- 28 janvier 2014
- Envoyé par : Xavier Escaffre
- Catégorie : Wealth management
The investment to create or develop wealth revolves around two main investment families : Financial or Real Estate investments. Both vehicles are complementary. Financial investments may for example be used to grow a savings that will eventually provide a contribution or be used as collateral for a loan for a property purchase. In France, we are talking about life insurance (assurance-vie), a securities account (compte titres), a “PEA”, a “contrat de capitalisation” or other funding. Each type of envelope is different both in terms of investment opportunities and the tax on capital gains.
How to choose between all type of French financial investments ?
The choice of the envelope depends on the objectives pursued:
- A Safe Investment?
- Tax advantages?
- Much freedom in the choice?
This choice is actually not difficult, because it is possible to have several types of envelopes and thus play multiple tables at the same time.
- “Assurance-Vie”: for safety and simplicity
- The “compte titres”: Freedom and choice
- “PEA” (Plan d’épargne en actions): for its unparalleled tax efficiency
- The “contrat de capitalisation”: for companies, or individuals subject to the wealth tax (ISF)
French « Assurance-vie » : safety and simplicity
The assurance-vie product is the preferred investment of French people because of its taxation and its ease of use. This is a support in which the funds are received.
- Funds can be totally safe in investment funds known as « fonds en euros », which garantee the investor never to lose money in exchange for a small, but consistent performance.
- Funds can also be « dynamic », exposed to market movements . There’s no security in the capital, but a much higher performance when markets are doing well.
After 8 years, the capital gains benefit initially from an allowance of €9,200 for a couple and €4,600 for a single person. If, despite the reduction there is a balance which is taxable, the taxpayer has the choice between paying a rate of 7.5%, or incorporate the balance to his income.
How to use the French “assurance-vie” to create wealth?
Opening a contract is to make a first deposit on the contract. This simple action enables to “prendre date”, which means starting the tax-efficiency clock”.
The money is available from the date of inception of the contract, only the tax-efficiency on capital gains is optimal after 8 years.
It is possible to supply the contract without constraint, at one time, every month, following an input of money…
The investor spreads his investments between safe funds (fonds en euros), and dynamic funds, depending on his degree of risk sensitivity. Schematically, for precautionary savings, he will choose to put all its money in “fonds en euros”. If he wants to grow his capital, he will turn to more dynamic funds.
Once the choice of funds is made, the investor can let his contract live. The funds are managed daily by professionals. The investor can also at any time change the distribution of its portfolio, between security and performance.
Why use an “assurance-vie” to manage your assets?
The “fonds en euros”, totally secure, offer much better performance than the “Livret A” (Savings account).
Dynamic funds allow you to enjoy the performance of the financial markets, without having the knowledge of stock market investing.
The “assurance-vie” enables you to invest savings, make it grow, or to arrange a transfer of future inheritance.
French « Compte titres »: for freedom and choice
The “compte titres” is the Swiss Army knife of investment. It can be opened via a bank or via any financial institution, and it can invest in all financial investments available: Funds, Stocks, Bonds, Trackers, futures, warrant, without any limit.
The “compte titres” imposes no constraints, there is no investment ceilings, it is possible to have several with multiple locations, there may be individual, joint or undivided, opened by an individual, or a company.
If at first it seems to be the ideal vehicle for investments, this point must be nuanced in observing its taxation.
Indeed, the “compte titres” certainly has no constraints, but it does not offer any tax advantages either. Gains are thus directly added onto its holder’s revenues, and are therefore subject to the progressive tax schedule.
How to use a “compte titres” to create wealth?
The minimum deposit required to open a compte titres varies depending on the institutions, but it is usually minimal: a few hundred euros. This deposit can be immediately used to invest in shares of funds or trackers.
To invest directly in compte titres requires a higher investment. It is generally considered that a good diversification begins with 10 different shares (titres). Accordingly, and to offset the costs that apply to the purchase of shares in a securities account (compte titres) opened with the aim to create a portfolio of shares must be opened with a minimum of 7000 or € 10,000 , which corresponds to 10 lines of €700 or €1000.
It should also be noted that this type of direct investment into individual securities requires a certain amount of knowledge, in order to be achieved in a sustainable manner.
Why use a securities account to manage assets?
It is used in addition to other tools such as an “assurance-vie” and a “PEA”. The securities account can collect all investments that cannot find a place in an envelope with privileged taxation. It may be, for example, for the purchase of shares directly in foreign markets, or funds that are not eligible for “assurance-vie”, or investment into commodities or other types of investments.
It has no constraints, its versatility is total.
It is possible to open one and immediately perform operations on the short-term, as to keep it for a longer investment strategy.
It can be subscribed by a corporation to grow cash.
