Options for your savings in France

PROFITABILITY, availability, security and taxation are all elements to take into account when looking for a savings product, write Guillaume Barlet and Tristan Freer.

When investing, it is important to consider both your personal objectives and any external constraints.

With the fall of sterling, British nationals have started to look at possibilities to invest money in other currencies and in particular in euros.

In some cases, financial products in euros are available in the UK.

However, these individuals may wish to benefit from financial products that do not exist in the UK or these individual may not be resident in the UK.

In that regard, a look over to France could prove useful for the sterling wary investor.

It is very difficult (if not impossible) to find a product giving advantages on all sides of the equation and choices will have to be made.

In order to clarify French savings options, you will find below a sample of the most popular cash investments in France.

Savings bankbooks (livrets d’épargne)

A livret is a personal savings account that can be likened to an ISA (Individual Savings Account).

Livrets are usually set up for the short-term and rarely have a very attractive return. However, when the livret is règlementé (i.e. regulated – its interest rate, conditions of application and the maximum amount that can be deposited must strictly comply with the relevant legal regulations) its return is secured by the government guaranteeing its interest for a limited period of time.

Availability is also very reliable as you can usually withdraw the cash invested at any time.

French law makes provision for the management of livrets:

* unlike a regular bank account, direct payment from a livret is not allowed,
* calculation of interests must be done every fortnight,
* the minimum amount held in a livret cannot be lower than €15 or higher than €15,300 (notwithstanding accrued interests).

Interest on regulated livrets will not be subject to income tax for French residents. Banks may offer non regulated livrets which are subject to income tax.

This product is in many ways very similar to a traditional UK Cash ISA (in the old days also similar to a TESSA) in that cash is deposited and grows free of taxes.

Time Deposit and Certificate of Deposit (Compte à terme et certificat de dépôt)

In France, a time deposit (or bond) is a contract providing that a client lend money to a banking institution for a fixed term (one month to five years) at an agreed rate (including fees).

Once the term is reached, the bank pays the capital back and the yield generated. The level of return depends on the amount invested and the term during which the funds cannot be accessed.

The rate is calculated in line with the euro interbank market to which a commission of 0.1 to 0.7 per cent is added. Interest received from such investments are liable to income tax.

There is not really a similar product to this within the UK, the closest that we get would be a gilt or gilt based investment which are loans not to banks but to the government, these are affected by changes in interest rates and most people would not hold these directly.

Alternatively, National Savings such as Index Linked Savings Certificates provide returns guaranteed to beat inflation, as measured by the Retail Prices Index, when held for at least a year, a choice of investment terms and allow you to invest from £100 up to £15,000 in each issue and the returns are tax-free.

However these cannot be denominated in euros therefore they could be subject to fluctuations in the euro to sterling exchange rate.

Certificates of deposit work in the same way as time deposits but with additional constraints. In effect, the amount invested must be at least €150,000 and the term ranges from a day to a year although this is usually less than three months.

Undertakings for Collective Investments in Transferable Securities – UCITs (Organisme de placement collectif en valeurs mobilières – OPCVM)

An OPCVM is an entity managing a stock portfolio that can be likened to British OEICs (Open Ended Investment Company) and unit trusts.

Taxation of dividends – The income tax rate will depend on the nature (bonds, equities) of the stocks held by the OPCVM.

Social tax (12.1 per cent in 2009 added to income tax) is applied from the first earned euro.

Regarding equities, income tax is applied after an allowance of 40 per cent of the dividends. In addition to the tax credit, an allowance of €1,525 for a sole individual and €3,050 for a married couple or civil partners (PACS) is taken out of the tax calculation.

A tax credit of 50 per cent of the dividends is given before the application of the allowances. This tax credit is limited to €115 for a sole individual and €230 for a married couple or civil partners (PACS).

Income tax may also vary depending on whether stocks have been issued in France or outside France.

Please bear in mind that 15 per cent of the gross amount of the dividends will be taxed at source by the French tax office. However, a tax credit equivalent to the taxation applied in France is allowed in the UK.

Returns from this type of product are subject to investment performance and as such these are not guaranteed.

This type of product is only suitable for investors who are willing to take some degree of risk with the capital that they invest as the value can fall as well as rise.

Taxation of capital gain – the taxable capital gain is the difference between sale price and purchase price of stocks.

For French residents, capital gains tax (CGT) will only be applicable for a gain exceeding €25,730 (for the year 2009).

If the gain exceeds this threshold, CGT will be applied from the first euro at the rate of 30.1 per cent (including the additional social tax of 12.1 per cent).

Taxation is usually reduced to two-thirds of the capital gain after six years, a third after seven years and a total exemption should be applied after eight years.

For UK residents, CGT will only be applicable for a gain exceeding £9,600 (for the year 2009).

If the gain exceeds this threshold, CGT will be applied according to your income tax bracket. Taper relief applies after a number of years which may reduce the liable gain down to 60 per cent (after 10 years).

This product is similar in almost all ways to a unit trust or OEIC. However unit trusts and OEICs are treated the same way as each other for taxation purposes and this is not dependent upon the underlying investments within the investment vehicle.

As far as CGT is concerned, using a tax wrapper such as an ISA or Investment Bond around this type of product may be a way to either not pay tax or defer the date at which tax will be payable.

Property savings plan (Plan épargne logement or PEL)

This plan is considered as a no risk investment. After a determined saving period of a minimum of four years, a PEL allows its holder to benefit from a preferential loan rate to purchase a main property.

A first saving deposit cannot be lower than €225 with an obligation to save a minimum of €45 per month.

The PEL cannot exceed overall €61,200 at a rate of 2.5 per cent which is calculated day to day or every fortnight.

A government bonus of one per cent is added to this rate when a loan is granted.

Interruption of such plan before the four year deadline would trigger penalties (reduction of the interest rate, cancellation of the right to preferential property loan and loss of additional Government bonus).

Withdrawal after the four year deadline will exempt interest and bonuses from income tax but the additional social tax still applies.

PEL allows to contract a mortgage of up to €92,000 at a rate of 4.12% (not including life assurance) for accounts opened from August 1, 2003 and where funds have been saved for a sufficient period of time.

No such product exists in the UK, this product appears to be a very specialist one which French law allows for and is not allowed for under British law.

These examples of cash investments are just an indication of what is available and it is paramount to seek professional advice before choosing the product that will be adapted to your situation and needs.

It is also important to note that should the main purpose of investment be to secure funds in euros, some investments opportunities are available in the UK and should not be overlooked.

In addition, investments for non French residents are not always possible for products available in France and when they are, some tax advantages may not necessarily be applicable.

Guillaume Barlet is a French lawyer specialising in French assets and wealth management issues and Tristan Freer is an Independent Financial Adviser for Bank House Investment Management Limited, contact them by e-mail or call 01242 520074.