Viewing posts categorised under: France

The Importance of having a Local Financial Adviser

By Sue Regan
This article is published on: 15th June 2018

15.06.18

Moving to another country is one of the biggest decisions that anyone is likely to make, especially to a country where the language is not your native tongue. Most of the expats I meet say that the hardest thing about moving to France is getting to grips with the language, and I include myself in this.

From my own experience I know that lack of fluency is often a cause of frustration, confusion and anxiety, especially when dealing with bureaucracy, medical matters and finance. Fortunately, there are people and businesses out there who can help.

The Spectrum IFA Group are independent financial advisers and our area of expertise covers the provision of regulated advice on the tax-efficient investment of financial assets, pensions and inheritance planning. We are a French company, regulated in France, which means our business activities will not be affected by BREXIT.

As well as being regulated in the county in which he or she is advising a client, a good financial adviser should also have the relevant knowledge of the tax framework of that country and the tax treatment of suitable products in order to give the most appropriate, tax-efficient advice. You probably wouldn’t have sought the advice of a French regulated IFA to manage your UK investments when you lived in the UK so it doesn’t make sense to expect a UK regulated IFA to advise you when living in a different tax jurisdiction to the one in which they are qualified and regulated.

The Process
In this age of online banking, tele-marketing and robo-advice, we believe that the old- fashioned method of a face to face meeting, to discuss your individual circumstances and financial objectives, plays a vital part in establishing the trust between the client and the adviser, and that should be the number one priority.

An initial meeting with a new client can take up to three hours – there’s a lot to discuss, such as:

Your personal and family situation
Your income – your requirements now and in the future
Your pension provision
Your inheritance wishes – do you have wills? Are they set up correctly for French residency? Who do you want to inherit?
Your property assets
Your financial assets – bank deposits, investments, Trust assets, business interests – where are they situated? Are they tax-efficient for French residency?
Insurance policies
Your state of health and provision for healthcare
Your priorities now and in the future
Your financial objectives and attitude to risk

By the time we have gone through all the above, and usually swapped a few stories about our lives, both the client and I have a very good idea as to whether we feel comfortable with each other and that we can work well together.
If, after this meeting, I believe that I can help you achieve your objectives, I will go away and put together my thoughts and recommendations in a report to you. We do not charge any fees for meetings, research or preparing reports and making recommendations. We will meet again to discuss, in detail, any recommendations made, and the product charges will be fully explained. If you decide to go ahead with a recommendation and become a client of Spectrum, we will be remunerated by the product provider.
This is just the beginning of the relationship. Things generally change over time, such as pensions and tax legislation, investment performance, physical well-being, family situations, income and capital needs. An important part of my job is to ensure that we meet periodically, at least once a year, to review your circumstances and make sure that your finances are on track to meet your current needs and longer term goals.
If you would like to have a confidential discussion about your financial situation, please contact Sue Regan either by e-mail at sue.regan@spectrum-ifa.com or by telephone on 04 67 24 90 95. The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter here

Spectrum’s Daphne Foulkes appointed to Chair of the European Pensions Institute

By Spectrum IFA
This article is published on: 12th June 2018

12.06.18

Spectrum’s Daphne Foulkes, a board member of FECIF (The European Federation of Financial Intermediaries and Financial Advisers) has been appointed to Chair the newly formed European Pensions Institute (see attached FECIF press release).

We are delighted with this recognition of Daphne’s skills and work representing European IFAs within the trade body. Daphne will be taking on this role in addition to her Spectrum duties.

Click here to read read the full press release

The European Federation of Financial Advisers and Financial Intermediaries (FECIF) was chartered in June 1999 for the defence and promotion of the role of financial advisers and intermediaries in Europe.

FECIF is an independent and non-profit-making organisation exclusively at the service of its financial adviser and intermediary members, who are from the 28 European Union member states, plus Switzerland; it is the only European body representing European financial advisers and intermediaries. FECIF is based in Brussels, at the heart of Europe.

Retiring & income in retirement

By Derek Winsland
This article is published on: 8th June 2018

A major part of my role as a Financial Planner involves helping clients move towards retirement and advising those in retirement about the best and most tax-efficient way of generating their income once they stop work.

One question I’m often asked is how much money I should save to enable me to retire comfortably. A good question, it depends on what constitutes a comfortable retirement for that particular person. It’s generally quite a straightforward discussion: how much do you need now, and what will change as you approach retirement (mortgages redeemed, no more school or university fees, travel expenses to and from work for instance). Factor in extra expenses for pursuing hobbies, travelling etc. and we begin to build a picture of what retirement will look like and how long the active retirement period will last for.

In the UK, a Which? survey concluded that, in the UK at least, a couple entering retirement needed £26,000 a year to live comfortably. OK, that’s the UK and not necessarily representative of life here in France, but it is a basis for opening a discussion. The next consideration is to identify what the sources of income are – likely there will be an entitlement to UK state pension, possibly some French state pension and maybe rental income form letting out the old UK home, or Gites in France.

