☏ +34 93 665 85 96  |  ✑ info@spectrum-ifa.com
Viewing posts categorised under: France

Wills for Expats in France

By Katriona Murray-Platon - Topics: France, Wills
This article is published on: 1st March 2018

01.03.18

If you have been reading the news recently you will know that a legal battle is about to start between the wife of the much beloved deceased French Rock Star Johnny Hallyday and his two children from his previous relationships, Laura Smet and David Hallyday. Johnny Hallyday’s children will reportedly contest the decision in his will to leave all his property and artistic rights to his widow Laeticia and their two adopted daughters. Whilst many of us do not have the same level of wealth as Johnny Hallyday, this case does highlight the issues around proper legal wills and more especially in situations where one has assets in more than one country.

Why is it important to have a will?
No one is legally required to have a will; however, most people want to be able to leave instructions on how their assets should be handled in the event of their death. A will is a legal document allowing you to communicate what you would like to happen to your personal possessions after you die. When you purchase a high value, physical asset, such as a house, it becomes even more important to be able to decide who would receive such assets should something happen to you.

If you are resident in France and do not have a valid will in place, then your property would be shared out according to the French rules of intestacy, granting automatic inheritance rights to any children you may have had, your surviving spouse, or to other relatives in the absence of a surviving spouse or child. If you do not have children and are not married or in a civil partnership, your assets would go to your nearest relative.

Do I need to re-do my English will now that I have bought a property in France?
If you have bought a property in France and not updated your UK will it would be advisable to speak to a UK cross border specialist who would be able to advise on whether your existing English will is suitable, or whether it may need replacing or updating in any way.

An English will – if properly drafted and executed in accordance with the UK Wills act of 1837 – would be recognised in France. France has signed the 1961 Hague Convention concerning wills and therefore recognises wills that are valid under UK law. Your French assets could therefore be dealt with together with your English assets under a carefully drafted English will, however this is not recommended in every case and you should seek proper legal advice to ensure that this would be the best solution in your personal circumstances.

When drafting a new will, it is important to inform your lawyer or notaire of the existence of any previous wills in any other country, to avoid revoking a will you have already made in the other country. They would be able to assist you in drafting a new will which takes into consideration any other wills specifically dealing with property in another country.

Do I need to do a French will?
This will depend on your individual circumstances and you should always seek professional advice from a properly qualified lawyer experienced in dealing with cross-border matters. “The inheritance and tax laws of the two countries are very different and each case needs to be examined individually before making a decision” says Matthew Cameron, Partner at Ashtons Legal, specialist in French law and cross-border legal issues. For example, whilst trusts are used very frequently in UK wills, they can cause all kinds of additional administrative and filing obligations in French law. A UK testator usually appoints executors to administer his/her estate after death and distribute the assets to the beneficiaries. In French law the notary is responsible for distributing the estate and assets can be held “jointly” or in “indivision” until the estate is wound up.
You should also note that under French law you cannot leave your estate to whomever you wish. The children have priority over the estate and the surviving spouse is only entitled to a fraction of the whole amount. So whilst you can, in a French will, give certain assets to friends and relatives, you cannot override French inheritance laws in the terms of your will.

I have heard that I can have English law apply to my French will is this true?
The European Succession Regulation 650/2012, also known as ‘Brussels IV’, which came into force on 17 August 2015, allows one law to apply to the whole of the deceased’s estate regardless of the location of the asset. International private law states that French law applies to immovable real estate assets situated in France and English law applies to real estate assets situated in England. Under this regulation the laws of the country in which a person is habitually resident at their death will apply to them unless they have made a declaration during their lifetime. This means that if you wish to elect for the law of your nationality to apply to the disposal of your estate, and for it to be recognised in France, it must be written into your will. However, the inverse cannot apply as the UK opted out of this EU regulation, so only English law can apply to an English estate. As Caroline Jeanson, notaire in Bordeaux who worked for over 12 years with English speaking clients in the Duras area, said “I have never yet, since the Regulation was enacted, advised a British national resident in France to opt for English law in their French will”. Whilst in theory you can choose which law will govern how you leave your assets, this will not avoid French inheritance tax. Under French tax law, if you leave your assets to someone who is not a direct blood relative, there can be substantial tax consequences. That beautiful chateau you own would probably have to be sold to settle the tax liability.

