Portfolio and tax management for expats in France
Today’s investors have clear, well-informed opinions regarding their own specific investment objectives. They do not want to limit themselves to the internal funds offered by traditional investment providers. They prefer to build their own portfolio with the expertise of Montagu Mayer as their appointed investment adviser. Montagu Mayer manages portfolios that been designed for such investors, as it allows control and flexibility over the underlying assets in a portfolio, which may be subject to favourable tax benefits.
This article summarises the tax treatment of a French compliant Unit Linked Insurance policy, known as an Assurance Vie, and explains how an Assurance Vie can potentially help a policyholder with financial planning. At Montagu Mayer it is our understanding that the Assurance Vie will be treated as outlined in this document under French tax regulations.
The Assurance Vie provides a straightforward and effective way to bring together a wide choice of assets into one contract. It is designed to provide the flexibility and diversity required to enable you and Montagu Mayer to construct an investment portfolio that meets your specific needs with a wide range of assets – it is simple to establish and easy to operate.
Montagu Mayer allows you to select the assets in which you want to invest. You may select from any investment which Montagu Mayer considers to be sufficiently liquid and readily capable of valuation and which conforms to the laws and regulations applicable to your contract.
In general, any securities quoted on recognised exchanges such as stocks, shares and bonds are in principle eligible as well as Undertakings of Collective Investments in Transferable Securities (UCITS), Sociétés d’investissement à capital variable (SICAV) and other mutual funds.
Montagu Mayer’s experienced staff will take care of your investment administration through regular and comprehensive valuations.
French tax treatment
For residents of France, taxation is based upon worldwide income on a self-assessment basis regardless of the policyholder’s nationality. The family is taxed as a unit and returns are made for the unit.
Persons are deemed to be resident in France for tax purposes if any of the below applies:
- their principal home is in France;
- their main place of abode is in France;
- they carry on a professional activity in France, salaried or not, unless they can prove that it is a secondary activity;
- the centre of their economic interests and activities are in France.
French life insurance tax regime
The main elements of the French tax system applicable to individuals holding a life insurance contract denominated in account Units include the following:
Individual Income Tax
Personal Income Tax – “Impôt sur le Revenu/IR”
Rules & Rates
Individual Income Tax is a tax levied on an individual’s total income in a calendar year. All income, regardless of origin, is aggregated to give an overall net income to which a single tax is applied annually on an arising basis.
Proceeds related to life contracts subscribed by French residents with an insurance company not established in France qualify as passive income from foreign securities.
The tax is charged at progressive marginal rates up to 35%:
- 35% – 0 to 4 years
- 15% – 4 to 8 years
- 7.5% – 8 years or more
Taxable events & allowances
The taxable basis is equal to the difference between amounts redeemed and premiums paid. The policyholder may elect to be taxed at his/her marginal rate of tax or opt for taxation on a declining flat rate basis (Prélèvement Forfaitaire Libératoire or “PFL”). The PFL regime applies from the moment when the policyholder established the policy. This is irrespective of where he/she was resident in the meantime. Taxable events occur on gains when the policyholder makes a full or partial encashment of the policy. On full or partial encashment, Individual Income Tax is payable on the gain elements (equal to amounts redeemed less premiums paid).
Useful information to know
The policyholder is subject to individual income tax at progressive marginal rates (up to 45% presently) if electing self-assessment.
However, the policyholder can alternatively elect PFL taxation at favourable reduced rates.
Client chooses to ‘Opt in’ or ‘Opt out’ in the Assurance Vie Application form.
- OPT IN – French tax being withheld by the Assurance Vie provider and all payments will be made net of tax. Any tax deductions will be reported to the French fiscal tax rep on a monthly basis.
- OPT OUT – French tax being withheld by the Assurance Vie provider and all payments will be made gross of tax. The Assurance Vie provider will make the required declarations to the French Tax Administration and provide sufficient information for the policyholder. Clients will be responsible themselves for paying any tax charge that may arise and filing relevant returns due under French law.
Social Security Contributions
Social Security Contributions – “Contributions Sociales”
Rules & Rates
Social Security Contributions help to finance France’s Social Security System and fall into five broad categories and rates which are charged cumulatively (overall rate: 15,5%):
- General Social Security Contribution – “CSG Contribution Sociale Généralisée”: 8.2%
- Social Security Debt Repayment contribution –”CRDS Contribution pour le Remboursement de la Dette Sociale”: 0.5%
- Social Levy –”Prélèvement social”: 4.5%
- Additional contributions to the social levy –“Contributions additionnelles au prélèvement social”: 0.3%
- Additional Social Security – “Prélèvement de Solidarité”: 2%
Taxable events & allowances
On full or partial encashment of an Assurance Vie, Social Security Contributions are payable on the gain elements (equal to amounts redeemed less premiums paid).
Those contributions are applicable in all cases, irrespective of whether the French tax resident elects to be taxed on a lump sum basis or is taxed at marginal progressive rates.
Useful information to know
In the event of the death of the Relevant Life Assured, Social Security Contributions are payable on the gain elements by the beneficiary.
Where the policyholder opted for the favourable lump sum taxation and where the period exceeds 8 years, the beneficiary can benefit from a fixed tax allowance :
- €4,600 for a single person
- €9,200 for a couple
Wealth Tax
Wealth Tax – “Impôt de Solidarité sur la Fortune/ISF”
Rules & Rates
When the total net value of the taxpayer’s assets exceed Wealth Tax threshold on 1st January of each taxable year, the French resident is subject to the Wealth Tax.
