Tax planning remains an important part of protecting your wealth and retirement income, but it can be quite a minefield these days, particularly for expatriates who have cross-border interests. You need detailed, up-to-date knowledge of French, UK and international tax regimes and regulations to be able to achieve the best results for yourself and your heirs.
There Are Two Key Tax Planning Issues You Need to Consider –
That the arrangements you use are fully compliant in France and UK (and anywhere you have assets or heirs), and that you are fully declaring your worldwide assets and income as required by law.
That the arrangements you use are suitable for you, and will achieve your aims and work well in France and the UK. While some arrangements can seem similar, the tax benefits they provide can vary significantly.
Automatic Exchange of Information
Next year tax authorities will start to receive information on their taxpayers’ overseas assets and income under the Common Reporting Standard. This is the new automatic exchange of information regime that is being implemented by around 100 countries around the world.
The financial information to be reported includes the name, address and tax identification number (where applicable) of the asset owner; the balance/value, interest and dividend payments and gross proceeds from the sale of financial assets.
The financial institutions that need to report include banks, custodians, investment entities such as investment funds, certain insurance companies, trusts and foundations.
The French authorities will be in a position to compare the information received on an individual with his income and wealth tax returns, and today’s technology makes it increasingly easier for them. Residents of France also need to disclose details of all overseas bank accounts opened, closed or used during the year, and there are penalties for failing to do so.
France is tough on tax evasion. Last year its crackdown yielded €12.2 billion, up almost a fifth from the previous year. While most of this came from multinational companies, the €2.6 billion collected from individuals was €700 million more than in 2014, comfortably beating the government’s €2 billion target. Exchange of information is likely to help them increase tax revenue further.
Tax Efficient Investment Arrangements
If you have not already done so, this is the time to review your tax planning arrangements to ensure you comply with your tax and reporting obligations in France – including for income that is taxed another country, such as UK government service pensions and rental income.
You should also look to shelter assets from tax using compliant arrangements.
Assurance-vie are a popular and effective savings vehicle in France, used by both French nationals and expatriates for tax and succession planning and provide considerable tax benefits. However there are many different types of assurance-vie policies and both the type of product and jurisdiction can make a difference to the advantages they offer. Here are two examples.
The longer you own the policy, the less tax you pay. Once you have held the policy over four years you can choose to pay income tax at a fixed rate of 15% instead of the income tax rates up to 45%. After eight years this tax is just 7.5%, and the first €4,600 (€9,200 for a couple) of growth withdrawn is income tax free. Social charges at 15.5% will always be due. But this only applies to EU policies, and so not to Isle of Man and Channel Island policies.
If you set up a policy before age 70, on your death each beneficiary receives an extra €152,000 tax free allowance on distributions from your assurance-vie. They also only pay 20% tax on the excess (rising to 31.25% for amounts over €700,000). These are considerable savings, but they are only possible if your policy allows you to nominate beneficiaries. Many policies domiciled in the Isle of Man and even the UK and Ireland do not provide a defined beneficiary clause, so you miss out on these tax breaks and your heirs could pay significantly more tax.
So while the arrangements you are using are compliant in France, they may not provide you with the full tax advantages you could be benefiting from.
In today’s world, specialist advice for your tax and succession planning is essential to establish the most suitable approach for you and your family. You need an adviser who is fully conversant with French and UK tax law, who analyses tax reforms and keeps your wealth management up-to-date with any changes.