Do I need to do a will with a French notaire?
Strictly speaking you do not need to go to a French notary to write your will. You can do a hand written will called a “Testament Olographe” (holographic will) which is perfectly valid under French law. There is no legal requirement for it to be in the French language, it does not need to be witnessed nor does it have to be registered anywhere, however it is advisable to have it registered with the Central Wills Registry (Fichier Central des Dispositions de Dernières Volontés) which would enable any notary to access it. In any case it is best to seek the advice of a French notary before drafting a will. The first consultation is free and once the notary fully understands your specific situation they would be able to advise you on how best to draft the terms of your will.

Anyone who has ever lost someone will tell you that not only is it difficult to manage emotionally, but just at this very difficult time, there are a whole range of administrative matters that have to be dealt with. If the person did not make provisions in their will it is left to their friends or loved ones to deal with their assets, causing further upset and difficulty. To avoid this and to fully understand your personal situation it is best to seek professional advice from an independent financial adviser specialised in French tax matters, a UK solicitor specialised in French law or a French notary with several years’ experience advising English speaking clients.

For any questions or to make an appointment, please do not hesitate to contact us.

Will your pension sustain you through retirement?

By Spectrum IFA - Topics: France, Pensions, Retirement, State Pensions After BREXIT
This article is published on: 16th February 2018

16.02.18

It is widely known that Europe’s ageing population is a problem for EU Member States. Quite simply, people are living longer and this impacts on the sustainability of State pension systems, referred to as the first pillar. Member States may attempt to address this issue by raising State pension ages and increasing the number of years that people need to qualify for a full State pension. However, this then impacts on the standard of living that retirees can expect to attain, unless additional provision is made.

In some Member States, employees may benefit from occupational pension schemes that are sponsored by their employer. These are known as second pillar schemes and if a promise of a defined benefit pension related to salary and service is on the horizon, then this is highly advantageous. However, employers too are feeling the strain of funding such promises and so are increasingly closing defined benefit schemes and putting in place alternative defined contribution plans. There is no benefit promise and the employee will get whatever the eventual ‘pension pot’ purchases. In short, the risk of meeting the target benefit is passed on to the employee.

Third pillar pensions are also ‘money purchase’ and these sit on top of the first and second pillars. Voluntary by nature, these plans can make the difference between a comfortable or a poor retirement. Such additional pensions may also provide a ‘bridge’ to State retirement pension commencement, if the benefits can be accessed before the State retirement age. However, without appropriate and regulated advice, the saver may find out all too late that their aspirations for a financially secure retirement are not met. Saving sufficient amounts and investing the monies wisely are both essential requirements, but so too is taking advice.

Pension entitlement is a complicated subject. Regular reviews with the adviser should be carried out to check that the ‘pension pot’ is on target to achieve objectives. Generic on-line advice is unlikely to be enough, particularly if the person has accumulated several ‘pension pots’. Moreover, if a person has had a cross-border career, how does the ‘pension pot’ acquired in one State dovetail with one in another State? How are the State pensions earned in each Member State impacted by the EU State pension co-ordination rules? How do the diverse tax rules across Member States affect the outcome for the saver? These are just a few of many questions that should be addressed by the adviser – a robot cannot do this!

In June last year, the European Commission launched its proposal for a Regulation on a pan-European Personal Pension Product (PEPP), as a third pillar pension. In States where the first and second pillar systems are not well-developed, the PEPP may offer a solution for citizens who may be facing a poorer retirement. In other States, the PEPP should provide more choices to its citizens.

Whilst the PEPP initiative is welcomed, the Regulation as drafted, already presents some barriers to becoming a successful cross-border pension arrangement. The PEPP has the potential to contribute to the Capital Markets Union, but only if the barriers are overcome. Regulatory and fiscal rules diverge between the 28 Member States and so pragmatism and co-operation are needed to reach a solution. If the tax incentives are insufficient, and subject to change after an arrangement has commenced or even harmonised, the PEPP is unlikely to succeed.

