optimistic as Chinese stimulus for infrastructure projects is beginning to feed through to the economy.
Japan has been rediscovered by investors in 2023, with veteran investor Warren Buffet making a high-profile investment in the country’s stock markets. The Japanese economy is also starting to improve as reopening gathers pace and wage growth drives consumer spending. As a net importer, it is also benefiting from lower oil prices, which is helping to improve the Government’s fiscal position.
The yield (interest paid) on US ten-year government bonds dipped in April, but moved back up as investors started to anticipate more rate rises ahead. Short-dated bonds now have higher yields than longer-dated bonds. This situation is known as an inverted yield curve and means investors expect rates to be cut over the longer term.
This “inversion” is currently common place, with 37 countries now trading with inverted yield curves, including the UK,Germany, France and Canada.
Financial markets seem to be in a holding pattern, waiting to see how much impact higher interest rates will have on economic activity and looking for clear signs that the interest rate cycle has peaked, and the next rate move is downwards. From the strength of China’s recovery to a potential recession in the US to the resilience of the corporate sector, there are major questions going into the second half of this year.
I am, once again, very grateful to the team at Evelyn Partners for their help in putting this summary together and hope it is useful in framing where we are today and how we got here.
Financial update June 2023
By Katriona Murray-Platon
This article is published on: 19th June 2023
Tax season is drawing to a close. However this year there is still something you need to make sure you have done before you can get out there and enjoy the summer weather.
You may still need to do the property declaration that I mentioned in my February edition. The declaration service has been available for several months now and so enough time has passed to be able to address some of the issues that have arisen.
Just as a reminder, if you own a property, and therefore pay taxe foncière, you have to declare the buildings on the land you own if they existed on 1st January. Because the Taxe d’habitation has been scrapped for main residences the French authorities want to find out which buildings are occupied and rented (even if just for holidays) which will allow them to more accurately establish the taxe d’habitation on second homes this autumn.
You must declare anyone who is occupying a property which belongs to you, even if it is a family member living there for free. However if you are only renting a room in your house, you do not need to declare this separately.
If the ownership of the property is divided between the bare owners (nu proprietaries) and the beneficiaries (usufruitiers) it is the latter who should declare the property on their online tax account.
You may have noticed that any outhouses, sheds and garages also appear on the declaration. If these have been converted to be rented or are simply let as parking spaces, they still need to be declared. A garage that is less than 1km from the main house is considered as adjacent to the property and therefore may be included in the surface area calculation for the taxe d’habitation.
The declaration can only be done online. If you do not have access to the internet (or know someone who doesn’t) or if you or they are really having problems completing this form online, you can call the tax office on the number below or make an appointment with your local tax office and they can assist you. Some post offices also have someone there who can help you with administrative matters.
If you have any problems with the declaration you can call the tax office on 0809 401401 or use the messenger service and the drop down menu to select the problem.
If you have an elderly resident who has gone into a home but has kept their former home and it is rented, they still need to declare it. There is an exemption from taxe d’habitation for residents of retirement homes (Ehpads).
If you rent a property you have to declare what kind of rental it is (long term or holiday let) and the identity of your tenants but you don’t need to declare the actual rent received just yet, this will only become mandatory in 2025.
You have until the end of June to complete this declaration so do take your time to make sure that the information is correct.
As always if you have any questions on this or any other matters please do get in touch!
How is France doing?
By Richard McCreery
This article is published on: 17th May 2023
If you live in France, the general impression you might have is of a country that is dragged down by strikes and protests, that the cost of living is soaring and the dream of retiring whilst still young is under threat. But it is not all bad news. If you have investments in France, or are planning to retire here, there are several reasons to be cheerful about the state of the country.
Despite fears of a possible recession, France’s GDP grew 0.2% in the latest quarter and was 0.8% higher than a year earlier – not exactly blowing the lights out but coping reasonably well with Eurozone interest rates that have risen to 3.75%. In fact, you can still get a 20-year mortgage in France and pay less than 3%, so the housing market is not coming under the same pressure as it is in some countries like the US, where a typical mortgage now costs 6.5%, or Sweden, where house prices have fallen sharply.
