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TaxVince
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Category: UK Tax
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Experience:  Chartered Accountant >20 years + Qualified IFA
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Hello,I am a French national planning to move to the UK

Resolved Question:

Hello,

I am a French national planning to move to the UK shortly (becoming a UK resident non domiciled).
I have a french "Assurance vie" (investment products in a life insurance wrapper that has a favorable tax treatment in france (tax free after 8 years)) and I am not sure what the tax treatment is in the UK for an "Assurance vie".
Could you help me define what the UK tax is if:
- I don't make any withdrawal out of the "Assurance vie" (but the value the investments increases)
- I make a withdrawal out of the "Assurance vie" and I don't remit it in the UK
- I make a withdrawal out of the "Assurance vie" and I remit it in the UK

A further issue is that I have another "Assurance vie" which is pledged in favor of a bank to guarantee an interest only loan used to buy a rental property in France (this setup is a common tax optimisation scheme in France). The idea is that at the maturity of the loan, the tax free proceeds of the "Assurance vie" are used to repay the loan. Does this setup changes anything to the UK tax situation of this assurance vie?

thanks for your help
Submitted: 1 year ago.
Category: UK Tax
Expert:  Lindie-mod replied 1 year ago.

Hello,

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Expert:  TaxVince replied 1 year ago.
Thanks for asking the question.

Firstly this is a complex area - an "Assurance Vie"/ Life Assurance is a French version of the insurance bond. There are no French income or capital gains tax on the gains/income accumulated within the policy if one doesnt make any withdrawals. Life assurance bond as it is called in UK, has a number of tax implications whether is the act of a withdrawal of funds, whether as a partial surrender or a full encashment of the contract. There are also tax implications on the gain of the value of the insurance irrespective of whether funds are withdrawn or not.

Unfortunately the double tax treaty between UK and France does not mention Assurance Vie/ insurance bonds making things slightly complex. In summary the Double tax treaty states that any credit given for taxes paid in the UK is given in accordance with the manner in which France would tax the income/gain - BUT given that France does not tax such gains/income at source on these contracts, there is no credit calculation for whatever tax you pay in UK.

Therefore when you make a withdrawal you are charged income tax at nil if the personal allowance is available; starting rate 10%; basic rate 20%, higher rate 40% and additional rate 45%. Top slicing relief is available for the higher rate and additional rate calculations. However the exemptions and reliefs; and capital gains tax calculation is not as simple as stated above. In most cases, your insurer may supply information about chargeable events to policyholders and HMRC directly or through a tax representative to work out the tax impact. In practice, one would get advice from a tax specialist or IFA from the insurance provider as this a complex area.

Finally as this a complex matter and i would advice getting a specialist tax advisor to deal with your query more specifically. Ideally get a tax expert with both French and UK tax in life assurance bonds. If you cant find one online googling try this site HERE where you post your specific request with as much detail as possible and a tax adviser near your area contacts you.

Hope this helps
Customer: replied 1 year ago.

Thanks for your explanations, It is much more complex than I expected given that an "Assurance vie" is a very common product in France (40% of French residents have one!).


 


Could you confirm there is no UK tax liability if no withdrawals are made to the "Assurance Vie"?


 


Also do you know what would be the tax situation of a UK resident non domiciled opting for the remittance basis of taxation if a withdrawal is made and not remitted in the UK?

Expert:  TaxVince replied 1 year ago.
Thanks for replying. Income tax is chargeable after one has withdrawn at least 5% cumulative withdrawals and charged at highest marginal rate of tax to pay for that individual.

As a UK resident non-domiciled individual, you have access 'remittance basis' on your overseas income ie you are only liable to UK tax on income and capital gains which arise in the UK but only liable to UK tax on non-UK income and capital gains if remitted to the UK.It will also possible to take 5% withdrawals into the UK without them being regarded as taxable remittances - however the process is somewhat complex. However once you claim the remittance basis you lose the entitlement to the UK personal allowance for income tax and the annual exempt amount for capital gains tax Hence this could be a difficult choice.

 

Again i would suggest get a tax adviser for a fee of say £100-£200 and he can assist you in making the right choices for you - taking into account your income and the expected withdrawals etc - find such experts by googling or try such sites as this one HERE

 

Customer: replied 1 year ago.

Thanks again for your answer.


 


I am confused regarding your answer on the application of the remittance basis of taxation to an "Assurance vie" withdrawal (assuming the taxpayer is entitled to and choses the remittance basis of taxation).


In the following document:


http://www.hmrc.gov.uk/worksheets/sa106-notes.pdf


Page 2:


"Note 3 – the remittance basis does not apply to chargeable event gains under
a policy of life insurance, life annuity or on a capital redemption policy.
These are taxable on the full amount arising in the year irrespective of
whether they are remitted to the UK or not."


 


The way I understand it I would not allowed to claim the remittance basis of taxation on an "Assurance vie" withdrawal (larger than 5%). Do you have another interpretation?


 


 


 


 

Expert:  TaxVince replied 1 year ago.
Leave this with me and I will go through the link and get back
Expert:  TaxVince replied 1 year ago.

Yes - The link is correct in saying that if an insurance policy/bond is encashed then any chargeable event gain is taxable as it arises since the remittance basis does not apply to such gains. This applies to chargeable event gains (take a look here LINK to see what is considered a chargeable event). Chargeable event does not include withdrawls of less than the 5% tax deferred allowance. Therefore It will be possible to take 5% tax deferred withdrawals into the UK without them being regarded as taxable remittances however there some conditions as i explained earlier. To take such withdrawals the tax office would need to check if the original premium were made with untaxed foreign income and gains that would have been taxed on the remittance basis if remitted to the UK in which case remittances are regarded as derived from the untaxed foreign income and gains used to purchase the policy. This also takes into account Double tax treaty. This is somehow complex. Hence if you want to take this further have somoene check this out for you.

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Category: UK Tax
Satisfied Customers: 961
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