For those people actively thinking about and planning for retirement, it is also likely there will be some private pension provision, perhaps even membership of a final salary pension from time spent working for an old employer. And then there are the savings you’ve set aside for the day when you can put down those work tools, and say “That’s it, I’ve done my bit”.

But what income can I reasonably expect those savings to generate to supplement the other sources of income. The Institute and Faculty of Actuaries have ruminated over this question (well they would, wouldn’t they! I can imagine the topic of conversation going around the dinner table at their annual conference). The conclusion they’ve come to is (not surprisingly) based on the life expectancy of the retiree. Retiring at age 55, they believe you should draw down only 3% of your capital each year to ensure that your money doesn’t run out. This then rises to 3.5% if retiring at age 65. Other financial experts believe the figures could rise to 5% per year for a 65-year-old. This then assumes that your capital is invested to generate returns greater than the rate of inflation.

The options for the individual facing an income shortfall include:

A Financial Planner can draw up a future forecast using established assumptions for inflation, rates of investment return, the most tax efficient way of drawing down or generating income, using either life expectancy tables or any other age after discussing your family mortality history with you. This will give you your ‘number’, the amount of capital you’ll need to live comfortably.

The Office for National Statistics has recently launched an online tool on its website designed to tell you what your life expectancy is. If you’re curious, click here:

Once completed this Financial Plan should be implemented to address any recommendations for re-structuring the existing assets, and thereafter reviewed yearly, updating the investment returns achieved and the impact this has on the capital, checking any changes that need to be made to the assumptions and making any amendments that you want included. Long-lost pension funds will be identified, and the expected benefits brought into the plan, and again, any issues addressed. The move is towards handing the responsibility of retirement over to the retiree, so there is not a better time to consult a fully qualified financial planner.

If you have personal or financial circumstances that you feel may benefit from a financial planning review, please contact me direct on the number below. You can also contact me by email at derek.winsland@spectrum-ifa.com or call our office in Limoux to make an appointment. Alternatively, I conduct a drop-in clinic most Fridays (holidays excepting), when you can pop in to speak to me. Our office telephone number is 04 68 31 14 10.

French Residency – Dispelling the Myths

By Sue Regan
This article is published on: 18th May 2018

18.05.18

French residency is a popular topic of discussion for expatriates when they get together in a social setting. So often I hear people saying that they “choose” not to be French resident and just to be sure, they make sure that they do not spend more than 183 days a year in France. Come April/May time, the chatter on this subject increases. So too do the differences of opinion, mostly about whether or not someone should complete a French income tax return.

Well, to dispel the first myth – residency is not a choice per se. Based on the facts, you are either French resident or not.

The rules on French residency are really quite straightforward, although admittedly some cases are not! For example, take a couple who are lucky enough to have a property in each of France, the UK and Spain. None of the properties are rented to tenants and so all are available for their own personal use. Every year, they spend five months a year in France, four months in the UK and three months in Spain. They receive pensions from sources outside of France and most of their financial capital is in offshore bank deposits in the Channel Islands. They also have current bank accounts in each of the three countries.

Where are they resident? Well the simple answer is “France”. Why? Because this is where they spend most time in a year.
Hence, the second myth of the perceived ‘183 day rule’ is also dispelled.

When anyone has interests in various countries, it is often found that they satisfy the internal criteria for residence of more than one country. Understandably, this can be confusing. In France, you only have to satisfy one of the following four conditions and you will be resident in France:

(1) France is your ‘home’: If you have property in France and another country, but the latter is not available for your personal use (for example, because it is rented to tenants), then France is your home.

(2) France is your ‘centre of economic interest’: Generally, this means where your income is paid from. In addition to pension, salaries, etc., this can include bank interest and other investment income.

(3) France is your place of ‘habitual abode’: Notably, no reference is made in the law to the number of days that you actually spend in France and this is where many people are caught out, believing that if they do not spend at least 183 days in France, then they can decide that they are not resident. This is not the case and your place of ‘habitual abode’ is, quite simply, where you spend most time.

(4) Nationality: If your residency has not been established by any of the above points, then it will be your nationality that determines your residence, however, this is very rare.

As a French resident, you are obliged to complete an annual income tax return and must declare all your worldwide income and gains (even if the income is ultimately taxable in another country).

Thankfully, there are Double Taxation Treaties (DTTs) existing between France and all the EU States (and also with many other countries in the world). For anyone with interests in more than one country, the existence of a relevant DTT is very important. This is because a DTT sets out the rules that apply in determining which country has the right to tax your various sources of income and assets, with the aim of avoiding double taxation.

