2019 has brought a number of changes to the French tax system. Below is a summary of the principal changes affecting personal taxation.
French Tax Changes 2019
INCOME TAX (Impôt sur le Revenu)
There has been no change to the rates of income tax of the barème scale, but the tax bands have been increased as follows:
|Up to €9,964||0%|
|€9,965 to €27,519||14%|
|€27,520 to €73,779||30%|
|€73,780 to €156,244||41%|
|€156,245 and over||45%|
PAYE (Prélèvement à la Source)
PAYE has been introduced in France with effect from 1st January 2019.
The types of income subject to PAYE include:
- Income from employment
- Retirement income, including UK private and State pensions, but excluding certain pensions where tax is already deducted at source, such as UK Civil Service pensions
- Rental income, including that from French properties owned by people who are not resident in France.
For French source income, the employer or pension provider will deduct the tax at source.
Clearly, where income is generated from outside of France there can be no deduction at source by the French authorities. This means that many expatriates living in France will be subject to a monthly withholding tax on their income. Therefore, starting in January 2019, the tax authorities will collect a sum equal to 1/12th of the tax paid in 2018 (based on income declared for 2017).
Excluded from PAYE is investment income, such as bank interest, dividends, capital gains and gains from life assurance policies.
New residents of France who have not yet submitted a French tax return, will have the option of paying a sum ‘on account’, or be taxed in May 2020, following submission of their first tax return.
Everyone will still be required to submit a French tax return in the May of the following year. Thereafter, the final assessment of tax liability will be carried out, and you will either receive a tax refund or be required to pay any additional tax due, over a four-month period.
If you do not currently pay any income tax, you will not be required to pay provisional monthly payments. Similarly, if you anticipate a significant change to your income during the course of the year you can request that the tax authority alter your tax code. However, if you do so, and your income is 10% greater than advised, you could face a tax penalty of at least 10%.
REFORM OF SOCIAL CHARGES (Prélèvements Sociaux)
Some changes have been introduced to certain social charges, which is good news for some taxpayers.
The main rates for social charges remain the same as for 2018, i.e.:
|Source of income||Rate|
|Investment and property rental||17.2%|
Social Charges on Pension Income
The exemption from social charges on pension income still applies if you hold the EU S1 Certificate or if France is not responsible for the cost of your healthcare.
However, those pensioners who do not satisfy the exemption conditions above, but whose pension income is less than €2,000 per month (or €3,000 for a couple), will now pay a lower rate of 7.4% on pension income.
Social Charges on Investment Income and Capital Gains
From 1st January 2019, individuals covered under the health care system of another EU or EEA country are no longer subject to the existing rate of 17.2% on investment income or capital gains. Instead they will now pay a new flat rate of 7.5%. This new flat rate is known as the ‘Prélèvement de Solidarité’ and represents a saving of 9.7%. It applies to investment income, such as property rentals, bank interest, dividends and withdrawals from ‘assurance vie’ policies, and capital gains realised by both residents and non-residents of France.
In summary, taxpayers can benefit from the new 7.5% rate on investment income if:
- They hold the EU S1 Certificate
- They are a non-resident of France earning French source income (i.e. rental income, capital gains on the sale of a French property, etc) and are covered by the health system of another EU or EEA country
There are no changes to ‘assurance vie’ apart from the social charges reform detailed above which will benefit some policyholders.
For policies held for more than eight years, the annual allowance remains at €4,600 for individuals and €9,200 for married/PACS couples.
This outline is provided for information purposes only based on our understanding of current French tax law. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.
If you would like to discuss how these changes may affect you, please do not hesitate to contact your local Spectrum IFA Group adviser.
Inheritance Planning in France
Despite the importance of making sure one’s affairs are in order for the inevitability of our demise, very few people actively seek advice in this area and, as a result, are unaware of the potential difficulties ahead for their families and heirs, not to mention potential tax bills which can be quite substantial for certain classes of beneficiary.
The basic rule is, if you are resident in France, you are considered also to be domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend upon the relationship to your beneficiaries.
Fortunately, there is no inheritance tax between spouses and the allowance between a parent and a child is reasonably generous, currently €100,000 per child, per parent. For anything left to other beneficiaries, the allowances are considerably less. In particular, for step-children and other non-related beneficiaries, the allowance is only €1,594 and the tax rate on anything above that is an eye-watering 60%!