The PEPP Regulation proposes a limited number of investment strategies be made available by PEPP providers. This includes a “safe investment option”, as a default option, which should provide a capital guarantee. The merit in capital guarantees for pension products is questionable, as these are expensive to provide. The result being that to support the capital guarantee (if in fact a real guarantee can be provided – and by what institution?), this would require low-yielding investments and consequently at retirement, the capital may be insufficient to provide an adequate level of income to supplement other pensions. Thus, the reference to a “safe investment strategy” could be misleading to the saver.

However, rather alarming is the proposal that the PEPP saver can waive the right to receive advice, if he/she selects the default investment option. It is arguable that PEPPs should not be sold on a non-advised basis, even in these circumstances. The Regulation as currently drafted could lead to the saver losing purchasing power, since an obligation to provide inflation-proofing has not been included.

Furthermore, the impact of national pension entitlements, varying decumulation options and retirement ages, particularly if the PEPP saver has cross-border accumulated benefits, strengthens the need for the PEPP saver to receive appropriate professional advice. Hopefully, the European Commission will also come to this conclusion.

This article was published on The European Federation of Financial Advisers and Financial Intermediaries website
Daphne Foulkes is a Board Member of the FECIF

How do you choose a financial adviser?

By Amanda Johnson - Topics: Financial Planning, Financial Review, France
This article is published on: 12th February 2018

12.02.18
Amanda Johnson

Question: Can you offer me any tips in choosing a financial adviser?
When you move to France, you are moving to Country with many different laws and rules to the one you are leaving and this is unlikely to change in the future, so choosing a financial partner which is right for you is very important for your financial peace of mind.

Here are several things I would suggest expatriates consider when looking for a Financial Adviser:

Is the Company regulated in France?
With nothing yet becoming clear on how the UK will be trading with France after Brexit, using a company which is based and regulated in France reduces any need for a sudden change, should regulations change, post Brexit.

Is my adviser able to sit down with me and review my finances on regular basis?
Your Financial Adviser is not just someone to see once and then forget about. As your needs and circumstances change and with different investments growing at varying rates, being able to sit down and review your situation regularly is very important.

What are the costs involved for any appointments, reports or ongoing support?
It is important to know what costs will be involved throughout the life of any arrangement with your Financial Adviser.

How does my adviser get remunerated?
A clear understanding of how your adviser gets paid and a client charter outlining how the relationship is set up helps clarity and ensures you have no surprises down the line.

Can your Adviser offer any references from existing clients?
Being able to speak to existing customers is a great way to measure a Financial Adviser. You can hear first hand, how the process and relationship has worked for someone in the same boat as you?

Does the company own, or do its Directors/Partners have financial interests in the investments being offered, or are they truly independent?
You should be comfortable that your Adviser is not promoting any “own brand products”, without making this clear to you in advance of any commitment. If the company does have its own products be sure that you can view performance, move to another product or change Adviser without additional penalties.

Can I work with this person?
Your Financial Adviser is someone you need to be able to work with. You will likely see them on a regular basis and be comfortable speaking about your future with. In life we sometimes meet people we just cannot seem to warm to, so do not be afraid to seek alternative advice if you find yourself in this scenario.

Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below and I will be glad to help you. We do not charge for our financial planning reviews, reports or recommendations.

French Tax Changes 2018

By Spectrum IFA - Topics: France, French Tax Changes, Income Tax, Tax
This article is published on: 23rd January 2018

23.01.18

During December, the French budget completed its Parliamentary process, with little change to the initial proposals. Shown below is a summary of our understanding of the principle changes.

INCOME TAX (Impôt sur le Revenu)
Income tax bands of the barème scale have been increased as follows:

Income Tax Rate
Up to €9,807  0%
€9,808 to €27,086  14%
 €27,087 to €72,617 30%
€72,618 to €153,753 41%
€153,784 and over 45%

The above apply in 2018 in respect of the taxation of 2017 income, for example, pensions and earnings.

