Benjamin Posted April 28, 2007 Share Posted April 28, 2007 Thanks for that Leslauriers. I follow exactly what you are saying.I know from other posts that you're a fan of AV. I think I may need to look at them again now that you've thrown more light on them. Link to comment Share on other sites More sharing options...
LesLauriers Posted April 28, 2007 Share Posted April 28, 2007 Sorry Benjamin I need to edit the post 8 years figure to take account of cummulative growth.After 8 years the figures are withdraw €13500€ less €9200 = €4300 x growth of 36% = €4300 x 36% = €1548 which is subject to tax and social charges - my original figure of €194 was wrong!The fund has grown by €108k over the 8 years, all of which has been withdrawn giving a growth (interest) of 36%. Link to comment Share on other sites More sharing options...
LesLauriers Posted April 28, 2007 Share Posted April 28, 2007 Oh dear - never post after a glass of wine with lunch!The real growth rate is 26.47% so €13500 - €9200 = €4300 at 26.47% = a taxable figure of €1138, which is better.You know how it is, you look at the figures and think - no that's not right!!See it pays to consult a professional!!!! Link to comment Share on other sites More sharing options...
allanb Posted April 28, 2007 Share Posted April 28, 2007 Leslauriers: thanks. If I understand your example correctly, at the end of the 8-year period the value of the investment is still €300,000, because you have withdrawn amounts equal to the interest. During the 8 years your fund has earned €108,000 in interest, but you have paid tax on only €4,860. So your fund contains €103,140 in accumulated interest on which no tax has been paid.Continuing with your example: if you go on withdrawing the same amounts, only €193 will be taxable each year. So even if you live for another 20 years, at the time of your death there will still be €99,270 of interest earned on your fund during your lifetime on which nobody will ever pay any tax.Is this correct? It seems too good to be true. Are you sure that there isn't a deferred tax liability on the interest earned but not taxed? Link to comment Share on other sites More sharing options...
LesLauriers Posted April 29, 2007 Share Posted April 29, 2007 allanb, If you look at my previousposting you will note that I revised my figures to take account of cumulativegrowth and then to take account of an error. My figures will not by exactas I have only calculated to one decimal point but will be close enough to useas an example. There is an element of“annual bonus” paid within these accounts and to be precise the figures usedassume that the investment is in place on 31st December and interestis drawn after 1st January a year and a day later to allow for thefull 4.5% to be paid. After 8 years you areentitled to withdraw 9200€ tax free as a couple and I have counted this withinthe 8 years though the reality would be to make the 8th withdrawal 8years and a day after opening the AV. The figures used assume thatinterest only is withdrawn and that the capital of €300k used, in this exampleis always left in the investment. The example also assumes a fixed 4.5% return,which will obviously be variable. When less than the annual interest iswithdrawn the investment grows substantially over a long period. Using my corrected figuresand bearing in mind the above, After 8 years the accounthas grown by €108k of which €15082 has been taxed and €92918 of accumulatedinterest which has not been taxed remains in the investment. After 20 years the accounthas grown by €270k of which €35177 has been taxed and €234823 of accumulatedinterest which has not been taxed remains in the investment. In this example by year 20the growth of the investment is 47.37% (270k / 570k =47.37%) and therefore thewithdrawal of €13500 less the allowance of €9200 equals a taxable figure of€4300 x 47.37% = €2036 which if taxed at the set rate of 18.5% (7.5% tax 11%social charge) gives a tax bill of €377 on a withdrawal of €13500. If at that time yourstarting rate of tax were less than 7.5% you would opt to be taxed at the lowerrate. If at any time you withdrawall of the investment the total interest is then taxed, it is only if youbequeath the investment to your inheritors that you avoid the outstanding tax. I have a spread sheet whichI can e-mail you if you wish – let me know your e-mail by pm. Asalways the value of your investment may etc The AV may not suit your particularcircumstances now or in the future. These notes demonstrate my understanding ofthe Assurance Vie; always seek professional advice to suit your owncircumstances. Link to comment Share on other sites More sharing options...
Glyn Posted April 29, 2007 Share Posted April 29, 2007 Leslauriers,Some useful information there. Can you explain what you mean by 'If at any time you withdraw all of the investment the total interest is then taxed'. If you had 300000 currently invested and wanted to withdraw it all how would tax be calculated?Are you able to add additional funds one an AV has been opened?Thanks,Glyn Link to comment Share on other sites More sharing options...