However, France does not have DTTs with the popular offshore jurisdictions of, for example, the Channel Islands and the Isle of Man. Hence, for any French resident with bank deposits in these jurisdictions, where withholding tax is being charged on the interest, there is no mechanism to offset this against the French income tax that is also payable. Probably the best thing to do to avoid paying tax twice on the same source of income is to shelter the financial capital within an investment that is tax-efficient in France. Notwithstanding this, as everyone’s situation is different, it is also very important to seek independent financial advice before taking any action.

Inheritance taxes should also not be overlooked. As a French resident, you are considered domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend on your relationship to your beneficiaries. However, there are some DTTs on inheritance taxes between France and other countries (although nowhere near as extensive as the number of DTTs that exist for other taxes). Again, it is important to seek advice on your own personal situation because it is my experience that ‘one size does not fit all’.

In summary, French residency is a fact and not a choice. However, by seeking advice, action can be taken to mitigate your future personal French tax bills, as well as the potential French inheritance tax bills for your beneficiaries.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of French tax legislation. Hence, if you would like to have a confidential discussion about your financial situation, please contact Sue Regan either by e-mail at sue.regan@spectrum-ifa.com or by telephone on 04 67 24 90 95. The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at: spectrum-ifa.com/spectrum-ifa-client-charter

Is Buy To Let still a good investment?

By Katriona Murray-Platon
This article is published on: 11th April 2018

11.04.18

Given concerns over the effect of Brexit on UK house prices, together with recent changes to the tax treatment of UK rental income and the various tax increases and reforms applicable to French property rentals, now may be the time to reconsider if Buy to Let is a good investment, both in France and the UK.

General arguments against rental investments
Most of us have an opinion on property as a means of generating long term investment returns. For some, a tangible asset such as property represents security, for others it is simply an inflexible and physical tie to a specific location.

Rental properties need regular maintenance and repairs, which can be expensive, and meeting such costs can divert cash from savings and other investments. Private landlords often underestimate the costs of maintaining a rental property, one consequence being that net returns fall short of (sometimes) unrealistic expectations.

It is a basic investment principle that we should not rely exclusively on property (or any single asset) for our future financial security, yet frequently we do, particularly where Buy To Let is involved.
Liquidity, or access to capital, also needs to be considered. Whilst you can usually withdraw funds quickly and easily from an investment portfolio (in France one often uses the Assurance Vie structure), you cannot generally sell part of a house. Re-mortgaging or equity release are possibilities, but for some the only option for capital access is sale of the property and acceptance of the associated expense and possible delays. Furthermore, a forced sale will typically result in lower than market value being achieved.

Both the French and UK governments are under pressure to boost national housing supply so are taxing second homes and rental properties in an effort to bring more residential property to the open market.

By comparison, for French residents (including expatriates), Assurance Vie remains as possibly the single most flexible and tax efficient investment available – a valuable planning opportunity which can be overlooked when property is perceived as a ‘safe bet’.

Keeping your UK property and renting it out
Legislative changes introduced in April 2017 significantly increased tax liabilities for residential landlords. Previously, allowable expenses and mortgage interest payments could be deducted from rental income as part of the tax calculation. However, the phasing out of tax relief on mortgage interest payments means that by 6 April 2020 mortgage costs will no longer be deductible, instead replaced with a 20% tax credit.

For many people, once settled in France, a UK rental property becomes impractical and difficult to maintain. Frequent trips back to the UK, for a variety of reasons, just don’t seem worthwhile. Being a landlord can be stressful and time consuming, especially when you want to be enjoying a more relaxed life in France and/or you are busy running your business here.

If your UK property remains vacant for occasional use during trips back to the UK, you could be affected by measures introduced in November 2017 which allow councils to charge a 100% Council Tax premium on homes that have been left empty for two years or more.

Additionally, since April 2015, non-residents are liable for capital gains tax (at either 18% or 28%) on the increase in property value since 2015. And from April 2019, the UK government plans to introduce capital gains tax for non-resident landlords of commercial properties.

Whilst house prices in some parts of the UK have increased substantially over recent years, there are wide regional variations and prices can of course go down as well as up. Flooding from adverse weather conditions has negatively impacted prices in many parts of the country. Brexit brings its own uncertainty for the housing market and there is also exchange rate risk to consider, with GBP/EUR volatility likely to continue in the short term at least. Finally, even with carefully managed quantitative tightening by central banks, interest rates appear to be going in only one direction from here.

Things to be aware of when renting property in France
Whilst the Finance Law of 2018 has increased the micro threshold from €33,200 to €70,000 (with a 50% abatement for costs), and from €82,800 to €170,000 for seasonal “classement” rentals (with a 71% abatement), it has also made furnished rentals more complicated for landlords, particularly for those offering short term lets.

