Viewing posts from: November 2000

Investing During War Times

By Chris Burke
This article is published on: 7th March 2022

07.03.22

Off the back of the current situation in Ukraine, many of my clients have been asking me what this means for their investment and pension portfolios. Irrespective of the size and scope of the conflict, any declaration of war has global repercussions. Instability in one area of the world will result in a ripple effect, effecting other areas of the world regardless of the countries involved. Yes, this is likely to affect your investments and your pensions but the key takeaway is that you should not worry. If you are panicking, please reach out to me and we can have a conversation about it. There are even areas of opportunity in war times and stocks in certain sectors have even bucked the trend and outperformed. In this article, I will discuss investing in war times, including the current conflict in Ukraine, and the impact that this has on the stock market performance and the wider economy.

The Current Conflict in Ukraine
In the case of the current conflict between Russia and Ukraine, the heavy sanctions inflicted on Russia already have and will continue to heavily effect the global economy. The sanctions are amongst the harshest sanctions ever imposed on a country, and include preventing the Russian Government from accessing up to 600 billion USD in foreign cash reserves which they hold in foreign banks around the world, banning Russia from SWIFT (thus preventing Russians from using various credit and debit cards to make payments) and the freezing of the assets of some Russian individuals around the world ranging from bank accounts, property and even private yachts.

Various multinational companies have also ceased or reduced their operations in Russia (at least temporarily). For example, Apple have closed their Russian stores, Shell and BP have sold their stakes or abandoned their Russian operations and a magnitude of aviation companies such as British Airways, Lufthansa and Boeing have either halted their flights to Russia (note that there have also been significant alterations to the accessibility of international airspace) or in Boeing’s case, suspended parts, maintenance and technical support for Russian airlines.

The conflict does not solely impact the Russian economy. A large number of countries throughout the world export products to Russia. If this is no longer possible, then they will see a reduction in profits, which will then go on to affect their balance sheet. Furthermore, many countries in the world import products from Russia. The key product in this case is oil, a vital energy source. Although the supply of oil has not yet been cut, we have already seen a rise in petrol prices in many countries such as the UK. Other popular Russian products such as vodka are likely to be hit. Due to the decrease in supply, we are likely to see both shortages and a rise in price of Russian products such as vodka.

However, it is very difficult to predict exactly what will happen. For this reason, when making personal finance related decisions it is recommended that you engage in a professional discussion with a professional financial adviser. In times of war in particular, it is recommended that people seek the advice of an expert to help them manage their portfolios.

Previous Wars and Their Impact on Stock Market Performance
It’s important that we consider previous wars and the impact that they had on the stock market. Some civil wars and internal conflicts, such as those in Sierra Leone (1991-2002) and the Central African Republic in 2013, caused severe disturbances in those countries’ economies. However, from a global perspective, these wars did not cause disturbances in the stock market of first-world nations such as the USA. On the other hand, large-scale wars such as World War 1 and 2 did effect the US market, even before the US entered the conflict.

Global markets in the past operated very differently from how they operate today. For example, prior to World War 1 every country operated independently and the countries that operated in global trade were seen as at ‘gold standard’ level. London was the world’s financial capital and used in this way when a financial centre was necessary, however the requirements and responsibilities were very different when compared to nowadays.

At the close of World War 2, significant changes were made to the global financial system which increased interdependence between countries. The World Bank and the IMF (International Monetary Fund) were created, and from then on stocks reacted very differently from World War 1 and World War 2 when conflicts arose.

It’s also important to consider the popularity of the war on the home front and the amount of time in which the war goes on for. For example, the Vietnam War and the Gulf War both saw very different stock market outcomes in the USA due to the difference in popularity of the wars amongst Americans. Furthermore, the Afghanistan War lasted almost 20 years. In this 20 years, the markets saw both highs and lows. Ultimately, the longer a war goes on the less reactive a market is to its influence. A war may start to be seen as a ‘Business as usual’ type of operation.

I created the below table, summarising previous wars and their impact on the economy and stock market performance (I used the Dow Jones stock market as a comparison).

WAR	EFFECT ON ECONOMY
World War 1	Nations that imported more than they exported lost gold reserves, negatively impacting their economies, because the slow economic conditions saw greater demand for exports When Archduke Franz Ferdinand was assassinated, what is considered as the start catalyst of the war, the stock market was barely effected When Austria-Hungary declared war on Serbia in 1914, the Dow Jones dropped by 30% and the market had to close to maintain order and stability. When it opened a few months later, it sawed up by 88% and continued to rise until late 1916 When the US declared War in Germany in 1917, the stock market took a hit and continued trending downwards into 1918. It didn’t recover fully until mid 1919, on the news that the war was over
World War 2	The US was just emerging from the Great Depression in 1939 when the war started. In the early days of the war the Dow Jones increased over 10%, offering hope that the geopolitical environment would put an end to the challenging economic times. However, the conflict started to disrupt international trade and after this initial boost, the market started to fall significantly Rapid action from various impacted Governments around the world prevented the stock market from falling further than it did From 1939 to the end of the war in 1945, the Dow Jones was up 50%. Considering the economic conditions, this was a rather unexpected gain. The gain was put down to the various international cooperation agreements which succeeded in stabilising and growing the US economy
Korean War	The Dow Jones dropped around 5% on the first day – the war was a shock to most investors The recovery was fast, and by the time the war ended in 1953 the Dow Jones was up almost 60%. This is thought to be due to a number of Government policies such as increasing taxes and not borrowing money to fund the war.
Vietnam War	The Dow Jones grew by 43% from the start to the end of the war (1965 to 1973), despite its low popularity However, it was not all plain sailing. The Government’s decisions on funding the war caused inflation, setting off a mild recession in 1970
Gulf War	The Gulf War only lasted for 7 months. Due to its shortness, it is more difficult to separate the changes caused by the conflicts from those related to other world events. For example oil prices increased, causing a brief recession, which is an unusual event for war times When comparing the Gulf War with the previous wars, the US economy has changed a lot. The economy changed from processing natural resources and manufacturing capital goods to primarily knowledge based work (producing information and services). This may have meant that the stock market reacted differently during this war compared to previous wars.
Afghanistan War	The Afghanistan War lasted for almost 20 years, making it difficult to measure the impact of the war There were two crashes (2008 Global Financial Crisis and 2020 Covid Pandemic) which were both followed by quick recoveries, however these were largely unrelated to the war Industries such as Real Estate, Data Processing and Information Services and Computer Systems design and related services saw huge growth, suggesting that the war did not influence them. Shares in industry-leading defense contractors also profited significantly during the war.