At 7.2%, France’s unemployment rate is around the lowest level it has been for several decades. The more people in work, the better. Inflation may be historically high at 5.9% but this is lower than the Eurozone average of 7% and considerably less painful than the UK’s 10.1% rate. We were very lucky that the government capped energy price rises at 4% last year and 15% this year.
Where France has more of a problem is its debt levels, partly because of that low retirement age but also because of the government’s generosity during the pandemic, although France is hardly alone in this. France’s government debt-to-GDP ratio has swelled from 97% in 2019 to 111% today. It is because France’s national debt has grown to almost 3 trillion Euros, and because it is so hard for the government to do anything about it without triggering widespread rioting, that the rating agency Fitch recently downgraded the country’s credit rating to AA- (outlook: Stable). This still leaves it slightly better off than the UK, whose outlook is Negative.
But President Macron is making efforts to build on France’s substantial industrial base, asking Elon Musk and other business leaders to invest in the country. In fact, according to accounting firm EY, France is the most attractive country in Europe for foreign investment and has been for four years in a row. It is also the home of LVMH, which recently became the 7th largest company in the world, worth more than half a trillion Dollars, as well as Kering (the owner of Gucci) and Hermès. French luxury goods companies are the European stock market equivalent of Big Tech stocks in the US, they seem to go from strength-to-strength and have powered the CAC 40 to a record high this year. French banks also seem to have come through the recent turmoil in the sector relatively unscathed.
France has a great standard of living, it is the world’s number one tourist destination and the economy is on a fairly sound footing. Taxes are high, but residents also have access to very tax efficient investment vehicles that can reduce exposure to income tax and inheritance tax, with the right planning and advice. There is a lot to be said for investing in the EU’s second largest economy. Despite the burning barricades on the nightly news, France is doing fine right now.
Financial update May 2023
By Katriona Murray-Platon
This article is published on: 10th May 2023
The tax season is fully underway and whilst those who are declaring for the first time by paper have until 22nd May to complete their returns and most other people in most departments have until early June to complete their tax return, many people want to get it done as soon as possible.
Now that all the forms are available (which can be downloaded here) we can have a clearer idea of how to declare.
If you have employed someone to do your tax return, the chances are you have already sent off all your information. However if you want to have a go at doing your own tax return, here are my top tips for this year!
Tips for your taxes
Everything is declarable, not everything will be taxable!
- Get all your information together. If you are using your SATR from the UK, make sure you decide which number you are using (April 22 or April 23) and stick to that method for UK based income. If you suddenly change and start taking the figures from your bank account then you will be double taxed on the first four months of the year. Collect all your statements, payslips, tax certificates together in the one place and note down the figures for all your sources of income and the exchange rate at the date of payment (or the annual average).
- You need to declare all your income on the main tax form (called the 2042), you will also need to put any foreign sourced income on the 2047 and you will need to declare all your non-French bank accounts on the 3916. If you are doing the return for the first time on paper you will need a paper copy of all these forms. You will also need the 2042 C form as that is where you will find boxes 8SH and 8SI that you must tick if you have an S1 so that social charges aren’t charged on your pensions and that the reduced rate of social charges of 7.5% as opposed to 17.2% are charged on any investment income.
- Healthcare: If you are declaring online you need to tick box 8SH and 8SI to inform the French authorities that you are covered for your healthcare by another system of the EU (including the UK).
- Bank accounts and assurance vies: If you are declaring online you need to tick box 8TT (for assurance vies) and 8UU (for bank accounts) in order to create the 3916 form which needs to be completed with the details of these accounts. If you are declaring on the paper form, these boxes are at the bottom of the main 2042 form. If you are declaring an assurance vie you will need to have the value (in euros) of the account as at 1st January 2022.
- Foreign sourced income must go on the 2047 form (the pink one). Most foreign pensions and salaries go in section 1 of this form but UK salaries, UK rental income, UK Government pensions, which are all declared in France but given a tax credit equivalent to the tax that would have been paid in France all have to go into Section 6 of this form in order to get the tax credit (box 8TK on the 2042 form).