To receive the higher abatement for furnished rentals, there is the challenge of arranging an official visit to obtain a recommended star rating. Since 1st December 2017, Paris requires property owners renting for short seasonal lets to register this activity and to display registration numbers on rental advertisements. Lyon did the same in February 2018, Bordeaux in March 2018 and Lille is in the decision process. Only 12,000 properties have been registered whereas 100,000 or more appear on rental websites. On 11th December 2017, Paris officially notified the largest rental sites (Airbnb, HomeAway, Paris Attitiude, Sejourning and Windu) that advertisements for unregistered properties were in breach of regulations.

Recent Finance law also approved a proposal to increase the taxe de sejour which today represents between 20 and 75 centimes per person, per night – it could increase by 1% to 5% if local authorities so decide.

The French government recognises that rental income made via websites such as Airbnb or HomeAway has often not been declared. Since 1st July 2016 these websites must inform members of their tax obligations and in January each year must send a document showing gross income received through reservations made via their site in the previous tax year.

There is also the risk that between November and March tenants will stop paying rent, with landlords powerless to evict until the winter period is over.

2018 changes to Wealth Tax have been particularly unfavourable for property holdings. Note too that social charges, which don’t apply to UK rental income but are chargeable on French furnished rentals, have risen to 17.8%. And that tax offices sometimes mistakenly apply social charges to UK rental income, which is then time-consuming to recover. However, since the Finance Law of 2018, social charges on investments are included in the flat tax of 30% thus reducing the income tax liability to only 12.2%.

Whether to sell or retain a rental property can be a difficult decision, for both financial and emotional reasons. For practical guidance on this complex matter, please contact me to arrange an initial discussion or meeting, free of charge and without obligation.

French Tax Changes for 2018

By Sue Regan
This article is published on: 9th March 2018

09.03.18

In my last article from early November 2017 I set out the proposed French tax changes for 2018. After some fine-tuning of the proposals the actual changes came into effect from 1 January this year, the most noticeable of which were the introduction of the Flat tax on revenue from capital, and the replacement of the Wealth tax (Impôt de Solidarité sur la Fortune, or ISF) previously levied on total assets, with the new Impôt sur la Fortune Immobilier (IFI). You can read a summary of these and other changes by accessing the following link on our website: French Tax Changes

So, at the time of writing, with “the Beast from the East” sweeping its way across most of Europe last week, you would be forgiven for thinking we are still in the depths of winter rather than into the first month of spring. Spring is my favourite time of year. With any luck things will settle down to normality very soon and we will be enjoying the longer, warmer days with the spring flowers in abundance and the sense of anticipation that summer is just around the corner.

BUT… (of course, there has to be a BUT) along with spring come the, oh so loved, blue and pink Tax Return forms that will be arriving in our post boxes very soon. Over the last couple of years my Spectrum colleagues and I have been writing about the existence of the Common Reporting Standards (CRS) that are now well and truly in operation, whereby financial institutions of the EU and many non-EU countries around the world are exchanging financial information in order to combat tax evasion. If you have been receiving letters from your bank or investment providers asking for your country of residence and Tax Identification Number (TIN) – this is why.

Thus, if you are French resident, it is very important that you declare the existence of all bank accounts, assurance vie policies and any other income generating investments held outside of France, even if you do not draw on the income. Failure to do so can result in severe penalties – €1,500 for each undisclosed bank account or policy (which increases to €10,000 if this is held in an uncooperative State that has not concluded an agreement with France to provide administrative assistance to exchange tax information). Furthermore, if the total value of the bank accounts and policies not declared is at least €50,000, then the fine for each is increased to 5% of the value of the account or policy if greater than €1,500 (€10,000 if in an uncooperative State).

You can make the declaration by listing the information on plain paper and attaching it to your Tax Return. Even bank accounts with a nil balance should be reported. In addition, if you have closed any foreign bank accounts during 2017, the accounts should be reported and the date of closure mentioned.

Unless you will be submitting a Tax Return for the first time (in which case you must complete a paper return) you are required to submit on-line in 2018 if your net taxable income (revenu fiscal de référence) in 2016 was greater than €15,000. However, you are granted an exemption from this requirement if you do not have an internet connection at your home. There are plans for paper based declarations to be completely obsolete by next year.

If you need to complete the pink form for anything other than pension, then perhaps you may be paying unnecessary taxes and therefore might benefit from a review of your financial situation. So don’t wait until May to gather all the information together, make a start now and get organised so that any action needed can be identified and taken care of before the “silly summer season” is upon us – it’ll be here before you know it!

Wills for Expats in France

By Katriona Murray-Platon
This article is published on: 1st March 2018

If you have been reading the news recently you will know that a legal battle is about to start between the wife of the much beloved deceased French Rock Star Johnny Hallyday and his two children from his previous relationships, Laura Smet and David Hallyday. Johnny Hallyday’s children will reportedly contest the decision in his will to leave all his property and artistic rights to his widow Laeticia and their two adopted daughters. Whilst many of us do not have the same level of wealth as Johnny Hallyday, this case does highlight the issues around proper legal wills and more especially in situations where one has assets in more than one country.