There are strict rules on succession and children are considered to be ‘protected heirs’ and so are entitled to inherit a proportion of each of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, then three-quarters of your estate must be divided equally between them.
You are free to pass on the rest of your estate (the disposable part) to whoever you wish through a French will and, in the absence of making a will, if you have a surviving spouse, he/she would be entitled to 25% of your estate.
You may also be considered domiciled in your ‘home country’ and if so, this could cause some confusion, since your home country may also have the right to charge succession taxes on your death. However, France has a number of Double Taxation Treaties (DTT) with other countries covering inheritance. In such a case, the DTT will set out the rules that apply (basically, ‘which’ country has the right to tax ‘what’ assets).
For example, the 1963 DTT between France and the UK, specifies that the deceased’s total estate will be devolved and taxed in accordance with the person’s place of residence at the time of death, with the exception of any property assets that are sited in the other country.
Therefore, for a UK national who is resident in France, who has retained a property in the UK (and does not own any other property outside of France), the situation would be that:
• any French property, plus his/her total financial assets, would be taxed in accordance with French law; and
• the UK property would be taxed in accordance with UK law, although in theory, the French notaire can take this asset into account when considering the fair distribution of all other assets to any ‘protected heirs’ (i.e. children).
If a DTT covering inheritance does not exist between France and the other country, with which the French resident person has an interest, this could result in double taxation, if the ‘home’ country also has the right to tax the person’s estate.
Hence, when people become French resident, there are usually two issues:
• how to protect the survivor; and
• how to mitigate the potential French inheritance taxes for other beneficiaries.
European Succession Regulation No. 650/2012
Many of you will no doubt have heard about the EU Succession Regulations that came into effect in 2015 whereby the default situation is that it is the law of your place of habitual residence that applies to your estates. However, you can elect for the inheritance law of your country of nationality to apply to your estate by specifying this in a French will. This is effectively one way of getting around the issue of ‘protected heirs’ for some expats living in France.
However, the UK opted out of the Regulations and therefore, it is not yet certain how effective the EU Regulations will be until there have been some test cases. I would always recommend that you discuss this in more detail with a notaire who can advise you on the subject of French wills.
If, after taking the advice of a notaire, it transpires that this is the best course of action for you to achieve your inheritance objectives, it is important to note that the French inheritance tax rules will still apply. Therefore, even though you have the freedom to decide who inherits your estate, this will not reduce the potential inheritance tax liability on your chosen beneficiaries, which, as mentioned above, could potentially be very high for a step-child. Hence, there will still be a need to shelter financial assets from French inheritance taxes.
Inheritance planning for French residency can be very complex, especially where there are children from previous relationships. This is often the starting point of my discussions with a prospective client. Most couples with children that I come across want their spouse or partner to inherit everything upon first death and for the children to inherit on second death. This isn’t possible under standard French Succession law, but it can be achieved by putting in place strategic planning, which is something on which we can provide advice.
If you would welcome a confidential discussion about your own inheritance planning, the mitigation of inheritance taxes for your chosen beneficiaries or a general chat about your overall financial situation, please feel free to contact me by e-mail at firstname.lastname@example.org or by telephone on 04 67 24 90 95.
In addition, you can meet me and other members of the Spectrum team at the Tour de Finance, which is once again coming to the stunning Domaine Gayda in Brugairolles 11300. This year’s event will take place on Friday 5th October 2018. Places are by reservation only and it is always well attended so book your place early by giving me a call or dropping me an email. Our speakers will be presenting updates and outlooks on a broad range of subjects, including:
French Tax Issues
So, if you are concerned about your investments and pensions in a post-Brexit world why not join us at this very popular event where you can meet the team in person and listen to a number of industry experts in the world of financial advice.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at www.spectrum-ifa.com/spectrum-ifa-client-charter/
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of French taxes.
The Importance of having a Local Financial Adviser
Moving to another country is one of the biggest decisions that anyone is likely to make, especially to a country where the language is not your native tongue. Most of the expats I meet say that the hardest thing about moving to France is getting to grips with the language, and I include myself in this.
