Tag: financial advice france

How can I avoid or reduce current and future French Wealth Tax (ISF)?

This is a common question we hear in our client appointments.  This article is dedicated to explaining French Wealth Tax and sharing the experience of our Harrison Brook Advisers’ in helping clients achieve this goal.

Important note: Tax avoidance is not the same as Tax Evasion. Avoidance is the legal usage of one’s tax regime to their advantage, reducing the tax that is payable with strategies that are within the law.

Background:

The French Wealth Tax has existed since the Socialists Party 1981 programme and has swung with political agenda’s since:

• 1986 – Abolished by Jaques Chiracs’s right-wing government
• 1988 – Re-stablished as ‘Impôt de solidarité sur la fortune’ (ISF) after Mitterand’s re-election
• 2011 – ISF significantly reduced during Sarkozy’s final year of right-wing politics
• 2012 – Immediately reversed by Hollande as left-wing politics took rise again

As we will see, French Wealth Tax is critical for individuals with assets and property in France over €800,000. However, we believe it is equally as important for all our clients who are just below or likely to be approaching the threshold within 5 years.

Although most of you probably will… try not to wait until you reach the ISF threshold. Proactive financial planning can help avoid or reduce this tax, and believe me staying off the French Wealth Tax radar is the preferable option!

 So what Counts as Taxable Assets?

• Land & Buildings – Principle and secondary residences, rental property, holiday homes…
• Financial Investments – Deposits in high street bank accounts, quoted and unquoted stock & shares…
• Sizeable Assets – Cars, boats, motorcycles, aeroplanes…
• Furniture & Jewellery – Including precious stones…

Assets must be consolidated for all members of your household and as a couple you are obliged to make a joint declaration whether you are married or not. Any assets held by children under 18 must also be disclosed.

Property – Having the right to live somewhere or receiving income from property, can make you liable on the capital value even if you are not the owner. As such Trust Assets should now also be included in your calculations.

“Non-residents” – ISF is only liable on assets physically held in France (excludes financial investments). However, whilst 183 days is a benchmark, non-residents should heed caution as residency is defined by French law so seek expert advice.

Partial Exemption – The majority of people moving to France are exempt from the French Wealth Tax for five years. This exemption only applies to assets beyond France though, so good financial planning is essential.

French Wealth Tax – ISF Rates

French Wealth Tax begins for individuals with net assets above €800,000 and is evaluated at the 1^st of January each year. To calculate French Wealth Tax, sum the total value of your household assets and deduct all outstanding debts and overdraft.

The following bands apply for 2014:

A reduction exists for those whose assets fall just within the first banding (€1.3-1.4M). This reduction is calculated using the following formula 17500€ – (1.25% x P) where P represents the value of your assets.

How & When? For those below €2.57M you need only declare this wealth in your normal annual income tax return in May (paper) and June (online). You will receive your ISF “avis” in August and the ISF must be paid by September 15^th. Individuals above €2.57M must complete their declaration in paper form by June 16^th and pay the associated tax at the same time.

“Non-Residents” must complete the paper version and send payment by July 15^th (EU residents) or September 1^st (non-EU).

So How Can I Avoid or Reduce My French Wealth Tax (ISF)?

As with any taxation: Optimisation and forward planning is key.

1. Utilise Your Rights – Vive la France!

Don’t be caught out by overestimating the value of your home property:

• French residents are allowed to deduct 30% from the comparable sales value of your principle residence
• You can also deduct up to 20% of rental property if “unfurnished”
• Assets you use for company and professional purposes can be exempt if they meet appropriate conditions.

Be smart and specify all eligible taxes due at the end of the year as liabilities in your net asset calculation:

• Income tax and social charges (last years “avis” statement is always a good estimate if unsure)
• Your French Wealth Tax ISF for the current year
• Property Taxes – (Foncier & Habitation)

2. Income Tax Ceiling 75% (plafonnement ISF)

This operates in a similar manner to the old ‘Bouclier Fiscal’ to ensure total French and Foreign taxes do not exceed 75% of your income. If the calculation results in a ratio above 75% then the French Wealth Tax can potentially be reduced to zero.

As such, I always encourage my retired and semi-retired clients to (where possible) consider living off their capital and withdrawing funds from their offshore wrappers or Assurance Vie’s, ensuring their “income” is deemed as minimal.

Despite attempts from the left Government the Conseil Constitutionnel has confirmed that no interest and gains received within offshore and Assurance Vie investments should count in the 75% calculation. The Income Tax Ceiling is a complex mechanism, leave your details with us today for further advice.