Do any Patterns Emerge from Historical Stock Market Performance During War Times?
In the early days, there is certainly volatility. For example, both the FTSE and the Dow Jones took a dip last week (25/02/22) when Russia invaded Ukraine, however both have recovered since then. Logic dictates that this volatility continues throughout war times, however history has shown that this is not always the case. Yes, during pre-war times and at the beginning of a war (especially if there is no escalation period and the war breaks out suddenly without warning) stocks prices tend to decline due to shock and uncertainty. However, once war begins, history has shown that the stock market goes up, as has been the case with the Dow Jones and the FTSE this week (as of 03/03/22).

Generally speaking, there is no need to panic. Panic selling stocks and investments at the start of a war could prove to be a very bad move, considering that early sharp drops tend to be followed by steady gains. However, it is also important to note that the world is changing and that historical patterns may not play out again in future conflicts. Economics and the way in which the stock market behaves is very complex and depends on a variety of internal and external factors such as earnings, valuation, inflation, interest rates, and overall economic growth. Regardless of world events, investors should maintain proven strategies to protect and grow portfolios. The best way in which you could do this is to speak with an expert, and have your investment portfolio professionally managed.

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If you would like to speak with an expert, Chris Burke is able to review your pensions, investments and other assets, with the potential to make them more effective moving forward. If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below:

ESG – How to invest ethically

By Chris Burke
This article is published on: 29th January 2022

29.01.22

Positive Ethical Screening

Over the last few months, I’ve noticed a large increase in enquiries relating to ethical investments. It’s brilliant to see so many people looking and willing to make a positive difference to the world, whilst also in many cases seeing an equally positive return on their investments.  However, I often get questioned ‘What exactly makes an ethical fund ethical?’ and ‘What exactly do the companies that are defined as ethical funds do to make themselves ethical?’

Traditionally, ethical investing has focussed on omitting companies which operate in a non-ethical manner (for example, companies that produce arms or alcohol). However, it is just as important that when investing ethically we also consider the positives as opposed to solely filtering out on the negatives. There are many funds and companies out there who actively make amends to be more ethical, sustainable and make the world a better place, which doesn’t always get taken into account when negatively screening. In this article, I will go over positive screening criteria that I look for in an Ethical or Sustainable Fund. What exactly makes an ethical fund (or company), ethical?

Communication, Lobbying and Engagement
Funds that regularly communicate, lobby and engage with the companies in which their funds invest in. Although there is no guarantee that doing this will make a difference, communication is never a bad thing and there is potential for it to result in positive changes. For example, a fund could issue an ultimatum to a company if they do not act to reduce their carbon footprint. If the firm does not act, then the fund may well disinvest.

For example, Blackrock are pushing for more disclosure from companies. Specifically, they are asking companies to disclose how their business model will be compatible with a net-zero economy. By actively communicating and lobbying the companies which they include in their ethical funds, this will make companies take note and, hopefully, change for the better. If all investment management corporations followed suit, the chances of companies in general becoming more ethical and sustainable would increase.

Yes, I'm interested in ESG investments and would like to talk to Chris

Climate Change
Funds that contain companies which actively establish policies relating to reducing the impact of climate change. This could mean reducing their carbon footprint by reducing their mileage or switching their vehicle fleet to electric cars, or by utilising sources of renewable energy such as solar panels and wind turbines.

Various investment management companies such as JP Morgan, Schroders and Templeton all have specific climate change funds. The criteria by which each fund selects does vary, however the goal of all of them is to appreciate by investing in companies which adapt to risks posed by climate change and resource depletion. For example, Schroder do not filter based on sector but they select companies which are based on five themes: clean energy, energy efficiency, sustainable transport, environmental resources and low carbon leaders. JP Morgan operates a specialist thematic approach, utilising artificial intelligence and data science to create a portfolio of sustainable companies. Templeton select companies which exhibit superior climate-change practices and favour companies that provide low carbon solutions, companies transitioning to a low carbon economy and companies that are resilient to climate change.

Human Rights
Funds that favour companies who tackle human rights issues. This could mean by actively reviewing and ensuring that they do not break any human rights issues such as child labour, poor labour or generally poor working conditions. For example, if a firm was to use the services of a subcontractor, then they could actively and regularly audit them to ensure that no human rights issues are present.

Abrdn have a strong human rights stance, as demonstrated in a recent report. As they have an ESG friendly approach for their company as a whole, this naturally flows through into the companies that they select for their fund range (although they don’t have a specific human rights fund). The company performs regular human rights assessments to monitor that they are on track. As stated in the report, their human rights status is underpinned by four core beliefs and they are supporters of the ‘Protect, Respect, Remedy’ framework agreed by the UN Human Rights Council in 2008.

