However, although from a financial point of view investing directly on securities or through a life insurance policy provides the same return and the same risks, things are very different from a tax point of view.
In an insurance policy, after the subscriber has paid the subscription fees, there is no additional fee to reinvest the fund, and very little cost to switch from one fund to another. This is definitely not the case with direct investment. As long as the funds remain invested within the policy, capital gains are not subject to CGT (capital gains tax). If some money is withdrawn, only the capital gain of the amount taken out (not the main fund) is taxed. The subscriber may choose between adding this gain to his income on his usual income tax declaration form (if any) and a withholding tax, that decreases with the age of the contract to 7.5 per cent after eight years (+12 per cent for tax residents in France). Put simply, for French tax residents the end result is an impressively low tax rate of 4 per cent on the sum withdrawn.
In the event of death, the capital is transferred to one or more beneficiaries (named by the policy holder when he subscribes) and is not included in the inheritance. If the life insurance has been taken out by a non-resident and the capital invested before the age of 70, all sums transferred are free of inheritance tax, whatever the link between the subscriber and the beneficiaries. For French residents, there is a 20 per cent tax to pay for sums above a tax allowance of 152,500 euros. Sums transferred, which were invested after the subscriber reached 70, are subject to regular inheritance tax above 30,500 euros.
There are other advantages which make these policies very interesting investment vehicles, and extremely useful for those thinking of becoming residents in France. As an IFA and insurance broker, RFP can advise you on how they could benefit your situation.
Riviera Financial Planning
Independent Financial Advisor
and Mortgage Broker
Tel: +33 (0)4 93 00 11 26
Article published in the Riviera Times (November 2010)