From my own experience I know that lack of fluency is often a cause of frustration, confusion and anxiety, especially when dealing with bureaucracy, medical matters and finance. Fortunately, there are people and businesses out there who can help.
The Spectrum IFA Group are independent financial advisers and our area of expertise covers the provision of regulated advice on the tax-efficient investment of financial assets, pensions and inheritance planning. We are a French company, regulated in France, which means our business activities will not be affected by BREXIT.
As well as being regulated in the county in which he or she is advising a client, a good financial adviser should also have the relevant knowledge of the tax framework of that country and the tax treatment of suitable products in order to give the most appropriate, tax-efficient advice. You probably wouldn’t have sought the advice of a French regulated IFA to manage your UK investments when you lived in the UK so it doesn’t make sense to expect a UK regulated IFA to advise you when living in a different tax jurisdiction to the one in which they are qualified and regulated.
In this age of online banking, tele-marketing and robo-advice, we believe that the old- fashioned method of a face to face meeting, to discuss your individual circumstances and financial objectives, plays a vital part in establishing the trust between the client and the adviser, and that should be the number one priority.
An initial meeting with a new client can take up to three hours – there’s a lot to discuss, such as:
- Your personal and family situation
- Your income – your requirements now and in the future
- Your pension provision
- Your inheritance wishes – do you have wills? Are they set up correctly for French residency? Who do you want to inherit?
- Your property assets
- Your financial assets – bank deposits, investments, Trust assets, business interests – where are they situated? Are they tax-efficient for French residency?
- Insurance policies
- Your state of health and provision for healthcare
- Your priorities now and in the future
- Your financial objectives and attitude to risk
By the time we have gone through all the above, and usually swapped a few stories about our lives, both the client and I have a very good idea as to whether we feel comfortable with each other and that we can work well together.
If, after this meeting, I believe that I can help you achieve your objectives, I will go away and put together my thoughts and recommendations in a report to you. We do not charge any fees for meetings, research or preparing reports and making recommendations. We will meet again to discuss, in detail, any recommendations made, and the product charges will be fully explained. If you decide to go ahead with a recommendation and become a client of Spectrum, we will be remunerated by the product provider.
This is just the beginning of the relationship. Things generally change over time, such as pensions and tax legislation, investment performance, physical well-being, family situations, income and capital needs. An important part of my job is to ensure that we meet periodically, at least once a year, to review your circumstances and make sure that your finances are on track to meet your current needs and longer term goals.
If you would like to have a confidential discussion about your financial situation, please contact Sue Regan either by e-mail at email@example.com or by telephone on 04 67 24 90 95. The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter here
French Residency – Dispelling the Myths
French residency is a popular topic of discussion for expatriates when they get together in a social setting. So often I hear people saying that they “choose” not to be French resident and just to be sure, they make sure that they do not spend more than 183 days a year in France. Come April/May time, the chatter on this subject increases. So too do the differences of opinion, mostly about whether or not someone should complete a French income tax return.
Well, to dispel the first myth – residency is not a choice per se. Based on the facts, you are either French resident or not.
The rules on French residency are really quite straightforward, although admittedly some cases are not! For example, take a couple who are lucky enough to have a property in each of France, the UK and Spain. None of the properties are rented to tenants and so all are available for their own personal use. Every year, they spend five months a year in France, four months in the UK and three months in Spain. They receive pensions from sources outside of France and most of their financial capital is in offshore bank deposits in the Channel Islands. They also have current bank accounts in each of the three countries.
Where are they resident? Well the simple answer is “France”. Why? Because this is where they spend most time in a year.
Hence, the second myth of the perceived ‘183 day rule’ is also dispelled.
When anyone has interests in various countries, it is often found that they satisfy the internal criteria for residence of more than one country. Understandably, this can be confusing. In France, you only have to satisfy one of the following four conditions and you will be resident in France:
(1) France is your ‘home’: If you have property in France and another country, but the latter is not available for your personal use (for example, because it is rented to tenants), then France is your home.
(2) France is your ‘centre of economic interest’: Generally, this means where your income is paid from. In addition to pension, salaries, etc., this can include bank interest and other investment income.
