How To Leverage Assurance Vie in France for Tax-Efficient Wealth Planning as an Expat

This article provides a comprehensive overview of Assurance Vie, explaining how it works and who can benefit most from it. It also outlines the principal tax rules and benefits of investing in Assurance Vie for expats residing in France or considering relocation to France.

What Is Assurance Vie and How Does It Work?

Assurance Vie is a widely used, tax-advantaged form of life insurance for expats in France. While it may provide a financial payout to beneficiaries similar to conventional types of life insurance, it is primarily designed to enable tax-deferred investment growth for French tax residents.

Purchasing an Assurance Vie policy involves making lump sum contributions or regular premium payments to an insurance company based in France or Luxembourg. With the assistance of an investment manager, the insurer allocates your capital toward the following two types of funds:

You (or your adviser) are allowed to choose the assets that align with your risk tolerance and financial goals. Additionally, certain contracts, especially Luxembourg-based ones, use internal collective or dedicated funds to streamline portfolio management.

The funds held within Assurance Vie aren’t locked, which means you can make full or partial surrenders at any time. However, early withdrawals may reduce returns or trigger exit charges depending on the contract.

In the event of your death, the remaining funds are transferred to your nominated beneficiaries, with preferential inheritance tax treatment under French law subject to contribution limits and the age at which premiums were paid.

Note that although flexible withdrawals are one of the primary benefits of Assurance Vie, their tax efficiency will depend on the timing and size of your withdrawals and your residency status at the time. Additionally, if you opt for a full withdrawal, the policy term will end, leaving your beneficiaries without any payout.

Who Can Benefit From Investing in Assurance Vie?

Due to its insurance portability, Assurance Vie is primarily intended for individuals who are, or become, French tax residents, including expats considered French tax residents. Luxembourg-law Assurance Vie contracts may, however, offer greater portability for cross-border investors, subject to local regulatory acceptance.

However, given their relatively high minimum investment requirements, these contracts are generally best suited for high-net-worth individuals able to invest typically from around €100,000, depending on the provider and policy structure. Based on its key features and advantages, Assurance Vie is particularly beneficial for expats who:

• Plan to remain or retire in France
• Need an arrangement that combines life insurance and an investment/savings vehicle
• Seek a solution that supports long-term wealth accumulation
• Possess significant assets they wish to transfer to heirs in a tax-efficient manner
• Want an option to withdraw cash from their policy

Assurance Vie isn’t suitable for individuals looking for quick investment returns, as the policy generally must be held for at least eight years to benefit from favourable French tax treatment on withdrawals.

How Are Assurance Vie Withdrawals Taxed in France?

You are generally taxed only on the gain (interest or capital growth) portion of each Assurance Vie withdrawal. For partial surrenders, the taxable gain is calculated by a statutory pro rata formula that allocates gains and premiums across the contract value.

Whether you opt for a full or partial withdrawal, the tax rate applicable to the taxable gain depends on the contract’s duration and the amount of premiums paid, as outlined in the table below:

*Social charges generally apply only to French tax residents; most non-residents are exempt.

Holding an Assurance Vie policy for over eight years provides access to an annual income-tax allowance on taxable gains, which amounts to:

1. €4,600 for individuals
2. €9,200 for couples

This allowance applies only to the income-tax portion of the gain, not to social charges. Social charges are usually levied each year on euro-fund interest and on withdrawal or policy termination for unit-linked assets.

If the total premiums paid after 27 September 2017 exceed €150,000 per person (€300,000 for jointly taxed couples), the income-tax rate of 12.8% (plus social charges if applicable) applies to all gains, even after eight years.

Note that, as an expat living in France, you may be also be taxable on Assurance Vie withdrawals in your home country, depending on its domestic tax laws and any applicable double tax agreements.

Your tax position will also change if you leave France and cease to be a French tax resident. While the policy remains valid, you may lose eligibility for French tax-free allowances and reduced rates. Non-residents are generally exempt from French social charges but may be subject to taxation in their new country of residence.

To minimise tax liability on life insurance withdrawals while maintaining full compliance, consult our expat financial advisers at Titan Wealth International. We provide tailored advice on selecting, purchasing, and structuring a life insurance policy to ensure estate planning support and alignment with your financial goals.

What Are the Key Tax Advantages of Assurance Vie for Expats?

Assurance Vie is an appealing investment option for HNW expats who are French tax residents due to its favourable tax treatment, both during the investment period and upon withdrawal. More specifically, the policy provides the following tax advantages:

1. Tax-deferred growth (for French tax residents).
2. Tax-free internal fund reallocation.
3. Potential reduction of exposure to French wealth tax (IFI).
4. Inheritance-tax efficiency under defined thresholds.

Tax-Deferred Growth

The investments held within an Assurance Vie contract grow on a tax-deferred basis for French tax residents, which means the returns are protected from immediate taxation. Instead, the gains are subject to tax upon withdrawal at the applicable flat-tax rate depending on policy duration and total premiums paid.

