Popular French Fiscal Frameworks

For French residents the most common fiscal framework is ‘Assurance Vie’. Any investment plan which is established according to the criteria for this framework will benefit from certain tax incentives, with the aim being to encourage long term saving. The plan will reduce the amount of capital gains tax paid, depending on when the proceeds are taken:

The gains to be taxed are calculated after an allowance of 4600€ for a single taxpayer or 9200€ for a married couple. This can make for a very low overall tax rate if the investment is held for at least 8 years and there is no maximum limit which can be held in an assurance vie plan.

One huge advantage of this type of policy is that the proceeds from policies and plans in the assurance vie framework are also exempt from inheritance tax up to a total limit of 152,000€. Above this there is a 20% tax rate but policies issued before 14th October 1998 are completely exempt from inheritance tax. Another advantage is that the beneficiary can be specified, thus circumnavigating French rules of succession.

For clients who are unlikely to stay resident in France or for those in tax-free environments, the offshore world is attractive because proceeds from investments are usually paid out free of capital gains tax, which can provide useful tax planning advantages. Jurisdictions such as the Isle of Man also now provide strong investor protection, which rivals that of the UK and helps increase security and confidence.

The PEA (Plan d’Epargne en Actions) enables the investor to hold French and European investments without paying tax on the gains (although 10% social charges are applied). The plan must be held for 5 years before becoming tax free and restrictions apply on the amount of non-French funds that can be held.

As an alternative to tax free gains, it is possible to take a tax free income in the form of a ‘rente viagère’ (lifetime income or annuity).

The plan is slightly restrictive for long term investment because any gains or income taken before 8 years have passed cause the plan to be closed. Another plan would have to be started and held for another 5 years before becoming tax efficient again.

The PEP (Plan d’Epargne Populaire) is similar to the PEA framework, as it provides maximum tax efficiency after 8 years. After this time gains can be taken free of tax (but still subject to 10% social charges). However, the PEP does not have the same inheritance tax protection as the assurance vie and there are restrictions on the nature of the underlying shares that the funds can invest in. They are mainly limited to investing in French companies and those with a head office based in France and therefore the choice of funds is limited.

There are also limits on how much can be invested in a PEP - 92,000€ for a single person and 184,000 € for a married couple.