(3) France is your place of ‘habitual abode’: Notably, no reference is made in the law to the number of days that you actually spend in France and this is where many people are caught out, believing that if they do not spend at least 183 days in France, then they can decide that they are not resident. This is not the case and your place of ‘habitual abode’ is, quite simply, where you spend most time.
(4) Nationality: If your residency has not been established by any of the above points, then it will be your nationality that determines your residence, however, this is very rare.
As a French resident, you are obliged to complete an annual income tax return and must declare all your worldwide income and gains (even if the income is ultimately taxable in another country).
Thankfully, there are Double Taxation Treaties (DTTs) existing between France and all the EU States (and also with many other countries in the world). For anyone with interests in more than one country, the existence of a relevant DTT is very important. This is because a DTT sets out the rules that apply in determining which country has the right to tax your various sources of income and assets, with the aim of avoiding double taxation.
However, France does not have DTTs with the popular offshore jurisdictions of, for example, the Channel Islands and the Isle of Man. Hence, for any French resident with bank deposits in these jurisdictions, where withholding tax is being charged on the interest, there is no mechanism to offset this against the French income tax that is also payable. Probably the best thing to do to avoid paying tax twice on the same source of income is to shelter the financial capital within an investment that is tax-efficient in France. Notwithstanding this, as everyone’s situation is different, it is also very important to seek independent financial advice before taking any action.
Inheritance taxes should also not be overlooked. As a French resident, you are considered domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend on your relationship to your beneficiaries. However, there are some DTTs on inheritance taxes between France and other countries (although nowhere near as extensive as the number of DTTs that exist for other taxes). Again, it is important to seek advice on your own personal situation because it is my experience that ‘one size does not fit all’.
In summary, French residency is a fact and not a choice. However, by seeking advice, action can be taken to mitigate your future personal French tax bills, as well as the potential French inheritance tax bills for your beneficiaries.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of French tax legislation. Hence, if you would like to have a confidential discussion about your financial situation, please contact Sue Regan either by e-mail at firstname.lastname@example.org or by telephone on 04 67 24 90 95. The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at: www.spectrum-ifa.com/spectrum-ifa-client-charter
French Tax Changes for 2018
In my last article from early November 2017 I set out the proposed French tax changes for 2018. After some fine-tuning of the proposals the actual changes came into effect from 1 January this year, the most noticeable of which were the introduction of the Flat tax on revenue from capital, and the replacement of the Wealth tax (Impôt de Solidarité sur la Fortune, or ISF) previously levied on total assets, with the new Impôt sur la Fortune Immobilier (IFI). You can read a summary of these and other changes by accessing the following link on our website: French Tax Changes
So, at the time of writing, with “the Beast from the East” sweeping its way across most of Europe last week, you would be forgiven for thinking we are still in the depths of winter rather than into the first month of spring. Spring is my favourite time of year. With any luck things will settle down to normality very soon and we will be enjoying the longer, warmer days with the spring flowers in abundance and the sense of anticipation that summer is just around the corner.
BUT… (of course, there has to be a BUT) along with spring come the, oh so loved, blue and pink Tax Return forms that will be arriving in our post boxes very soon. Over the last couple of years my Spectrum colleagues and I have been writing about the existence of the Common Reporting Standards (CRS) that are now well and truly in operation, whereby financial institutions of the EU and many non-EU countries around the world are exchanging financial information in order to combat tax evasion. If you have been receiving letters from your bank or investment providers asking for your country of residence and Tax Identification Number (TIN) – this is why.
Thus, if you are French resident, it is very important that you declare the existence of all bank accounts, assurance vie policies and any other income generating investments held outside of France, even if you do not draw on the income. Failure to do so can result in severe penalties – €1,500 for each undisclosed bank account or policy (which increases to €10,000 if this is held in an uncooperative State that has not concluded an agreement with France to provide administrative assistance to exchange tax information). Furthermore, if the total value of the bank accounts and policies not declared is at least €50,000, then the fine for each is increased to 5% of the value of the account or policy if greater than €1,500 (€10,000 if in an uncooperative State).
You can make the declaration by listing the information on plain paper and attaching it to your Tax Return. Even bank accounts with a nil balance should be reported. In addition, if you have closed any foreign bank accounts during 2017, the accounts should be reported and the date of closure mentioned.