- Don’t forget any charitable donations that you made in 2022. French based charities send you a tax certificate, so you can use this to enter the correct amount.
- Don’t forget the kids! The tax credit for child care costs for children under 6 (born after 1st January 2016) have increased from €2300 to €3500 per child and you get 50% of this amount. This is for expenses for a nanny (nounou), nursery, after school care and holiday club. If however your child is now over 6 but you still have someone to collect them from school, this is counted as a home help tax credit (see below).
- Tax credits for home help. If you have a gardener or cleaner or have had some other home help in 2022, and you haven’t already received the tax credit automatically, you can declare these amounts on the 2042 RICI form here You are allowed at tax credit of 50% of any expenses up to a maximum of €12,000.
Not everything has to be 100% accurate. If you get close to the deadline, just submit your tax return as it is, you can amend the tax return, without penalties, through the correction service which will open at the beginning of August.
If you have any questions please let me know by email but if you would rather speak to me about something, please do give me a call.
Tax time in France
By Peter Brooke
This article is published on: 9th May 2023
Its that time of year again….
The tax season is underway and whilst those who are declaring for the first time by paper have until 22nd May to complete their returns, most other people in most departments have until early June. Of course many people want to get it done as soon as possible. Now that all the forms are available, which can be downloaded here from the French Government website, you can have a clearer idea of how to declare.
If you have employed someone to do your tax return, the chances are you have already sent off all your information. However if you want to have a go at doing your own tax return, then here are some tips for this year!
First tip – I would highly recommend investing in the Income Tax Return guide from the Connexion magazine – which can be bought online here.
Please note that we, at Spectrum, are not accountants and do not complete tax returns for our clients, in fact I personally find the process as complicated as I am sure you do.
Hopefully some of these tips will help – of course if you do need help then I would recommend speaking to the team at French Tax Online who have a lot of information and experience with French Tax returns: https://www.frenchtaxonline.com/
Tips for your taxes
Everything is declarable, not everything will be taxable!
1. Get organised first – have all your information together before you start. If you are using your Self Assessment Tax Return from the UK, make sure you decide which number you are using (April 22 or April 23) and stick to that method for UK based income. If you suddenly change and start taking the figures from your bank account then you will be double taxed on the first four months of the year. Collect all your statements, payslips, tax certificates together in the one place and note down the figures for all your sources of income and the exchange rate at the date of payment (or the annual average)
2.You must declare ALL of your worldwide income. French income is declared on the main tax form (called the 2042) and put any foreign sourced income on the 2047 form. You need to declare all of your non-French bank accounts on the 3916 form. If you are doing the return for the first time on paper you will need a paper copy of all these forms
You will also need the 2042 C form as that is where you will find boxes 8SH and 8SI that you must tick if you have an S1 certificate so that social charges aren’t charged on your pensions and that the reduced rate of social charges of 7.5% as opposed to 17.2% are charged on any investment income
All of the forms can be downloaded here from the French Government website
3. Healthcare: If you are declaring online you need to tick box 8SH and 8SI to inform the French authorities that you are covered for your healthcare by another system of the EU (including the UK)
4. Foreign Bank accounts and Assurance Vie (AV): If you are declaring online you need to tick box 8TT (for Dublin or Luxembourg AV) and 8UU (for non French bank accounts) in order to create the 3916 form which needs to be completed with the details of these accounts. If you are declaring on the paper form, these boxes are at the bottom of the main 2042 form. If you are declaring an assurance vie you will need to have the value (in euros) of the account as at 1st January 2022, you should receive statements from your AV provider with this information during April and May each year
5. Foreign sourced income must go on the 2047 form (the pink one). Most foreign pensions and salaries go in section 1 of this form but UK salaries, UK rental income, UK Government pensions, which are all declared in France but given a tax credit equivalent to the tax that would have been paid in France all have to go into Section 6 of this form in order to get the tax credit (box 8TK on the 2042 form)
6. Don’t forget any charitable donations that you made in 2022. French based charities send you a tax certificate, so you can use this to enter the correct amount
7. Don’t forget the kids! The tax credit for child care costs for children under 6 (born after 1st January 2016) have increased from €2300 to €3500 per child and you get 50% of this amount. This is for expenses for a nanny (nounou), nursery, after school care and holiday club. If however your child is now over 6 but you still have someone to collect them from school, this is counted as a home help tax credit (see next point)
8. Tax credits for home help. If you have a gardener or cleaner or have had some other home help in 2022, and you haven’t already received the tax credit automatically, you can declare these amounts on the 2042 RICI form here You are allowed at tax credit of 50% of any expenses up to a maximum of €12,000
Not everything has to be 100% accurate.
