From a financial planning perspective, this is a good time to review your existing arrangements and establish if you need to make changes for 2018 and beyond.
I recommend you do this around once a year; particularly to look at your investments, but also your tax and estate planning and pensions.
If you have not done this in a while, the New Year is a good prompt to do so.
Tax planning
With tax planning you need to consider any rate or regulation changes over the last year and whether they mean you need to make adjustments.
And, of course, in France we have two significant changes starting from January 2018:
- Wealth tax as we knew it has been repealed and replaced by a new version. The rates and rules are similar but it now only applies to real estate (savings and investments are exempt).
- Investment income is now taxed at a fixed rate of 30%, including social charges (though smaller policies can still apply the scale rates of income tax).
While these are both tax cuts, it is worth looking at your tax planning again to ensure you can take full advantage of these reforms.
If you are thinking of investing in property, first look at the tax implications and compare how much tax you would pay compared to investing in securities like shares and bonds. Consider wealth tax, capital gains tax and tax on income (rental income does not benefit from the 30% fixed rate).
If you are new to France it is even more important to review your tax planning, since the opportunities for tax mitigation are very different from the UK or elsewhere. What was tax efficient in the UK is unlikely to be so in France.
You may need to make changes to secure an appropriate strategy that reduces your liabilities to the legal minimum and preserves your wealth for you and your family.
Estate planning
There have not been any major changes since the EU succession regulation ‘Brussels IV’ came into effect in 2015. So estate planning done over the last couple of years should still be effective.
But if you have not established a thorough estate plan since moving to France, or in recent years, do so now, before it is too late.
The first step is to establish your goals.
- Who do you wish to benefit from your estate?
- Do you want them to have control over the money?
- What impact will French succession and UK inheritance taxes have?
- Can you avoid probate on any assets?
- Should you choose French succession law or UK succession law?
Then take specialist advice to put structures in place to achieve your goals – cross-border succession planning is complex, particularly for wealthier families and or those with children from previous relationships. Make sure you get it right.
Savings and investments
Are you certain your investments, and the mix of them, is suitable for your new life in France – for your circumstances, needs, time horizon and risk tolerance?
This is such an important element of protecting and growing your wealth, yet many people do not have a strategic investment plan in place, or have neglected one that was set up years ago.
You first of all should establish your risk appetite, then make sure that the mix of investment assets in your portfolio is in line with it. This will involve a careful blend of asset types, companies, countries, sectors etc, which should also be structured to suit your specific objectives – for example, is income or growth more important for you?
Even if you have a carefully structured portfolio, it is essential to review it every year.
As asset prices rise and fall your portfolio could become unbalanced and carry more risk than you previously intended. You may need to make adjustments to re-balance it.
Pensions
Today’s pension landscape is quite different from a few years ago, so spend a little time to establish the best course of action for your pension funds.
The UK’s ‘pension freedoms’ provide you with many ways to access your funds.
This creates some attractive opportunities, but great care must be taken to establish the best course of action for you – do not risk your long-term financial security.
As discussed in my previous article (Pension dilemma is cash tomorrow or cash-in today – November), if you have a final salary pension you may be able to take advantage of higher transfer values being offered by some providers.
While this could provide new opportunities, you should carefully weigh this up against giving up a guaranteed pension for life and take regulated advice to avoid pension scams.
Remember that UK pension benefits (excluding state pension) totalling more than £1million breach the lifetime allowance and anything over this triggers 55% UK taxation when taken as cash or 25% for income and transfers. You should consider ‘protection’ options or transferring to minimise tax penalties.
You need to examine the French tax implications of all your options, but the local tax regime can provide advantages, particularly if you can take all your pension as a cash lump sum at once. In this case you may be able to pay just 7.5% tax, plus 9.1% social charges (2018 rate).
You also escape social charges if you have not yet registered for healthcare or have Form S1.
Reviewing your wealth management arrangement once a year should prove profitable and provide peace of mind. You should look at all the above areas together, as changes in one could affect the others, and establish holistic solutions that work for your personal situation.
This article is by Bill Blevins of Blevins Franks financial advice group who also writes for the Sunday Times on overseas finance. He is co-author of the Blevins Franks guide to Living in France.www.blevinsfranks.com
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