Unless you will be submitting a Tax Return for the first time (in which case you must complete a paper return) you are required to submit on-line in 2018 if your net taxable income (revenu fiscal de référence) in 2016 was greater than €15,000. However, you are granted an exemption from this requirement if you do not have an internet connection at your home. There are plans for paper based declarations to be completely obsolete by next year.
If you need to complete the pink form for anything other than pension, then perhaps you may be paying unnecessary taxes and therefore might benefit from a review of your financial situation. So don’t wait until May to gather all the information together, make a start now and get organised so that any action needed can be identified and taken care of before the “silly summer season” is upon us – it’ll be here before you know it!
Proposed French Tax Changes 2018
Since my last article the October Tour de Finance event has taken place at the Domaine Gayda in Brugairolles, near Limoux. As always, it was a huge success and very well attended. It was great to see some familiar faces as well as make some new contacts. Over 70 guests in all came along to listen to a number of industry experts speak about highly topical issues such as the proposed changes to the French tax system, pensions, assurance vie, discretionary fund management and, of course, the “B” word!
In this article I will concentrate on our understanding of some of the proposed changes to the French taxation regime, as published in the Projet de Loi de Finances 2018. Of particular interest to many of our clients are the proposed changes to Wealth Tax, the increase in Social Charges and the new 30% Flat Tax on revenue from capital. At the time of writing, these, and other proposed changes have still to be agreed in Parliament and then referred to the Constitutional Council for review before entering into French law. So we won’t know for sure the exact changes that will take place until the end of the year. However, below is a brief summary of the main proposals as we understand it.
WEALTH TAX (Impôt de Solidarité sur la Fortune)
The government proposes to abolish the current wealth tax system and replace this with Impôt sur la Fortune Immobilier (IFI).
IFI would apply only to real estate assets and the principal residence would still be eligible for the 30% abatement against its value. Therefore, taxpayers with net real estate assets of at least €1.3 million would be subject to IFI on taxable assets exceeding €800,000, as follows:
|Fraction of Taxable Assets||Tax Rate|
|Up to €800,000||0%|
|€800,000 to €1,300,000||0.5%|
|€1,300,001 to €2,570,000||0.7%|
|€2,570,001 to €5,000,000||1%|
|€5,000,001 to €10,000,000||1.25%|
|Greater than €10,000,000||1.5%|
This is good news for French residents with substantial financial assets, including those held within assurance vie. However, there have already been some protests to the scope of the new form of ‘Wealth Tax’ being levied only on real estate, with luxury items such as yachts and gold bullion being exempt. Thus, I don’t think we have heard the last of this!
SOCIAL CHARGES (Prélèvements Sociaux)
It is proposed to increase the Contribution Sociale Généralisée (CSG) by 1.7%. This will result in investment income and property rental income being liable to total social charges of 17.2% and, where France is responsible for the cost of the taxpayer’s healthcare in France, at a rate of 9.1% on pension income.
FLAT TAX on revenue from capital
It is planned to introduce a Prélèvement Forfaitaire Unique (PFU) at a single ‘flat tax’ rate of 30% on investment income, made up as follows:
➢ a fixed rate of income tax of 12.8%; plus
➢ social charges at the rate of 17.2% (taking into account the proposed increase).
The PFU will apply to interest, dividends and capital gains from the sale of shares.
How does this affect Assurance Vie contracts?
Based on information currently available and, of course, the finer details may change before being passed into law, it is our understanding that for premiums invested totalling €150,000 or less per person (so €300,000 for a joint life policy) the existing system of withholding tax (prélèvement forfaitaire libératoire PFL). Taking into account social charges at the increased rate of 17.2%, this results in gains on amounts withdrawn, continuing to be taxed, as follows:
➢ during the first 4 years at 52.2%
➢ between 4 years and 8 years at 32.2%
➢ post 8 years at 24.7%
The first draft of the bill proposed that the new ‘flat tax’ will replace the existing PFL system but will only apply to gains on premiums invested after 27 September 2017, that exceed the thresholds above. However, the National Assembly has already decided that it is illogical to have different tax rates, depending on how long the premium has been invested, for new investments made from 27 September 2017. Therefore, an amendment to the bill has already been proposed that all new investments made should be subject to the ‘flat tax’.
