|
|
|
French Assurance Vie Over a third of the French population has an Assurance Vie. As in all countries, the financial industry in France pays commissions and bonuses to bank, insurance & financial advisory staff - so be careful when taking advice! This page outlines: - What is a French Assurance Vie? - What investments can be held inside an Assurance Vie? - Guaranteed euro funds (fonds en euros) - How to manage the Assurance Vie? - Costs of setting up and running Assurance Vie - Choosing the right Assurance Vie WHAT IS A FRENCH ASSURANCE VIE? An assurance vie is simply a wrapper that holds financial investments. You initially transfer money from a bank account into the wrapper. The value of each underlying investment will rise or fall according to the investment chosen. At any time you can change the underlying investments (from within the insurer’s specified list). This enables you to manage the investments as actively as you wish - which is important if you are to get the best returns. At any time you can sell underlying investments and request a cash withdrawal. This is known as rachat partiel and can be done automatically each month if you require a regular income. If the policy has been open for less than 8 years - or if significant amounts are withdrawn - French taxes may be due. At any time you can close down the Assurance Vie and withdraw all the funds. There are usually no exit charges. Alternatively you can convert the capital into a life-time annuity. On the death of the policy-holder, the underlying investments are sold and proceeds transferred to named beneficiaries - minus any taxes. Assurance Vie must not be confused with Assurance Décès which involves monthly life-time insurance premiums and a guaranteed sum paid to the beneficiaries in the event of death. If you stop paying these premiums you receive no capital and effectively loose the value of all the premiums you’ve paid. WHAT INVESTMENTS CAN BE HELD INSIDE AN ASSURANCE VIE? According to the French Code des Assurances, an Assurance Vie can hold almost any publicly quoted financial instruments as well as property and loans. In practice, French Assurance Vie is focused on collective financial investments (ie managed funds) There are thousands of managed funds available on the international markets. Funds may be specialised in specific geographies (US, Europe, Emerging Markets, Latin America, ...) or specific sectors (Health, Technology, Commodities, ...). Some funds are generic, leaving the choice between shares & bonds, regions & sectors, entirely up to the fund manager himself - depending on his view of the economic environment. Examples of managed funds found recently in various Assurance Vie contracts include: Some contracts limit the choice to only one or two funds - often managed by subsidiaries of the same bank that is selling the assurance vie. You should remember that the performance of managed funds depends on the quality of the fund manager (and his team of analysts). Given the trials of the last 10 years, it’s easy to separate the men from the boys. I strongly advise against “funds of funds” since these often accumulate costs without justification. GUARANTEED FRENCH EURO FUNDS (FONDS EN EUROS) All Assurance Vie contracts offer at least one Euro Fund. A Euro Fund is secure and earns significantly more interest than most French savings accounts. Euro Funds are almost always managed internally by the insurance company offering the Assurance Vie. Gains achieved during the better years are set aside to smooth out any difficulties in future years. The insurer guarantees the original capital (net of entrance charges) invested in the Euro Fund. Typical returns (net of all charges) on Euro Funds were: The trend remains downwards - given the low returns on “safe” government bonds. It is therefore important to identify the “better” Euro Funds - and improve the overall performance of your Assurance Vie by investing in some carefully chosen stockmarket funds (known as Unités de Compte or “UC”) Some companies are offering guaranteed minimum rates of 3.375% on their Euro funds for 2012 and 2013. Contact us if you would like to discuss the use of Euro Funds and currently available offers. Please note that it is also possible to have the same type of guaranteed fund - but in a different currency - such as GBP or USD - subject to a minimum investment equivalent to 300000€. HOW TO MANAGE THE ASSURANCE VIE? As described above, your assurance vie is generally invested in a mixture of share and bond funds. You can’t normally choose the individual shares and bonds You must therefore identify appropriate funds run by good fund managers - and buy and sell those funds at the right moment. There are many ways to do this: You can also nominate a specific fund management company to choose funds for you (known as “gestion pilotée”) - however, the company is rarely independent and will usually promote its own funds. The key costs to consider are:
Hence the importance of choosing the right Assurance Vie from the start. Most investments build up entirely tax-free inside the Assurance Vie wrapper. Since July 2011, interest earned on the guaranteed Euro Fund is subject to social taxes at source (at the rate of 15.5% from July 2012). Stockmarket funds (UC) held inside an Assurance Vie are NOT subject to this immediate social tax. Each time a withdrawal is made, the growth of the overall wrapper is measured. During the first 4 years the “gain” is taxed at a maximum rate of 35%. Please note that you can always choose to treat the “gain” as income - taxed at the usual bands. Unless you are in the top income tax bands, this is generally the best method. François Hollande proposes to abolish the fixed rates for 4 and 8 years - and everyone would treat the “gain” as income. In all cases, the “gains” in withdrawals are subject to social taxes (CSG, CRDS, ...) at 15.5% Remember that if you do not use an Assurance Vie you will normally pay 34.5% in income and social taxes on all gains, dividends & interest - even if you make no withdrawals. In the event of death, the proceeds are distributed to the beneficiaries (net of social taxes) and potentially subject to French inheritance taxes: Please note that the tax authorities can apply the rules and penalties of “abus de droit” if the only reason for setting up the Assurance Vie was to save tax... Please contact us if you require further information or simulations of taxes on Assurance Vie. LUXEMBOURG ASSURANCE VIE (LIFE POLICY) French tax rules allow you to open an assurance vie in any EU country and still obtain the same tax benefits - so long as the insurance company and individual make the appropriate declarations in France. Luxembourg provides life policies that are particularly suitable for high net worth French residents & expats. These policies meet the French tax requirements, whilst benefiting from more flexible investment rules available under Luxembourg Insurance law. There are many circumstances when a Luxembourg Assurance Vie can be appropriate, for example: - to eliminate wealth tax on capital during the first five years of French residency To have access to the widest choice of supports you must create a “dedicated fund” or fond dédié (requiring a minimum investment of 250k€) to be held inside the Assurance Vie. This fund must have its own manager who must respect a pre-defined risk agreement specifying types of assets to be held. For this, it is important to understand the different categories (N, A, B, C, D) permitted within Luxembourg rules. However, you can also set up a “normal” Luxembourg Assurance Vie with a guaranteed Euro Fund and a standard list of managed funds - and without the higher costs of a full dedicated fund. Fees are generally higher than for French policies. Please contact us if you require full details of the rules, costs and suggestions for Luxembourg policies. CHOOSING THE RIGHT ASSURANCE VIE Apart from the above points, you should consider the reliability of the insurance company (in whose name all assets are held) and the ease of communicating with them. When setting up the contract there will also be a number of questions to consider, for example: During the lifetime of the contract, you will probably need to: Cabinet Gregory has reviewed a large number of French (and Luxembourg) Assurance Vie contracts - including the latest “zero entrance fee” internet offers - please don’t hesitate to contact us if you would like assistance in choosing or organising such contracts.
|