Why is it important to have a will?
No one is legally required to have a will; however, most people want to be able to leave instructions on how their assets should be handled in the event of their death. A will is a legal document allowing you to communicate what you would like to happen to your personal possessions after you die. When you purchase a high value, physical asset, such as a house, it becomes even more important to be able to decide who would receive such assets should something happen to you.

If you are resident in France and do not have a valid will in place, then your property would be shared out according to the French rules of intestacy, granting automatic inheritance rights to any children you may have had, your surviving spouse, or to other relatives in the absence of a surviving spouse or child. If you do not have children and are not married or in a civil partnership, your assets would go to your nearest relative.

Do I need to re-do my English will now that I have bought a property in France?
If you have bought a property in France and not updated your UK will it would be advisable to speak to a UK cross border specialist who would be able to advise on whether your existing English will is suitable, or whether it may need replacing or updating in any way.

An English will – if properly drafted and executed in accordance with the UK Wills act of 1837 – would be recognised in France. France has signed the 1961 Hague Convention concerning wills and therefore recognises wills that are valid under UK law. Your French assets could therefore be dealt with together with your English assets under a carefully drafted English will, however this is not recommended in every case and you should seek proper legal advice to ensure that this would be the best solution in your personal circumstances.

When drafting a new will, it is important to inform your lawyer or notaire of the existence of any previous wills in any other country, to avoid revoking a will you have already made in the other country. They would be able to assist you in drafting a new will which takes into consideration any other wills specifically dealing with property in another country.

Do I need to do a French will?
This will depend on your individual circumstances and you should always seek professional advice from a properly qualified lawyer experienced in dealing with cross-border matters. “The inheritance and tax laws of the two countries are very different and each case needs to be examined individually before making a decision” says Matthew Cameron, Partner at Ashtons Legal, specialist in French law and cross-border legal issues. For example, whilst trusts are used very frequently in UK wills, they can cause all kinds of additional administrative and filing obligations in French law. A UK testator usually appoints executors to administer his/her estate after death and distribute the assets to the beneficiaries. In French law the notary is responsible for distributing the estate and assets can be held “jointly” or in “indivision” until the estate is wound up.
You should also note that under French law you cannot leave your estate to whomever you wish. The children have priority over the estate and the surviving spouse is only entitled to a fraction of the whole amount. So whilst you can, in a French will, give certain assets to friends and relatives, you cannot override French inheritance laws in the terms of your will.

I have heard that I can have English law apply to my French will is this true?
The European Succession Regulation 650/2012, also known as ‘Brussels IV’, which came into force on 17 August 2015, allows one law to apply to the whole of the deceased’s estate regardless of the location of the asset. International private law states that French law applies to immovable real estate assets situated in France and English law applies to real estate assets situated in England. Under this regulation the laws of the country in which a person is habitually resident at their death will apply to them unless they have made a declaration during their lifetime. This means that if you wish to elect for the law of your nationality to apply to the disposal of your estate, and for it to be recognised in France, it must be written into your will. However, the inverse cannot apply as the UK opted out of this EU regulation, so only English law can apply to an English estate. As Caroline Jeanson, notaire in Bordeaux who worked for over 12 years with English speaking clients in the Duras area, said “I have never yet, since the Regulation was enacted, advised a British national resident in France to opt for English law in their French will”. Whilst in theory you can choose which law will govern how you leave your assets, this will not avoid French inheritance tax. Under French tax law, if you leave your assets to someone who is not a direct blood relative, there can be substantial tax consequences. That beautiful chateau you own would probably have to be sold to settle the tax liability.

Do I need to do a will with a French notaire?
Strictly speaking you do not need to go to a French notary to write your will. You can do a hand written will called a “Testament Olographe” (holographic will) which is perfectly valid under French law. There is no legal requirement for it to be in the French language, it does not need to be witnessed nor does it have to be registered anywhere, however it is advisable to have it registered with the Central Wills Registry (Fichier Central des Dispositions de Dernières Volontés) which would enable any notary to access it. In any case it is best to seek the advice of a French notary before drafting a will. The first consultation is free and once the notary fully understands your specific situation they would be able to advise you on how best to draft the terms of your will.

Anyone who has ever lost someone will tell you that not only is it difficult to manage emotionally, but just at this very difficult time, there are a whole range of administrative matters that have to be dealt with. If the person did not make provisions in their will it is left to their friends or loved ones to deal with their assets, causing further upset and difficulty. To avoid this and to fully understand your personal situation it is best to seek professional advice from an independent financial adviser specialised in French tax matters, a UK solicitor specialised in French law or a French notary with several years’ experience advising English speaking clients.

For any questions or to make an appointment, please do not hesitate to contact us.

Will your pension sustain you through retirement?

