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Assurance Vie Taxation – What you should know

Assurance Vie Taxation

Assurance Vie Taxation

Assurance Vie Taxation: The French Assurance Vie is a tax-efficient investment wrapper that holds underlying investments. It is essentially a life insurance investment bond that provides tax benefits, in particular for people who hold the product long term.

Considering the high tax rates in France, it’s prudent to make use of the investment product through growing your hard earned money, whilst receiving tax benefits for doing so.

Who should use an Assurance Vie?

Generally, the benefits of an Assurance Vie come into place after a period of set ownership (depending on when the contract was taken out). Therefore, the people who benefit from ownership are individuals who will remain in France longer term.

If you are more transient in your lifestyle and unsure how long you will remain in France, it’s probably better to avoid using an Assurance Vie. Alternative solutions could be a Global Investment Account (GIA)’ where you can still benefit from investing your money, but it’s viability is not tied to your residency.

However, if you are confident you will remain in France for the longer term, it’s definitely an option to consider.

Assurance Vie’s taken out prior to 27 September 2017

For contracts taken out prior to 27 September 2017, there is a sliding scale in terms of the taxation benefits. I have summarised the tax rates on gains below:

Contract length Income Tax Social Charges Total charges
0-4 years 35% 17.20% 52%
4-8 years 15% 17.20% 32%
8+ years 7.50% 17.20% 24.70%

 

Alternatively, you can elect for the capital gain to be added to your income for the tax year and taxed according to your marginal rate. This could be beneficial if you have a low income for the year.

Furthermore, if you hold the assurance vie for 8 years, you receive an annual allowance of €4,600 (€9,200 if married) which you can withdraw tax free.

Assurance Vie’s taken out post 27 September 2017

For contracts taken out after 27 September 2017, the ownership period required for the tax benefits increases:

Contract length Income Tax Social Charges Total charges
0-8 years 12.8% 17.20% 30.0%
8+ years 7.5% 17.20% 24.7%

 

As mentioned above, you also receive the annual allowance of €4,600 (€9,200 if married) for contracts held longer than 8 years, and can elect for the income to be taxed according to your marginal rate rather than as above.

Assurance Vie Taxation – Inheritance Tax (IHT) Benefits

Inheritance tax is a complicated subject and it’s not easy to plan for. In France, the tax is payable by the beneficiaries – not the estate. The French system does however provide substantial benefits of an assurance vie left to beneficiaries.

Assurance Vie’s are not liable to inheritance tax unless the amount received by the beneficiary exceeds €152,500. Anything exceeding this amount is taxed at 20%. Moreover, this tax allowance applies to each beneficiary therefore the more beneficiaries you leave the assurance vie too, the more allowances you receive. It can become an incredibly important tool for inheritance tax planning.

Should you take out an assurance vie?

Everyone’s situation is unique and what works for one person, may not work for another. Here at Harrison Brook, we assess your overall position and offer solutions tailored to your situation.

Assurance Vie’s can be useful investment vehicle’s but as you can see above, the suitability is dependant on your intentions over the long term.

Please feel free to get in touch with us at Harrison Brook if you are interested in an assurance vie or alternative investment solutions.

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