PEA : for its unparalleled tax-efficiency in France
The French PEA (Plan d’épargne en actions) is similar in operating terms as the securities account (compte titres) except that it can only collect securities from the European Union, or funds composed of at least 75% of European values. This specificity is significant because it greatly limits investment possibilities. However, it is accompanied by an equally important advantage.
So after five years of existence, all profits made in a “PEA” are exempt from income tax. This advantage is unmatched in the field of investment.
An individual may only hold one “PEA” and the amount of deposits made is capped at €132,000 for a single person, and €264,000 for a couple.
How to use a PEA ?
The specificity of the “PEA” and its unparalleled tax-efficiency is however subject to conditions: the money must be immobilised for at least 5 years to be completely tax-free, and 8 years to be completely tax-free with the right to remove assets without causing the closure of the PEA.
Therefore, the “PEA” should be opened as soon as possible, in order to “prendre date” (start the tax-efficiency clock).
- Before 5 years, only amounts of money, which the investor does not need in the short term, should be invested. Although these amounts are available at any time, the withdrawal would cause the taxation of capital gains and the account closure.
- Between 5 and 8 years, withdrawals are not taxed, but they always lead to the closing of the PEA.
- After 8 years, withdrawals are not taxed and they do not lead to the closing of the PEA. However, once the first withdrawal is made, future deposits are no longer possible.
Ideally, the PEA should therefore be used for its long-term investments and maximise the use of the ceiling, before starting to make the first withdrawals after 8 years.
Why use a PEA ?
No other investment vehicles offers the opportunity to be fully exempt from taxation. The money placed in the PEA works without ever having to face charges, and he benefits from what has often been described the magical effect of compound interests.
It is possible to place within a PEA, under certains conditons, shares of unlisted companies, such as shares of a limited liability company or family company. The sale of these shares, if held more than 5 years is totally tax-free.
It is possible, to some extent, to go around the geographic limitations imposed by the regulator.
Finally, the capital of the PEA can be used to purchase an annuity for the creation of additional income for retirement.
The “contrat de capitalisation”: for companies, or individuals subject to the French wealth tax (ISF)
The “contrat de capitalisation” is very similar to the “assurance-vie”. Mostly, insurers offer the same contract in two versions: an assurance-vie product and a contrat de capitalisation product. It shares the same benefits, and the same rules on taxation of capital gains as the “assurance-vie”, and the same investment possibilities.
There are however some differences:
The contract value used to calculate the assets taxable, with regards to the wealth tax (ISF), for a taxpayer is the nominal value. In other words, the amount of deposits that have been made. Most capital gains over time do not come into account in the calculation of the wealth tax (ISF), which allows taxpayers to make significant savings.
In terms of inheritance, the “contrat de capitalisation” does not benefit from the reduction granted to the “assurance-vie” contract by insurance law. Its value is included in the holder’s Estate. It is however possible to pass to your heirs the contract and therefore its tax anteriority, without having to close it.
Unlike for the “assurance-vie”, the “contrat de capitalisation” may be subscribed by a company, whether a company subject to corporation tax or income tax.
How to use a “contrat de capitalisation” ?
The contrat de capitalisation is used in the same manner as an assurance-vie. Money placed in the plan is invested in funds. The investor has the choice between a secured “fonds en euros”, and a multitude of more or less dynamic funds, exposed to the markets.
The choice between funds is based on the risk sensitivity of the investor. This distribution can be changed freely at any time during the term of the contract.
Like the assurance-vie, the contrat de capitalisation finds its optimal tax-efficiency on capital gains after 8 years. Although money is available at any time, it is desirable, in order to optimise the use of the contract, to invest long-term savings during the first 8 years. Thus, it is recommended to open a contract as soon as possible, even by placing small amounts, to start at least the tax-efficiency clock.
Finally, it is important to note that the funding agreement is a tool for protection against the wealth tax, from its inception. No need to wait to receive this benefit.
Why use a contrat de capitalisation ?
The contrat de capitalisation is used primarily by people wanting to protect themselves from rampant tax, either on gains or on heritage.
Its advantage is very consistent with respect to taxes on wealth, especially in the current climate of increased taxation.
The contrat de capitalisation is also a tool of choice for preparing a transmission, as well as it capital, it can transfer its tax advantage.
It is also a widely acclaimed investment by businesses, because it can boost cash by having access to a wide range of investments.
What to remember about financial investments in France ?
- Immediately open an “assurance-vie” and a PEA in order to “prendre date” (start the tax-efficiency clock)
- These investments need time to achieve optimal tax efficiency
- The “assurance-vie” is used for his euros secured funds or for more dynamic funds.
- The PEA is used to buy stocks, shares, tracker funds, or funds on the European markets.
- The “compte titres” can invest in all other investments, but offers no tax benefit.
- The choice of dynamic funds or stocks should be supervised by a professional following the profile of the investor.
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