It is proposed that all taxpayers will have the possibility to opt for taxation at the progressive income tax rates of the barème scale, plus social charges. Therefore, any potential gains on capital, including withdrawals from assurance vie policies, should be assessed on an individual basis to determine in advance as to which method of taxation would be most appropriate.
There is no change to the inheritance tax treatment of assurance vie contracts and the post 8-year abatement of €4,600 for a single taxpayer, or €9,200 for a couple, will be maintained. Thus, despite the proposed tax changes, the assurance vie will continue to be a very useful vehicle for sheltering financial assets from unnecessary taxes. In addition, as assurance vie policies fall outside of your estate for inheritance tax purposes, you can leave your investments to your chosen beneficiaries without being subject to the French Succession Laws of “protected heirs”.
The abolition of taper relief
The reform also proposes the abolition of the taper relief on capital gains from the sale of shares, in respect of gains from disposals from 2018.
So, if you are sitting on a portfolio of shares which are not sheltered in a tax wrapper, then now is the time to have a look at any gains you may have and, possibly make use of the taper relief of up to 65% on the total gain, while it is still available. Don’t delay in speaking to your financial adviser who should be able to identify whether the restructuring of your investments is in your best interests.
Planning to retire to France – don’t get caught in the tax trap!
Retiring to France can be dream come true for many people. The thought of that ‘place in the sun’ motivates us to save as much as we can whilst we are working. If we can retire early – so much the better!
In the excitement of finding ‘la belle maison’ in ‘le beau village’, we really don’t want to think about some of the nasty things in life. I am referring to death and taxes. We can’t avoid these and so better to plan for the inevitable. Sadly, some people do not plan before making the move to France and only realise this mistake when it is too late to turn the clock back.
For example, investments that are tax-free in your home country will not usually be tax-free in France. This includes UK cash ISAs and premium bond winnings, as well as certain other National Savings Investments, all of which would be taxable in France. So too would dividends, even if held within a structure that is tax-efficient elsewhere. All of these will be subject to French income tax at your marginal rate (ranging from 0% to 45%) plus social contributions, currently 15.5%.
Gains arising from the sale of shares and investment funds will be liable to capital gains tax. The taxable gain, after any applicable taper relief, will be added to other taxable income and taxed at your marginal rate. Social contributions are charged on the full gain.
If you receive any cash sum from your retirement funds, for example, the Pension Commencement Lump Sum from UK pension funds, this would be taxed in France. The amount will be added to your other taxable income or under certain conditions, it can be taxed at a fixed rate of 7.5%. Furthermore, if France is responsible for the cost of your healthcare, you will also pay social contributions, currently around 7.4%.
Distributions received from a trust would also be taxed in France and there is no distinction made between capital and income – even if you are the settlor of the trust.
As a resident in another country, it would be natural for you to take advantage of any tax-efficiency being offered in that jurisdiction, as far as you can reasonably afford. So it is logical that you would do the same in France.
Happily, France has its own range of tax-efficient savings and investments. However, some planning and realisation of existing investments is likely to be needed before you become French resident, if you wish to avoid paying unnecessary taxes after becoming French resident.
I mentioned death above and as part of the tax-efficient planning for retirement, inheritance planning should not be overlooked. France believes that assets should pass down the bloodline and children are ‘protected heirs’, so they are treated more favourably than surviving spouses. Therefore, action is needed to protect the survivor, but this could come at a cost to the children – particularly step-children – in terms of the potential inheritance tax bill for them.
Whilst there might be a certain amount of ‘freedom of choice’ for some expatriate French residents, as a result of the introduction of the EU Succession Rules, this only concerns the possibility of being able to decide who you wish to leave your estate to and so will not get around the potential French inheritance tax bill, which for step-children would still be 60%. Therefore, inheritance planning is still needed and a good notaire can advise you on the options open to you relating to property.
For financial assets, fortunately there are easier solutions already existing and investing in assurance vie is the most popular choice for this purpose. Conveniently, this is also the solution for providing personal tax-efficiency for you. There is a range of French products available, as well as international versions. In the main, the international products are generally more suited to expatriates as a much wider choice of investment options is available (compared to the French equivalent), as well as a range of currency options (including Sterling, Euros and USDs).
