Spanish Mortgage News
By Chris Burke
This article is published on: 17th May 2014
In the last two months, we have seen some incredibly positive things happening in respect of mortgage lending for non-residents. This affects not only product conditions (see below), but also service standards.
In March, two of the main lenders contacted one of our mortgage brokers us to ask us if they could meet decision makers in their banks to understand how they can compete for and win more non-resident mortgage business. They met with two members of the Board of Directors of one of the largest banks in Spain and last week we met two senior officials from another of the largest banks.
At these meetings we advised that to compete effectively banks need to offer at least 70% of purchase price, with no compulsory life assurance, without a minimum rate (“suelo”), for all nationalities, and to improve the efficiency and turnaround times for approvals.
We have also advised that debt-to-income ratios could be increased to gain more business from rivals, but this seems to be something that is harder to get banks to change. Many banks are currently using a 30% debt-to-income ratio, so monthly debts (including the new Spanish mortgage) must not exceed 30% of overall net monthly income. Some banks are using 40%, but these banks are not offering the best conditions. It is worth noting that the 30% rule is often relaxed slightly for high-earners.
We anticipate that changes will be made one step at a time, but have been very encouraged by the results of these meetings. Here are some new conditions we have been involved in negotiating:
- 70% now available for most other nationalities (case-by-case basis for non-Europeans)
- Low interest rates from annual Euribor + 2%
- Products without compulsory life assurance
- 30-year terms available
- Fast-track approval with decisions in 1-2 weeks from submitting all requested documents
For Scandinavian clients, as most agents are already aware, Nykredit has often been the preferred bank to use because they offer attractive conditions and 70% for Scandinavian nationals (up until recently they offered up to 80%, but this is now very difficult to achieve with them). We are getting more and more Scandinavian clients coming to us telling us that Nykredit has declined their mortgage, is taking an eternity to approve it or requires them to invest large sums to get approval for 80%. What is clear is that Nykredit is purposefully slowing down its lending for Spanish property purchases. This now appears to be in contrast to the leading Spanish banks. Nykredit has also made clear that it is not keen on self-employed applicants, cheaper properties, non-touristic areas and even some very popular holiday destinations such as Ibiza.
| MAXIMUM LTV |
Fiscal Residents – 80% Non-residents – 70% |
| EURIBOR* | 12 month (annual) – 0.549% |
| EXCHANGE RATES |
1 GBP = 1,1952 EUR 1 EURO = 0.8367 GBP |
Data correct at the time of writing
* Based on purchase price or bank valuation (lowest of the two)
** All non-resident mortgages are now based on the annual Euribor with a loading of 2 – 4%. The margins now vary considerably depending on the bank in question and the customer profile and some banks have minimum rates
UK Pensions – Budget Announcement April 2014
By Chris Burke
This article is published on: 29th March 2014
The UK Budget this week delivered unexpected and immediate changes to UK pensions as well as the publication of a consultation document.
Whist we will need to wait for details of the actual legislation, we would like to give you a brief summary of the main changes announced.
1. Flexible Drawdown
With effect from April 2015, anyone will be able to take advantage of flexible drawdown, without the need to have (as is currently the case) a minimum guaranteed pension of £20,000 per annum. From 27th March the minimum pension required for flexible drawdown is reduced to £12,000
Currently there is a tax charge of 55%. This will be reduced to the individual’s marginal rate of tax. While this could be as low as 20%, with a 40% tax rate at just under £32,000 and 50% at £150,000, there will still be a high tax charge to pay. It should also be borne in mind that if the pension fund is taken, and not spent, any amount left over on death will fall into the client’s estate for IHT purposes and potentially taxed at a further 40% (or the prevailing IHT rate at the time).
2. Charge on death.
This is currently 55%, and is viewed as potentially too high. HMRC intend to consult with stakeholders on this, but with income tax at the marginal rate and IHT at 40%, it would seem unlikely that this rate will fall substantially.