By Spectrum IFA
This article is published on: 16th February 2018

It is widely known that Europe’s ageing population is a problem for EU Member States. Quite simply, people are living longer and this impacts on the sustainability of State pension systems, referred to as the first pillar. Member States may attempt to address this issue by raising State pension ages and increasing the number of years that people need to qualify for a full State pension. However, this then impacts on the standard of living that retirees can expect to attain, unless additional provision is made.

In some Member States, employees may benefit from occupational pension schemes that are sponsored by their employer. These are known as second pillar schemes and if a promise of a defined benefit pension related to salary and service is on the horizon, then this is highly advantageous. However, employers too are feeling the strain of funding such promises and so are increasingly closing defined benefit schemes and putting in place alternative defined contribution plans. There is no benefit promise and the employee will get whatever the eventual ‘pension pot’ purchases. In short, the risk of meeting the target benefit is passed on to the employee.

Third pillar pensions are also ‘money purchase’ and these sit on top of the first and second pillars. Voluntary by nature, these plans can make the difference between a comfortable or a poor retirement. Such additional pensions may also provide a ‘bridge’ to State retirement pension commencement, if the benefits can be accessed before the State retirement age. However, without appropriate and regulated advice, the saver may find out all too late that their aspirations for a financially secure retirement are not met. Saving sufficient amounts and investing the monies wisely are both essential requirements, but so too is taking advice.

Pension entitlement is a complicated subject. Regular reviews with the adviser should be carried out to check that the ‘pension pot’ is on target to achieve objectives. Generic on-line advice is unlikely to be enough, particularly if the person has accumulated several ‘pension pots’. Moreover, if a person has had a cross-border career, how does the ‘pension pot’ acquired in one State dovetail with one in another State? How are the State pensions earned in each Member State impacted by the EU State pension co-ordination rules? How do the diverse tax rules across Member States affect the outcome for the saver? These are just a few of many questions that should be addressed by the adviser – a robot cannot do this!

In June last year, the European Commission launched its proposal for a Regulation on a pan-European Personal Pension Product (PEPP), as a third pillar pension. In States where the first and second pillar systems are not well-developed, the PEPP may offer a solution for citizens who may be facing a poorer retirement. In other States, the PEPP should provide more choices to its citizens.

Whilst the PEPP initiative is welcomed, the Regulation as drafted, already presents some barriers to becoming a successful cross-border pension arrangement. The PEPP has the potential to contribute to the Capital Markets Union, but only if the barriers are overcome. Regulatory and fiscal rules diverge between the 28 Member States and so pragmatism and co-operation are needed to reach a solution. If the tax incentives are insufficient, and subject to change after an arrangement has commenced or even harmonised, the PEPP is unlikely to succeed.

The PEPP Regulation proposes a limited number of investment strategies be made available by PEPP providers. This includes a “safe investment option”, as a default option, which should provide a capital guarantee. The merit in capital guarantees for pension products is questionable, as these are expensive to provide. The result being that to support the capital guarantee (if in fact a real guarantee can be provided – and by what institution?), this would require low-yielding investments and consequently at retirement, the capital may be insufficient to provide an adequate level of income to supplement other pensions. Thus, the reference to a “safe investment strategy” could be misleading to the saver.

However, rather alarming is the proposal that the PEPP saver can waive the right to receive advice, if he/she selects the default investment option. It is arguable that PEPPs should not be sold on a non-advised basis, even in these circumstances. The Regulation as currently drafted could lead to the saver losing purchasing power, since an obligation to provide inflation-proofing has not been included.

Furthermore, the impact of national pension entitlements, varying decumulation options and retirement ages, particularly if the PEPP saver has cross-border accumulated benefits, strengthens the need for the PEPP saver to receive appropriate professional advice. Hopefully, the European Commission will also come to this conclusion.

This article was published on The European Federation of Financial Advisers and Financial Intermediaries website
Daphne Foulkes is a Board Member of the FECIF

How do you choose a financial adviser?

By Amanda Johnson
This article is published on: 12th February 2018

12.02.18

Question: Can you offer me any tips in choosing a financial adviser?
When you move to France, you are moving to Country with many different laws and rules to the one you are leaving and this is unlikely to change in the future, so choosing a financial partner which is right for you is very important for your financial peace of mind.

Here are several things I would suggest expatriates consider when looking for a Financial Adviser:

Is the Company regulated in France?
With nothing yet becoming clear on how the UK will be trading with France after Brexit, using a company which is based and regulated in France reduces any need for a sudden change, should regulations change, post Brexit.

Is my adviser able to sit down with me and review my finances on regular basis?
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French Tax Changes 2018

By Spectrum IFA
This article is published on: 23rd January 2018

During December, the French budget completed its Parliamentary process, with little change to the initial proposals. Shown below is a summary of our understanding of the principle changes.