Positive Contributions to Society
Funds that generally screen for companies that make a positive contribution to society. For example, funds that look for companies that create products such as medical products that could save lives or industrial machinery that could help make people’s jobs safer. Furthermore, companies that offer good working conditions including pay, hours and the environment could also be screened positively. A positive working environment could see positive human resources policies within an organisation relating to disabilities, assistance with parental care and flexible working. If a company donates a sizable percentage of their profits to charity, then they could also be included here.

There are many examples of investment companies and funds which positively contribute to society. M&G have one of the most extensive ranges of ethical and sustainable funds ranging from funds that invest in long-life, immovable infrastructure assets to funds that invest in companies which companies that contribute towards the Paris Agreement goals. Furthermore, Prudential have been named as one of the World’s Most Ethical Companies by the Ethisphere Institute for the 7th year running. The award is based on five key categories: ethics and compliance program, culture of ethics, corporate citizenship and responsibility, governance, and leadership and reputation. Prudential were one of six financial services companies out of 132 honourees.

Welfare of Animals
Funds that look at companies that show a general interest in the welfare of animals. For example, this could be ensuring that farm animals have quality facilities, enough space to roam and a lasting, regular supply of food and water. It could also focus on funds that include firms who do not facilitate tests on animals. However, it is important to be aware that a lot of firms test on animals in accordance with ‘best practice’. But is this ethical? The more ethical choice would be to not test on animals at all.

Various funds show a clear interest in animal welfare. This is stated in the various fund factsheets and prospectuses. Morningstar conducted an analysis of funds that are against animal testing. The fund which came out on top, The Vegan Climate ETF Index, describes itself as having zero animal exploitation.

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If you would like to find out more about ethical investing, or invest your pension or investments in a more ethical manner, don’t hesitate to get in touch with Chris via the form below.

How to reduce your taxes in Spain (legitimately!)

By Chris Burke
This article is published on: 28th January 2022

28.01.22

Taxes are present all over the world. Just because tax rates may seem high here in Spain or because the system may seem complex, it doesn’t mean that you don’t have to pay them! It’s important that you gain an understanding as early as possible on how the system works. By doing so, you may be able to take vital action early which could potentially save you large sums of money by the time your tax bill comes around. In this article, I’m going to provide an overview of the tax situation in Spain whilst offering tips on how to reduce your tax bill legitimately.

First and foremost, it must be said that you do not have the option to choose whether or not to be a tax resident in Spain. Just because the taxes may be cheaper in the UK or the US or wherever you are from, or because you understand the tax system in your home country and not here, it doesn’t mean that you can elect to pay your taxes there. Ultimately, it boils down to if you live in Spain and if so, how many days of the year you spend here. Once you have spent 183 days in Spain in a tax year, which runs from 1st January to 31st December, you are then obliged to declare all of your income and assets and pay tax. These 183 days do not have to be consecutive. For example, in the tax year you could spend 170 days here before then leaving, coming back for a week and then leaving and coming back for another week, taking your total amount of days spent in Spain to 184.

Just because you have a residency card does not mean that you automatically become a tax resident immediately. For example, if your NIE or TIE application gets accepted and you decide to move to Spain in August 2022, and spend 5 months or less living in the country in 2022, in that tax year you will not be liable to tax. Therefore, you would have a few months to assess and take action to protect your assets from Spanish tax before becoming tax resident in the following year.

As a result, it can be highly beneficial if you are planning to move to Spain that you take action early. For example, if you decide to move to Spain in August 2022 and therefore do not become tax resident in Spain in that year, then you can dispose of your assets in that year free of tax in Spain. Therefore, you could sell your property or shares avoiding capital gains tax here and instead pay capital gains tax in your home country. Furthermore, there is no capital gains allowance in Spain. In the UK in 21/22, and 22/23, there is £12,300 capital gains allowance meaning that you will not pay tax on any capital gain up to this amount (which rises to £24,600 if you are married, joint own the asset and combine your allowance with your partner’s).

Example 1

August 2022 – Bill moves to Spain
August 2023 – Having been living in Spain for over 183 days in 2023, Bill sells his house in the UK. As he is now a Spanish tax resident, and this is not his primary residence, he is now required to pay capital gains tax in Spain (supposing he has made a gain on his property)

Example 2

August 2022 – Bill moves to Spain
September 2022 – Having been living in Spain for one month in 2022, Bill sells his house in the UK. As he is not yet a Spanish tax resident, he is not required to pay capital gains tax in Spain and he may benefit from the £12,300 tax free UK Capital Gains Allowance. The first £12,300 of profit made from selling his property may be tax free, depending on other factors such as if he has already used up his capital gains allowance for the year

Contact Chris to discuss your current tax liabilities

Alongside the normal income and capital gains taxes, Spain also imposes an annual wealth tax. This wealth tax, although only paid by individuals who own over €700,000 (€500,000 in Catalonia) in worldwide assets, can result in a discouraging annual tax bill. The wealth tax, into which I will go into in more detail in a future article, is only payable at between 0.2% and 2.5% on assets over the annual allowance (€700,000 or €500,000 in Catalonia).  There is a way to avoid, or at least mitigate this wealth tax. Following the previous example, if you decide to move to Spain in August 2022, and therefore not spend the required 183 days in Spain which you need to spend to become a tax resident, then you may be able to avoid the wealth tax in Spain by gifting your assets. However, this can prove to be a complicated process so it is recommended that you speak to us directly prior to doing this.