3. GAD rates will be increased from 120% to 150% from 27th March.
The Gad rate is the amount the government decide you can take from your UK pension. Previously you could take 120% of what percentage they agreed, that has now risen to 150%.
4. Triviality
That is, where the whole amount that can be taken as a lump sum i.e. small pensions. This amount has been increased to £10,000 per pension pot, and the total can include up to three pensions of £10,000 giving a combined maximum triviality payment of £30,000.
5. Transfers from public sector schemes
Due to the above changes, the UK Government’s view is that this will have an effect on the number of people looking to move from final salary schemes to defined contribution schemes. As public sector schemes are underfunded, their view, taken from the briefing note, is as follows:
“ However, the government recognises that greater flexibility could lead to more people seeking to transfer from defined benefit to defined contribution schemes. For public service defined benefit schemes, this could represent a significant cost to the taxpayer, as these schemes are largely unfunded.
Consequently, “government intends to introduce legislation to remove the option to transfer for those in public sector schemes, except in very limited circumstances. “
This means that they will be seeking to disallow transfers from UK public sector schemes.
6. Government are also consulting with industry on whether to introduce restrictions on transfers from other final salary schemes.
A copy of this consultation document can be found here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293079/freedom_and_choice_in_pensions_web.pdf
While the main focus of reporting seems to be around the ability to take the pension fund as cash, in reality this has always been the case via flexible drawdown, so the only change being considered in this consultation is the removal of the requirement to have a guaranteed income.
With income tax being paid at marginal rate, this would potentially increase the tax actually paid on the pension fund eg. A fund of £200,000 for a 60 year old could provide an income of around £12,000 at current GAD rates. This would (using UK tax rates) have a tax bill of £400 (20% on £2,000) and a net income of £11,600. Taking the amount as a lump sum would mean a tax bill of £73,623 and a net payment of £126,377, or just under 11 years’ worth of net income that could have been taken from the pension. Plus, if the amount was invested, tax would also be due on any income or gains produced. As well as the amount being within the client’s estate for IHT if UK domicile – whereas in a pension (QROPS or UK scheme) the fund will grow free of tax and will be outside the estate for IHT.
No doubt there will be more focus on the above over the next few days, but if you would like to discuss any of the above in more detail, please don’t hesitate to contact me.
(Source Momentum Pensions April 2014)
Lifetime Allowance changes and ‘Fixed Protection 2014
By Chris Burke
This article is published on: 18th March 2014
This year the Her Majesty’s Revenue and Customs (HMRC) are lowering the UK Pensions Lifetime Allowance amount. This is the maximum allowance the HMRC grant to each individual to hold as a UK pension without incurring any extra tax charges. Previously, UK residents receive tax relief on the contributions made into a pension up to £1.8 million in 2010/2011 before it was reduced to £1.5 million in 2012. The HMRC has changed this twice over the last 8 years bringing the allowance down each time, from £1.8 million in 2010/2011 to £1.5 million 2012. The government agency is enforcing a further reduction to £1.25 million this coming year.
Any amount above the lifetime allowance is liable to 55% taxation when withdrawn as a lump sum, or 25% taxation when withdrawn as a pension.
It is important that those affected by this change apply for ‘Fixed Protection’ before 6th April 2014. A successful application allows the pensioner to maintain their lifetime allowance of £1.5 million as opposed to a reduced £1.25 million commencing from 6th April 2014.
A successful application for Fixed Protection in essence allows a pensioner to withdraw savings worth up to £1.5 million without paying the lifetime allowance charge which will soon affect all pensioners with more than £1.25 million across their schemes.
Firstly note – you cannot apply for ‘fixed protection’ 2014 if you already have ‘primary’, ‘enhanced’ or ‘fixed’ protection.
Secondly, you will lose fixed protection 2014 if:
a) You join a new pension scheme – unless you’re transferring pension savings from one of your existing schemes into the new scheme.
b) You build up new benefits in a defined benefits or cash balance pension pot above a set amount – enquire for further details.
c) You start saving in a new pension pot either under an existing pension scheme or a new pension scheme.
d) You have a contribution paid to any of your money purchase pension pots.
