An introduction to Assurance Vie
There are many ways to invest in a tax-efficient manner whilst resident in France, one of these ways is the French Assurance Vie.
Assurance Vie translates literally to “life insurance”, but the French Assurance Vie is mostly an investment product whereas a traditional life insurance product in France is often known as a “Contrat de Prévoyance” or “Assurance Décès.
How it works
An Assurance Vie is a product with a wide range of investment options. You can fund your account via the following ways:
- Fixed regular premiums. You must pay the amounts that you agree to if you choose this option, otherwise your account can be subjected to penalties.
- Free regular premiums. You can change your regular investment amount.
- Single premium. You invest at the start of the contract and cannot make further payments (but you can take out further policies).
These contracts provide income tax advantages after eight years and contain a small amount of life insurance, typically 1% of the capital value. They also provide inheritance tax advantages, even on death before eight years.
The first type of assurance vie is called a “contrat monosupport” or “contrat en euros”, your capital is guaranteed and the interest that you earn cannot be taken away. These contracts are only available in euros.
The second type of contract is called a “contrat en unités de compte” and allows you to invest into riskier investments such as individual shares, bonds and collective investment funds. These are available in multiple currencies.
The third type of contact is called a “contrat multi-supports” and can hold both cash and riskier investments.
Income tax advantages on withdrawals
Although you can partially or completely withdraw your funds from your contract at any time, these products provide income tax advantages after eight years (and inheritance tax advantages immediately).
For contracts with a start date after 26 September 1997 and for which the funds were invested after 27 September 2017, if you wish to access the funds after eight years, you currently obtain the following benefits on withdrawal:
- Tax free interest and gains on withdrawal for up to 4,600 euros for a single person or 9,200 euros for a couple, per year
- After the above threshold, the Interest and gains are taxed at 24.7% (7.5% income tax plus 17.2% social charges), but you can choose to pay your normal marginal tax rate if this is lower. This applies to your first 150,000 euros of premiums.
- Gains beyond the first 150,000 euros of premiums are taxed at a total rate of 30%
Note that that the 150,000 euro limit applies to each person, so couples can benefit from up to 300,000 euros of income tax advantaged premiums.
Special cases of tax exemption
You may be able to withdraw your funds tax free if you or your legal partner are in the following circumstances:
- Loss of job (as long as you register with Pole Emploi as unemployed)
- Liquidation of your business following legal action
- Redundancy and forced early-retirement
- Disability (second or third category of the French Sécurité Sociale)
Income tax advantages for annuity income
If you choose to purchase a lifetime annuity with your Assurance Vie, the taxation is different. Your annuity income will be subject to income tax and French social security charges, but not all of it. The percentage of your annuity income that is subjected to income tax and social charges depends on your age at the start of your annuity:
- 70% if you are under 50 years old
- 50% if you are between 50 and 59
- 40% If you are between 60 and 69
- 30% If you are at least 70 years old
You can also opt to partially withdraw some capital from your Assurance Vie whilst purchasing an annuity with the remaining funds. You could, for example, start partial withdrawals of your Assurance Vie before the age of 70, but wait until age 70 before purchasing an annuity.
If you purchase an annuity, you will lose access to the capital and you will not be able to pass this on, but annuity providers can provide a spouse’s pension on death, if you purchase this option.
Inheritance tax advantages
Inheritance tax in France is known as “droits de succession”. With an assurance vie, you can save significant amounts of French inheritance tax, the main rules are as follows:
- For premiums invested before age 70: 152,500 euros can be passed on tax free to each beneficiary. There is a 20% tax rate above this amount up to a limit of 700,000 euros and a tax rate of 31.25% beyond this limit.
- For premiums invested after age 70: a single tax-exempted amount of 30,500 euros, the remaining funds are subject to normal inheritance tax rules.
- No inheritance tax for partners (married or civil partners), even for premiums invested after age 70.
Can you transfer an Assurance Vie?
Only transfers to an assurance vie within the same bank or assurance company is allowed.
At Aisa International, we can provide you with an English-speaking service and Assurance Vie provider, along with access to highly reputable investment fund managers.
The views expressed in this article are not to be construed as personal advice. Therefore, you should contact a qualified, and ideally, regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. Consequently, if you do not, then you are acting under your own authority and deemed “execution only”. Additionally, the author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Importantly, this article is dated and is based on legislation as of the date. It should be noted that legislation changes, but articles are rarely updated. Sometimes a new article is written; so, please check for later articles. Additionally, check for changes in legislation on official government websites. Finally, this article should not be relied on in isolation.