« Assurance vie »

No, this is NOT a life insurance!! Assurance vie is a saving/ investment account!

Assurance vie saving account has been so successful that today there are over €1.5 trillion invested in Assurance vie policies. Over 22 million individuals have either invested lump sums or save regularly using this instrument.

To understand the success of this product, we need to look no further than the tax advantages that it offers. Avoiding paying tax is a number one hobby in France and the assurance vie allows you to do it legally!! So, unless you want to generously help the French government (in paying back their debt) by paying tax that French people themselves avoid paying, you should look at this properly!

General information: It’s a saving/ investment account. The money you invest is available at any time. You name beneficiaries when you set it up. You are only taxed on interest, not capital. You can set up regular Monthly/ Quarterly or Yearly withdrawals from it. You can invest in it in one lump sum or in regular Monthly amounts or in both!).

Inheritance advantages: Before I talk about the wonderful tax advantages, note that the main benefit of this policy is that it overrides French inheritance law! Basically, when you open an Assurance vie policy you name the beneficiary(ies). So when you eventually die, the money left on your policy is given directly to the beneficiary(ies ) without going through the notaire. For your money in the bank, the delay can be up to 6 months (time for the notaire to sort out the inheritance). In the Assurance vie, it is 2-3 weeks after reception of the necessary paperwork (death certificate, passport).

Death duties advantages: I can hear some of you saying “2015 change of law!!” Well think again! As the changes of August 2015 will allow you to be able to choose the inheritance law of your country of birth (instead of French) BUT the tax will always be French tax so if you decide to leave some money to your nephew instead of your rightful children, your nephew will have to pay 55% after an allowance of €8 000!

The assurance vie allows you to leave money to anyone you want and as much as €152 500 per beneficiary! They are then taxed at 20% on what is above the 152 500 euro instead of the % taxed otherwise (55% for nephews, 35% for siblings).

This is the perfect solution if you want to leave something to unrelated beneficiaries such as friends or stepchildren, who would otherwise pay death duties at 60%.

But this is also a good solution for leaving money to children as they can only receive up to €100 000 each before death duties so with the Assurance vie, they can receive up to €152500 as well as the €100 000 allowance

Do bare in mind that if you are French resident, all movable assets come under French inheritance law so your savings in the UK will be subject to French inheritance tax and law.

Finally, note that it is better that all the money is put in before you are 70 years old as the tax advantage for the money invested after 70 is then €30 500 for all beneficiaries combined.

Income tax advantages: Most French people use this product in order to prepare for their pension because once the policy has reached 8 years old, you can withdraw money with an annual tax free allowance of €4 600 if you are single or €9 200 if you are married.

This allowance is for the interest part of the withdrawal so you can take out much more per year and that means you can have regular complementary income tax free (apart from social charges)!

Example: You have opened an Assurance vie with €10 000. After 8 years, you have made €5 000 and you make a withdrawal of €3 000. The taxable amount would be: 3 000-(10 000×3 000/15 000) =€1 000. It is less than €4 600 therefore you have no tax to pay on this withdrawal. If the contract was less than 8 years old, you would have to declare this amount on your French tax return (filled in May the following year or choose the flat tax so tax taken directly from the Assurance vie). If you don’t pay tax in France, chances are you won’t pay tax on it anyway.

Note that the interest is not taxed (income tax) as long as it stays in the policy so if you don’t make any withdrawals, you are not taxed.

Social charges at 17.2% (or less if you have an S1) is taken automatically each year on the interest part of the assurance vie which is invested on Fond Euro (totally secured). For the part of your investment in shares/bonds/funds, the social charges are only taken when you make a withdrawal and only on the taxable amount.

How it is invested and what do you earn: You can invest in Fond euro (totally secured) or in shares, bonds, funds. At whatever percentage you would like.

The fond euro which is all secured is earning around 0.7% after social charges and management fees (it is roughly the same in every company). This is because Fond euro is mainly government bonds which are around 0 now!!

The shares/Bonds/Funds depends on the market!! And I can’t see the future.

Note that the CAC40 (French equivalent to the FTSE 100) has made +70.17% in the last 5 years (as of 30/06/2021). The Euro Stoxx 50 +59.75%. Despite Covid, most of our shares have finished 2020 on a positive percentage despite the crash in March/April.

The interest on the secured part is given on the 31^st of December each year.

What is wrong with it: Well, nothing is perfect in life! So, you also need to know the disadvantages of it.

Firstly, it can cost money to set it up. There is an entry fee for opening this account and every time you add money to it (normally 4.5% of the amount you invest). But this entry fee is NEGOTIABLE (although most insurance companies and banks won’t tell you that). Yes, of course with me it is very negotiable!! The entry fee with me is very low (even 0 if a big amount) so contact me!!

Be very careful with this as some companies do not bother to tell you upfront and you will only realise once the money is invested that there was an entry fee!

There is a management fee (around 0.90%) taken yearly.

Finally, it is more like a long-term saving account, as a withdrawal can take up to 2 weeks, so this is not to be used as a treasury account.

Conclusion: This is a brilliant product, but you need to look if it is made for you or not. I always like to look at people’s personal situation (family structure, finance, projects, etc.) to check if it is suitable for them. This appraisal is free so don’t hesitate to contact me for any further information on this subject. And note that as a broker, I use different companies which allows us to choose from a wide range of different assurance vie, some have a stop loss options to protect from market crashes, some offer a guaranteed income for pensions, some secure your gains, etc. So please contact me and I can send you details on all the type of Assurance vie we can offer.

And remember to check out our web site www.bh-assurances.fr/en for all my previous articles (“practical information”) and register to receive our free monthly Newsletter.  You can also follow us on Facebook: “Allianz Jacques Boulesteix et Romain Lesterpt”

And don’t hesitate to contact me for any other information or quote on subject such as Funeral cover, inheritance law, investments, car, house, professional and top up health insurance, etc…