Links:
Apply for Fixed Protection 2014 at: http://www.hmrc.gov.uk/pensionschemes/fp14online.htm
Calculate if Lifetime Allowance affects you at: http://www.hmrc.gov.uk/tools/lifetimeallowance/index.htm
Are you a Spanish tax-resident for tax purposes
By Chris Burke
This article is published on: 5th March 2014
If you are currently living in Spain, you would assume that you would also be a Spanish tax resident. That is not always the case. The underlining rule is that if you live more that 183 days of the calendar year in Spain then you are deemed to be tax resident also. Although this is usually the deciding factor there are exemptions to the rule. If the ‘centre of your interests’ is arguably in the United Kingdom, Her Majesty’s Revenue and Customs (HMRC) could reason that you are responsible for tax there, not Spain.
Where is your ‘centre of interests’? Well, you could quite conceivably spend most of your time in Spain whilst still having a house in the UK, a business or job based in the UK, children in school in the UK and/or a spouse in the UK. If all these were the case then you would almost certainly be UK resident for tax purposes. You would also be liable to tax in Spain (in theory) if you spend more than 183 days here. In practice there is however a ‘double tax treaty’ in existence between the UK and Spain which ensures you do not have to pay tax twice as a result.
If you currently reside in Spain and the majority of your ‘centre’s of interest’ are (in Spain) then you will be deemed as a tax resident by the Hacienda (the Spanish tax authorities) and liable to pay taxes on your assets world-wide.
Brandeaux February Update 2014
By Chris Burke
This article is published on: 25th February 2014
Brandeaux February Update 2014
Brandeaux Student Accommodation Fund (Sterling) Limited
Brandeaux Student Accommodation Fund (Multi Currency) Limited
Announcement
Further to the recent press speculation, the Brandeaux Student Accommodation Fund (Sterling) Limited and the Brandeaux Student Accommodation Fund (Multi Currency) Limited confirm that they are continuing to actively review various options with the aim of creating liquidity for their existing shareholders. The options being considered include a potential initial public offering of the assets of the Brandeaux Student Accommodation Fund (Sterling) Limited. The consideration of an initial public offering is at an early stage and there is no certainty at this time that this option will be pursued.
A further statement will be made as and when appropriate.
The above is an extract from Brandeaux on the February update of their suspended funds. In many cases we will be able to help you if you have money frozen in these funds, please contact one of our advisers to find out more
Written by: Chris Burke based in the Barcelona/Costa Brava area
If you are based in that area contact Chris at: chris.burke@spectrum-ifa.com
If you are in another area please complete the form below and we will put a local adviser in touch with you.
Brandeaux Suspended Funds Update
By Chris Burke
This article is published on: 19th February 2014
The following is an extract from Brandeaux on the latest update of their suspended funds. In many cases we will be able to help you if you have money frozen in these funds, please contact me below to find out more:
Chris Burke
Partner
Office; 34 936652828
Mobile; 34 689915730
chris.burke@spectrum-ifa.com
Ground Rent Income Fund Limited, The Ground Rent Portfolio Limited Ground Rent Portfolio Plus Limited (the “Ground Rent Funds”)
Brandeaux Dual Asset Fund (Sterling) LimitedBrandeaux Dual Asset Fund (US Dollar) LimitedBrandeaux Dual Asset Fund (Euro) Limited(the “Dual Asset Funds”)
Brandeaux Student Accommodation Fund (Sterling) LimitedBrandeaux Student Accommodation Fund (Multi Currency) Limited(the “Student Funds”)
(and together the “Brandeaux Funds”)
The Ground Rent Funds
Update on sales The Brandeaux Update of 26 September 2013 reported that the Ground Rent Funds were in negotiations on sale transactions representing approximately 80% of the total value of the ground rent properties.