INCOME TAX (Impôt sur le Revenu)
Income tax bands of the barème scale have been increased as follows:

Income	Tax Rate
Up to €9,807	0%
€9,808 to €27,086	14%
€27,087 to €72,617	30%
€72,618 to €153,753	41%
€153,784 and over	45%

The above apply in 2018 in respect of the taxation of 2017 income, for example, pensions and earnings.

SOCIAL CHARGES (Prélèvements Sociaux)
The Contribution Sociale Généralisée (CSG) has been increased by 1.7%. This results in investment income and property rental income (unless exempted by a Double Taxation Treaty), being liable to total social charges of 17.2%. In addition, where France is responsible for the cost of the taxpayer’s healthcare in France, social charges at a rate of 9.1% will be applied on pension income.

FLAT TAX on revenue from capital
The Prélèvement Forfaitaire Unique (PFU) – also known as the Flat Tax – has been introduced. This will be charged on the total amount of interest, dividends and capital gains from the sales of shares, received by the taxpayer. It also applies to certain gains in withdrawals from assurance vie contracts and this is covered in more detail in the following section.

The Flat Tax rate is 30%, made up as follows:
➢ a fixed rate of income tax of 12.8%; plus
➢ social charges at the rate of 17.2%.

However, the option to pay income tax at the progressive barème scale tax rates above (in lieu of the Flat Tax rate of 12.8%), plus social charges of 17.2%, is still possible, but only at the taxpayer’s specific request. In this case, the taxpayer will also benefit from the existing 40% abatement on dividends (but not for social charges).

Capital gains from the sale of shares, no longer benefit from taper relief, where the gain is taxed at the Flat Tax rate.

However, for shares purchased before 2018, where the taxpayer elects for realised gains to be taxed at the progressive barème rates, taper relief will continue to apply, as follows:
➢ 50% for a holding period from two years to less than eight years; and
➢ 65% for a holding period of at least eight years.

This relief also applies to gains arising from the sale of shares in ‘collective investments’, for example, investment funds and unit trusts, providing that at least 75% of the fund is invested in shares of companies.

Likewise, for investments made prior to 2018 in new small and medium enterprises, the higher allowances against capital gains for investments in such companies are also still provided, as follows:
➢ 50% for a holding period from one year to less than four years;
➢ 65% for a holding period from four years to less than eight years; and
➢ 85% for a holding period of at least eight years.

Similarly, the Contribution Sociale Généralisée (CSG) deductible portion (6.8% out of the total social charges of 17.2%) will only be permitted in the case of taxation at the progressive barème scale rates.

Taxpayers will not be able to selectively chose the income that is subject to the Flat Tax and that which is subject to the progressive rates of the barème scale. The default is the Flat Tax and where the taxpayer makes an election for any income from capital to be taxed at progressive rates, this will apply globally. Therefore, careful planning will be needed by some taxpayers, particularly if they intend to make a disposal of a large holding of shares and/or receive a large payment of dividends.
The Livret A, Livret Développement Durable and Livret Épargne Populaire accounts remain exempt from income tax and social charges.

ASSURANCE VIE & CAPITALISATION CONTRACTS
Premiums paid before 27th September 2017
For premiums paid before 27th September 2017, there is no change. Therefore, the taxpayer has the option to be taxed at the progressive rates of the barème scale or the Prélèvement Forfaitaire Libératoire (PFL) rates, as follows:
➢ during the first 4 years at 35%
➢ between 4 years and 8 years at 15%
➢ post 8 years at 7.5%

Social charges at the rate of 17.2% are payable in addition.

For contracts with a duration of at least 8 years, the abatement of €4,600 for a single person, or €9,200 for a couple, continues to apply.

Premiums paid from 27th September 2017
For premiums paid from 27th September 2017, the taxation rate will vary according to the age of the contract, plus for contracts older than 8 years, according to the ‘threshold’ amount of capital remaining in the contract as at 31st December of the year prior to the withdrawal being taken.

The threshold amount is €150,000 per individual person (across all assurance vie policies), which is determined by reference to the amount of the premiums invested, reduced by any capital already withdrawn, and not the value of the contract.

The threshold is not cumulative between persons and therefore, couples who are taxed as a household cannot share in each other’s threshold. Thus, one spouse may reach the threshold level, whilst the other does not, for example, where one has say €200,000 capital invested and the other only has €80,000 invested.

The reform provides for the PFU to apply for assurance vie contracts of less than 8 years, regardless of the amount of the outstanding capital. Thus, the PFU rate of 30% will be globally substituted for the pre-27th September 2017 rates of 52.2% (up to 4 years contract duration) and 32.2% (4 – 8 years contract duration)

Therefore, according to the age of the contract, the following tax rates will apply:
➢ during the first 8 years, the Flat Tax rate of 12.8%
➢ over 8 years, 7.5% up to the threshold, plus 12.8% above the threshold.

