Guide to Midi-Pyrenees Feature: Second France Financial advice article from Rob Hesketh

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Welcome to France-Financial's regular slot in the Guide2MidiPyrenees.  My name is Rob Hesketh, and I will be using this regular feature to highlight matters of financial interest to the expatriate community, and anyone who aspires to membership of that elite group. What I want to talk about today is the worrying number of new clients that I'm seeing who have accepted financial advice from people who clearly do not know what they are talking about.

Financial Advice in France

If you took advice on investments before you came to France, or have sought advice since you got here, and find yourselves the proud owners of offshore bonds, then please keep on reading.  You have the wrong investment for successful tax efficiency in France, and it can have severe consequences.

Don't get me wrong, there is nothing illegal about holding a Jersey or Isle of Man domiciled bond in France, as long as you declare it to the 'fisc', but that's when it all starts to go wrong.  You will pay more tax on the gain and you will lose out on various other benefits than if you had structured the exact same underlying investments inside an Assurance Vie.  You have, in short, been badly advised.  This is not necessarily through deceit or bad practice, but almost certainly through ignorance; ignorance of the French financial system and its products.  Most likely the advice will have come from a UK IFA trying to keep a grip on a client moving abroad, or an international IFA operating outside of his usual area.

You must, In short, satisfy yourself that your financial adviser is qualified to advise you about the conditions that exist in the financial regime in which you are going to live and pay taxes.  There are various loopholes that allow non France-based IFAs to operate here from a number of European countries.  Please make sure that you choose an adviser who lives and works in your local community. 

Assurance Vie and Deposit accounts

While I'm on the subject, I may as well explain why the offshore bond is the wrong answer in France.  Assurance vie providers all have fiscal representatives in France.  At the end of each financial year they produce at statement of the value of the assurance vie for wealth tax purposes, and they produce a similar statement when a withdrawal is made.  This identifies the profit element of the sum withdrawn, and this is the total upon which tax is calculated.  Offshore bond providers have no fiscal representative in France, and they are not required to produce these statements.  This means that the French taxman can decide to view each withdrawal, if you declare it, as income.  Non declaration is tax evasion, and in my view is not an option.  I think you can see that you will pay far too much tax on your offshore bond.  In addition to this, you will not benefit from either the tax free allowance after eight years or the succession tax concessions from day one.  This might not bother you, but your children and other beneficiaries might have a lot to say about it. 

The other alternative is to keep your hard earned cash in deposit accounts in banks or building societies.  Apart from the fact that interest rates are so low these days as to make this much less attractive, it is important to realise that you will be missing out on a vital benefit offered by assurance vie.  There are no taxes at all levied on funds while they remain inside the assurance vie, whereas if you place the funds on deposit you will pay income tax and social charges annually.  This means that every year you are saving 12.1% in social charges plus whatever your nominal interest rate is.  If you have a healthy pension income this could well be 14% or even higher, meaning that any interest on your deposit will be cut by at least 26.1% every year.  You will pay the social charge when you eventually take the gain, but it is cheaper than paying it every year.

Finally, investing in an assurance vie does not mean that you have to risk your money on stocks and shares.  If you are a cautious investor you can place your money on bank deposits within the assurance vie, and still save the income tax.

If you have any questions or comments on this, or any other subject, please don't hesitate to contact me, Rob Hesketh:

Rob Hesketh and France Financial

Rob moved to France in 2003 after working for 30 years in International Banking in the City of London and Brussels.  He joined the Spectrum IFA Group in 2005 and became registered and authorised by the French fiscal authorities in mid 2006.  He is now a partner in Spectrum and looks after client relationships in the South West of France.

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