Brandeaux is pleased to report that property sales to release approximately £173 million of liquidity available for shareholders have now been achieved representing approximately 37% of the total remaining assets of the Ground Rent Funds. The sale prices for these properties are in line with the directors’ expectations as communicated in our last Brandeaux Update of 26 September 2013 and therefore there is no change to the current share price of any of the Ground Rent Funds.
The potential buyer for the remaining properties that we reported in our September Update as being at an advanced stage failed to complete the purchase in the agreed time frame. This was unexpected and disappointing, but the continuing interest that has been shown in these properties is very positive and a reflection of their inherent value. Brandeaux has recommenced marketing of these properties and will report progress as it develops. In addition, Brandeaux is actively marketing two remaining portfolios and has received significant interest.
Future of the Ground Rent Funds Given the desire that has been expressed by investors in the Ground Rent Funds to realise liquidity, and following the positive results achieved in property sales so far, the directors of the Ground Rent Funds have resolved to market and sell all the remaining properties within the Ground Rent Funds. Once completed, the intention is to wind-up the Ground Rent Funds.
The directors do not wish to wait until winding-up the Ground Rent Funds is completed before releasing to shareholders the proceeds of the sales achieved thus far and so, after allowing for ongoing operating cash requirements and transaction costs, it is intended that the net proceeds will be released to shareholders as quickly as possible. It is presently anticipated that this will take place early in the New Year.
In view of the intention to wind-up the Ground Rent Funds, the directors consider that the best way of ensuring that all shareholders benefit fairly from the liquidity created by the sales is to make compulsory pro rata share redemptions to all shareholders. The effect is that every shareholder will
receive a proportion of the available liquidity based on their current percentage shareholding. The directors have written separately to all shareholders in the Ground Rent Funds to provide further details of the arrangements, process and timing of the redemptions.
The directors will keep under review the progress of further sales and whether further redemptions can be made as further property sales are achieved prior to the commencement of the winding-up process. It is not possible to say definitively when further property sales will complete and, therefore, when the winding-up process will commence. However, the directors are taking steps to progress these matters as quickly as possible while at the same time preserving shareholder value.
The Dual Asset FundsThe Dual Asset Funds, which are shareholders in Ground Rent Income Fund Limited (as well as in Brandeaux Student Accommodation Fund (Sterling) Limited), will receive their share of the net proceeds of the Ground Rent property sales as these are distributed. The Dual Asset Funds will distribute their share of the proceeds of each redemption to their own shareholders on the same basis as the Ground Rent Funds, namely by way of a compulsory pro rata share redemption to all shareholders. It is intended that this will be carried out promptly following the share redemptions by the Ground Rent Funds. The effect is that every shareholder will receive a proportion of the available liquidity based on their current percentage shareholding.
The directors have written separately to all shareholders in the Dual Asset Funds to provide further details of the arrangements, process and timing of the redemptions.
Future of the Dual Asset Funds The Dual Asset Funds were created to give investors exposure to both the Ground Rent and Student Accommodation asset classes within one fund. Once the Ground Rent Funds are wound-up, the Dual Asset Funds will no longer be invested in both asset classes. The directors therefore intend to wind-up the Dual Asset Funds in due course. In order for this process to be completed it will be necessary for the Dual Asset Funds to first realise their investment in Brandeaux Student Accommodation Fund (Sterling) Limited and then distribute the proceeds to shareholders. Accordingly, it will be necessary for liquidity to be achieved in the Student Funds before the Dual Asset Funds can be wound-up.
Important information for IFA’s who have clients invested in The Ground Rent Funds and the Dual Asset Funds through institutional platformsThe shareholders of the Brandeaux Funds are the institutional platforms that hold Participating Shares in these funds. Brandeaux does not have details of any underlying investors (neither their names nor bond numbers) and are unable to identify their individual holdings. IFA’s should contact the relevant platform for information concerning queries from their clients, and the process and timing of distributions from the platforms over which Brandeaux has no control.