If you get close to the deadline, just submit your tax return as it is, you can amend the tax return, without penalties, through the correction service which will open at the beginning of August.
Currency… all hail to the Euro
If you are receiving income in any currency other than Euros you need to convert it to Euros for your declaration.
You should use the exchange rate on the day the you received the income into your account and daily rates are available here:
If you don’t have access to the accurate data it is possible to use an average rate for the year which is shown in the Connexion guide as £1 = €1.158
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French financial updates April 2023
By Katriona Murray-Platon
This article is published on: 12th April 2023
April hails the beginning of tax season. For those eager bunnies who want to get on with it as soon as possible please note that the tax season will begin on 13th April with the online service being available and the new 2022 income tax forms available to be printed online or found at the tax offices from this date.
If you do want to get it over and done with, that is understandable, but actually this year you have a bit more time to get it done as most of the submission deadlines are either towards the end of May or even beginning of June.
Those submitting their first paper returns have until Monday 22nd May 2023 at 11.59pm, as attested by the postal stamp. The other dates for the online submissions are as follows:
- Zone 1 or departments numbered 1 to 19 have until Thursday 25th May 2023 until 11.59pm
- Zone 2 or departments numbered 20 to 54 have until Thursday 1st June 2023 until 11.59pm
- And Zone 3 or departments numbered 55 to 974/976 have until Thursday 8th June until 11.59pm
At the time of writing and until the 13th April, I can’t comment on any changes in the tax forms but in my next Ezine I will give more information about any specific aspects of the 2022 declarations. You can always download our free tax guide HERE and please also look at my adviser page for previous articles on tax matters.
As tax residents in France, you have to declare your worldwide income irrespective of where it comes from. Not everything is taxable, depending on the provisions of the double tax treaty, but everything is declarable. One of the things you do not need to worry about is any French sourced income like salaries, French pensions, French bank interest. This information is generally already completed on your tax return so you just need to check that it is correct. You only need to declare your foreign bank accounts on the 3916 form and not any French accounts or investments.
Tax offices often get confused about what foreign income gets a tax credit under the double tax treaty and what gets a tax credit because it was actually taxed in the country in question whereas, very often, because the income falls under the tax threshold the income wasn’t actually taxed. Well the French Administrative court, the Conseil d’Etat has just confirmed in a decision dated 20th March 2023 (https://www.legifrance.gouv.fr/) that where a double tax treaty grants a tax credit on this income, this is not subject to whether or not the income has in fact been taxed in the country from which it originated.
Finally, an additional energy cheque of an amount of between €48 and €277 depending on income, will be sent out and can be used until 31st March 2024 to pay gas or electricity bills. This is in addition to the exceptional energy cheque and the wood and fuel cheque that have been sent out already.
I will be available for meetings except for the week commencing 17th April as I will be away with my family. But there are still plenty of slots for meetings in the second and last week of April. Please do get in touch with any tax or financial questions.
Tax efficient savings and investments in France
By Amanda Johnson
This article is published on: 21st March 2023
Assurance Vie in France – In most countries, tax-efficient savings and investment schemes exist with the aim of encouraging people to save for the medium and long-term so they don’t become a burden on the state.
However, when we become resident in France the tax-efficiency that we enjoyed from our home schemes is usually lost. This is because, as a French resident, you are liable to French taxes on all your worldwide income and gains, except for anything that might be exempted by the terms of a Double Taxation Treaty.