If possible, you should seek independent financial planning advice before making the move to France. A good adviser will be able to carry out a full financial review and identify any potential issues. This will give you the opportunity to take whatever action is necessary to avoid having to pay large amounts of tax to the French government, after becoming resident.
Even if you have already made the move to France, it may still worth seeking advice, particularly if you are suffering the effects of high taxation on your investment income and gains or you are concerned about the potential inheritance taxes for your family. A full review of your personal and financial situation enables us to identify any issues and recommend solutions that will meet your long-term goals and objectives.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or on the mitigation of taxes.
Update – Le Tour de Finance, Domaine Gayda, 6th October 2017
This year’s event is now fully subscribed but we are keeping a reserve list in case of any cancellations, so please let me know if you would like to be added to the list. Alternatively, if you would like to have a confidential discussion about your financial situation, please contact me either by e-mail at email@example.com or by telephone on 04 67 24 90 95.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter
Now is the time to review your finances
At this time of year not many of us can really be bothered with thinking about pensions, investments and inheritance planning – there’s far more exciting things going on, like holidays, friends and family visits (as long as they don’t stay too long!) and the summer fêtes and festivals in just about every village and town in the region.
This is usually a quiet time for us financial advisers, but this year – not so much – perhaps it’s the “Brexit effect” that is causing more ex-pats to think about their financial future now rather than put it off until after the end of the silly season. Of course, there are still no clear facts as to how Brexit will impact on UK citizens living in France, so planning for it is not easy, but reviewing your situation now will give you a clearer idea of your financial future, whether your plan is to stay in France or return to the UK.
Of course, there is never a wrong time to review your financial health. Regardless of whether or not Brexit actually happens, or whether it is a soft or hard Brexit, things generally change over time, such as pensions and tax legislation, investment performance, physical well-being, income and capital needs………. the list goes on.
These are some of the things that a good financial adviser will discuss with you at a regular review meeting, to make sure that your finances are on track to meet your current needs and longer term goals. It is vital that your pensions and investments are structured in the best possible way to produce a suitable level of return and, at the same time, mitigate taxes as much as possible.
Also, as a French resident, your adopted or default marriage regime can make a huge difference to how your assets are treated for inheritance tax purposes and, by simply changing your regime with the help of a Notaire, the survivor of a couple can be much better protected from the French laws of forced inheritance, as well as other important benefits. Your financial adviser should be able to discuss these matters with you.
As I mentioned in my previous article, the very popular Tour de Finance is once again coming to the stunning Domaine Gayda in Brugairolles 11300, So, if you are concerned about your investments and pensions in a post-Brexit world why not join us at this very popular event where you can meet the team in person and listen to a number of industry experts in the world of financial advice. This year’s event will take place on Friday 6th October 2017. Places are by reservation only and it is always well attended so book your place early by giving me a call or dropping me an email. Our speakers will be presenting updates and outlooks on a broad range of subjects, including:
- Financial Markets
- Assurance Vie
- French Tax Issues
- Currency Exchange
Financial advice is needed more than ever in uncertain times and doing nothing can often be an expensive mistake. Hence, if you would like to attend the event or would like to have a confidential discussion about your financial situation, you can contact me by e-mail at firstname.lastname@example.org or by telephone on 04 67 24 90 95.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter
Ignorance is not always bliss…………..
………..and, in the context of not structuring your investments to the tax regime of the country in which you reside, it can prove to be very costly.
Let’s take the scenario of the savings conscious UK investor who, over the years, has used some of their available cash to build up a nice portfolio of tax-free investments in ISA wrappers, but then decides to take up residency in France. From the date of moving to France the tax-free status of UK ISA is not recognised in France and any income or capital gains arising from the ISA portfolio become liable to French tax.
Not everyone is aware of the tax efficient structures available in France for longer term savings, the most popular of which is far and away the Assurance Vie, and, as a consequence, suffers the pain of incurring tax liabilities where there were none previously, not to mention the extra administrative burden (and accountancy costs) associated with completing the end of year tax return. In addition, they are missing out on the compounding effect that any unnecessary taxes would have on the growth of the portfolio, which, in itself, is a crucial factor which should not be underestimated.