As the tax system in Spain may be different to your home country, financial products and ‘tax wrappers’ that are tax free there may not be tax free in Spain. Taking the UK as an example: ISAs are tax-free wrappers in which any gains or dividends on assets held in this wrapper are not subject to UK tax. However, you need to declare your UK ISA if you are a tax resident in Spain and any gains within this ISA, although it would not be subject to UK tax, would be subject to tax in Spain. Furthermore, in the UK you can draw the initial 25% from your pension tax free. In Spain, the same withdrawal would be taxable, although there is another tax exemption for this who contributed to their pension prior to 2007. For this reason, it’s very important to strategically plan ahead and our advice is straightforward: make the most of your tax-free allowances whilst they are available.

Yes, I need to discuss my tax planning opportunities

There are various ways in which you can restructure your assets in order to take advantage of tax planning opportunities here in Spain. For example, you can utilise Spanish tax-effective investment arrangements such as the Spanish Compliant Investment Bond (similar to a UK ISA) which will significantly reduce your tax bill compared to holding the same investment outside of this wrapper. You could also transfer your pension to Spain and adjust how you take income from it.

Everyone’s circumstances are different, but the above points go to show that the way you hold, dispose and take income from your assets can make a large difference to how much tax you pay in Spain. However, it many cases it is not as straightforward as it seems and it could be highly beneficial to seek specialist advice as early as possible to reduce future tax liabilities.

If you would like to seek specialist advice, Chris Burke is able to review your pensions, investments and other assets and evaluate your current tax liabilities, with the potential to make them more tax effective moving forward. If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below, or make a direct virtual appointment here.

Inheritance tax living in Catalonia, Spain

By Chris Burke
This article is published on: 26th January 2022

26.01.22

With all that has been happening the last couple of years with Brexit and the Covid 19 pandemic, it could well have slipped by many people that significant changes have been made to the inheritance tax laws in Catalonia. This will particularly affect those who are resident here and receiving an inheritance from someone who is a non-resident of Catalonia.

Prior to 2020, spouses and descendants received large allowances in respect of tax due to be paid, starting from 99%. However, for those receiving inheritance as a descendant this has been reduced, at the worst to only a 60% reduction. This raises two main questions. Firstly, how much tax will you have to pay if you receive an inheritance, and secondly, is there an alternative way to receive this inheritance, for example as a gift rather than an inheritance, which has a different rate of tax?

It is important to understand how an inheritance is taxed in Catalonia. Major factors are the relationship between the deceased and the inheritor, what asset is being received and where the money comes from, i.e. which country. In the UK it is fairly straightforward: if someone dies as a resident in the UK and leaves you assets up to £325,000 there is usually no inheritance tax (paid by the estate) to pay due to the nil-rate band. However, anything over this amount is usually is taxed at 40%. However, in Catalonia it is not that simple (surprise surprise, I hear you say!) and alongside what is declared and what you may have to pay tax on in the UK, you must also declare and pay the relevant tax in Catalonia. Any assets you already own can also be taken into the equation of what tax is payable.

Inheritance tax in Catalonia is paid by the receiver, not the estate, and very importantly, you have 6 months to declare this inheritance. Even if you haven’t yet received the inheritance (this is from the date of decease), you must declare it within 6 months or else you will be fined the following way on the amount of tax you are liable to pay:

5% in the following 3 months (i.e. months 6-9 since death)
10% from 3 months to 6 months
15% from 6 months to 12 months
20% plus interests after 12 months

However, if you know that you need more time you can ask for an extension of an additional 6 months. This must be requested in the first 5 months following the death. In this case, the surcharges described in the above table will not be applicable and you will have an extra period of 6 months.

If you have questions, please contact Chris Burke

There are some discounts on inheritance tax in Catalonia. To start with, there is usually no tax to pay on the first €100,000 received if you are a spouse or child of the deceased. For other descendants, the allowance is €50,000. If you are an ascendant the allowance is €30,000 and for any other relation the reduction is €8,000.

From this point on, there are further reductions between 97-99% and other factors are to be taken into account, such as if the children are under 21, disabled, or if you receive the main home (“vivienda habitual”), family business or shares in certain types of companies.

As you can see, the calculation is not straightforward. I feel the quickest and simplest way to give you an idea of what tax you would pay is if I give examples using the most typical scenario of people we help. This scenario is of a parent resident in the UK leaving their child, who lives in Catalonia, an amount of money/assets not including property (as we said there would potentially be extra tax deductions for receiving this). The guidelines are shown below for someone tax resident in Catalonia, over 21 years old, owning assets themselves of less than €500,000. Note that the ‘domestic trousseau’ has also been included (the domestic trousseau is a tax on inherited household items, for example furniture, by default calculated as 3% the estate value):

Amount to be inherited	Tax due in Catalonia
€100,000	€84
€250,000	€6,969
€500,000	€29,888
€750,000	€64, 908
€1,000,000	€109,297

One possibility we investigate for our clients is whether it would it be better to plan the future inheritance and anticipate it, receiving the monies through a donation that is taxed between 5% and 9% between parents and their children (with some specific requirements). Additionally, please note that if a previous donation has been made, this must also be considered in order to calculate the effective inheritance tax rate. We always suggest getting in touch to confirm exactly what the amount would be, and for help declaring it. For the assets themselves, it is worth noting that whilst living in Catalonia it is not always efficient to have many overseas assets.

For example, investments or ISAs in the UK are declarable and tax is payable in Spain on any gain annually EVEN if you do not withdraw any of the money, unlike in the UK. It is possible to hold these monies in a Spanish tax-efficient structure, such as a Spanish Compliant Investment Bond, remaining in sterling as opposed to Euros if you prefer. In this way, you can benefit from the money growing through compounding with potential to greatly mitigate tax. This is where we can add value to help our clients effectively organise their assets, and we can manage the assets if need be.