The Student Funds The directors are actively continuing the process for the creation of liquidity for shareholders through property sales and other means, although the timeframe remains, at present, uncertain. A number of discussions have taken place over the past six months and the directors are actively looking at various alternative ways to create liquidity for investors but at this time there is nothing further to report.
A further update will be sent when there is information of significance to report.
16 December 2013
This Update is for information purposes only and is not intended as an offer or solicitation to anyone in any jurisdiction in which such an offer or solicitation is not authorised, or to any person to whom it would be unlawful to make such an offer or solicitation. Persons who receive this Update are required to inform themselves about and observe any such restrictions and should seek professional advice. This Update should be read in conjunction with the Funds’ Articles of Association and Private Placement Memoranda. Information and representations herein are based on information available at the date hereof, and are, therefore, subject to change. In particular, past returns are not a guide to future returns and the value of shares may go down as well as up. Moreover, returns in non-sterling denominated shares classes may increase or decrease subject to currency fluctuations. Brandeaux calculates its returns net of Brandeaux charges. This Update is distributed on behalf of Brandeaux Managers Limited by Brandeaux Administrators Limited, Brandeaux House, 13 Upper Mount Street, Dublin 2, Ireland, which is authorised and regulated by the Central Bank of Ireland under the Investment Intermediaries Act, 1995.
QROPS and EURBS – Common questions asked
By Chris Burke
This article is published on: 23rd January 2014
As a specialist in UK and Irish pensions, here is a list questions I’m often presented with on QROPS and EURBS. If any of these apply to you, do not hesitate to get in touch for a consultation, free of charge. chris.burke@spectrum-ifa.com
UK Pension Transfer or ‘QROPS’ – what does it mean?
A Qualifying Recognised Overseas Pension Scheme (QROPS) is a pension scheme transferred or opened outside the UK that meets requirements set by HMRC in the United Kingdom
If I eventually plan to return to the UK, what would this mean for my Transferred Pension?
If you intend to return to the UK permanently or to work, your Transferred Pension will become subject to the same regulations and tax treatments as a UK domiciled pension. It may then make sense to move it back to the UK as a ‘Self-Invested Pension Plan’ (SIPP) for efficiency.
However, if it is your intention to move back to the UK in the future then it is usually inappropriate to transfer your UK pension to a QROPS.
I might want to change location, will this affect my Transferred Pension?
If you live or work in another country, for example you move from Spain to Switzerland, your overseas pension will stay in the jurisdiction it was set up in. You can continue to make contributions regardless of what country you are living (remember though that if you move back to the UK, your pension will be bound by UK pension regulations). You can receive income and contribute to your Transferred Pension in any currency; so even if you move to several different locations, you can still use your Transferred Pension (QROPS).
If you are taking income and then move to another country, the amount of income tax you pay would vary from country to county.
What currencies can I have my UK Pension in once it is transferred?
Your plan can be denominated in Sterling, Euros, US Dollars, and many other currencies on request. Should it be beneficial to you, the currency can be changed at any stage cost effectively.
I have a UK state pension scheme, is it possible to transfer this also?
It is not possible to transfer a UK state pension overseas – UK transfer applies to your corporate and private pension schemes only.
If I have already taken an annuity, can I still transfer my UK pension overseas?
No, it is no longer possible to transfer your UK pension if you have already taken an annuity.
Do I still need to purchase an annuity once my UK pension has been transferred overseas?
No, you do not need to purchase an annuity once you have transferred your pension overseas.
How much does it cost to transfer my UK pension and set up a Qualified Recognised Overseas Pension?
QROPS costs differ depending on the scheme, location and the service level that you require. The main costs you will be looking at are the initial set-up fee and an annual management fee. They are generally slightly more expensive than a UK pension for the first 5 years and then on a par.
Can I manage the assets within my Transferred Pension myself?