It’s not only the tax-efficiency of ISAs that is affected but, if you have a UK financial adviser advising you on the management of your investments, then it is unlikely that they will be able to continue to give you appropriate advice due to your change in residency and tax regime. You probably wouldn’t have sought the advice of a French regulated IFA to manage your UK investments when you lived in the UK so it doesn’t make sense to expect a UK regulated IFA to advise you when living in a different tax jurisdiction to the one in which they are qualified and regulated.
Of course, making the switch from UK tax efficient savings to French tax efficient savings may not be without some cost at the beginning – but the longer term benefits are highly likely to far outweigh any initial cost. If you have not yet become French resident, by taking the initiative and disposing of your ISA portfolio beforehand, there would be no tax implications whatsoever.
An added attraction to the Assurance Vie is that there is no limit to how much can be invested and the longer you hold them the more tax-efficient they become. In addition, this type of investment is highly efficient for mitigating the potential French inheritance taxes so that your heirs can receive more of your wealth, instead of the French State.
The very popular Tour de Finance is once again coming to the stunning Domaine Gayda in Brugairolles 11300, So, if you are concerned about your investments and pensions in a post-Brexit world why not join us at this very popular event where you can meet the team in person and listen to a number of industry experts in the world of financial advice. This year’s event will take place on Friday 6th October 2017. Places are by reservation only and it is always well attended so book your place early by giving me a call or dropping me an email. Our speakers will be presenting updates and outlooks on a broad range of subjects, including:
French Tax Issues
With a newly elected French government now in office and the forthcoming publication of the French Projet de Loi in the Autumn, the seminar will be an ideal opportunity to find out how any potential French tax changes may affect you, particularly as President Macron has promised changes to the wealth tax regime.
Smoothing out the bumps of market volatility
In today’s environment of very low interest rates, is it wise to leave more than “your rainy day fund” sitting in the bank, probably earning way less in interest than the current rate of inflation, particularly after the taxman has had his cut…..?
In the above scenario, the real value of your capital is reducing, due to the depreciating effect on your capital of inflation. So, if you are relying on your capital to grow sufficiently to help fund your retirement or meet a specific financial goal, then you should be looking for an alternative home for your cash that will, at the very least, keep pace with inflation and thus protect the real value of your capital.
In order to achieve a better return than a cash deposit, by necessity, there is a need to take some risk. The big question is – how much risk should be taken? In reality, this can only be decided as part of a detailed discussion with the investor, which takes into account their time horizon for investment, their requirement for income and/or capital growth, as well as how comfortable they feel about short-term volatility over the period of investment.
Although inevitable, and perhaps arguably a necessity for successful investment management, it is often the volatility of an investment portfolio that can cause some people the most discomfort. Volatility often creates anxiety particularly for investors who need a regular income from their portfolio, and for this reason some people would choose to leave capital in the bank, depreciating in value, rather than have the worry of market volatility. However, this is very unlikely to meet your needs.
There is an alternative, which is to have a well-diversified investment portfolio that provides a smoothed return by ironing out the peaks and troughs of the short-term market volatility. Many of our clients find that this is a very attractive proposition.
What is a smoothed fund?
A smoothed fund aims to grow your money over the medium to long term, whilst protecting you from the short-term ups and downs of investment markets.
There are a number of funds available with differing risk profiles, to suit all investors. The funds are invested in very diversified multi-asset portfolios made up of international shares, property, fixed interest and other investments.
The smoothed funds are available in different of currencies, including Sterling, Euro and USD. Thus, if exchanging from Sterling to Euros at this time is a concern for you, an investment can be made initially in Sterling and then exchanged to Euros when you are more comfortable with the exchange rate. All of this is done within the investment and so does not create any French tax issues for you.
As a client of the Spectrum IFA Group, this type of fund can be invested within a French compliant international life assurance bond and thus is eligible for the same very attractive personal tax benefits associated with Assurance Vie, as well as French inheritance tax mitigation.
Stop Press!!! Since writing this article the UK Election has taken place resulting in a hung parliament that brings with it more political uncertainty, but also the possibility of a softer Brexit or even a second election. This makes for a testing time for investment managers and the option of a smoothed investment ever more attractive.