For residents of France, an assurance vie is a key financial product worth considering. But what exactly is an assurance vie, and what benefits does it offer to those living in France?

 This post explains what an Assurance Vie is, its key benefits, tax advantages, and what to consider when choosing one.

What Is an Assurance Vie?

An Assurance Vie is a French-compliant investment bond combining life insurance coverage with a personalised investment portfolio. It is designed to provide both financial protection and tax-efficient investment growth for the policyholder and their beneficiaries.

You can open an Assurance Vie through local French banks or via specialised expat financial providers. Many British expats start with a small policy upon arrival in France and later obtain advice to set up a more substantial investment.

Key Benefits of an Assurance Vie

Tax Advantages

• Tax-Deferred Growth: Investment gains grow gross until withdrawal, meaning no tax is paid on growth while money remains invested.
• Reduced Capital Gains Tax: After eight years, the capital gains tax rate reduces from 12.5% to 7.5%.
• Tax-Free Withdrawals: Policyholders can withdraw up to €4,600 each year (€9,200 for couples) free from income tax.
• Inheritance Tax Benefits: You can leave up to €152,500 per named beneficiary free from French inheritance tax. For policies opened after age 70, this allowance reduces to €30,500.

Investment Flexibility

Assurance Vie policies allow you to tailor your investments according to your risk tolerance and financial goals. With expat solutions, you can invest and withdraw in multiple currencies, including GBP, offering greater convenience and control.

Estate Planning and Financial Protection

Combining life insurance with investments, Assurance Vie can be an effective tool for passing wealth on, avoiding hefty French inheritance taxes under certain limits.

Long-Term Growth Potential

Designed for long-term investors, Assurance Vie policies typically aim for growth over five to ten years or more. This makes them suitable for retirement planning and wealth accumulation.

What to Consider When Choosing an Assurance Vie

Choosing the right Assurance Vie depends on your personal circumstances and needs. Consider the following:

• Will you invest in GBP, Euros, or another currency?
• Do you require investment portability if you return to the UK or move elsewhere?
• How important is investment choice and risk flexibility?
• Will you use a financial adviser?
• How does it fit with your wider retirement and financial plan?

French Bank Assurance Vie vs Expat Solutions

A French Bank Assurance Vie typically invests only in Euros and offers a limited range of funds. The paperwork is also typically provided in French, which can be a barrier for non-French speakers. Additionally, these policies lack portability or transfer options if you relocate to another country. They often come with exit penalties and commissions, and investment protection is limited to €100,000.

In contrast, an Expat Assurance Vie provides multi-currency investment and withdrawal options, including British Pounds (GBP). It offers a wider choice of funds and investment strategies, with documentation available in English and support from English-speaking advisers. There are no exit penalties or restrictions on withdrawals, and the policy allows for portability and transfer options if you move abroad. Furthermore, expat policies often include options for joint life or alternative life insurance coverage.

Why Use an Assurance Vie?

For French residents, Assurance Vie offers a valuable way to minimise tax on investment growth and inheritance. It supports flexible retirement planning while providing financial protection for you and your loved ones.

Case Study: John, Age 70 – Moving his UK personal pension

John is a British expat living in France who has recently reached pension age and receives his UK state pension. He also has a private pension pot from which he is considering taking a lump sum withdrawal to invest in an Assurance Vie policy. His goal is to benefit from the tax advantages, investment flexibility, and estate planning features that Assurance Vie offers.

John’s first step is to understand the tax implications. Since he receives his UK state pension, this income is generally exempt from French social charges due to the UK-France social security agreement. To benefit from this exemption, John needs to register for an S1 form, which confirms his entitlement to healthcare and social security coordination between the UK and France. This form helps ensure he does not pay French social charges on his pension withdrawals.

Once John withdraws the lump sum and invests it into an Assurance Vie, he benefits from tax-efficient growth inside the policy. The capital gains on his investments within the Assurance Vie are not taxed annually but instead are subject to tax only when withdrawals are made. After the policy has been held for more than eight years, John can benefit from a reduced capital gains tax rate and an annual tax-free withdrawal allowance. Additionally, Assurance Vie offers protection for his beneficiaries, allowing him to pass on significant sums free from French inheritance tax within set limits.

John also appreciates the flexibility of investing in multiple currencies, including GBP and Euros, and the ability to choose from a wide range of investment funds tailored to his risk appetite and financial goals.

It is important to note that the tax treatment of pension withdrawals and Assurance Vie investments is complex and depends on individual circumstances, including age, residency status, pension scheme rules, and current tax treaties. Currency fluctuations may also affect the value of the investment and any returns when dealing in non-euro assets. John seeks advice from a specialist financial adviser experienced in cross-border taxation and expat financial planning to ensure he makes the most appropriate decisions.

Getting Expat Financial Advice

Selecting and managing an Assurance Vie policy can be complex.  If you are a British expat living in France, an Assurance Vie should be part of a wider retirement and estate plan, considering your other assets, pensions, and tax situation.