Choose investments that will work in France or UK
Many people I speak to start with a New Year’s resolution to move to France. They may also resolve to sort out their finances.
When it comes to the second point, there are generally two schools of thought on how best to go about it:
- I’ll just keep all my money in the UK, in sterling, maybe something in Jersey or the Isle of Man; it is familiar and so feels comfortable, a little piece of home. Doing something “foreign” feels a little scary as I do not know much about it or understand it, so I am not going to trust it!
- When in Rome, do as the Romans do. I will need to open a bank account in France anyway, so I will speak to their French adviser, getting to understand and appreciate how the locals do things.
Which school are you in? More importantly, which one is the right thing to do?
The answer is neither – at least, not in whole.
Human nature is to want to be right about most things, if not everything.
The problem with this is that people will conclude that they either need to be all in pounds or all in euros, all in the markets or all in bonds, cash or whatever is the “winner” for the moment.
The best way, especially when it comes to our finances, is to find balance. We don’t (or at least should not) take our life savings to Monte Carlo and put it all on black or red.
The issue is finding what is between the two extremes of keeping money in France and the UK/offshore. Am I suggesting that you keep it 50/50 between the two extremes?
That would be one way to find balance, but no. Clearly, you need money in France if you live in France and there is no harm in having money in the UK if you spend time or have family there and spend pounds.
It should not, however, be the central savings/investment strategy.
In the investment world, we commonly use structures for holding assets. This is not the investment itself, but a way of holding and trading a range of things, ranging, for example, from cash or gold to stocks and derivatives.
Examples of this, in the UK, might be a trust, an ISA or an investment bond. In France, the most used is an assurance vie, which is, in fact, an investment bond.
The common theme here is that they work in both countries, and not just those but indeed many, offering significant tax advantages, as well as administrative ease and flexibility.
In France, money taken from an assurance vie is often deemed as return of capital, so not tax-able.
It is possible for people with significant incomes to be non-income taxpayers France, hence their popularity. It can also get around all-powerful succession laws, in a way that is more flexible than a will under Brussels IV, marriage regimes and/or tontine clauses.
In the UK, you can take 5% per year, rolling up each year, so (for example) take half out, tax- free, after 10 years.
There is top-slicing relief for high earners and – interesting for returning expats – time apportionment relief.
Great, so it can wear a beret or a bowler hat! Ideal. Should this be set up in France? Surely, to get the tax advantages, it needs to be?
Not necessarily. It needs to have French fiscal representation, thus the ability to elect tax at source rates, offer computations on what is deemed return of capital under French rules.
There are offshore variations, which the French tax office views as, and treats in the same way as, their French equivalents. The upside is that holdings can be in any currency and even a mix of currencies. Reporting may be in another language and to the rules of another country...
There are restrictions to working in this way, compared to a trading platform (for example), but there are ways around these. This means that accessing a wide range of low-cost funds, such as ETFs (Exchange Traded Funds), is achievable.
The goal is that all of your money is seen as à la française when in France and the British style when in the UK, and have the ability to change hats when you need it to. Even better, Spanish if in Spain and Portuguese when in Portugal, Italian when in Italy... and so on.
Many people say they are moving indefinitely, but who can say anything is definite? This means flexibility matters and choice matters.
Wishing you all a happy, healthy and – of course – prosperous New Year!
This column was written by Robert Kent of Kentingtons financial advisers. See www.kentingtons.com