SOCIAL CHARGES (Prélèvements Sociaux)
The Contribution Sociale Généralisée (CSG) has been increased by 1.7%. This results in investment income and property rental income (unless exempted by a Double Taxation Treaty), being liable to total social charges of 17.2%. In addition, where France is responsible for the cost of the taxpayer’s healthcare in France, social charges at a rate of 9.1% will be applied on pension income.

FLAT TAX on revenue from capital
The Prélèvement Forfaitaire Unique (PFU) – also known as the Flat Tax – has been introduced. This will be charged on the total amount of interest, dividends and capital gains from the sales of shares, received by the taxpayer. It also applies to certain gains in withdrawals from assurance vie contracts and this is covered in more detail in the following section.

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%.

However, the option to pay income tax at the progressive barème scale tax rates above (in lieu of the Flat Tax rate of 12.8%), plus social charges of 17.2%, is still possible, but only at the taxpayer’s specific request. In this case, the taxpayer will also benefit from the existing 40% abatement on dividends (but not for social charges).

Capital gains from the sale of shares, no longer benefit from taper relief, where the gain is taxed at the Flat Tax rate.

However, for shares purchased before 2018, where the taxpayer elects for realised gains to be taxed at the progressive barème rates, taper relief will continue to apply, as follows:
➢ 50% for a holding period from two years to less than eight years; and
➢ 65% for a holding period of at least eight years.

This relief also applies to gains arising from the sale of shares in ‘collective investments’, for example, investment funds and unit trusts, providing that at least 75% of the fund is invested in shares of companies.

Likewise, for investments made prior to 2018 in new small and medium enterprises, the higher allowances against capital gains for investments in such companies are also still provided, as follows:
➢ 50% for a holding period from one year to less than four years;
➢ 65% for a holding period from four years to less than eight years; and
➢ 85% for a holding period of at least eight years.

Similarly, the Contribution Sociale Généralisée (CSG) deductible portion (6.8% out of the total social charges of 17.2%) will only be permitted in the case of taxation at the progressive barème scale rates.

Taxpayers will not be able to selectively chose the income that is subject to the Flat Tax and that which is subject to the progressive rates of the barème scale. The default is the Flat Tax and where the taxpayer makes an election for any income from capital to be taxed at progressive rates, this will apply globally. Therefore, careful planning will be needed by some taxpayers, particularly if they intend to make a disposal of a large holding of shares and/or receive a large payment of dividends.
The Livret A, Livret Développement Durable and Livret Épargne Populaire accounts remain exempt from income tax and social charges.

ASSURANCE VIE & CAPITALISATION CONTRACTS
Premiums paid before 27th September 2017
For premiums paid before 27th September 2017, there is no change. Therefore, 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.

For contracts with a duration of at least 8 years, the abatement of €4,600 for a single person, or €9,200 for a couple, continues to apply.

Premiums paid from 27th September 2017
For premiums paid from 27th September 2017, the taxation rate will vary according to the age of the contract, plus for contracts older than 8 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 threshold. 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 reform provides for the PFU to apply for assurance vie contracts of less than 8 years, regardless of the amount of the outstanding capital. Thus, the PFU rate of 30% will be globally substituted for the pre-27th September 2017 rates of 52.2% (up to 4 years contract duration) and 32.2% (4 – 8 years contract duration)

Therefore, according to the age of the contract, the following tax rates will apply:
➢ during the first 8 years, the Flat Tax rate of 12.8%
➢ over 8 years, 7.5% up to the threshold, plus 12.8% above the threshold.

Social charges of 17.2% are payable in addition.
Insurers will be obliged to deduct the tax of 12.8%/7.5%, i.e. depending on the duration of the contract, plus the social charges. Subsequently, for contracts older than 8 years and where the taxpayer has exceeded the threshold, any additional tax due will be charged through the taxpayer’s annual declaration.