Even if certain income is exempt from French taxes, it is usually the case that this exempt income must still be declared in France and will be included with your other income when calculating your French income tax liability. The fundamental point to note is that including such exempt income has the effect of increasing the rate at which other sources of income are taxed in France, including investment income.
In France, there are several tax-free accounts available for short-term savings such as:
- the Livret A, available to both residents and non-residents, in which you can deposit up to €22,950 and earn interest of 3%. No tax or social charges are applied
- the Livret Développement Durable, eligible to French resident taxpayers only for deposits up to €12,000, also earning interest of 3%
- the Livret Epargne Populaire, eligible to French resident taxpayers only, paying an extra 6.10% interest for deposits up to €7,700 if your income doesn’t exceed a certain threshold..
For medium to long-term investments (as opposed to savings), there is one product that stands head and shoulders above the rest and that is an Assurance Vie
What is an Assurance Vie?
An Assurance Vie (AV) is an insurance-based investment product. It can be as simple or as complicated as you wish to make it. Think of it as that old shoe-box that you keep your documents in, or maybe that fireproof metal cabinet for certificates and the like. Old and battered it may be, but an AV has some rather special properties:
- The investments that you place within your AV are never touched by French income tax or capital gains tax whilst they stay inside the AV
- The majority of investments are never subject to social charges whilst inside the AV. Be aware that this does not apply to Fonds en Euros, from which social charges are deducted annually
- The AV is never locked. You can take your money out whenever you like, unlike a pension which has age restrictions
- If you keep the AV going for at least eight years, you then qualify for a special income tax-free band on top of your normal allowances, together with low withholding tax rates
- If your aim is to leave your financial assets to your chosen heirs (not just the ones Napoleon thought you should leave them to), you can leave each individual beneficiary a large sum completely free of French inheritance tax
Millions of French people use the AV as their standard form of savings and investments and many billions of Euros are invested this way via French banks and insurance companies. In addition, there is a much smaller group of companies that are not French, but have designed French compliant AV products aimed specifically at the expatriate market in France. These companies are typically situated in well-regulated EU financial centres, such as Dublin and Luxembourg. Before choosing such a company, however, it is important to establish that the company has a French fiscal representative, to ensure that you receive the same tax and inheritance advantages as a French equivalent product.
Some of the advantages of an international AV policy compared to French policies are:
- It is possible to invest in currencies other than Euro, including Sterling and USD
- There is a larger range of investment possibilities available, providing access to leading investment management companies as well as capital guaranteed products and funds
- Documentation is in English, thus helping you to understand better the terms and conditions of the AV policy
- The AV policy is usually portable which is of benefit if moving around the EU since in many cases the policy can be endorsed for tax-efficiency in other EU countries
How does an Assurance Vie work?
Your single lump sum investment or regular premiums are paid to an insurance company, which then places the money with the investment manager(s) of your choice. These are usually unit- linked types of investments, for example in equity or bond funds, but can also be in deposits or special products on offer from various financial institutions. You can invest in any number of different funds or products and these are all collated together by the insurance company to form a collective bond, which is your AV policy.
If you have chosen your investments wisely (with the help of your financial adviser), over the long-term the value of units you hold in the funds is likely to increase and so too is the value of your AV policy. However, you must be fully aware of and comfortable with the amount of risk that you are taking, since with any type of unit linked investment your fund value can go down as well as up, as a reflection of what is happening in investment markets. Over the long-term, however, the effect of short-term market volatility will usually be reduced.
Can my capital be guaranteed through an Assurance Vie?
A common feature of the French AV is the possibility of investing in Fonds en Euros. This is a special type of fund designed to form a very cautious base to your total investment, since your capital, as well as any interest and year-end bonus added to it, is guaranteed. The fund invests mostly in government and corporate bonds, although there can also be a little exposure to equities and properties with the aim of enhancing returns. During the year, your capital will earn interest and by law the insurance company must allocate most of your share of the return of the fund to your account, in the form of a year-end bonus. The balance of the return of the fund is kept in the insurance company’s reserves, to smooth out future investment returns, for example in times of poor market investment performance.