LesLauriers Posted April 29, 2007 Share Posted April 29, 2007 Update to previous posting.I had always taken theallowance of €9200 as a deduction from the amount withdrawn before applying thegrowth percentage to obtain a net taxable amount. Example after 20 years -withdraw €13500 less €9200 = €4300 x 47.36% = €2036 which is then taxed at18.5% giving a net tax to pay of €376.However the example shown inthe previous posting, which looks like a Blevins Franks document results inthis example after 20 years. Example using BF calculation Example after 20 years -withdraw €13500 x 47.36% = €6393 less €9200 allowance results in no tax to pay. In which case – After 8 years the account hasgrown by €108k of which €13945 has been taxed and €94055 of accumulatedinterest which has not been taxed remains in the investment. After 20 years the accounthas grown by €270k of which €13945 has been taxed and €256055 of accumulatedinterest which has not been taxed remains in the investment. Which makes the AV an evenbetter investment! It would be useful to havesomeone check out my calculations. – please!Glynn - yes you can add funds and or change investments at any time, within the portfolio of investments offered by your supplier.If you withdraw all of your capital the calculation would be - (€'s withdrawn * % growth) less allowance of €9200 x tax rate applicable. In other words the longer you keep it the better otherwise it is taxed like any normal savings account but with the benefit of the allowances and tax free roll up. However after 8 years your maximum tax rate would be 7.5% plus 11% social charges regardless of the amount of interest accumulated. Link to comment Share on other sites More sharing options...
Grecian Posted April 30, 2007 Share Posted April 30, 2007 Leslauriers many thanks for the info provided, I can see the advantage of the AV, especially after the 8 years has passed.Would you say there are more advantages investing in an AV rather than a PEA, or vice versa? Link to comment Share on other sites More sharing options...
LesLauriers Posted April 30, 2007 Share Posted April 30, 2007 My top of the head thoughts are;The PEA has it's place in financial planning as do straightford share holdings and savings accounts.For me it lacks the instant access (without closure) of the AV, and the inheritance benefits which are very important to our plan. The AV is more family orientated in my view.The tax benefit of tax (but not social charge) free after 8 years has to be weighed against the amount invested and return anticipated, along with your highest tax band generated by your other other income streams inconjunction with the AV's allowances.If you take the example of the couple investing €300k in a capital safe investment and withdrawing all the interest each year, I can only see tha AV winning.There will be circumstances where a PEA would be better than an AV but I would suggest that it occurs where there is a high net worth, corresponding investment portfolio and an aggresive attitude to risk. And no successors.Alternatively a PEA of intermediate duration coupled with or followed by an AV could suit some circumstances.Like all financial planning it depends upon your circumstances, your short medium and long term needs capital, income and life plan. Of course it helps to know exactly when you intend to die! Link to comment Share on other sites More sharing options...
allanb Posted May 1, 2007 Share Posted May 1, 2007 If I understand you correctly, there is indeed a deferred tax liability on the untaxed interest, which will affect subsequent withdrawals - but the liability ceases to exist when you die.I have some problems with your numbers, though. [quote]After 8 years the account has grown by €108k of which €15,082 has been taxed...[/quote]How has €15,082 been taxed? Isn't it €4,860, i.e. 8 x €607.50?[quote]After 20 years the account has grown by €270k of which €35,177 has been taxed...[/quote]Similarly, why not €7,182, i.e. the €4,860 plus another 12 x 193.50?More important: [quote]In this example by year 20 the growth of the investment is 47.37% (270k / 570k =47.37%) and therefore the withdrawal of €13,500 less the allowance of €9,200 equals a taxable figure of €4,300 x 47.37% = €2,036 [/quote]This implies that the 'taxable interest' component of the withdrawal is calculated by taking the accumulated interest compared with the total fund as though there had been no withdrawals.That makes sense, but if it's so, why doesn't it also apply to the early withdrawals? I.e., the taxable element would be 4.5% in year 1 but then 8.6%, 12.4%, 15.9%, etc, in years 2, 3 and 4?This calculation gives about 25% after 8 years, and if I keep going I get 47% after 20 years. Since you also came up with about 47% I assume I've understood that part correctly.PS: I suspect that my three questions are all related. Going back to one of your earlier posts, you said: [quote]Take a couple investing €300k in a capital safeinvestment at 4.5% producing €13.5k a year as a top up to a statepension. The taxable element is only 607€ as opposed to 13500€ outsidean AV. After 8 years the taxable element falls to €194.[/quote]This gives the impression that the €607 stays the same for 8 years, and then the €193 for the next 12, but I think these amounts are valid for one year only, after which they increase progressively.If so, I'm not saying that it negates the value of an AV, but it certainly means that the tax treatment of withdrawals is not as sensationally favourable as we might have thought. Link to comment Share on other sites More sharing options...