The following table summarises the situation:

Fixed tax rate applied
Gaines from premiums
paid from 27/09/2017
Deducted by the
insurance company plus
social charges of 17.2%
Additional tax payable
if threshold exceeded
Additional tax payable
if threshold not exceeded
Contracts < 8 years 12.8% No No
Contracts > 8 years 7.5% Yes, to reach 12.8% No

The post 8-year abatement of €4,600 for a single taxpayer, or €9,200 for a couple, continues to apply.

All taxpayers will have the possibility to opt for taxation at the progressive income tax rates of the barème scale, plus social charges, at the time of making their tax declaration. As the insurance company would have already deducted the PFU tax, any excess tax already paid will be refunded following the processing of the tax declaration made in the year following the payment of the withdrawal. However, taxpayers should be aware that if taxation at the progressive rates of the barème scale is chosen for assurance vie gains in amount withdrawn, then this will apply globally to all income from financial capital.

There is no change to the inheritance tax treatment of assurance vie contracts.

Examples of how the taxation will work:

Example 1
Mr X invested €200,000 in his policy in January 2017. In case of redemption after 8 years, as the premium was invested before 27th September 2017, the gain will be taxed at 7.5%, after application of the abatement of €4,600. Social charges of 17.2% on the total gain are also payable.

Example 2
Mr Y invests €200,000 in his policy in October 2017. In case of redemption after 8 years, as the premium was invested after 27th September 2017 and exceeds the threshold of €150,000, 75% of the gain will be taxed at 7.5% and 25% at 12.8%. The abatement of €4,600 will be first applied to the gain taxed at 7.5% and any balance applied to the gain taxed at 12.8%. Social charges of 17.2% on the total gain are also payable.

Example 3
Mr Z invests €100,000 in an assurance vie contract in 2007 and makes an additional investment of €200,000 in 2018. He decides to fully surrender the assurance vie in 2019, when the value of the policy is €360,000. €50,000 of the gain is attributed to the 2007 premium and €10,000 to the premium invested in 2018. Our understanding is that the tax on the total gain of €60,000 would be calculated as follows:

– 2007 premium: (€50,000 – €4,600) x 7.5% = €3,405.00
– 2018 premium: as he has only ‘used’ €100,000 of the €150,000 threshold against the 2007 premium, the balance of €50,000 can be applied to the premium paid after 27th September 2017, which is 25% of the €200,000 invested. Therefore, 25% of the gain of €10,000 relating to the 2018 premium will be taxed at 7.5% and the balance at 12.8%, as follows:

o (€10,000 x 25%) x 7.5% = €187.50
o (€10,000 x 75%) x 12.8% = 960.00

– Total tax = €3,405.00 + €187.50 + €960.00 = €4,552.50

Social charges of 17.2% on the total gain are also payable.

PROPERTY WEALTH TAX (Impôt sur la Fortune Immobilier)
Wealth tax on total assets (Impôt de Solidarité sur la Fortune – ISF) has been abolished and replaced with Impôt sur la Fortune Immobilier (IFI).

IFI will apply only to real estate assets and the principal residence is still eligible for the 30% abatement against its value. Therefore, taxpayers with net property 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%
€800,001 to €1,300,000 0.50%
€1,300,001 to €2,570,000 0.70%
€2,570,001 to €5,000,000 1%
€5,000,001 to €10,000,000 1.25%
Greater than €10,000,000 1.50%

 

However, at the outset of the debates on the proposed tax changes, it quickly became clear that MPs were not entirely happy about the idea of replacing ISF with IFI. In particular, for people with substantial wealth, who would also benefit from the Flat Tax, this was considered to be a step too far! Therefore, additional taxes have been introduced on certain luxury goods, for example, yachts and sports cars.

TAXE d’HABITATION
Taxpayers who are not liable to IFI will benefit from reductions in taxe d’habitation, in respect of their principal residence, subject to certain taxable income (Revenue Fiscal de Référence) ceilings not being exceeded. For a single taxpayer, the taxable income limit is €27,000 and for a couple, €43,000.

For those who meet the requirements, their taxe d’habitation will be reduced by 30% in 2018, 65% in 2019 and total exoneration in 2020. Where taxable income is just above the income threshold (up to €28,000 for a single person and €45,000 for a couple), the reduction in the taxe d’habitation will be proportionally reduced.

