You need to adjust your tax planning and estate planning to take account of the complex French tax and succession regimes, so it makes sense to review your investment capital at the same time – though you can do this any time.
Bank interest remains frustratingly low, with no significant improvement in sight.
If you made a good profit on selling your UK home, or perhaps a business, and these funds are sitting in the bank, you may be wondering how best to invest the money to give you better income and growth prospects.
You probably have various investments, too, made over the years, whether it be ISAs, company shares, or equity and bond funds.
Most – hopefully all – will have been good decisions at the time, based on your objectives back then, but are they suitable for your life in France and do they work as an overall portfolio?
The starting point of a review is to ask yourself a number of questions.
What are you looking to achieve? Do you need income to help finance your life in France or treat yourself occasionally? Or are you looking for growth to protect the value of your savings for the long term? Or is it both?
What is your time horizon? Short-term invest-ors should usually consider different options to longer-term ones. Do you need your savings to last just your lifetime or do you want to pass on wealth to your children?
What are your circumstances? What are your monthly expenses in France? What pension savings/income do you have? Do you have family to consider? Are you in good health? Do you expect to live here long-term? Are you expecting to buy or sell a property?
Should investments be in euros or sterling, or a mix? Converting sterling funds into euros for your expenses in France puts your income at the mercy of exchange rate movements.
How much investment risk are you really comfortable with? And what level of risk does your current portfolio have?
How much French tax are you paying on your investments? What was tax-efficient in the UK is unlikely to be tax-efficient here, so how much could you save by re-structuring your capital?
I cannot stress enough how important it is that your overall investment strategy is specifically designed around the answers to the above questions.
Your portfolio should be created and managed to meet your circumstances and goals.
An ill-fitting portfolio may not work as hard as you would like, could be difficult to access, or might easily be eaten away by inflation.
Your appetite for risk
Establishing your objectives and determining your risk tolerance are the starting points for a successful investment strategy.
You need to pinpoint the right risk/return balance for your peace of mind, but it is difficult to effectively assess your own risk profile.
You will benefit from third-party professional objective guidance – these days there are some very sophisticated ways of evaluating your risk appetite, with some advisers using psychometric assessments.
This gives them greater understanding of their client’s attitude to risk and helps position their investments accordingly, so their portfolio is neither too risky nor too cautious.
Asset allocation and diversification
Diversification is key to managing risk within a portfolio.
Different investments carry different levels of risk, so determine which balance works for your risk profile and objectives.
Your investments need to be suitably diversified to ensure you are not over-exposed to any given country, asset type, sector or stock.
By spreading across different asset types (equities, government bonds, corporate bonds, property, cash) and markets (UK, US, Europe, emerging markets, etc), you give your portfolio the chance to produce positive returns over time without being vulnerable to any single area or stock under-performing.
This can be extended one further step.
Utilising a “multi-manager” approach, where several different fund managers are blended together, can reduce your reliance on any one investment manager making the right decisions in all market conditions.
A tax-efficient structure can keep most of your investments in one place, making them easier to manage, and provide protection to help you legitimately avoid paying too much tax.
The less tax you pay, the more of your returns you get to enjoy.
Investment income in France is taxed at either a fixed rate of 30% or, for lower income households, at the scale rates of income tax (ranging from 11% for income over €9,964 to 45% for income over €156,244 for 2020 income) plus 17.2% social charges.
There are investment arrangements available in France which provide considerable tax benefits.
The advantages of the assurance-vie, for example, include tax-free income and gains rolled up within the policy.
When withdrawals are made, only the growth element is taxed and the 30% rate is available on post-2017 policies, provided they are approved for French tax purposes.
From the ninth year onwards, the first €4,600 (€9,200 for a couple) of growth withdrawn is tax-free.
Assurance-vie can also help lower succession tax for your heirs.
Finally, it is important to review your portfolio around once a year to re-balance it.
As asset values rise and fall, your portfolio can shift away from the one designed to match your risk profile and objectives.
You also need to consider if any of your circumstances have changed and the implications for your overall portfolio.
To ensure your portfolio is both tax-efficient and suitable for you today and into the future, spend time with a professional financial adviser so they can get to know you and your objectives, and recommend highly personalised wealth management that covers investing, tax and estate planning.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices, which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
This article is by Bill Blevins of Blevins Franks financial advice group who also writes for the Sunday Times on overseas finance. He is co-author of the Blevins Franks Guide to Living in France (www.blevinsfranks.com).