Are you a British expat living in France, wondering how to make your savings work harder while minimising taxes? The Prudential Assurance Vie, known as the International Prudence Bond by Prudential could be the solution you’re looking for. This blog will explain why this bond, recognised as an assurance vie in France, is a tax-efficient way to grow and manage your wealth and help achieve your financial goals.

What is the International Prudence Bond?

The International Prudence Bond is an offshore, single-premium investment bond offered by Prudential International. Designed for British expats in France, it provides access to a range of investment options, including the popular PruFund range. This bond is treated as an assurance vie under French tax law, offering several significant tax advantages.

Prudential Assurance Vie Tax Advantages

An assurance vie is a highly favoured savings vehicle in France, primarily due to its tax benefits. Here’s what that means:

1. Tax-Deferred Growth

With an assurance vie, growth or gains within the policy are not immediately taxed. Instead, the tax is deferred until you make a withdrawal. This allows your investment to compound more efficiently over time without the drag of annual taxes.

2. Favorable Tax Rates on Withdrawals

For bonds recognised as an assurance vie, withdrawals benefit from reduced tax rates:

• Choice of Taxation: Gains from withdrawals can be taxed at a flat rate of 12.8% plus social contributions (17.2%), for a total of 30% (Prélèvement Forfaitaire Unique or PFU). Alternatively, you can choose to have them taxed at your marginal income tax rate if this is more favourable.
• After 8 Years: Gains from your bond can benefit from a reduced tax rate of 7.5% instead of 12.8%. You can also take advantage of a tax-free allowance of €4,600 per year for a single person or €9,200 for a couple. This can significantly reduce your tax liability, particularly if you’re planning to use your savings to supplement your income in retirement (social contributions would still be applicable on top unless you have an S1 in place). 

3. Inheritance Planning Benefits

The International Prudence Bond offers significant advantages for estate and inheritance planning:

• Tax-Free Inheritance: Each named beneficiary can inherit up to €152,500 tax-free. Amounts over this threshold are taxed at reduced rates (20% up to €700,000 and 31.25% thereafter). This can be particularly beneficial in France’s high inheritance tax environment.
• Flexible choice of beneficiaries: You can designate beneficiaries of your choice, helping to navigate France’s strict “forced heirship” rules.

Understanding the PruFund Range of Funds: Minimising Risk for Cautious Investors

The PruFund range of funds is a standout feature of the International Prudence Bond and offers an excellent option for investors looking for growth while managing risk. Here’s why:

What Are PruFunds?
PruFunds are multi-asset funds managed by Prudential, designed to offer smoother investment returns. They invest in a wide range of asset classes, including equities, fixed interest, property, and alternative assets, which helps diversify risk and provide growth potential over the medium to long term.

How the Smoothing Mechanism Works
PruFunds feature a smoothing mechanism that aims to provide stable returns by reducing the impact of short-term market volatility:

• An “expected growth rate” (EGR) is set based on long-term economic and market conditions. This rate represents the smoothed return you can expect.
• Your investment grows at this EGR, which is reviewed regularly to ensure it remains realistic.
• During periods of extreme market volatility, the smoothing mechanism may adjust to reflect significant gains or losses but generally helps cushion against sharp market declines.

Current Expected Growth Rates (EGRs) for PruFund
EGRs for PruFund range funds currently (as of 27th August 2024) fall between 5.7% to 7.3% per annum (before charges), depending on the specific fund and currency. These rates aim to provide steady growth, helping to mitigate short-term market fluctuations.

Why PruFunds Are Suited for Risk-Averse Investors
PruFunds are ideal for investors who want to benefit from market growth while minimising risk:

• Reduced Volatility: The smoothing mechanism offers a more stable investment path compared to direct market investments.
• Diversification: Investments are spread across various asset classes and regions, reducing the risk associated with any single investment type.
• Expert Management: Prudential’s experienced investment team manages the funds, continuously monitoring market conditions and adjusting the asset mix to align with risk and return objectives.

Why the International Prudence Bond is Ideal for British Expats in France

Beyond its tax benefits, the International Prudence Bond offers several features that make it an ideal choice for British expats:

• Currency Flexibility: The bond can be held in GBP, EUR, or USD, offering flexibility depending on your financial goals and needs.
• Access to a Diversified Range of Investments: The bond provides access to the PruFund range of funds, which are diversified across various asset classes to manage risk and seek long-term growth.
• Control and Flexibility: You can make partial withdrawals, switch funds, or take regular income payments. Additional contributions can be made. This flexibility is crucial for expats with changing financial needs or plans to move back to the UK.

Ready to Learn More? Let’s Discuss Your Investment Strategy

If you’re a British expat in France considering how to make your savings more tax-efficient, the International Prudence Bond, with its PruFund range, could be a perfect fit for your financial plans. As a financial adviser specialising in serving British expats in France, Harrison Brook can help you navigate the complexities of the French system and ensure you’re making the most of your money.

Contact us today to schedule a free consultation and discover how the Prudential Assurance Vie could work for you.