Should I invest into an Assurance Vie or a Platform if I am a French resident?
Firstly, SJB Global works on a regressively tiered fee-based model, meaning the more you choose to invest, the less our percentage fee is relative to the total. Due to this transparent charging model, we get paid the same amount regardless of the recommended product. The primary aim of this structure is to give you, the investor, the comfort that your interests are at the forefront of our recommendation.
Why choose an Assurance Vie?
If you have been a French resident for a few years, then you probably have come across the term ‘Assurance Vie’. Over 22m residents of France choose to invest into Assurance Vies due to the benefits they offer. Please see a list of the main benefits below:
1. Tax efficiency
Depending on where the product is based, your funds usually grow almost completely tax-free, except for any withholding taxes that may be deducted at source from interest and dividends in the funds’ country of residence. The personal tax liability can be ‘deferred’ until you decide to make a withdrawal from the product, whether that be in France or another country such as the UK. The benefit of tax deferral allows higher taxpayers the opportunity to buy and sell investments without the need to consider your annual tax liability in addition to deferring tax until a time when you are a lower tax rate payer, depending on the jurisdiction of where you are resident of course.
In 2018, France introduced a new 30% flat tax rate on savings income, which was also applied to Assurance Vie policies for chargeable gains on benefits arising from premiums paid into policies from 27th September 2017 onwards. The taxation of an Assurance Vie is generally more tax-efficient after 8 years when income tax from the policy is taxed at 7.5% instead of 12.8%, however, a social charge of 17.2% is still applicable but can be reduced to 7.5% if the resident holds an S1 health certificate.
If you select an offshore product that is domiciled outside of France, it can move with you if you decide to reside elsewhere in the future. Certain providers also allow you to convert your French Assurance vie into another country compliant product such as a ‘Spanish Compliant Bond’, ‘Portuguese Compliant Bond’, ‘Italian Compliant Bond’, or even a ‘Swedish Compliant Bond’, just to name a few.
If you are from the UK and plan to return to the UK, the Assurance Vie will need to be endorsed as it is classified as a highly personal bond. Once endorsed, you may however benefit from ‘time apportionment relief’ meaning any chargeable gain after returning to the UK, where UK income tax is due, will be reduced based on the number of years you have spent abroad. This could be a significant saving if you have been a non-UK resident for many years.
3. Droits de succession (Inheritance Tax)
Inheritance tax in France is known as ‘droits de succession’. This tax applies to individual beneficiaries which can differ depending on the amount they inherit and the relation with the deceased. One big benefit of an Assurance Vie is that premiums paid into your plan before your 70th birthday are subject to low preferential rates. Another benefit is that any heir, with no maximum number, can receive up to €152,500 from all types of Assurance Vie death benefit payments payable in relation to the same life assured without paying this tax.
4. Freedom to pass on your wealth
An Assurance Vie allows you to choose a beneficiary to inherit the funds when you die whilst allowing you to control your wealth before it is passed to your heirs. French succession laws are based on Napoleonic Code and apply forced heirship rules; however, you can mitigate the effects of these rules by using a French compliant product such as an Assurance Vie.
5. Simplicity for tax reporting
Many Assurance Vie providers appoint a fiscal representative to do your fiscal reporting for you on payments of personal income tax on savings income on withdrawals. This does not only save your financial adviser’s time but also saves you time and money having to do it yourself.
6. Extensive investment opportunities
Often, many Assurance Vie products are very restrictive when it comes to investment options and can be limited to underperforming French-biased investment options. Certain products in the offshore market have a much broader range of funds, stocks, and shares that still meet the strict regulation that France enforces for this product.
Who is an Assurance Vie suitable for?
- If you are a UK, EEA or non-EEA expatriate with English as your first language
- If you are aged between 18 and 89
- If you are looking to invest at least EUR 120,000 or the equivalent currency conversion
- If you want to invest tax efficiently over the medium to long run
- If you want to pass your wealth to future generations in a tax efficient manner
- If you are happy to accept investment risk to achieve investment growth aligned to your risk profile
Who it is not suitable for?
- If you have no other savings or investments
- If you do not have English as your first language
- If you are a French national
- If you are not comfortable taking investment risk
- If you require money instantly or within a short-term horizon
What does an Assurance Vie typically cost and are there any other benefits/drawbacks?
- Annual Management Charge of 0.4%
- Quarterly admin charge of GBP 155
- No investment dealing charges
- Usually, a 1% charge for FX conversion or when buying a fund that is in a different currency than the underlying bond
- Can’t change the currency of the underlying platform once it has been set up
- No entry of exit fees
- Online Access
Is an Assurance Vie right for me or are there any other options?
