Some toughening of 'assurance vie' policies occurred in the recent austerity budget, says Duncan Campbell of Siddalls.
Assurance vie policies are a very popular form of investment in France; over 3 in 5 households hold at least one of these policies.
The policies offer a number of tax breaks, a good annual return, and relief from inheritance tax.
Several changes in the taxation of death benefits arising from an assurance vie policy have recently occurred, although the policies remain very positive for inheritance tax planning.
The previous total exemption from tax for the beneficiaries of policyholders who took out a policy before they became French resident and before age 70 years has been abolished.
This change applies retrospectively to all existing policies.
If the policyholder dies while French resident then the beneficiaries (wherever they are resident) will now be subject to inheritance tax on their share of the policy death benefits, after an allowance per beneficiary of €152,500.
This is disappointing, but this has always been a loophole in the law that was likely to be closed and the inheritance tax benefits remain very favourable.
Tax Rate on Higher Benefits
There are now two rates of tax that apply to benefits per beneficiary, again after the €152,500 allowance:
- 20% for benefits between €152,500 and €1,053,338
- 25% for benefits in excess of €1,053,338
The tax treatment of ‘démembrement’ beneficiary arrangements has changed and, again, this change applies retrospectively to all existing policies.
‘Démembrement’ clauses are a technique to reduce inheritance tax liability. They consist in providing for the spouse (or other person) to be granted the ‘life interest’ (usufruit), with the children of either spouse acquiring the reversionary interest (nue-propriété), and receiving final ownership of the policy proceeds on the death of the surviving spouse.
Previously, both the surviving spouse and the children escaped any inheritance tax charge on the death of the original policyholder.
Under the new rules a surviving spouse will still receive the life interest without a tax charge, but a tax charge may now be levied on the children’s acquired rights.
This tax charge will vary according to the age of the surviving spouse at the date of death of the policyholder, the amount invested and the number of children (or other beneficiaries) involved.
In the majority of cases, the new tax charge will be zero or minimal, but we will gradually go through this with those concerned, to work out any liability and suggest any action.
Duncan Campbell will be at 'The French Village' at A Place in the Sun Live, Birmingham NEC 30th Sept-2nd Oct. Come along and ask him any questions you may have about tax and inheritance planning in France. Visit their exhibitor page for more information.