ENTRY INTO LAW
The changes have entered into law following publication in the Official Journal of France.
22nd January 2018

This outline is provided for information purposes only. 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.

How often should I have a financial review?

By Amanda Johnson - Topics: Financial Planning, Financial Review, France
This article is published on: 12th January 2018

12.01.18

There are no hard and fast rules regarding the frequency of a financial review. I believe, however, that there are several questions you can ask yourself, which may indicate that now is a good time to review your own situation:

Have my personal circumstances changed since my last review?
This can include firming up on plans for retirement, changes in your family situation, emerging health issues, a change in jobs or an inheritance. Any of these things could change what you need your money to do for you.

Do I know how the investments I hold are performing?
Have you received a recent statement and are you aware of how your investments are performing compared to others? Reviewing your finances can reassure you that you are on track.

Do I know the position of my current private pensions?
There are options available to expats which are not open to British residents. These are not right for everyone and a professionally prepared analysis is required.

The answers to of these questions may indicate that now is a good time to arrange a financial review.

Sitting down with your adviser will enable them to ensure that any investments held are appropriate for your current situation and risk profile and that you are not over exposed in certain areas.

Your adviser can also tell you how your investments are performing against other types of investment available in the market. Couple this with an ability to advise you of any changes in rules and regulations and you can see that a financial review can provide tremendous peace of mind.

Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me with the contacts below and I will be glad to help you. We do not charge for our financial planning reviews, reports or recommendations.

Trusts – and French residency

By Katriona Murray-Platon - Topics: France, Trust Law, Trusts
This article is published on: 28th November 2017

28.11.17

I remember during my legal studies, Trust law was not a popular subject. The French authorities do not like Trusts either. They don’t understand them, they mistrust them (pardon the pun). Interestingly Trusts originated in France, in Normandy, during the crusades. Crusaders entrusted their property to trusted third parties to manage until their return and the “trustees” had to pay the income to the crusader’s family. However today, the French authorities view Trusts as a way to hide assets (to avoid Wealth Tax for example) whereas from a UK perspective Trusts are a very useful way of managing assets for people who cannot manage them themselves and/or require protection. They are very often used in wills but when the beneficiary, settlor or trustee decides to go and live in France they may have forgotten all about the Trust and have no idea about the reporting obligations for Trusts in France.

Things are even more complicated by the notion of “deemed settlor”. When a settlor dies, the beneficiaries are deemed to be the settlor of the trust assets. Article 885 G ter of the French Tax Code states that the settlor or the “deemed settlor”, if their assets exceed the wealth tax threshold, must include the net value of the assets of the trust in the assessment of their assets on 1st January of the tax year.

Trusts are very often managed by solicitor’s firms and may contain investment portfolios. If a beneficiary is resident in another country the Trust falls under the requirement to report under the Common Reporting Standard Automatic Exchange of Information rules introduced by the OECD (please see my colleague Derek’s article).

There are two declarations which have to be filed. One for every event i.e. when the trust is created, amended or terminated, which must be filed in the month following the event. The other declaration is annual and must be made by the 15th June of each year and show the assets in the Trust as at 1st January of the same year. There is no income tax return for the Trust itself but beneficiaries should declare the income they receive from the Trust (whether it is dividends, interest, proceeds from sales of shares or rent from a property within the Trust) on their annual tax return form. If distributions are made to the beneficiaries, it may also be worth filing an event return mentioning the amounts distributed throughout the year.

Both of the Trust declarations require details (names, dates of birth, addresses etc) of each and every settlor, trustee and beneficiary whether or not they are French tax resident. It is the Trustees responsibility to file the information and the Trustee who will be liable for failure to declare, late declarations and for any penalties.

Since 8 December 2013, Trustees who failed to comply with their reporting requirements could have been fined €20,000 or 12.5% of the total value of the assets held in the trust, whichever was higher. For declarations due before this date the fine was only 5% of the assets in the trust or €10,000.