This feature allows earnings to be reinvested within the policy, which results in compound growth over time, significantly increasing the value of your policy.

Tax-Free Internal Fund Reallocation

Selling or switching funds in standard investment accounts generally crystallises gains and may constitute a taxable event.

Conversely, within an Assurance Vie, reallocations between funds don’t trigger immediate income tax or social charges; taxation is deferred until gains are withdrawn or the contract is surrendered.

This enables investors to adjust their investment strategy to align with their evolving financial goals and needs without exposing funds to immediate taxation.

Wealth Tax Protection

The non-real-estate portion of an Assurance Vie policy is generally excluded from the French real-estate wealth tax, Impôt sur la Fortune Immobilière (IFI).

However, if your Assurance Vie policy includes unit-linked funds that hold French or foreign real-estate assets, only the proportion of those real-estate units is subject to IFI, provided your worldwide real-estate net value exceeds €1.3 million.

The remaining assets—such as equities, bonds, or money-market funds—are excluded from IFI.

Inheritance Tax Efficiency

Assurance Vie benefits generally fall outside the probate estate and pass directly to the named beneficiaries, which can help simplify the process of settling your estate under French succession law.

The French system of succession, known as forced heirship, requires a portion of your estate to be transferred to your children, regardless of your intentions. Therefore, if you plan to leave your estate to non-relatives, you may not be able to do so freely without a will or a proper estate-planning strategy.

In practice, even if you structure your estate to limit the impact of forced heirship, non-relatives will still face a 60% inheritance tax rate on direct gifts or inheritances outside an Assurance Vie.

In most cases, Assurance Vie contracts are treated separately from the estate and are not automatically subject to forced heirship rules; however, they can be challenged if the premiums are considered “manifestly exaggerated.”

Provided you took out the policy before age 70, Assurance Vie enables you to:

1. Name as many beneficiaries as you like.
2. Transfer €152,500 free of inheritance tax to each beneficiary.

You can leave more than €152,500 to your beneficiaries, but any funds exceeding this threshold are subject to a 20% tax rate. If the transferred value exceeds €700,000, a rate of 31.25% applies.

Assurance Vie also offers certain tax advantages to those who fund a policy after age 70. While the above allowances don’t apply, the first €30,500 of the total premiums paid is tax-free, and any investment gains on those premiums are excluded from taxation.

Additionally, the death benefit you leave to a spouse or an individual with whom you are in a civil partnership (Pacte Civil de Solidarité) is fully exempt from inheritance tax in France.

Why Should High-Net-Worth Expats in France Consider Assurance Vie?

Considering its relatively high initial premium requirements, Assurance Vie is well-suited to HNW expats in France who seek to grow their wealth and transfer it to beneficiaries on favourable tax terms. The advantages of Assurance Vie include:

1. Broad investment options
2. Wealth protection
3. Succession planning support

Broad Investment Options

Assurance Vie offers access to a wide array of underlying investment options, including both actively managed multi-asset funds and low-risk euro funds with capital or interest-rate guarantees provided by the insurer, depending on the contract..

With these options available, you can build a diverse investment portfolio that aligns with your risk tolerance and wealth generation goals.

The policy provides a high degree of investment control and flexibility, allowing you to:

• Choose the assets you wish to invest in
• Decide on the contribution amount
• Rebalance your portfolio depending on your financial circumstances and objectives

There is no legal limit on the amount you can contribute to an Assurance Vie policy, which makes these policies well-suited for HNW expats with significant capital to invest.

While French-law contracts are generally euro-denominated, Luxembourg-law Assurance Vie contracts may support multi-currency policies and withdrawals (e.g. EUR, USD, GBP, CHF), subject to insurer terms and regulatory approval, which can simplify cross-border asset management and reduce currency-conversion risk.

Wealth Protection

Besides potentially reducing exposure to the French wealth tax, Assurance Vie policies can mitigate the impact of market fluctuations on your wealth due to the diverse range of high-risk and low-risk investment options they offer.

For instance, if some of your investments underperform, others may generate high returns, offsetting potential losses and maintaining the overall portfolio stability.

In addition, all Assurance Vie policies are regulated by the ACPR and AMF in France (or by the Commissariat aux Assurances in Luxembourg) and must meet solvency and asset-segregation requirements designed to protect policyholders’ assets.

Succession Planning Support

Assurance Vie provides succession and estate planning support to HNW expats, particularly those planning to leave substantial wealth to non-relative beneficiaries.

The strict forced heirship laws in France typically prevent you from transferring your estate to non-relatives, such as your civil partner or stepchild. Assurance Vie, however, is generally treated separately from the estate for inheritance-tax purposes and offers more control over legacy planning.

Depending on the age of the policy and its value, the death benefit may be subject to favourable tax rates. Holding the contract for the long term and distributing up to €152,500 per beneficiary (for premiums paid before age 70) can provide a tax-efficient means of wealth transfer.