Due to the nature of the guarantees with Fonds en Euros, the rate of return is typically low, but is usually better than the interest that you might earn from a bank deposit with immediate access. However, this type of fund is regarded by the tax authorities as being so secure that social charges are levied annually on the gain (rather than only at the time that you take a withdrawal as would be the case with other investments within the AV). This effectively reduces the rate of return over the long term. Through some international AV policies there is the possibility to invest in structured bank deposit offerings, where the investment return is linked to the stock market, but with the security of a capital guarantee.
How do I choose what to invest in inside my Assurance Vie?
You may have strong views on this yourself, or you may have no ideas at all, but in all cases it helps if you have a good financial adviser at hand. His or her job is to help you understand the whole concept of investment and to help you establish your attitude to investment risk. Sadly, there is no realistic chance of a meaningful return on your savings without accepting some degree of risk. We have also seen in recent years that even leaving your savings in a bank can be risky, whether this is because you do not earn a real rate of return or because the bank fails due to poor management.
Your adviser will show you different types of investment options, explain how they work, what their track records are and how much risk is involved. You make the final decision, but his or her help can be invaluable. When the investments have been made, there should be follow-up meetings to review the performance of your investments. Your adviser may well recommend some changes depending upon the evolution of your own circumstances, or perhaps because of fund performance, or may have interesting new funds to introduce to you.
It is also possible to use the services of a Discretionary Fund Manager, with whom you agree an investment mandate (based on your specific investment objectives and risk profile), who then manages your money on a discretionary basis to achieve your financial goals.
How is Assurance Vie taxed?
Only the gain element of any amount that you withdraw is liable to income tax and the rate of tax is determined by the date on which premiums are paid.
Premiums paid before 27th September 2017:
For premiums paid before 27th September 2017, the taxpayer has the option to be taxed at the progressive rates of the barème scale or the Prélèvement Forfaitaire Libératoire (PFL) rates, as follows:
- during the first 4 years at 35%
- between 4 years and 8 years at 15%
- post 8 years at 7.5%
- social charges at the rate of 17.2%* are payable in addition
Premiums paid from 27th September 2017:
The Prélèvement Forfaitaire Unique (PFU) – also known as the Flat Tax – was introduced in the Project de Loi de Finances 2018, published on 27th September 2017. From this date the PFU applies to the total amount of interest, dividends and capital gains on the sales of shares received by the taxpayer. It also applies to certain gains on withdrawals from assurance vie contracts.
The Flat Tax rate is 30%, made up as follows:
- a fixed rate of income tax of 12.8%; plus
- social charges at the rate of 17.2%*
For premiums to assurance vie contracts paid from 27th September 2017, the tax rate will vary according to the age of the contract, and for contracts older than eight years according to the ‘threshold’ amount of capital remaining in the contract as at 31st December of the year prior to the withdrawal being taken.
The threshold amount is €150,000 per individual person (across all assurance vie policies), which is determined by reference to the amount of the premiums invested, reduced by any capital already withdrawn, and not the value of the contract.
The threshold is not cumulative between persons and therefore couples who are taxed as a household cannot share in each other’s thresholds. Thus, one spouse may reach the threshold level whilst the other does not, for example where one has say €200,000 capital invested and the other only has €80,000 invested.
The PFU applies to assurance vie contracts of less than eight years regardless of the amount of the outstanding capital. Thus, the PFU rate of 30% replaces the pre-27th September 2017 rates detailed above.
Therefore, according to the age of the contract, the following tax rates apply:
- during the first eight years, the Flat Tax rate of 12.8%
- over eight years, 7.5% up to the threshold, plus 12.8% above the threshold
* A lower rate of social charges at 7.5% applies if you are resident in France and hold the EU S1 certificate, whereby you are covered by the health system of another EU or EEA country.
