It is evident that France has high headline tax rates and increasingly 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, is that they may be able to take advantage of French tax compliant opportunities to protect their assets from the various French taxes. With the right structures in place you could significantly reduce your tax bill. .
What is tax efficient in the UK, such as, PEPs, ISAs and other UK investments, are not tax efficient investments in France, and the income from such investments is taxable in full in France for the UK investor and expatriate.
Investment income in France is now taxed as at the scale rates of tax as set out below, not at much lower, fixed rates. This means that capital gains on shares and securities, dividends and bank interest now need to be added to your other income for the year and taxed as such.
The current rates are:
|Up to €5,963||0%|
|€5,964 to €11,896||5.5%|
|€11,897 to €26,420||14%|
|€26,421 to €70,830||30%|
|€70,831 to €150,000||41%|
Income of between €250,001 and €500,000 is subject to a temporary surcharge of 3%, while income over €500,000 suffers an extra 4% tax.
Since the previous fixed rates ranged between 19% and 24%, higher earners now pay more tax on their investment income and gains.
On top of income tax there is also a 15.5% social charges on investment income.
A particularly useful arrangement for reducing 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 your money stays invested and you do not take any withdrawals, there is no income or capital gains tax to pay, this is 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 Viehas grown by 5%, and you are taking a withdrawal of €25,000, you will only pay tax on €1,250.
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.
|8 and over||23%|
These rates are inclusive of social charges of 15.5% and are only on the growth element of the withdrawal.
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 if you make an election by the 15th of the following month and pay the tax and social charges by this date.
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 €902,838 then the tax rate increases to 25% on the excess. In addition, if set up before the age of 70, no 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.