Social charges of 17.2% are payable in addition.
Insurers will be obliged to deduct the tax of 12.8%/7.5%, i.e. depending on the duration of the contract, plus the social charges. Subsequently, for contracts older than 8 years and where the taxpayer has exceeded the threshold, any additional tax due will be charged through the taxpayer’s annual declaration.

The following table summarises the situation:

	Fixed tax rate applied
Gaines from premiums paid from 27/09/2017	Deducted by the insurance company plus social charges of 17.2%	Additional tax payable if threshold exceeded	Additional tax payable if threshold not exceeded
Contracts < 8 years	12.8%	No	No
Contracts > 8 years	7.5%	Yes, to reach 12.8%	No

The post 8-year abatement of €4,600 for a single taxpayer, or €9,200 for a couple, continues to apply.

All taxpayers will have the possibility to opt for taxation at the progressive income tax rates of the barème scale, plus social charges, at the time of making their tax declaration. As the insurance company would have already deducted the PFU tax, any excess tax already paid will be refunded following the processing of the tax declaration made in the year following the payment of the withdrawal. However, taxpayers should be aware that if taxation at the progressive rates of the barème scale is chosen for assurance vie gains in amount withdrawn, then this will apply globally to all income from financial capital.

There is no change to the inheritance tax treatment of assurance vie contracts.

Examples of how the taxation will work:

Example 1
Mr X invested €200,000 in his policy in January 2017. In case of redemption after 8 years, as the premium was invested before 27th September 2017, the gain will be taxed at 7.5%, after application of the abatement of €4,600. Social charges of 17.2% on the total gain are also payable.

Example 2
Mr Y invests €200,000 in his policy in October 2017. In case of redemption after 8 years, as the premium was invested after 27th September 2017 and exceeds the threshold of €150,000, 75% of the gain will be taxed at 7.5% and 25% at 12.8%. The abatement of €4,600 will be first applied to the gain taxed at 7.5% and any balance applied to the gain taxed at 12.8%. Social charges of 17.2% on the total gain are also payable.

Example 3
Mr Z invests €100,000 in an assurance vie contract in 2007 and makes an additional investment of €200,000 in 2018. He decides to fully surrender the assurance vie in 2019, when the value of the policy is €360,000. €50,000 of the gain is attributed to the 2007 premium and €10,000 to the premium invested in 2018. Our understanding is that the tax on the total gain of €60,000 would be calculated as follows:

– 2007 premium: (€50,000 – €4,600) x 7.5% = €3,405.00
– 2018 premium: as he has only ‘used’ €100,000 of the €150,000 threshold against the 2007 premium, the balance of €50,000 can be applied to the premium paid after 27th September 2017, which is 25% of the €200,000 invested. Therefore, 25% of the gain of €10,000 relating to the 2018 premium will be taxed at 7.5% and the balance at 12.8%, as follows:

o (€10,000 x 25%) x 7.5% = €187.50
o (€10,000 x 75%) x 12.8% = 960.00

– Total tax = €3,405.00 + €187.50 + €960.00 = €4,552.50

Social charges of 17.2% on the total gain are also payable.

PROPERTY WEALTH TAX (Impôt sur la Fortune Immobilier)
Wealth tax on total assets (Impôt de Solidarité sur la Fortune – ISF) has been abolished and replaced with Impôt sur la Fortune Immobilier (IFI).

IFI will apply only to real estate assets and the principal residence is still eligible for the 30% abatement against its value. Therefore, taxpayers with net property assets of at least €1.3 million would be subject to IFI on taxable assets exceeding €800,000, as follows:

Fraction of Taxable Assets	Tax Rate
Up to €800,000	0%
€800,001 to €1,300,000	0.50%
€1,300,001 to €2,570,000	0.70%
€2,570,001 to €5,000,000	1%
€5,000,001 to €10,000,000	1.25%
Greater than €10,000,000	1.50%

However, at the outset of the debates on the proposed tax changes, it quickly became clear that MPs were not entirely happy about the idea of replacing ISF with IFI. In particular, for people with substantial wealth, who would also benefit from the Flat Tax, this was considered to be a step too far! Therefore, additional taxes have been introduced on certain luxury goods, for example, yachts and sports cars.

TAXE d’HABITATION
Taxpayers who are not liable to IFI will benefit from reductions in taxe d’habitation, in respect of their principal residence, subject to certain taxable income (Revenue Fiscal de Référence) ceilings not being exceeded. For a single taxpayer, the taxable income limit is €27,000 and for a couple, €43,000.

For those who meet the requirements, their taxe d’habitation will be reduced by 30% in 2018, 65% in 2019 and total exoneration in 2020. Where taxable income is just above the income threshold (up to €28,000 for a single person and €45,000 for a couple), the reduction in the taxe d’habitation will be proportionally reduced.

ENTRY INTO LAW
The changes have entered into law following publication in the Official Journal of France.
22nd January 2018

This outline is provided for information purposes only. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.