Insurers are obliged to deduct the tax of 12.8% or 7.5% (depending on the duration of the contract) plus the social charges. Subsequently, for contracts older than eight years where the taxpayer has exceeded the threshold, any additional tax due is charged through the taxpayer’s annual declaration.
Tax-free allowance on all policies after the eight year holding period:
In addition to this, and in all cases regardless of the ‘premium paid’ date, after holding a policy for eight years a single taxpayer receives an income tax allowance of €4,600 per annum against the gain element of any withdrawals during the tax year. For a couple who are subject to joint taxation, this is increased to €9,200. Hence, providing that the gain element of total withdrawals made during the year does not exceed the allowance, then there is no income tax to pay. This might not sound a lot, but it is a very useful allowance, as can be seen in the following simple example.
Peter and Pam have an AV policy, which they start in January 2018 with an investment of €100,000. They do not make any withdrawals on this investment for the next eight years, and it is then worth €160,000 (hypothetical). A new car is then needed, and they need some cash to help pay for it, so they withdraw €20,000 from their AV. In this case €60,000 of their AV worth €160,000 is profit, and that is 37.5% of the total, so it is logical that the gain element of their withdrawal is €7,500 and €12,500 is their original capital.
The insurance company (assurance vie provider) will deduct income tax and social charges on the gain element when they pay out the withdrawal. Since the policy is over eight years old however, and they are subject to joint taxation, Peter and Pam have a tax-free allowance of €9,200. The gain will then be declared on their next tax return and they will receive a rebate of the income tax charged.
Does an Assurance Vie have other advantages?
Without doubt, the AV is effective for inheritance planning. There are age restrictions, but via an AV policy you can leave up to €152,500 to any number of beneficiaries, each of whom will pay no succession tax. In addition, AV policies are exempt from the strict French succession rules. You can leave your money to whomever you wish. Should you wish to leave more than this amount to any one beneficiary, they will pay tax at a rate of 20% on the next €700,000, and then at 31.25% above that.
Is an Assurance Vie right for me?
An Assurance Vie is a valuable asset, helping you to shelter your capital and income from unnecessary taxation. It can provide protection for you during your lifetime and protection for your loved ones when you are gone. However, everyone’s circumstances are different and it is essential that you take professional financial advice before investing into this type of product.
Why is now a good time to invest?
By Michael Doyle
This article is published on: 9th March 2023
I have been working with a few clients over the past couple of years who were very nervous about investing for the longer term as the markets had been volatile. Recently they decided to ‘push the button’ after we reviewed their situation together.
So, here are ten reasons why now could be a good time to invest:
1. Economic recovery: The global economy is recovering from the impact of the COVID-19 pandemic, and this presents opportunities for investors to take advantage of growth opportunities in various sectors.
2. Low-interest rates: Interest rates are currently low, which can make borrowing cheaper and provide investors with a chance to invest in assets that are likely to yield higher returns.
3. Inflation protection: Investing in stocks, bonds, and other assets can provide protection against inflation, which can erode the purchasing power of your money over time.
4. Increased savings: Many people have saved more money during the pandemic due to reduced spending on things like travel and entertainment. This has led to an increase in the amount of money available for investment.
5. Technological innovation: The pandemic has accelerated the adoption of new technologies in many industries, and investors can potentially benefit from investing in companies that are at the forefront of innovation.
6. Diversification: A well-diversified portfolio can help investors spread their risk and potentially minimize losses if one sector or asset class underperforms.
7. Long-term focus: Investing is a long-term strategy, and the current market volatility should not deter investors from thinking about the long-term potential of their investments.
8. Behavioural finance: Understanding how emotions and biases can impact investment decisions can help investors avoid making costly mistakes.
9. Education and access: There are many resources available to investors to help them learn about different investment opportunities and strategies, and technology has made it easier than ever to invest from the comfort of your own home.
10. Social responsibility: More investors are looking to make investments that align with their personal values and beliefs, and there are now many options for socially responsible investing that can potentially provide both financial returns and social impact.
Now would be a great time to review your own situation. Either speak with your financial consultant or feel free to contact me for a no obligation review.