Short term savings when living in France
French investment products are designed to encourage savings by offering tax incentives to investors. Some of the more popular short and medium term savings plans include:
Plan d’Epargne Logement (PEL)
The PEL is widely-used for short term savings in France over a 4 year term, and is designed to generate borrowing capacity for the purpose of house purchase and home improvement. There is no tax payable on the interest during the savings term. If the sum is used for the above after having been invested for 4 years, it can be withdrawn free of income tax; the interest however will be subject to “social taxes” of 15.5%.
At present the current rate of interest on policies is 2.5% with a 1.0% enhanced interest contribution added by the government.
The ceiling for the amount that can be deposited in a PEL is 61,200 €. The interest earned on the account remains tax free if the sums invested are held between a minimum of 4 and a maximum of 10 years.
Plan d’Epargne en Actions (PEA)
This vehicle allows investors to hold French and European shares. Interest and dividend within the plan are accumulated without tax on condition that no withdrawals are made for the first five years. Thereafter the total investment can be encashed free of capital gains tax; there will however be “social taxes” of 15.5% levied on any gains.
Withdrawals before 5 years are subject to the following tax:
- Less than 2 years 22.5% on the gain including social taxes of 15.5%
- 2 – 5 years 19.0% on the gain including social taxes of 15.5%
- After 5 years 15.5% social taxes
Should the PEA be held for 8 years without withdrawals being taken, it can then effectively be treated as an insurance type vehicle wherein tax free income may be taken from the policy. However should income be withdrawn from the policy between year 5 and year 8, the policy will automatically be closed and the tax efficiency lost.
If you would like further information on investment products available to French residents, please go to Financial health-check
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