Before buying shares, you need to understand how securities accounts and PEA accounts work. Investing in the stock market is a great opportunity. The stock market offers an average net yield of 7%. When you see that the return on the Livret A passbook is 0.5%, there’s no doubt that you’ll want to invest!
The PEA offers a number of advantages in addition to being more tax-efficient than a securities account. Here’s an article with everything you need to know about these two tax wrappers.
Their special features:
Equity savings plans (PEA) have been around since 1992, allowing you to invest exclusively in European equities. Because they are more tax-efficient than ordinary securities accounts (CTOs), they are a preferred choice.
The PEA
There are eligibility rules for this type of account;
Be of age
Not already have a PEA
Making a down payment
Buying shares with registered offices in the European Union
Maximum investment of €150,000
UCITS-type investment funds
ETFs
The CTO
You can open an account with several securities accounts in your name, and you can buy all shares outside the European market or European real estate companies or SIICs. What’s more, there’s no upper limit.
All ETFs
All UCITS-type investment funds
Global equities
Taxation:
It’s important to understand that tax laws are constantly changing. What’s true today may not be true tomorrow.
The PEA
You will be taxed on your capital gains at a rate of 12. 8% for withdrawals before the fifth year. Profits will also be subject to the 17.2% social security levy. After a minimum of five years, your profits will be fully tax-exempt, but you will still be subject to 17.2% social security contributions.
The CTO
There is no time limit on taxation. Under the PFU, dividends and capital gains are taxed at 30%(12.8% income tax and 17.2% social security contributions). The PFU is a single, flat-rate tax. If you do not choose to be taxed in this way, you will be taxed on the progressive scale. Yes, you can choose between these two types of tax. So you need to calculate carefully to choose the right one.
The CSG (general social contribution) is deducted in addition to the 40% allowance on dividends. Securities acquired before January 1, 2018 are eligible for an allowance proportional to the length of time the capital gains have been held.
Their differences in the event of death
If you die, it is essential to know that the PEA will be closed. Your children will no longer have access to this tax envelope. For securities accounts, the death of the account holder does not entail closure of the account. PEAs and CTOs will be subject to the same inheritance procedures.
Their protocols in the event of closure or withdrawal
Do you want to withdraw all your funds or do you have a project in mind? Is there an urgent financial need or do you simply want to withdraw all your funds? A protocol must be followed when closing or withdrawing funds.
In the event of closure
The PEA and CTO require the same type of administrative formalities. If you hold your PEA for a long period, you may be taxed differently. It’s a good idea to wait a few months for tax reasons. Send a registered letter to your bank or broker to inform them of your decision.
In case of withdrawal
If you withdraw part of your PEA before the 5-year deadline, your account will be closed. You don’t have to sign up for formalities if you’ve been made redundant, taken early retirement or become disabled. To get your money back, you need to provide the broker with the amount you wish to withdraw, your account number and the RIB of the account you wish to credit. Selling your shares on your CTO requires no special action.
Long-term investors should choose the PEA , as it is less taxed the longer you keep it. The 5-year holding period defines the length of time you must hold the property. Even if the CTO is less advantageous, it is more likely to be appreciated than the PFU. So we need to be discerning.
It’s a shame that the PEA doesn’t allow you to buy French real estate companies, ETFs or US equities. It’s true that you can’t buy GAFAM in a PEA. If technology stocks are the growth drivers of 21st century indices, the PEA will be popular.. If you’re new to French equities, the PEA is the best choice.. For experienced investors who are familiar with foreign equities and financial instruments, the CTO will be more popular.
Daniel Blanchet écrit pour le magazine TIH-Business depuis 2018. Il est spécialisé dans la finance et l’immobilier. Daniel est également un traducteur professionnel, ayant traduit de nombreux livres sur des sujets variés.
