When you look at the headline rates of tax there is no denying that France has high headline tax rates, more so over recent years. Many expatriates who have moved to France or are planning to do so believe it to be expensive from a tax perspective. What they often do not realise, however, is that they may be able to take advantage of French tax compliant opportunities to protect their assets from the various French taxes, so much so that they may even end up paying less tax in France than in countries like the UK. With the right structures in place you could significantly lower your tax bill.
What is tax efficient in the UK, such as ISAs and Premium Bonds, are not tax efficient in France, and the income from such investments is taxable in full in France. Even the gains on disposals of shares/funds within such wrappers are taxable there.
Investment income in France is now taxed as at the scale rates of tax. Previous lower fixed rates were abolished a couple of years ago. Capital gains on shares and securities, dividends and bank interest therefore need to be added to your other income for the year and taxed as such.
The current rates are:
|NET INCOME SUBJECT TO TAX||Tax Rate|
|Up to €9,700||Nil|
|€9,700 to €26,791||14%|
|€26,791 to €71,826||30%|
|€71,826 to €152,108||41%|
There is an additional 3% tax for a single person of income where income is between €250,000 and €500,000 per part (nothing is due from a family) and 4% for income exceeding €500,000 per part for an individual, 3% for a family.If income exceeds €1,000,000 per part, the rate is 4% regardless of family circumstances.
On top of income tax, you also pay 15.5% social charges on investment income.
One very useful arrangement for lowering tax on your investment income in France is the assurance vie. This is a specialised form of life assurance, which allows you to hold a wide range of investment assets and which is highly tax efficient for residents of France, especially if you hold your policy for eight years.
Assurance vie benefits
If you do not take any withdrawals, there is no income or capital gains tax to pay, regardless of how much the capital has grown or how much interest has been earned within the policy.
If you do take withdrawals, they are taxed very favourably. Only the growth element is taxed, rather than the whole withdrawal. For example, if the whole portfolio of assets within your assurance vie has grown by 7%, and you are taking a withdrawal of €25,000, you will only pay tax on €1,750 and €23,250 is tax free!
You can choose whether the withdrawal is taxed at the progressive scale rates of income tax plus social charges, or a withholding tax rate if that is more beneficial. This withholding rate is 50.5% for withdrawals within the first four years, then 30.5% for the next four years, then falling to 23% after eight years. This is inclusive of social charges (15.5%). Also remember, it is only on the growth element and no tax is due on the monies that remain invested within the assurance vie policy.
From the ninth year onwards, the first €4,600 for a single person or €9,200 for a married couple of growth withdrawn can be tax free (although this exemption does not apply to social charges).
If your assurance vie is not approved in France – for example if issued in the Isle of Man or Channel Islands – then the scale rates always apply to withdrawals and you do not have the withholding tax option.
An assurance vie could also help lower your succession tax liability. In particular, there are considerable tax savings that can be made if the policy was established with lives assured under age 70. Each of your beneficiaries will receive a €152,500 exemption, after which they pay a flat tax rate of 20%. If the net amount each beneficiary receives is more than €700,000 (after deducting the €152,000 allowance) then the tax rate increases to 31.25% on the excess. However, social charges are payable on the growth element when the policy pays out on death.
There are other benefits to holding an assurance vie. Since you can hold a wide range of investments within it, you can combine your tax and investment planning in one exercise. If your capital is spread out over various investments you can bring it all under one roof. Purchases and sales within the policy are normally transacted at little or no cost, so you can change your investments as your circumstances change without incurring extra costs – the cost of purchasing funds directly is normally up to 6%.
It is important to note that there are different types of assurance-vie policies available, and you need to make sure you choose the one that will provide the advantages you are looking for. Tax rules and rates in France also change frequently so your adviser needs to be up to date on the latest regulations in France and what actually works for British expatriates in France. Finally, your tax planning should be based around your situation, objectives and estate plans, so it is essential to take personalised advice.