I meet many clients who are originally from the UK and hold Premium Bonds. In this article I want to talk through the tax and practical consequences of holding them as a French tax resident, as well as looking at a more suitable alternative.
Premium Bonds are a popular way to save money in the UK. Rather than offering a guaranteed interest rate, you could win tax free prizes between £25 and £1M every month. According to the NS&I website, there have been over 400 winners receiving the million-pound prize since 1994 and the average prize fund rate is 1% per annum. So, for the vast majority, the average prize rate is not keeping up with normal inflation rates.
Since BREXIT, it is important that NS&I customers living in the EU hold a UK bank account. Not having a UK bank account could invalidate the terms of your NS&I customer agreement and you may have no alternative but to close your account. Even if your terms are not invalidated, without a UK account NS&I would need to send you a warrant (like a cheque) which could be challenging to deposit into a non-UK account.
In France, Premium Bond winnings are not tax free – they have to be declared in your yearly tax return and are subject to tax in the same way as UK bank interest. On death, France will apply the relevant inheritance taxes to your worldwide estate, which would include Premium Bonds held in the UK. There is a double tax treaty between France and the UK for inheritance tax, which means that credit is given in France for any tax paid in the UK. So, you do not pay tax twice, but you do pay whichever is the higher amount.
Given the above, you may conclude that Premium Bonds are no longer an appropriate investment as a French tax resident. So, what are the alternatives?
In my experience, an Assurance Vie (AV) is one of the most suitable options to consider as a home for your Premium Bond savings. An AV is an insurance-based investment product and has the following advantages:
- The investments that you place within your AV are never touched by French income tax or capital gains tax whilst they stay inside the AV, unlike Premium Bond winnings
- If you keep the AV going for at least eight years, you then qualify for a special income tax-free band, on any withdrawals
- On death, you can leave each individual beneficiary up to €152,500 completely free of French inheritance tax, if you invest before the age of 70. This is of great advantage to blended families, as beneficiaries do not have to be directly related
- If you invest after the age of 70, you can leave a combined total of €30,500 inheritance tax free to all beneficiaries
- International AVs are available which allow you to invest in sterling. Therefore, your Premium Bond proceeds do not have to be exchanged into euros, unlike a French based AV
In conclusion, if you hold Premium Bonds, speak to a regulated Financial Adviser to seek advice as to whether they remain suitable for you as a French tax resident.
*First published in www.thelocalbuzzmag.com