Understanding Assurance Vie tax rates will help with your French tax planning. Sophisticated tax planning strategies are often seen as the preserve of the wealthy. However, anyone can benefit from simple and cost-effective planning opportunities by investing in an Assurance Vie contract.
Tax is payable on withdrawals from the investment growth element of an Assurance Vie policy. A recent change to the French tax code has simplified the system. There is a ‘flat tax’ rate of 30% on withdrawals from existing policies of more than €150,000 per individual or €300,000 for a couple. The 30% tax rate comprises of 12.8% tax plus 17.2% social charges. The Assurance Vie tax rates also apply to newly established policies below the €150,000 threshold.
After eight years of investment, there is an allowance on annual drawings of €4,600 per person or €9,200 per couple. Investors can withdraw this amount free of income tax; there will, however, be social charges.
The two examples below show the effect of Assurance Vie tax rates on policies taken out after the introduction of the Loi de Finances 2018 on the 1st of January 2018.
A couple invests €300,000 in an Assurance Vie. The investment grows by 5% over its first year. The couple would like to withdraw €30,000; the Assurance Vie taxation rates are as follows:
Tax planning opportunities may involve varying the amount of withdrawals in line with your portfolio performance. For example, there are advantages if you take less income from your Assurance Vie in a year of high growth and more in a year of low growth.
If the couple left the money invested for eight years before taking a withdrawal, the tax payable using the same assumptions as above would be:
The tax treatment of investments held outside of an Assurance Vie vehicle is as follows:
Assurance Vie contracts are thus attractive in that they qualify for beneficial tax treatment.
The French government encourage long-term saving and investment by offering Assurance Vie tax incentives to the public. Ultimately, this will lead to less strain on national tax systems as more people take responsibility for their affairs.
A significant Assurance Vie tax benefit relates directly to French inheritance tax planning. In the event of death, an allowance of up to €152,500 per beneficiary is free from inheritance tax. For example, with three beneficiaries, €457,500 can be passed on completely free of succession taxes. Distributions from Assurance Vie contracts above this amount are subject to 20% tax up to a threshold of €852,500. There is a top rate of 31.25% for any excess above this amount.
An Assurance Vie plan is an investment contract where policyholders can create a personal portfolio from various available funds. The fund selection should reflect the client’s risk profile and investment requirements.
International Assurance Vie Providers also issue French-compliant contracts. Correspondence is generally in English. Policyholders can request that the insurance company calculate and pay any tax due directly to the French tax authorities on their behalf. The insurer may deduct tax on withdrawals at source or declare it as a ‘gain’ in your annual income tax return.
As with all aspects of financial planning, you should ensure that your chosen investment product is appropriate for your circumstances. In the above case example, an Assurance Vie investor might establish a policy to provide retirement income. As always, reviewing and monitoring your portfolio performance regularly and being up-to-date with any changes in Assurance Vie tax rates is crucial. An International contract has sufficient flexibility to allow you to change tack as and when circumstances dictate so you can benefit fully from the French Assurance Vie regime.