If you have any questions relating to this article or would like help planning for this eventuality, or anything similar, don’t hesitate to get in touch.

Your Financial Health Check 2022

By Chris Burke
This article is published on: 5th January 2022

05.01.22

New Year Financial Planning Resolutions

First of all, a very Merry Christmas, Happy New Year & Kings Day to all of my clients and readers! Here we are about to start another year; how fast the time passes! Although we have various challenges and uncertainties on our plate currently, the latest COVID-19 variation Omicron and the ongoing Brexit transition to name a couple, I am feeling optimistic about the year ahead.

This time of year is commonly thought of as the natural time to plan ahead. Writing our New Year’s Resolutions allows us to put down in writing what we would like to accomplish over the forthcoming 12 months, and hold ourselves accountable to this. There is a four-benefit cycle of writing New Year’s Resolutions:

Motivation Increases – we will feel motivated and determined from the moment that we set our goals so that we…
Take Control – we internalise that there is nothing stopping us from achieving our goals and that we have the power to ‘make it happen’. Resulting in a…
Sense of Achievement – as we take control and achieve our goals, we will start to feel a sense of achievement, motivating us further…
Self-Esteem/Confidence – as we crush our goals, we will see our self-esteem and confidence skyrocket!

New Year Financial Planning Resolutions - Health Check

But Chris, I hear you say, I don’t know what to include in my New Year’s Resolutions! There are lots of options, whether this is improving your fitness, learning a new skill or improving your financial situation. I specialise in financial advice, so I believe that I can add the most value assisting you with the latter!

A recent Royal London study (Royal London customer research: Feeling the benefit of financial advice, 2020) found that those who take financial advice are on average £47,000 better off over 10 years than those who do not. Furthermore, the study also highlighted that having a financial adviser not only has financial benefits. It suggested that the average person that receives regular financial advice feels more confident and in control, along with experiencing a heightened sense of ‘peace of mind’.

Book a telephone call or zoom chat with Chris now

I am an advocate of the Five Key Financial Planning Principles, also known as the PIPSI. These principles are listed in order of importance, starting with ‘Protection’. If you do not have adequate cover in place, then should something happen, the rest of your plans will not happen, so it is generally agreed that protection is the most important.

P – Protection
I – Income Protection
P – Pension
S – Savings
I – Investment

Protection – do you have adequate life and critical illness cover? Are you paying a fair price for it? Do you have a will to protect your family? Is it up to date?
Income Protection – if something happened resulting in you being unable to work due to accident or illness, are you covered? Would your dependents be financially secure?
Pensions – will your pension plans allow you to retire comfortably? Do you have pensions from previous jobs that could be due for a review? If you have numerous pensions, could it be best to consolidate them to reduce the overall charges and to maximise their effectiveness?
Savings – are you saving money regularly? Are you getting the best interest rate on your savings? Are your savings protected against inflation?
Investments – do your investments match your attitude to risk? Are your current investment charges too high? Do your principles align with your investment choices? For example, are you investing in an ethical manner? Are they on track with your financial life goals?

Have you included improving your finances as a part of your New Year’s Resolutions? Don’t hesitate to get in touch with Chris to talk through your situation and receive expert, factual advice. The initial consultation is free and without any obligation.

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Pension scams – what you need to know

By Chris Burke
This article is published on: 2nd December 2021

02.12.21

The pension scams in Spain – What they are, how they work and how to avoid them

Pension scams have cost UK expats residing in Spain millions of pounds over the last few years. The reality is that anyone can fall foul to a pension scam, irrespective of how financially savvy they think they are. The fraudsters often seem very professional and trustworthy and promise guaranteed lucrative returns, but in reality, the victims are usually left with nothing.

How do pension scams work?
Fraudsters normally contact the individual by phone, text or email. They may claim to be a fictitious company or they may even falsify their identity, for example claiming to be from HMRC (HM Revenue and Customs) or the FCA (Financial Conduct Authority). After establishing a rapport with the individual, the scammer will then try to persuade the victim to part with their pension. There are multiple different strategies for this, but each strategy effectively entails persuading the victim to transfer all or a large part of their pension to the fraudster.

The pension may be stolen outright, or it may be invested into rare, high-risk investments such as overseas bonds, infrastructure or obscure technologies. The scammer may also promise early access to the pension through various ‘loopholes’ or by offering loans to be paid back upon receipt of the pension. In this scenario, alongside potentially losing their entire pension, if they transfer it out early the victim may also face a large tax bill from HMRC. If HMRC class the early pension withdrawal as ‘unauthorised’, the tax bill can mount up to a maximum of 55%!

Only in very specific circumstances are you able to withdraw your pension early. If you are contacted by someone trying to persuade you to do this, it is likely to be a scam.

How to avoid pension scams? Top 5 Tips

1.Research the individual/company – are they genuine?
Research the individual and the company that they work for on the internet. Depending on how they contacted you, perform a search on their phone number, email address or even their LinkedIn profile. Next, look for news articles and/or reviews on the company, ideally from an independent source (companies in the past have falsified reviews or even paid news outlets to publish positive publicity).

2. Contact a government regulated body for guidance
After conducting your own research online, why not contact an official government regulated body for additional verification? Companies such as Pension Wise, the Pensions Advisory Service or the Money Advice Service may be able to assist and ensure that the proposition is legitimate.