3. Where Possible… Transfer your Assets

Spreading assets amongst your descendants is one of the most effective ways to reduce French Wealth Tax. Making gifts can open a minefield of family politics, not to mention client concerns over their children’s lack of experience in managing money rather than spending it! However, the option exists to make “temporary gifts” or usufruit temporaire.

When well organised, such arrangements can substantially reduce your French Wealth Tax and in some instances help you avoid it completely. When badly organised, you could instead incur higher levels of gift tax, making the process pointless.

The current French government is not stupid in regards to gifting and will punish any mistakes with taxation. As such, we recommend talking with a Harrison Brook Adviser at an early stage to strategize the most effective plan for your family.

4. Utilise Available Deductions & Exemptions

Ever been impressed by the selection of art & antiques at your friends’ in France? This could be for more subtle reasons then you first thought! Nearly any object older than 100 years or created by hand is normally exempt from ISF.

Harrison Brook also have options for investing in small European company funds specifically designed to alleviate ISF. Qualifying investments are usually exempt in the following years. This is complex area so please contact for further info.

Conclusion

In summary, whilst many strategies exist for helping clients avoid or reduce French Wealth Tax, every client’s circumstances are different. As such, sitting down with an Adviser is the only way to begin formulating the very best strategy for yourself.

Request a call from a Harrison Brook Adviser to arrange an introductory appointment at your convenience.

Are you moving to France? Retiring in France?

Wondering how to transfer UK pension to France?

What is the solution?…

Understanding QROPS (Qualifying Recognised Overseas Pension Schemes)

If you have savings in an existing UK pension fund but are considering retiring in France or you have retired in France, you may be wondering just how easy it will be to access these funds. The dreams of a more relaxed lifestyle could soon fade if you have to work around pension rules more relevant to UK but also taxation in France.

However, if you already live outside the UK, or you’re planning to move overseas shortly for a period of five years or more, you can use a QROPS to transfer your pension arrangements abroad. We explore the QROPS solution to transfer a UK pension to France.

What are the benefits of a QROPS?

Compared to general UK pension rules, a QROPS could offer you these advantages (subject to local pension rules):

• It could reduce the income tax payable on the income from your pension.
• If you die, your family will be able to inherit your pension benefits free of the lump sum death benefit charge. (55% Death Tax)
• A wider choice of investment opportunities – particularly useful if you want to invest in different assets and currencies depending where you plan to retire, rather than UK-biased choices. Pension income payments can be matched to the currency you are spending. Ideal for Euro (€) income withdrawals in France
• QROP Investment Portfolio’s can be structured for capital growth or income generation – get your capital working harder for you
• In some cases, as little as 70% of your transferred fund must be used to provide you with an income for life
• Consolidate various/several pension schemes into one manageable plan for easy management
• Contract law rather than trust law QROP policies available to minimise your wealth taxation in France

What you should consider before choosing a QROPS?

• Residency considerations – do you expect to return to the UK to retire or for long periods of time in the future? A SIPP maybe more suitable in this situation.
• Existing pension arrangements – is your current pension plans worth less than £50,000? Are you current pensions defined benefit schemes? Do your existing schemes include benefits such as spouse’s pension, life cover, competitive charges? Our team would assess any pension transfer in a feasibility study, helping you understand what your current scheme offers in details.

Harrison Brook helping you make the best choices:

This is a growing market, and new QROPS and providers are appearing regularly. Talk to a financial adviser to make sure you choose the most appropriate jurisdiction and QROPS provider for your needs. Additionally, if your retiring or retired in France a contract law based QROP will often be more tax efficient than a trust based QROP scheme. We are one of few advisory firms which can provide both options. Any QROP solution will also include different kinds of investments, it is crucial to speak to a financial adviser to match your investment portfolio to your risk profile and growth expectations.

Why choose Harrison Brook France for your pension transfer?

• Local adviser available throughout France – Headquartered in Nice, France
• We offer discounted QROP fee structures through using a fee based model of advice – rather than commission remuneration
• ‘Trust’ based or ‘Contract’ law QROP structures available to maximise your tax efficiency in France
• SIPP advice available if your intention is to return to the UK
• UK regulated adviser
• Ongoing advice and management
• No restrictions on client location in France – but also if a client moves outside of France, advice can be provided globally through Harrison Brook Online
• Access to institutional high rate deposit accounts and structured fixed return products
• Access to funds that have been handpicked by investment specialists in model portfolios which can be structured for capital growth, income generation or both
• View our client testimonials

Harrison Brook is your perfect partner to understand what is best for your current situation:

Harrison Brook is one of very few financial advisory firms which can cater for regulated pension transfer cross border advice in the UK and France. Allowing us to cater for QROP and SIPP transfers depending on a clients retirement intentions. Simply ‘Get Started‘, speak to an adviser today for free, no obligation, financial analysis and information tailored for your situation.