In March 2017 the French Constitutional Council ruled that the 5% or 12.5% penalties were unconstitutional with effect from 1st January 2017. The €20,000 fine does still apply however and can be cumulative, applying to each return that has not been filed on time.

With the Common Reporting Standards currently being enacted by the UK (including Jersey, Guernsey and the Isle of Man) and France, I believe that there will be a lot more questions from the French tax authorities in the near future and in particular regarding undeclared bank accounts and trusts. Whilst the French tax authorities ask nicely the first time, if they suspect that assets or income have not been declared they do have the power to apply these fines. To better understand your tax obligations as regards Trusts, please do not hesitate to contact me.

Taper Relief on Capital Gains from the Sale of Shares

By Derek Winsland - Topics: Captial Gains, France, ISAs, taper relief on capital gains, Tax
This article is published on: 16th November 2017

16.11.17

My colleague, Sue Regan, in her last article, gave details of a number of tax changes currently being debated in Parliament and which are expected to come into force by the end of the year. On a positive note, wealth tax (Impot de Solidarite sur la Fortune) is to be abolished, to be replaced by a tax on the value of property (Impot sur la Fortune Immobilier) or IFI. This can have real benefit to those with investments outside of property.

Less positive is the intention to abolish taper relief on capital gains from the sale of shares, which includes equity investment funds. This can have serious connotations for those investors holding investment portfolios outside of an Assurance Vie. Portfolios held within equity Individual Savings Accounts (ISA’s) in the UK, for example, will be affected. For UK residents, ISA’s represent an excellent savings and investment vehicle, with ‘income’ drawn from the ISA tax free in the hands of the investor. Growth in the investment attract no capital gains tax charge, irrespective of whether the gains are extracted or allowed to roll up within the ISA.

In the hands of a French tax resident though, ISA’s don’t enjoy any of the tax benefits UK residents take for granted. It is as if the ISA wrapper doesn’t exist. Instead, in France, taper relief is granted on gains made from equities (shares) where the holding is greater than two years. Where shares have been held for two years and up to eight years, the relief is 50%; after eight years the relief rises to 65% under the current system. Crucially, this relief also applies to collective investments where a minimum of 75% is invested in equities.

If you then factor in the fact that all gains are calculated in euros, shares and equity collectives in the UK held for a long time can be further reduced because the purchase price will be converted into euros using the exchange rate on the day of purchase. Likewise, the euro value is calculated on the day of sale. With the value of sterling currently low, the amount of any gain can therefore be further reduced if the exchange rate on the day of purchase is higher than the rate on the sale date.

All of this means that if you are resident in France, holding on to stocks and shares ISA’s in the UK, it really is time you thought about cashing them in, reinvesting the proceeds in the far more tax efficient Assurance Vie. Time really is of the essence.

If you feel you could be affected by this, or have personal or financial circumstances that you feel may benefit from a financial planning review, please contact me direct on the number below. You can also contact me by email at derek.winsland@spectrum-ifa.com or call our office in Limoux to make an appointment. Alternatively, I conduct a drop-in clinic most Fridays (holidays excepting), when you can pop in to speak to me. Our office telephone number is 04 68 31 14 10.

Proposed French Tax Changes 2018

By Sue Regan - Topics: France, Income Tax, Inheritance Tax, Tax, tax advice
This article is published on: 25th October 2017

25.10.17

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.

Le Tour de Finance visits “Escape to the Chateau”

By Spectrum IFA - Topics: Events, France, Le Tour de Finance
This article is published on: 19th October 2017

19.10.17

Following recent successful events in Aix-en-Provence and Carcassonne, Le Tour moved north to the Mayenne, before heading on-wards to Clecy and Lanvallay. The first event this week event took place at the Chateau de la Motte Husson, the “star” of Channel 4’s Escape to the Chateau.