3. ‘If it sounds too good to be true, it probably is’
Have you been promised guaranteed returns at an exceptionally high rate? If the proposal sounds too good to be true, it probably is. Furthermore, high rates of returns often also result in high levels of risk.

4. Offers of early pension access – thoroughly research
As mentioned above, this is a very common pension scam. In only very rare case scenarios are you able to access your pension under the age of 55, so if this has been offered to you please conduct thorough due diligence. It may furthermore result in a tax bill of up to 55%.

5. Investing in an unusual asset class – be vigilant of scams
Be mindful of proposals to invest in strange and obscure assets. The assets which you invest in should all have easily accessible information available on them. For example, the funds that you invest in should all have factsheets available online (on Trustnet for example) and the shares you invest in should all be listed on a reputable exchange.

Pension advice, either managing or planning, is very important and that advice can greatly improve the amount you receive in retirement, or for your loved ones after death. What it will also give you is peace of mind that your pension money is safe and not falling foul of any risks/scams, and that you are being given ongoing, good advice.

Book a telephone call or zoom chat with Chris now

If you would like to find out more about pensions and investments here in Spain or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris on the form below.

Can I keep my UK ISA living in Spain?

By Chris Burke
This article is published on: 19th November 2021

19.11.21

As explained on the UK government website, you can keep your UK ISA open if you move abroad. However, it is not possible to add money to the ISA in the tax year after you move (unless you are a crown employee working overseas or their spouse or civil partner). Furthermore, as soon as you stop being a UK resident you must inform your UK ISA provider. If you decide to move back to the UK in the future then you may continue to contribute to your ISA.

ISA’s in Spain – can I get a Spanish ISA?
In simple terms, it is not possible to get an ISA (Individual Savings Account) in Spain. In order to be eligible for a UK ISA, you must be a tax resident of the UK (or a crown employee working overseas or their spouse or civil partner). However, there are financial products available in Spain that are similar to an ISA which can be considered as a viable alternative.

Spanish compliant investment bonds – the ISA alternative?
Similar to the UK ISA, Spanish compliant investment bonds offer tax benefits. Only select accounts are eligible for these benefits, so one must be careful to open an account specifically designated as a Spanish compliant portfolio bond. Although in Spain the gains from the performance of the investment are not completely tax free like the UK ISA, the gains from the Spanish compliant investment bonds still hold notable tax advantages. These advantages can be summarised in the following table:

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Benefit	Explanation
Capital Gains Tax Reduction	No capital gains tax is charged until a withdrawal takes place, allowing the power of compound interest to grow the value of the investment over time.
Tax Savings on Withdrawals	Unlike ‘normal’ investments in Spain, you only pay tax on the growth of the investment as opposed to the overall percentage gain. The original investment is known as initial capital.
Annual Tax Return	Does not need to be reported on the Modelo 720.
Different Currencies	Can be held in a variety of currencies – it is not required to be held in euros.
Inheritance Tax Reduction	It can be held jointly meaning that the policy would pass to the survivor in the event of death, preventing complex legal hurdles.
Fund and Provider Choice	A wide range of regulated funds qualify, which are offered by international firms such as Prudential and Quilter PLC.

Spanish Compliant Investment Bond – Tax Saving Example

Initial Partial Surrender (Part Withdrawal) of €5,000)

Premium (Initial Investment)	€100,000
Surrender Value	€130,000
Partial Surrender (Withdrawal) Amount	€5,000
Policyholder/Spanish Resident Before Chargeable Events	Yes
(Initial Investment/surrender value) x partial surrender amount (€100,000/€130,000) x €5,000	Non-taxable Portion €3,846
(Initial Investment – non-taxable portion) €5,000 – €3,846	Taxable Income €1,154
19% tax on the taxable income €1,154 x 19%	Tax Due €219
Amount Paid to Policyholder	€5,000 – €219 = €4,781
Surrender Value – Partial Surrender Amount (€130,000 – €5,000)	Closing Surrender Value of Bond €125,000

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In essence the more the Spanish Investment Bond grows, the more your tax is offset.

If you would like to find out more about the ISA alternative here in Spain or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris.

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Gift tax in Spain

By Chris Burke
This article is published on: 14th November 2021

14.11.21

I hope you are all well; so far so good in getting back to a ‘normal world’ but you never know how near we are to a ‘Black Swan’. This month’s TT covers the following Hot Topics:

UK to Spanish driving license – another update
Gift tax in Spain – assets received from a UK parent, what tax would you pay in Catalonia?
UK private pension age to be increased from 55 -57
UK budget – inflation forecast of 4%+

UK driving license update
Last month I mentioned that anyone with a UK driving license in Spain could use it until the end of October. The UK government has just announced this has been extended until the end of 2021, so watch this space and let us hope an agreement is reached to exchange them for Spanish driving licenses, eventually.

Do you undertstand your tax liabilities in Spain if you still hold assets in the UK?

Gift tax from a parent in the UK?
Inheritance tax is constantly a hot topic in the UK and living abroad also, but for many people it’s not always clear as to what the rules are. In Spain for example, it’s regional on what you might pay for inheritance tax/gift tax and depends on many variables, including the amount to be received, the relationship to the donor and your country of residence.

Many people are accruing more and more assets from parents when they pass on from this life, and these assets are accruing more and more in value. However, inheritance tax is not changing that much, meaning in real terms people are paying or will be paying more money in tax. Therefore, many are choosing to try to pass their wealth on as gifts before this tax continues to escalate and plan to mitigate as much as possible.

However, for those in Catalonia inheriting/receiving a gift from a parent the tax is nowhere near as much as people might think. What is important is that you declare it, and do it on time so as not to receive any penalties.