LesLauriers Posted May 1, 2007 Share Posted May 1, 2007 Thanks for coming back on the figures, I have been using my own spreadsheet to try and model the different outcomes and where I have made errors they have generally overstated the tax to be paid!Glynn very kindly copied me with an online spreadsheet which, if you download it, and change the figures to €300k and withdrawing €13.5k each year will show that no tax is payable from year 8. This is the effect of taking the couples annual allowance of of the withdrawal after the growth % has been applied. A factor I stated earlier I had misunderstood.The spreadsheet is here http://www.selfepargne.fr/assurance-vie/simulation.php?idrub=2[quote user="allanb"]If I understand you correctly, there is indeed a deferred tax liability on the untaxed interest, which will affect subsequent withdrawals - but the liability ceases to exist when you die. Correct. the taxable element would be 4.5% in year 1 but then 8.6%, 12.4%, 15.9%, etc, in years 2, 3 and 4?Correct though the figures I get are 4.31%, 8.26%, 11.89% and 15.25%.This calculation gives about 25% after 8 years, and if I keep going I get 47% after 20 years. Since you also came up with about 47% I assume I've understood that part correctly.PS: I suspect that my three questions are all related. Going back to one of your earlier posts, you said: [quote]Take a couple investing €300k in a capital safeinvestment at 4.5% producing €13.5k a year as a top up to a statepension. The taxable element is only 607€ as opposed to 13500€ outsidean AV. After 8 years the taxable element falls to €194.[/quote]This gives the impression that the €607 stays the same for 8 years, and then the €193 for the next 12, but I think these amounts are valid for one year only, after which they increase progressively.I have confused the issue by showing the effect on individual years - the taxable element increases each year.If so, I'm not saying that it negates the value of an AV, but it certainly means that the tax treatment of withdrawals is not as sensationally favourable as we might have thought.Take a look at the online calculator I think you will find that it is more favourable than the impression I have given you thanks to the effect of the annual allowance.[/quote]The calculator shows €300k invested withdrawing €13.5k a year (€256.5k total) to produce interest of €255.1k and a maximum tax payable of €2920 with a remaining balance of €262.4k so clearly better than the figures I used and shows that I have yet to crack the calculations in total. Edit - However it omits social charges? Link to comment Share on other sites More sharing options...
Glyn Posted May 1, 2007 Share Posted May 1, 2007 leslauriers,If you take a regular annual income from your assurance vie are you limited to withdrawing the interest only or can you also withdraw part of the capital as well?Thanks,Glyn Link to comment Share on other sites More sharing options...
allanb Posted May 1, 2007 Share Posted May 1, 2007 Thank you - also to Glynn. I'll have a go at the spreadsheet. I use a Mac, not a PC, so I don't know whether that will be an obstacle.My home-made spreadsheet would have to be tweaked a bit to bring in the effect of social security contributions, which I ignored. Is it realistic to use 11% throughout?I think we will always have minor differences unless we go into detail on questions like: how frequently is the interest added to the fund? - do we assume withdrawals at the beginning or end of each year, or some time in between? etc etc - not worth the effort in my opinion. Link to comment Share on other sites More sharing options...
Ann Posted May 1, 2007 Share Posted May 1, 2007 We are looking to use interest from savings to live off (it won't be much but it will only be until my husband recieves his pension).The advice we have received is to invest in an Assurance Vie but to keep the money outside France, anybody know whether there is any difference in the money being inside or outside of the country? Link to comment Share on other sites More sharing options...
LesLauriers Posted May 1, 2007 Share Posted May 1, 2007 Glynn,The account is "instant access" as we would understand it in the UK, however any withdrawal would be fiscally described as part capital and part interest.allanb,11% is correct for multisupports, and for funds in Euros, however I believe that in the spreadsheet the social charges are applied to funds in Euros each year as opposed to withdrawals.The spreadsheet needs close examination to understand each of the calculations.Ann,This was covered earlier in the thread - take a look back. Link to comment Share on other sites More sharing options...
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