For the limited amount of Assurance Vie providers in the marketplace, there are significant differences that could alter your decision to choose this product over an alternative option. One big benefit for an Assurance Vie is succession planning as well as gross roll-up ‘deferred tax’ which enables you to trade investments without needing to consider your tax liability. In addition to this, you can keep control of your investments and avoid paying tax until a future date when you may be paying less tax, such as residing in the UK. Furthermore, the fiscal reporting is taken care of, leaving more time to enjoy your retirement. Finally, an Assurance Vie allows you to pass down your wealth to a beneficiary tax-free, subject to the maximum tax-free allowance.
The alternative option would be using a platform that offers general investment accounts (GIA) with no tax benefits. These GIA investment accounts, although without tax benefits can in many cases be more beneficial depending on your needs and objectives. In addition to the obvious disadvantage of no tax benefits, you would also require reporting any crystalised profits on an annual basis as well as taking on the full succession liability without any tax-free exemptions.
What does a General Investment Account (GIA) Platform offer?
- Offshore Multi-currency platform – GBP, EUR, USD, HKD, CHF, AUD and more
- FCA regulated infrastructure
- Broad range of investment choice such as OEICS, ETFs, Mutual Funds, Stock and Shares etc.
- 24-hour live trading facility
- Extremely low FX exchange fee of 0.07%
- Very low dealing fees – $5 per trade
- Online Access
- Annual Management Charge of 0.34%
- Detailed reporting in any currency
So why would a platform be more beneficial?
Succession planning is only a benefit if you have close dependents to pass your wealth to. Should you have no children then you might not feel this benefit is as important. If you plan to move residency in the foreseeable future, this benefit would also not be important as the benefits relate to France.
The fees associated with an Assurance Vie are generally more expensive than a platform and often have fixed monetary fees associated with the product. Therefore, these products are more suited to investors who have a substantial amount of savings. For an investor with €100,000, the fees alone may impact your decision to choose an Assurance Vie over a platform, even if all the benefits above apply and are important to you.
What other things must I consider when deciding to invest in an Assurance Vie or Platform?
1. Comparing Costs within an Assurance Vie and Platform
At an initial investment premium of €100,000, an Assurance Vie could become expensive, which might, in turn, reduce the tax advantages that you might look to receive. The fixed AMC and quarterly admin charge alone are equivalent to around 1.2% per annum. Once you factor in a 1% annual adviser charge and investment fund charges, you need to make 2.5% to 4% per annum to break even. If this is the case, choosing low-cost passive funds becomes even more important to keep the costs as low as possible without reducing the potential for returns. Should an investor have €500,000 to invest, an Assurance Vie becomes much more attractive from a cost point of view as the AMC with the admin charge would now only equate to 0.53% per annum, not much more expensive than a platform.
Reputable advisory firms use regressive charging models meaning the more you invest, the lower their fees are, meaning the annual adviser fee could be less when investing this amount of money too. In summary, the cost can be extremely important when deciding which option is better, however much be done on a case-by-case basis.
2. Does risk profile make a difference?
Due to the fixed fees of an Assurance Vie, the main factor is the level of the initial invested premium. With €100,000 to invest, a ‘cautious’ investor with a gross growth expectation of around 5% to 6% per annum would effectively lose more than half of their returns to fees. However, this becomes much more attractive to a ‘speculative’ investor with a gross growth expectation of around 10% per annum. For ‘defensive’ investors taking minimal risk, a platform would potentially be the only option due to fees. At a higher premium level of €500,000, the relative fee level diminishes and so they become less important.
3. How does the currency denomination of my policy affect my decision?
It is best to invest your premium in the same currency that you intend to withdraw in. For example, if you wish to invest your premium in GBP and later withdraw EUR, an Assurance Vie would become extremely costly as you would need to convert from GBP to EUR each time you wish to make a withdrawal. In this example, if the underlying investments within your policy are denominated in a currency other than GBP, you would effectively be charged 1% FX fees twice: both on the initial investment, and every time you make a withdrawal. Another downside is an Assurance Vie does not allow you to change the currency denomination of your policy once it has been set up. This contracts with certain flexible platforms, within which you can change the currency of your platform whenever you want with minimal cost.
In this article, we have illustrated the benefits and drawbacks of an Assurance Vie and GIA platform and compared them based on some potential life examples. In addition, there are other factors that we have not mentioned in this article, such as UK IHT. Please bear in mind that everyone’s needs and objectives differ, making it imperative to speak to a qualified financial adviser before making a big financial decision.
This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research.
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