As I stated earlier, it’s very difficult to give exact numbers as everyone’s situation is different. However, if I use a regular scenario I come across it will give you a very rough idea of what you might pay:

Potential Inheritance Tax
A British person, living in Catalonia, inheriting from a parent an amount of £250,000 would pay approximately €4,000 in tax.

Potential Gift Tax
A British person, living in Catalonia, being gifted from a parent an amount of £250,000 would pay approximately €16,500 in tax. (Note this gift amount is based on the receiver owning up to €500,000 in assets prior to the gift being received and reporting this gift to the notary.

As I say, these are approximate figures, but it will give you an idea of what you might pay.

We help clients declare this correctly and also plan what is the best thing to do with their money, including buying property, paying off mortgages, increasing its intrinsic value or protecting it against inflation.

Private/company pension access ages are to be increased
In 2015 The UK government changed pension rules so that anyone with a private pension could access the monies from age 55. This was greatly publicised, helped by an MP at the time who stated ‘If people do buy a Lamborghini but know that they’ll end up just living on the state pension, that becomes their choice’. Some people were worried people would spend all their pension money and then only have their state pension to live on. For the majority this did not happen (so far!).

Now the government has increased the age you can access your private pensions to keep in line with state pensions by 10 years, with UK state pensions claimable from age 67 for the most part. So from 6th April 2028 you must be 57 to access your private pensions.

This largely makes sense, although for many people who had started planning their retirement from age 55 it creates a problem. I have already starting helping many clients ‘plug the gap’ for this extra 2 year period which is more about changing what they are doing now to cover this eventuality in the future.

4% – inflation rising – the value of your savings decreases
In my last Top Tips I highlighted that inflation is starting to become something everyone needs to be aware of, after a decade or two of being very low. The impact it can have on your money is substantial.

The UK government in their latest budget have forecast this will go up to 4% in 2022 and maybe even higher. As I mentioned, for £100,000 you have in a bank account, in real terms this would be devaluing by £4,000 per year. CPI, the most common index that is used for measuring the ‘average basket of goods and services’ increasing or decreasing, went up by the MOST amount it ever has this last August (recorded by CPIH National Statistic 12-month inflation rate series) by almost 1% in a rolling 12-month measure.

This also brings real concerns for many people with private or corporate pension schemes, as nearly all have limits on what they will increase inflation by for your pension. This ranges from 2.5% up to 5%, therefore if inflation was to go above this your pension would not keep up with the increase in goods/services. We help clients plan and manage this potential eventuality.

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What can I do with £100,000 that I might want access to in a year or two?
One of the hardest to plan for and the most common questions I receive is what to do with a set amount of money that clients might want to use in a year or two, but want it to gain an interest/keep up with inflation until then. In many cases, this ‘1 or 2 years’ very often turns into 5 or 6 years and that can be a very dangerous situation, especially taking into account inflation at 4% (that’s 20% decrease in value after 5 years).

There are a few things we highlight to clients, such as some ‘not so well known’ good interest savings accounts, using Premium Bonds and also talking through their situation to professionally plan their finances taking this into account. Over a long period of time this can make a big difference.

As ever our chosen partner for exchanging currency is ‘Smart Currency’, register here with them for free and see how much they could save you and transfer your monies safely, quickly and effectively.

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If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch.

UK tax rebates in Spain

By Chris Burke
This article is published on: 1st September 2021

01.09.21

The TT – Top Tips Newsletter

Hi everyone, I hope you are enjoying some well needed freedom and a good summer. This month’s TT covers the following Hot Topics:

UK passports – VERY important news on travelling to Europe
UK tax rebates for those moving abroad
New working/retirement rules in Spain

UK passports
The first news out this year, importantly for those travelling to and from Europe, was that you must have 6 months left on your UK passport to enter the country now that the UK has left the EU; this applies even if you are a resident. Those travelling may have noticed that as well as joining the ‘Non-EU passport queue’, your passport will more than likely have been stamped. The UK has issued a statement saying that if you present your TIE resident card at passport control, they will not need to stamp your passport. In my experience this is not the case so far, even though I have given them my TIE as well. This might be an issue for those people who travel regularly, as once your passport stamp pages are full a passport is not usable. You would then need to apply for a new passport on the basis of ‘exhaustion of pages’. What’s more is that some countries will not allow entry without two blank passport stamp pages. If you are renewing your passport, it might be worth requesting the larger version with more pages to cover for this eventuality. Which leads me nicely onto my next topic.

UK red passport expiry date
Those who have not renewed their UK passport in the last year probably will have the old red colour passport. An important announcement was made recently in respect of these and is as such: these passports are ONLY valid for 10 years exactly. What this means is, if when you last renewed your passport and had months added that were still valid from the previous passport, these do not count anymore. Thus, these passports are only valid from 10 years from their date of ISSUE.

This will not affect everyone, but for example, if your current red passport was issued in January 2012, but expires in May 2022, because there were 4 months remaining on the previous passport which were added to the new one, you will be affected. In this instance, Europe/Spain will have this passport expiring in January 2022 and to enter you must have 6 months remaining to this date.
It’s good to have things like this to worry about, because there just isn’t enough in life is there?!

UK tax rebate for those moving abroad
Anyone who has left the UK in the last four tax years is allowed to apply for a UK tax rebate. There is no way to trigger an automatic tax refund; the HMRC needs you to submit an official claim before they can refund your tax overspend.

