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Felicity Lodge is a financial planner with The Spectrum IFA Group, offering independent financial planning advice for expatriates in France. Felicity is based in Grenoble and works with English speaking expats the Alps region.  Here is her guide to some of the personal finance considerations for those making the move to France.

Moving to a new country can be a stressful time – changing jobs, finding somewhere to live, moving schools – and all this in a foreign language. In the midst of all this, financial issues get overlooked. People often assume that because their savings and pensions are well arranged in their home country, they can leave things as they are when they are living in France. In fact, all countries have different tax systems and what is tax efficient in one country may not necessarily be as suitable when you become French resident.

A common way of saving in the UK is with an ISA. Whilst you can continue to hold (but not contribute to) existing ISAs if you are non-resident in the UK, many people do not realize that an ISA is not tax exempt in France and any interest, dividends and capital gains must be declared on your annual tax return. If you will be moving back to the UK it may be worth holding onto your ISAs anyway – this will depend on your personal circumstances. Another popular way of saving in the UK is with the Post Office through National Savings and Premium Bonds. These are also not tax exempt in France and any interest or winnings will be taxable (since you can get your money back, Premium Bonds, wins are considered as interest not as lottery winnings). Some people place their money in offshore banks thinking they will not have to pay tax, however, a French tax return requires you to declare all worldwide income, including interest, and all accounts. Paying withholding tax does not remove the obligation of disclosure.

Bank Savings Accounts

Luckily, as a French resident you have other options available – different but equally valuable. Your first stop will be your bank for savings accounts (compte epargne), specifically a Livret A and a Livret Development Durable (LDD). These should both be offered by your bank and allow you to save a significant amount without tax. However, the interest rates at the moment are not very enticing, so while these accounts are good for holding emergency funds or money you will need in the immediate future, in the long-term your savings run the risk of being depreciated by inflation.

People today are aware of the risk of loosing some of their savings if a bank collapses. France has a compensation scheme that covers up to 70,000 € of a depositor’s net deposits per banking group. The UK scheme covers £50,000 per banking group. People are less aware that the biggest threat to your savings is that the return may not keep pace with inflation, eroding purchasing power in real terms.

Long-Term Savings

For money that you have no plans for in the near-future you might want to have some exposure to bonds or shares, to try to improve long-term returns. The safest way to do this is by investing through funds, since this way you have the expertise of a fund manager and his team and also, since your money is pooled with that of many other investors, your money will be invested in a wider range of shares, which reduces risk compared to holding shares in a few individual companies.

There are two main ways to do this tax efficiently in France. The first is through a Plan Epargne Actions (PEA) which is an account in which you can hold shares and funds. There are tax advantages, but these are combined with restrictions. You can only hold funds or shares that are based in and invested in companies in the European Economic Area (EEA). This is quite a severe restriction and means that you cannot fully diversify and take advantages of growth in other parts of the world. In addition, you cannot continue to hold a PEA if you cease to be French resident.

An alternative and less restrictive option is to hold funds in a life insurance bond. A French approved life insurance bond (Assurance Vie) is similar to a PEA in that it is an account with tax advantages in which you can hold funds. Funds held in an Assurance Vie must be based in the EEA but can invest anywhere in the world. Assurance Vie policies are widely held by French people for long-term savings and to supplement retirement income, since personal pensions in France are not as developed as in the UK and have quite strict requirements on when and how you can take your money. An Assurance Vie is much more flexible: for full tax advantages you must hold the policy for eight years although you can continue to hold it for as long as you wish and you have access to your money at all times.

Holding your savings in an Assurance Vie offers a number of advantages, particularly in France where the tax treatment of an Assurance Vie is very favourable. No tax is due on any asset held within the Assurance Vie whilst it remains in the policy and funds can be bought and sold within the policy with no tax payable, which means that the policy grows tax free. Tax is only payable when money is withdrawn from the Assurance Vie, and this is at extremely beneficial rates after the policy has been held for eight years.

In addition, there are benefits with regard to succession. The policy can be left to whomever the holder wishes, currently with a considerable tax free allowance and a comparatively low rate on any excess. Holding assets together in an Assurance Vie also simplifies your paperwork, tax treatment and asset management. The policy can be kept if you leave France, in which case the tax regulations of your new country of residence will apply.

Assurance Vie policies are not all made equal. Those offered by your bank are often expensive and have little choice of what to invest in. Some are available online with very low charges and a wide range of funds (supports) offered, but for this route you must be comfortable with a DIY approach. If you consult a financial planner, they will be able to find the best policy to match your needs and help you tailor the investment to your risk profile and to changing personal circumstances as your life changes. An Assurance Vie can be a lifetime investment that evolves with you.

Mortgages

Buying a property in France is highly regulated.  The amount you can borrow is controlled so loan payments and any other regular obligations cannot be more than 33% of your monthly income (net of social charges). This amount must be sufficient to cover any existing financial commitments, your new mortgage payments and the associated life insurance cover (which French banks insist on). The same rule applies if you are renting accommodation. French people tend to use fixed rate mortgages, but other options are available and are becoming more common. Re-mortgaging is more difficult in France, so choosing the most suitable mortgage in the first place is essential.

Succession

Inheritance law in France is very different to in the UK and other countries. French succession law applies to properties in France, even if the owners are not French resident, and to worldwide assets if you are. Under French succession law you are not able to leave your assets to anyone you please. Protected heirs (usually your children) are entitled to a portion of your estate and you are not able to leave the total of your assets to anyone you please. Inheritance tax, especially for non-related beneficiaries, is severe.

If you have a complicated family situation or have a will that does not agree with French law, it is vital that you consult with a notaire and a financial planner.

If you have not yet moved to France, professional guidance is essential since there are tax advantages to making some arrangements before you are French resident. If you are already resident in France, trying to understand the details of your different options can be a nightmare, especially when everything is written in a language you do not fully understand. A financial planner can help you to work out the best route to achieving your personal and financial goals within the French system.

Felicity Lodge, based in Grenoble, is a financial planner with The Spectrum IFA Group. For a free, no-obligation consultation please contact felicity.lodge (at) spectrum-ifa.com

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