Assurance Vie or ordinary shares?

[allanb]

I have learned a lot from recent threads on the way in which an Assurance Vie contract works, and also on the tax treatment of dividends on direct shareholdings, and it has made me think.

When I arrived in France I had a sales pitch from a financial adviser, and went to a meeting with him, as I suppose many other people have done.  He made efforts to sell me an AV contract as a tax-favourable investment, although I didn't learn as much from him as I have from LesLauriers and others on this forum.  In the end I didn't buy his - I bought one from my bank, mainly because of a wider choice of underlying investment and much lower management fees.

I don't think that was a bad decision.  But the tax treatment of capital gains and dividends in France apparently means that I could have invested in ordinary shares with the following results:

(1) dividends up to roughly €4,000 per year (if married, which I am) would be effectively tax-free, and there's the famous tax credit as a bonus;

(2) any capital gains would also be tax-free as long as the sale proceeds didn't exceed €15,000 in any year (I think this limit is now €20,000). 

Purely from an income tax point of view, how is this less favourable than an AV?

I'm not saying that holding ordinary shares directly is necessarily a better investment than an AV contract.  And tax is not the only thing to think about.  But I find it very strange that the possibility wasn't even mentioned.  As usual, I wonder whether I'm missing something somewhere.

It couldn't have anything to do with advisers getting initial commissions on AV contracts, could it?

[LesLauriers]

It's a good question and one that needs thinking about, I suspect that the commission factor is relevant for the IFAs. As an investor you also the need to take an overall view of your own finances, capital and income, future needs both short and long term and where you are at in life. Importantly what happens when you die.

The big benefit of the AV is the freedom from inheritance tax of the first €152k per beneficiary, the way in which withdrawals are taxed and the €9.2k exemption after 8 years.

Your own personal circumstances are a key factor,

Your age will impact upon your ability to weather any market falls over time.

The need to provide an income for your partner should you die first.

The income from your pension v your outgoings.

Exchange rate volatility if you invest in UK shares.

What happens to your pension after you die will your partner receive 50% or less.

How quickly do you need access to the money, shares may be on a low whereas funds in euros are protected.

How many inheritors you wish to have and their blood relationship to you and your partner could affect the decision.

Are you subject to the 8% health charge?

Perhaps a mix of AV's and shares could be the answer, moving to AV's later in life but before 70.

Random thoughts really. I am very aware of the need to provide long term for my wife and family and for that reason the bulk of my investments are within AV's, I do also have share and unit trust investments but will dispose of these within the €20k allowance over time.

A mix depending upon circumstances and attitude to risk I guess.