Comparison between UK rental income and ‘Assurance Vie’ income

UK:

Rental income is always taxed in the UK using individual personal allowances 2018/19 = £11,850. So, you can receive £23,700 between you with no income tax to pay.

UK property will be subject to UK inheritance law and French inheritance taxation, and wealth tax.

Anything above the allowance each will be subject to 20% Basic rate UK income tax to a maximum of £46350 each (2018/19 rates).

CGT or Capital Gains Tax will be payable on any profit made if the property is sold.

Advantages and disadvantages:

Having income derived and taxed in the UK is tax efficient as you are unlikely to pay tax in the UK at the 40% tax allowance (included also for the French wealth tax calculation) but tax returns need to be completed on an individual basis.

It will still be subject to French inheritance taxes and income cannot be guaranteed and so you would need enough accessible funds elsewhere.

It is declarable in France and will use up your personal allowance pushing taxable income into the 20/30% tax bracket. A credit is given by the French tax office for UK tax assumed to have already been paid.

Property may or may not rise in value.

Rent isn’t guaranteed and certainly isn’t flexible, there may be periods in between tenancies that no income is derived (you cannot vary the income or take a lump sum).

Running costs of maintaining a property especially from another country, typically around £2800 pa if not using an agency to manage (otherwise c7-10%).

Income will be denominated in pounds and therefore subject to exchange rate fluctuations of which you have little control.

If you purchase a rental property in France, you will have to pay social charges at 17.2% on net income as well as income tax.

You require €50,000 income pa and are currently receiving €10,000 from the ski chalet and £21900 or €25,000 from the UK investments. So, you only actually need to generate €15,000 pa from the €450,000 manoir sale. This equates to 3.3% pa return. I would not anticipate that you would require all your funds to purchase a UK property in order to generate that level of income.

£13000 net (£14300 gross) pa additional UK property income net would be taxed at 20% or £2600 pa so net would provide £11,400 pa assuming after expenses and agency fees. Total costs therefore £2900. Plus, an estimated 0.50% of wealth tax on that value of €2250 pa making this option less attractive.

Assurance Vie:

A life assurance-based investment fully compliant with the French tax system invested in a range of different assets according to the risk you want to take. (deposits, bonds shares unit trusts etc)

Income is subject to both income tax and social charges in France and not included in your wealth tax calculation.

Funds grow tax free until a withdrawal is made. Only the perceived profit on a withdrawal is taxable; ie if you have invested £100k and made 5% or £5k and withdrew £5k only 5/105 would be taxable in the first year or less than £240. Option to be taxed at marginal rate through your tax return or fixed rate at source. Max tax rate after 8 years is 7.5% plus an option to withdraw €4600 pa each with no income tax to pay. On the €15,000 you need to draw per annum, the taxable element for income tax and social charges would be c€720.

Advantages/Disadvantages

Choice of currency, fund level of risk, regular income, lump sum.

Choice of beneficiary so potentially no inheritance tax to pay (€152500 per beneficiary).

Funds can go to each other regardless of the French ‘succession law’.

Social charges payable on profit on withdrawal unlike rental income where the net profit is taxable.

Choice to vary income according to need and according to performance.

Running costs typically 1% pa.

You may or may not have capital growth depending upon performance and income requirement.

Possibility to convert to a UK compliant investment Bond if you return to the UK in the future.

Conclusion:

The running costs of having a further UK property would be significantly higher than an Assurance Vie policy in regard of gross and net income:

UK

Gross £14300, net £11400 pa plus estimated wealth tax at €2250 pa (does not include incidental running costs such as insurance or wear and tear).

Total cost is therefore €5556

Assurance Vie:

Gross €15000

Net €14280

Running costs of policy c1% or €4500, comes out of total investment policy

“This is based on our current understanding of the current taxation framework. This may change in the future. We are not accountants so if you wish for verification you should contact a qualified tax adviser”.