Le Tour de Finance is a series of financial forums designed to give expatriates in France access to various financial experts. Hosted by The Spectrum IFA Group’s Christopher Tagg, topics covered were the tax advantages of Assurance Vie by SEB Life’s Jeremy Ferguson, Calum Harkiss of Currencies Direct answered questions relating to Foreign Exchange, Mark Ommanney of Tilney gave his views on the current state of the markets, Paul Forman of Momentum Pensions tried to help make sense of the complex UK pension rules and talked about QROPs and Prudential’s Edny Van Den Broek spoke about investing for the risk averse. Spectrum’s Michael Doyle gave a practical example of how our experts services provide practical financial solutions and benefits for expatriates living in France.

Finally, a vote of thanks to the day’s attentive hosts, Dick and Angel Strawbridge.

To learn more about Le Tour de Finance and to registered or find out about future events please click here or visit the dedicated Le Tour de Finance website

Successful estate planning in France – Having a will is just the beginning

By Sean Webb - Topics: Estate Planning, France, Succession Planning, Wills
This article is published on: 16th October 2017

16.10.17

When I left school, I knew more about Shakespeare than I did about personal finance. While we gain academic knowledge through education, and professional knowledge through work, there is no formal channel for learning the key life skill of money management. Most of us pick it up in the same way we acquire our wealth – very few have a strategy, even fewer have a plan.

The problem is that personal finance can be complex, sometimes very complex. Mistakes can be costly. This is especially so in France, even for the French themselves. How much more so then for those of us whose first language is not French. And one of the most complicated areas of personal finance in France is estate and inheritance planning.

Successful personal finance is not just about organising our financial affairs so that, while we work hard for money, our money works hard for us. It is also about putting in place arrangements to transmit that resultant wealth in the best conditions to the chosen ones we leave behind.

The passing of a loved one can be one of the most stressful moments of our lives, one where our families are at their most vulnerable. It is then that we need to rely on the robustness of the arrangements that we have already put in place. In spite of this, most of us do not have even a basic will.

The starting point of any successful estate planning starts with defining the ultimate goal. There are three aspects: –

  1. The capacity to transfer at death whatever assets remain to your preferred beneficiaries in proportions of your choosing
  2. In the most cost efficient and tax intelligent manner with the minimum amount of deductions
  3. While ideally retaining and maximising as much control as possible during your lifetime

The bad news is that in France ‘forced heirship’ succession law and inheritance tax rates of up to 60% can make this difficult to achieve. For families with complicated situations, such as step children, this can be especially problematic and UK arrangements will not necessarily function in France and may have unpredicted results. Moreover, finding a proactive English speaking French lawyer prepared to take the time to fully understand your situation and needs can be both challenging and expensive.

The good news is that there is also a complexity of legal and financial planning strategies that can be used when defining your plan to help you achieve your goals and get you nearer to the ideal goal, as defined above. Here are some examples: –

  1. A will with the possible addition of a ‘clause d’attribution intégrale au survivant’ or ‘clause de préciput’. Given Brexit, hand written wills in English should not be relied on in practice.
  2. A change of marriage regime, typically from ‘séperation de biens’ to ‘communauté universelle’ to protect the surviving spouse
  3. Brussels IV (EU Regulation 650/2012) allows you to avoid French succession law (not tax) by opting for the law of your country of nationality rather than of your residence
  4. Adoption of step children
  5. Gifts (‘donations’)
  6. A strategy of dismemberment (‘démembrement’) of real estate into life interest (‘nu-propriété) and usufruct (‘usufruit’). This can significantly reduce the inheritance tax bill, especially if done sooner rather than later via a will at time of death
  7. Use of assurance vie as tax optimisation wrapper for financial assets, ideal for transmitting inheritance to distant relatives, friends or third parties
  8. Careful editing of the beneficiary clause within an assurance vie policy
  9. A strategy of dismemberment can also be applied to certain assurance vie policies.
  10. Use of inheritance tax free allowances –the standard 100,000 EUR per child per parent and a second one via assurance vie adds another 152,500 EUR per beneficiary.

So make it easier on your lawyer and help him to help you. Given the complexity of both the issues and the solutions, ask for a free holistic review of your situation from your financial adviser so you can already begin to define your needs and goals, and have an idea of what strategies are possible.

Thus prepared, you will make your lawyer’s job easier and so less time consuming. As well as achieving peace of mind, you might even save yourself some fees!