UK tax is calculated on your projected annual income, so if you don’t complete a full UK tax year this could be wrong, and in many cases very much so.
The main reasons you should look at this are:

Personal allowance – you have not used the entire amount in the year you emigrate/leave
You continue to be a UK taxpayer but are employed in another country

The process to find out if you are due any monies is fairly straightforward:
Complete form P85, sending parts 2 & 3 of your P45 that you should have received from your employer, or a self assesment form if you were self employed.

You can read about how to do this on the official government website here:
www.gov.uk/tax-right-retire-abroad-return-to-uk

New part time working/retirement rules in Spain
Until recently in Spain, you either had to be working or retired from a Spanish state pension perspective. That is to say, you could not work and receive your state pension. I know, I know, it just doesn’t incentivise people who arguably have the most experience in life to contribute to the economy, as if they continue working in any capacity they cannot receive their hard worked for state pension. However, recently this has changed.
You can now receive 50% of your Spanish state pension, pay a reduced autonomo payment (self-employed monthly payment) and continue to work. As a reminder, to receive a Spanish state pension you must have contributed for 15 years and two of those years must have been within the 15 years preceding actually retiring.

If you would like more information regarding any of the above, or to talk through your situation initially and receive expert, factual advice, don’t hesitate to get in touch with Chris.

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Top three financial tips for expats living in Spain

By Chris Burke
This article is published on: 22nd July 2021

22.07.21

Hola

This month we are covering the following Hot Topics:

UK financial advisers are not legally able to advise EU based clients anymore
The important ‘rule of 72’ for investing
Spanish state pension inflation worry

UK investments & pension law changes
Many UK based financial advisers can no longer legally look after anyone resident in Spain or the EU due to Brexit legislation, most having already written to their clients informing them of this. However, it’s not all bad news; most UK based investments including ISAs are not tax efficient in Spain/EU, with many having to be declared annually and tax paid on any gains, EVEN if you don’t access the money. This does depend completely on your circumstances and I help people analyse their personal situation, managing their UK assets or arranging for them to become Spanish compliant moving forward.

For those with UK private pensions in drawdown, every few years to receive this money you must have a UK accountant rubber stamp this to continue. So again, you will need to find someone locally to do this for you, which we can help with.

If you have any questions or need help in respect of UK based assets, please get in touch for a free, no obligation chat/review of your situation.

Send me your questions

The rule of 72 and poor performing investments
Implementing an investment strategy is not where your investment plan finishes; it is where it begins. Without regular reviews and maintenance there is a strong risk you will finish up with much less than you should have had. Many financial advisors here in Spain are mainly remunerated when taking on a new client, not on the performance of their investment. This is where I/Spectrum differ.

One of the many key aspects of investing is to keep a keen eye on the ‘rule of 72’, which is knowing how long before your money should double in its value. To work out the ‘rule of 72’ for your investment you use the following simple formula: divide the number 72 by the average annual interest you are receiving/likely to receive and it will tell you how many years it would take for you to double your money. So, for example, if you were averaging 4% interest per year it would take around 18 years (72/4 = 18 years), at 5% around 14 years and 6% around 12 years. To put that into a real-life scenario, if we use a starting point of €100,000 and invested over a 25 year period this amount of money would give you:

4% €266,583
5% €338,635
6% €429,187

To put that into context, historically inflation makes your costs double every 24 years, so if your money is not well ahead of that, in real terms your monies are just keeping their present value.

Therefore, it’s imperative you really are seeing your investments growing and working for you. If they are not, I suggest you seek a second opinion and find out how you can have these optimised, because it will make a big difference to you further down the line. The main reasons for investments failing are high maintenance costs and investments that give the financial adviser a ‘kickback’. Many people don’t always understand why their investment funds are growing but their portfolio isn’t as much, and this is usually a starting point to look at.

I work in a different way, making sure it also works for the client by not using this method, but on a transparent fee basis using the best investments & platforms for the clients; not using investment funds that give the adviser more commissions, in essence.

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Spanish state pension inflation worry
Back in 2011, Spain used to have a surplus state pension fund of €66 billion. This could be looked at as ‘well, at least they had a surplus; most countries have never had one’. Just before Covid started in 2019, it was €16 billion in debt. Now the state pension system, like many others, works on the principle that current workers pay for those who are retired now. The key point here is, from a percentage perspective, Spain, compared to others in the EU, has one of the highest proportions of its GDP (total country income) contributed to its state pension, at around 12%. The average ‘replacement rate’, which is the percentage of workers final salary income that they receive in retirement, was at 72% in 2019*, whereas the average in Europe is 45%. They receive, as a percentage, much more on average for their state pension compared to their earnings than their European counterparts. This is great on one hand, however this really is a great burden on Spain to provide that level of state pension to the people.

The only way Spain can carry on providing state pensions is to “increase the retirement age even higher and decrease the amount people receive” says Concepcion Patxot Cardoner, a University of Barcelona professor, as quoted by Bloomberg. That and start to move people towards saving into their own private pensions. However, this last option and the main plan moving forward is going to be difficult to achieve in a culture where only around 26% currently save into a private pension. Compare that to the UK where the latest survey showed 65% of people contribute.

If you also take into account Spain’s tourist industry (before Covid), which is the second largest in the world employing about 2 million people and accounting for about 11 percent of the country’s GDP, you can see that things are going to need to change drastically to balance the books given the current crisis.

What does all this mean? Well, to you and I, it’s even more important that we have a plan in place, whatever that is, to make sure we have provision in retirement. I am here to talk through this with you, using professional analytics tools to help take one of the most important planning aspects of your life and break it down, step by step, making it:

Specific to you
Measurable
Achievable
Realistic
Targeted

If you would like to talk through your situation with someone consultative and knowledgeable, don’t hesitate to get in touch.