FRANCE is no different from the UK in promoting long term investment by providing tax concessions to certain approved types of investment.
The most advantageous, for a number of key reasons, is known as assurance vie or life assurance. At this point any resemblance to normal life assurance ends.
This is essentially an investment vehicle where unlimited assets held within the insurance bond may be sheltered from the worst of French taxation.
Given the reputation of the pernicious nature of the tax regime in France you could be forgiven for thinking this is a limited opportunity, but nothing could be further from the truth. Similar to UK pension plans and ISAs, there are a vast array of assurance vie products.
In most cases the concept of assurance vie is referred to as a Private Client Portfolio Bond (PCP) or similar, as this more accurately describes the true nature of the arrangement.
It is worth repeating that unlike UK pension plans and ISAs there in no maximum limit on the investment you can make via a PCP and the tax advantages are similarly unlimited.
Whereas investment gains and income in France are liable to French income tax or capital gains tax, in addition to the normal social charges, any assets held within a PCP will grow virtually tax free.
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While the funds and any uninvested cash are held within the PCP, you will not incur any French income tax or capital gains tax or social charges, allowing the tax-free growth of your money. If however you need to access your capital on a regular basis for income purposes the PCP is very tax efficient to the extent that only a portion of your income is liable to tax.
Even then, you have a choice of being taxed in two different ways so that each year you can choose the basis that minimises the amount of tax that you pay - also, the rate of tax that you pay falls over time - in some cases it fall to zero.
With careful planning and professional tax advice you may also be able to reduce the amount of wealth tax that you pay each year irrespective of the size of your estate.
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It also carries inheritance implications. As many British expatriates find out to their cost, France strictly enforces the Napoleonic code when it comes to passing assets on death.
While most British expatriates expect to be able to choose who will inherit their assets, if you are now, or become in the future, a French resident it is the French legal system that will determine who inherits your assets.
If you are a French resident then all of your assets except for UK property will be controlled by the Napoleonic code.
If you are married and have one child then it is going to be a 50/50 split of your assets at death (whether you wish this or not) between your surviving spouse and child. If you have two children then its two thirds split equally between them and one third to your surviving spouse. Finally, if you have three children it is 75% to your children and 25% to your spouse.
Imagine the problems if you have children from a previous marriage?
Most of the people that I meet would like to leave most, if not all, of their assets to their spouse or partner on their death and to the children thereafter. Interestingly enough, if you hold your investments within an assurance vie, you have total control over who inherits it on your death - the assurance vie overrides the provisions of France's outdated and draconian succession laws.
Although many of you will think that UK inheritance tax is penal and unnecessary, French succession tax is worse. However, there is a tax treaty between the UK and France that can save many British expatriates a considerable amount of tax on death.
Once you become French resident you only be liable to UK inheritance tax on your UK assets.
Recently for surviving spouses a partial exemption from the French succession laws was introduced to the extent that a widow or widower does now have some increased, but very limited, rights of succession.
Given that your spouse generally cannot inherit your full estate, often French succession tax is payable on the first death if you have a reasonably sized estate.
For French succession tax, holding your cash and other assets within the shelter of assurance vie can provide some outstanding benefits.
You can leave 100% of your assurance vie and its underlying assets to your spouse on death and you may also be able to avoid succession tax entirely at that time.
Furthermore, if your children or grandchildren receive their share of your estate via an assurance vie they get roughly double the succession tax exemptions, compared to them inheriting other assets that you have outside the assurance vie.
If however you are UK resident for tax purposes at the time that you establish your assurance vie and you are under 70 at that time, then your PCP will always be totally exempt from succession tax once you have become a tax resident of France, even if you invest more money into it once you are French resident.
The next question is how to choose the assurance vie that is best for you?
There are some vitally important reasons for selecting an assurance vie issued by a non-French, but EU based, provider.
You would be entitled to some additional tax benefits by choosing an assurance vie product from a company that is not based in France.
One example is the new UK-France tax treaty that retains the wealth tax 'holiday' for UK nationals moving to France. For the first five full French tax years after becoming a resident of France, a British national's wealth tax liability will only be based on French assets - all other assets being ignored. From the sixth year of residence onwards, wealth tax will then be payable on worldwide assets as normal.
This means is that an assurance vie from a French company will not qualify for the 'holiday' while a PCP issued, say, in Luxembourg, will qualify and therefore will not be subject to wealth tax for five full years.
Which company should you choose for your assurance vie?
The question you should be asking is more fundamental - if not a French company, then which jurisdiction should you look at without being caught by local taxes?
Most independent financial advisers will choose Luxembourg or Dublin, but why? A product can only qualify for the remarkable tax advantages offered by a PCP or assurance vie if it is based in an EU member state.
Insurance contracts issued from the Channel Islands and Isle of Man do not qualify because they are not in the EU. Between Luxembourg and Dublin the overwhelming choice will be Luxembourg because of the current financial plight of the Irish government and lack of investor protection for Irish life assurance companies.
Luxembourg arguably offers the strongest investor protection in Europe. Luxembourg-based life assurance companies have not been called into question at any point during the current financial crisis.
Assurance vie provides an excellent tax shelter for British expatriates who live in France. As with so many specialised areas of tax and investment planning, it is crucial that you take financial advice from a regulated and independent professional firm.