The threshold for 2017 is €1,300,000 and the rates are banded and charged at up to 1.5%:
- First €800,000 – 0%
- From €800,000 to €1,300,000 – 0,50%
- From €1,300,000 to €2,570,000 – 0,70%
- From €2,570,000 to €5,000,000 – 1,00%
- From €5,000,000 to €10,000,000 – 1,25%
- Over €10,000,000 – 1,50%
Taxable events & allowances
During the life of the policy, the encashment value of the contract is subject to Wealth Tax.
The Death Benefits will be included in the net wealth value of the beneficiary and subject to Wealth Tax if the total net value of his/her wealth exceeds the then threshold.
Useful information to know
For the 5 years following their change of primary residence to France, policyholders are taxable, only on their assets in France, where they have not been domiciled in France for tax purposes during the five years prior to the transfer of their domicile.
Inheritance Tax
Inheritance Tax – “Imposition du Capital Décès”
Rules & Rates
The rates are banded and are determined by the relationship between the deceased and the beneficiary:
Between spouses or civil pact (PACS) partners: inheritance tax is not applicable (but same banded rates apply as the ones between Parents & Children for gifts).
Between Parents & Children/ Grandparents & Grandchildren:
- From €0 to €8,072 – 0%
- From €8,072 to €12,109 – 10%
- From €12,109 to €15,932 – 15%
- From €15,932 to €552,324 – 20%
- From €552,324 to €902,838 – 30%
- From €902,838 to €1,805,677 – 40%
- Over €1,805,677 – 45%
Between siblings:
- Under €24,430 – 35%
- Over €24,430 – 45%
Between relatives until the 4th degree (uncles/aunts, nephews/nieces, cousins, etc.): 55%
Other cases: 60%
Taxable events & allowances
Inheritance Tax is a tax that may arise on the death of the Relevant Life Assured. The taxpayer is the beneficiary. In the event of death, Social Security Contributions are filed and paid by the beneficiaries (the taxable basis is reduced by amounts that have been previously subject to social taxes during the lifetime of the policy).
The beneficiaries shall be subject to taxation as follows:
For Premiums paid before the 70th birthday of the Life Assured and any gains thereof, the Death Benefits paid to the beneficiaries are subject to a fixed levy (applies if the Life Assured is a French resident at the time of his/her death, or the beneficiary has been resident in France for at least 6 out of the 10 years preceding the death of the Life Assured) at:
- 20% for the part of the proceeds which do not exceed €700,000*.
- 31.25% above that threshold
A tax allowance of €152,500 is available to each beneficiary, all contracts insuring the same person taken together.
The Premiums paid after the 70th birthday of the Life Assured and exceeding €30,500 shall be subject to inheritance tax which is due by the beneficiaries (and not to the fixed levy), if such beneficiaries are liable for such inheritance tax. A tax allowance of €30,500 is assessed for all beneficiaries and all insurance contracts issued on the Life Assured.
* The fixed levy is normally deducted by the Company once amounts are confirmed by the French Tax Administration.
Useful information to know
Inheritance Taxation of the Death Benefit does not apply when the beneficiary is the:
- Life Assured’s spouse,
- Civil pact (PACS) partner,
- Single, widowed, divorced or legally separated brother or sister over 50 years old or suffering from disability preventing him/her from supporting through work the daily existence necessities of, AND permanently domiciled with the deceased person during the last 5 years.
The 20% tax is not due where the beneficiary is the spouse of the insured or the civil pact (PACS) partner.
Finally on this point, do not assume that just because you’ve expatriated to live in France that your estate will not be liable to inheritance tax (IHT) in your old home nation, or any nation where you hold assets. For example, those domiciled in Britain remain liable for IHT on their worldwide estate.
Through investing with Montagu Mayer you can benefit from tax efficiency, flexibility and protection in the case of death.
If you are concerned about mitigating your IHT liability, we’d like to offer you a free initial consultation to determine whether we can help you.
There are no time constraints on the duration of investment in the Assurance Vie. The contract can have multiple lives assured and in this case it will remain in force until the death of the relevant life assured.
You may access your capital in whole or in part at any time, although early encashment charges may apply in the early years of your investment. Payments of encashments are subject to receipt of sales proceeds from the underlying assets. It can be denominated in Euro, Sterling or US Dollar.
Regular Valuations
At each quarter end, Montagu Mayer will produce a valuation report detailing the value and number of the holdings within your contract. We will also provide an analysis of the asset split within your portfolio and of any transactions occurring on the underlying assets to which your portfolio policy is linked.
Finally…
We believe the above information is accurate, however tax rates and rules can change, and we are NOT tax experts. Therefore, please do not rely exclusively on the information to determine your liability for tax.
Speak to a local tax expert for personalised advice, or consult an international taxation consultancy.
If you’d like our help to source someone to assist you, please get in touch and we will do all we can to help.
Whilst every care has been taken in the preparation of this article, Montagu Mayer cannot accept responsibility for its interpretation or any subsequent changes in taxation.
We recommend that investors seek advice from a local tax expert for personalised advice, or consult an international taxation consultancy regarding their own personal circumstances.
Also, please note that the tax rates presented above are expected to apply for 2017 and are subject to change.
The focus of Montagu Mayer is you; the services we offer, the way we work down to the smallest detail are aimed at helping you empower your money to enjoy life and provide the future you and your loved ones dream of.
All advice is fully regulated with clear, transparent charging structures, full commission disclosure and a variety of Service Level Agreements to suit your budget.
And of course, all of that is backed up by complete regulation everywhere we operate, giving you a total Montagu Mayer experience wherever you choose to move to.
Please click on ‘Become a Client’ at the bottom of the page and complete the enquiry form and we will normally contact you within the same working day during business hours or if you would prefer us to contact you outside normal business hours then please advise and we will quite happily do so. Alternatively you can email us with details about your requirements to info@IFA-Global.com
