Tax wrappers in France: The same investment, three different tax bills

Two people buy the same fund, on the same day, with the same amount.

Ten years later, they have gained the same. But they do not keep the same.

The difference does not come from the investment. It comes from the box they put it in.

That box is called a wrapper. In France, there are four worth knowing.

The first is the securities account. No ceiling, no time limit, every security in the world.

And no advantage: every dividend and every winning sale is taxed in the same year.

Say thirty per cent. On ten thousand euros of gains, three thousand go to tax.

The second is the PEA, the French share savings plan. It is reserved for European shares.

You can pay in up to one hundred and fifty thousand euros. Not one more.

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The rule fits in one number: five years. Before that, withdrawing costs a lot. After, income tax disappears.

Social charges remain. Say seventeen per cent: one thousand seven hundred euros instead of three thousand.

One thousand three hundred euros kept, for the same fund. Just because it was in the right box.

The third is life insurance. The name is misleading: above all, it is a savings wrapper.

Its number is eight years. After eight years, part of the gains you withdraw is no longer taxed each year.

Four thousand six hundred euros of gains a year for a single person. Double that for a couple.

And it also helps pass money on: each beneficiary receives a large share free of inheritance tax.

Watch its fees. Life insurance at two per cent a year eats the advantage within a few years.

The fourth is the PER, the French retirement savings plan. It works the other way round.

The advantage comes on the way in: what you pay in lowers your taxable income for the year.

If you pay thirty per cent on your last euros, one thousand euros paid in gives you back three hundred.

The price: the money is locked until retirement. Except to buy your main home, or after a major life event.

And on the way out, the tax comes back. The PER delays tax, it does not cancel it.

So which one to choose? That is the wrong question. You choose a wrapper by when you will need the money.

Soon: the passbook. In five years or more: the PEA. For the long run or to pass on: life insurance. For retirement: the PER.

One last tip, for free: open a PEA and a life insurance policy early, even with a small sum. The clock starts on the day you open it.

Rates change with the law. The logic stays: the contents make the gain, the wrapper decides what you keep.