Quick overview: What is a PEP?
The Plan d’Epargne en Actions (PEP) is a French savings product that allows you to invest in the stock market while enjoying attractive tax benefits. Created in the 1990s, the aim of the PEP is to promote long-term investment by individuals. Although it has not been possible to open a new PEP since 2004, those who already have one can continue to benefit from it and make payments into it. This article explores the advantages of keeping a PEP.
Key benefits of PEP :
- Tax advantages: after eight years, gains are exempt from income tax, excluding social security contributions.
- Flexibility: partial withdrawals can be made without closing the PEP.
- Passing on: In the event of death, the tax benefits of a PEP can be passed on to heirs.
Why keep a PEP?
Keeping a PEP today may seem old-fashioned to some, but in reality it’s an astute wealth strategy for several reasons:
- Tax optimisation: The main reason for holding a PEP is its exceptionally favourable tax regime. The interest and capital gains generated by the PEP are totally exempt from income tax after eight years of ownership.
- An envelope for investing in the stock market: The PEP allows you to invest in a wide range of financial assets, offering a great opportunity for diversification.
- Flexibility of use: you can make partial withdrawals after eight years without losing your tax benefits, which is not the case with other savings products.
- Advantageous transfer: The PEP can be transferred to heirs with the same tax treatment.
Taxation of PEPs
Taxation is one of the main advantages of the PEP, offering advantageous conditions for French savers. Here are the key points to understand:
- Income tax exemption: After eight years’ holding, gains (interest and capital gains) made within the PEP are exempt from income tax. However, social security contributions remain payable.
- Social security contributions: These apply to gains made under the PEP, but do not affect the tax advantage linked to income tax.
- No deposit limit: Unlike other savings products, the PEP has no deposit limit, giving you a great deal of freedom to invest.
- Withdrawal conditions: Before the age of eight, partial withdrawals are possible, but the PEP will be closed. After eight years, partial withdrawals are authorised without closing the plan, thereby retaining the tax advantage.
How do you revive your PEP?
Revitalising an inactive PEP is easier than you think. If you have a dormant PEP, here are a few key steps to reactivate it:
- Check the terms and conditions of your PEP: Make sure it still complies with the legal conditions and those of your bank or insurer.
- Make a payment: A small payment may be enough to reactivate your PEP, depending on your financial institution’s policies.
- Consult an advisor: An expert can guide you through the best strategies for revitalising your PEP and making it profitable again.
Transferring a PEP: why and how?
Transferring a PEP can offer a number of advantages, such as better management conditions or a potentially higher return. Here’s how to go about it:
The benefits of transfer
- Better terms: Look for an institution offering lower fees or better investment options.
- Access to new funds: Transfer to diversify your investments and access better-performing funds.
Transfer procedure
- Choose the new establishment: Compare the offers and select the one that best meets your requirements.
- Initiate the transfer: Contact your new institution to start the procedure. They will usually take care of all the necessary formalities.
Conclusion
Put simply, keeping, reactivating or transferring a PEP can be an intelligent strategy for optimising your savings. The tax advantages and transferability offer flexibility and opportunities to maximise your investment. Remember, every choice must be aligned with your financial objectives. For tailor-made advice, don’t hesitate to consult a professional. Your PEP is not just a savings account; it’s a tool for building your financial future.
FAQ
Can I open a new PEP today?
No, the creation of new PEPs has been closed since 2003. However, those opened before that date can be retained and transferred.
What is the difference between a bank PEP and an insurance PEP?
The bank PEP invests directly in shares, while the insurance PEP is based on a life insurance contract and can include various financial assets.
Is the PEP transferable after the holder’s death?
Yes, heirs can keep the PEP and benefit from its tax advantages, provided they meet certain conditions.
