When considering investing your capital, you may focus on what you should invest in – which assets, shares, funds, etc, and how much to own for a balanced portfolio.
Another important consideration, however, is how and where to hold your investments, directly or within an assurance policy, and which jurisdiction they should be managed in.
I often discuss moving assets out of the UK if you intend to live in France long term.
Few UK-based financial advisers and institutions remain regulated to provide advice to French residents since Brexit. Tax is another key consideration, more so following the UK budget.
Tax-efficient investment options
Does this mean you should bring all your wealth into France? While you may buy your French home, have a local bank account and perhaps some small savings, investment structures in a neutral jurisdiction can provide more benefits.
You do not need to invest in French arrangements to optimise for tax efficiency in France.
This is not a criticism of French offerings, but rather a reflection of the significant advantages some other jurisdictions can offer.
What are ‘neutral jurisdictions’?
‘Neutral jurisdiction’ simply refers to a country or territory that is neither your country of nationality nor country of residence.
It is commonly referred to as ‘offshore investing’, although that is not technically correct given some of the popular jurisdictions share a land border with France.
To be clear, we are not talking about far-flung exotic places that conjure up images of hidden accounts and complicated business structures.
Rather, these are highly reputable financial centres close to home which are fully French-compliant and report directly to the French authorities. In fact, they often facilitate your tax compliance.
Investor protection
Whoever you choose to look after your money, establish what level of protection/deposit guarantee they have in the event of institutional failure; it varies across jurisdictions.
In France and the UK, the formal government protection with each institution is limited to €100,000 and £85,000 respectively. In the Isle of Man and Channel Islands it is just £50,000.
If your investment capital surpasses these limits, you can spread your money across multiple banks and institutions to increase your overall protection. The downside is having many different accounts to manage and declare for tax purposes.
Alternatively, and for many people as a preference, you can use a regime and investment arrangements that provide a significantly higher level of protection for invested capital.
The likelihood of a major financial institution failing is low, but it can happen.
We had Credit Suisse and Silicon Valley Bank not too long ago, not to mention Northern Rock’s collapse some years before that. Having good investor protection provides valuable peace of mind.
Read more: French property and tax: 7 common questions
Currency and investment strategies
Another reason to opt for a neutral jurisdiction is currency. Many British expatriates keep their savings in sterling rather than their daily spending currency.
Neutral jurisdictions often allow investments to be held in multiple currencies.
So, for example, if you sold a UK property or encashed UK investments, you would not necessarily have to convert everything to euros immediately if you feel it is the wrong time.
You can time switching currency when exchange rates are favourable or continue to invest in sterling as long as you wish.
You could hold more than one currency, to suit your current circumstances and future plans.
The reality, also, is there is generally more flexibility and variety of investment strategies outside of France – another reason why even French nationals often choose to situate their wealth abroad.
Read more: How to plan for a comfortable retirement in France
Tax-planning advantages
The most common reason for opting for a neutral jurisdiction is tax mitigation.
Investment structures are available that present legitimate tax-planning opportunities for residents of France, and can also be useful when relocating from one country to another.
For example, many British retirees here return to the UK in their later years.
While living in France they can accumulate and grow their wealth with limited ongoing tax liability by holding their portfolio in a specific type of French-approved structure in a neutral jurisdiction.
When they eventually return to the UK, they can liquidate and realise this accumulated growth with no French or UK tax liability.
Of course, this will revolve around careful planning and timing, and ensuring they use the appropriate tax relief.
There is another opportunity now for expatriates moving back to the UK. The rules around UK inheritance tax and domicile are being significantly reformed from April 6 this year.
If you return to the UK after 20 years of living in France, investments held offshore will be exempt from UK inheritance tax for 10 years following your return.
Crucially, using structures outside of France can give French residents tax-planning advantages.
Setting up a French-approved structure, notably an assurance-vie, can provide dramatic reductions to both your ongoing tax liabilities and your beneficiaries’ tax bill when you die.
Read more: Should you reinvest your pension fund in France?
Which jurisdiction should you use?
Ensure the jurisdiction is appropriate for a French resident. It must be seen as cooperative by the French authorities, which immediately disqualifies countries such as Panama, which do not provide structures that are compliant in France.
Furthermore, a structure must be based in the EU to qualify under the favourable French assurance-vie rules.
This rules out popular offshore jurisdictions such as the Isle of Man, Jersey and Guernsey.
They might work for UK-based investors, but cannot provide the tax efficiency for residents of France.
The two most popular jurisdictions, aside from France itself, are Luxembourg and the Republic of Ireland.
They offer numerous advantages for investors living in France while providing total transparency and compliance with the French tax authorities.
Which one is most suitable for you will depend on your situation, plans and objectives, and the various features of the available structures.
Professional, cross-border tax and wealth-management advice will be invaluable, to help you determine the most suitable investment arrangements for you.
Rob Kay is a financial adviser and regional director of Blevins Franks