It depends on the provider you decide on – some allow you to manage your own assets, while others insist on managing them for you. We suggest you use a financial adviser for guidance, even if you wish to manage your pension assets yourself. Contact us for more information.
What assets can be transferred to a QROPS?
Most UK pension schemes, and the underlying assets, other than the UK State pension can be transferred overseas (as a QROPS). We recommend an independent evaluation of your schemes to find out which are eligible. Contact us for more information.
Can I keep the same pension funds in my UK pension?
Potentially yes, it is possible to transfer your funds ‘In Specie’ meaning you keep the existing funds and investments from your UK pension.
Can I transfer more than one UK pension overseas into a QROPS?
There is no limit on how many pension transfers a QROPS may receive provided that each scheme relates to the same member. Overseas pensions are a good way of consolidating and managing several schemes in to one.
Is there a minimum transfer value to transfer my UK pensions?
We generally suggest that the combined value of pensions transferred into an overseas pension (QROPS) should exceed £50,000 as an absolute minimum for the scheme to be beneficial to the member. However in the majority of cases it is more appropriate for the final transfer value to exceed £75,000.
When can I access my UK pension?
The retirement date for a transferred pension can usually be any time between the member’s 55th and 75th birthday. Different QROPS jurisdictions may have slightly different age limits, ie Malta’s top age limit is age 70.
Can I still contribute to my transferred pension?
You can receive income and contribute to your Transferred Pension in any currency; so even if you move to several different locations, you can still use your Transferred Pension (QROPS).
How much of the fund can I take as a lump sum?
At the member’s nominated retirement date it is usually possible to take up to 30% of the value of the fund as a lump sum. The lump sum must precede the pension and is a one off payment. For members who have been non-UK resident for less than five full, consecutive tax years the maximum will be 25% of the fund transferred from the UK.
How is my pension calculated?
The basis for the pension withdrawal is calculated using the limits defined by the UK Government Actuaries Department (GAD) tables. . The GAD rates are dependent on your age and the 15 year Gilt rates. Then the maximum income allowable is 120% of this GAD rate. This is in line with the UK drawdown rules. In all cases, the maximum pension level will be reviewed at least every three years and after the maximum age of 70 or 75, depending on juridiction, it will usually be reviewed yearly.
How will my pension be taxed once outside the UK?
As long as there is a Double Taxation Agreement the income is paid Gross and then you are taxed in the country that you are resident in via your tax declaration, again each QROPS jurisdictions rules will vary slightly. In essence you should be no worse off than if you were receiving the pension in the UK or maybe even better off.
What if I die?
Depending on where your next of kin resides then the QROPS can either be paid out in its entirety or be structured so it rolls into a trust for the benefit of your next of kin.
Who will receive my pension when I die?
Your designate as beneficiaries, or, according to your Last Will and Testament.
Can I transfer my UK pension into a QROPS myself?
No. Only appointed intermediaries are allowed to do a QROPS Pension Transfer. This is because you need to have expert advice on this as well as the paperwork being intensive.
I don’t have all the details regarding my UK pensions, what can I do?
With some basic information we can trace most pensions.
How do I know if my UK Pension Transfer scheme is HMRC approved?
The current list of eligible QROPS Pension Transfer schemes can be found here: http://www.hmrc.gov.uk/PENSIONSCHEMES/qrops.pdf
How does a QROPS work?
In effect it is similar to a UK pension except it’s held in a trust, which reports to the HMRC each year to confirm your pension is safe and adhering to the rules.
What UK pensions can be considered for a Pension Transfer?
- Personal Pensions
- Final Salary Pensions
- Money Purchase Section 32 and Section 226
- FURB/URB
- Civil Service & Armed Forces
- Protected Rights/GMP
When should I not transfer my ‘frozen’ pension?
Each instance varies and you will require the advice of a pension professional. Contact us.
What is the minimum age I can draw benefit and how much?
From age 55 year you can take up to 30% lump sum of your fund. 70% minimum, remaining funds need to provide ‘income for life’.