You don’t have to be a millionaire to get in on the game. In Southern Europe, particularly in Italy, Spain and France, it is very common for people with ordinary incomes to buy second properties. “They [the French] use them as holiday homes and rent them out when they are not using them,” said Tim Yates, a financial adviser with the Spectrum IFA Group in Valbonne, southern France.
France’s Fight Against Tax Evasion
By Spectrum IFA
This article is published on: 3rd February 2014
As part of France’s continuing efforts to combat fiscal fraud, a new piece of legislation was enacted into law on 6th December 2013. This has far-reaching effects, including:
Criminal sanctions for serious cases of fiscal fraud are to be increased to a maximum of seven years imprisonment and a fine of €2 million, when the fiscal fraud is facilitated by:
- the use of foreign bank accounts or foreign life assurance policies;
- foreign entities, including trusts, set up outside of France;
- the use of false identity or false documents; or
- artificial or fictitious tax residency.
Undeclared monies held outside of France, whereby the taxpayer cannot prove the provenance, to be taxed at 60%.
If, as a result of failing to declare assets outside of France, a taxpayer does not make a wealth tax return because the ‘none inclusion’ of the assets indicates that they are under the wealth tax threshold limit (currently €1.3 million), the penalty is to be increased from 10% to 40% of the tax due.
The period during which the tax authority can take action to prosecute is to be increased from three years to six years.
As concerns trusts, legislation was already introduced in 2011, which has required the trustees to declare to the French tax authorities the existence of the trust with at least one of the following:
- French resident settlor;
- French resident beneficiary; or
- French situated assets – even if the settlor/beneficiaries are not living in France.
Since 2011, failure to declare the existence of a trust has resulted in a penalty of the greater of 5% of the value of the total assets of the trust, or €10,000. The new law increases the fine to 12.5% of the value of the total trust assets or if greater, €20,000.
In addition, a public register of trusts is to be established by the Minister of Finance. This will require full details of the trust to be published, including the name(s) of the trustees, the settlor and all of the beneficiaries, as well as the date of establishment of the trust. Therefore, the text of the law is wide and in effect, requires information concerning non-resident beneficiaries to be made public and may also require the names of potential beneficiaries to be published.
France, like many other countries, is targeting tax evasion more and more. Banks and insurance companies are required to report information to tax authorities about their clients and tax authorities around the world are exchanging information. The EU is also proposing to amend EU Directive 2011/16 to expand the field of the mandatory automatic exchange of information between tax authorities to include capital gains, dividends, bank account balances. Banking secrecy will clearly become a thing of the past!
It’s a fool’s game to try to hide assets and pretending not to be resident is not a good idea. One way or another, the taxman always finds out and the penalties can be very costly. It is much better to seek regulated advice from professionals who are registered here in France.
Does any of this concern you? Would you like to ensure that you and your potential beneficiaries do not pay any more tax on your financial capital and investment income than is necessary? If the answer to either of these questions is yes, then please contact me for a confidential discussion.
We are also now planning for our Spring Client Seminars. As always, there is no charge for any of our seminars and the speakers’ presentations are followed by a buffet lunch, so places must be booked in advance. The planned dates for the next local events are:
- 21st May at Castelnaudary
- 22nd May at Perpignan
- 23rd May at Montpellier
As the seminars are always very popular, early booking is recommended.
If you would like to discuss your financial situation, in confidence, or if you or you wish to attend one of the seminars, please contact me or by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on 04 68 20 30 17.
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 https://spectrum-ifa.com/spectrum-ifa-client-charter/.
Buying a second home as a summer retreat
By Tim Yates
This article is published on: 27th January 2014


French Residency – Dispelling the Myths
By Spectrum IFA
This article is published on: 22nd January 2014
French residency is a popular topic of discussion for expatriates when they get together in a social setting. So many times 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). In addition, depending upon the value of your assets, you may also need to complete a wealth tax return.
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 personal situation, please do not hesitate to contact Daphne Foulkes by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on + 33 (0)4 68 20 30 17.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
French Tax Changes 2014
By Spectrum IFA
This article is published on: 3rd January 2014
During December, the following legislation has entered into force:
- the Loi de Finances 2014
- the Loi de Finances Rectificative 2013(I)
- The Loi de Financement de la Sécurité Sociale 2014
Shown below is a summary of our understanding of the principle changes.
INCOME TAX (Impôt sur le Revenu)
➢ The barème scale, which is applicable to the taxation of income and to gains from financial assets has been revalued as follows:
Income | Tax Rate |
Up to €6,011 | 0% |
€6,012 to €11,991 | 5.5% |
€11,992 to €26,631 | 14% |
€26,632 to €71,397 | 30% |
€71,398 to €151,200 | 41% |
€150,201 and over | 45% |
➢ The décote – which is the tax deduction granted to low taxpaying households – has been increased from €480 to €508.
The above will apply in 2014 in respect of the taxation of 2013 income and gains on financial assets.
➢ An ‘exceptional solidarity tax’ for high earners has been introduced for a two year period. This will apply in respect of taxpayers who are in receipt of a ‘salary package’ of at least €1 million. This extra tax will be payable by the employer (rather than the employee), at the rate of 50% of the amount exceeding €1 million, but limited to 5% of the business turnover for the relevant year.
Wealth Tax (Impôt de Solidarité sur la Fortune)
The government had proposed to include income accrued within capitalisation bonds and life assurance products, which is subject to the deduction of social contributions on an annual basis (typically interest accrued on fonds en euros) in the revenue of the taxpayer to be used for calculating the ‘ISF cap’ of 75% of income. However, this proposal was censored by the Constitutional Council and therefore, there are no changes to wealth tax.
CAPITAL GAINS TAX – Financial Assets (Plus Value Mobilières)
The taxation of capital gains arising from the sale of securities held by individuals has been revised and will be taxed at the progressive rates set out in the barème scale above, after the deduction of an allowance, 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.
The above allowances also apply to gains arising from the sale of shares in ‘collective investments’, including investment funds, providing that at least 75% of the fund is invested in shares of companies.
Furthermore, to encourage investment in new small and medium enterprises, higher allowances against capital gains for investments in such companies will be 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.
The above provisions apply in 2014 in respect of the taxation of gains made since 1st January 2013.
CAPITAL GAINS TAX – Property (Plus Value Immobilières)
➢ For sales of property (i.e. maison secondaire) – residents of France
With effect from 1st September 2013, taper relief is granted against the capital gain as follows:
➢ 6% for each year of ownership from the sixth year to the twenty-first year, inclusive; and
➢ 4% for the twenty-second year.
Thus, the property will become free of capital gains tax after twenty-two years of ownership.
However, for social contributions (currently 15.5%), a different scale of taper relief applies, as follows:
➢ 1.65% for each year of ownership from the sixth year to the twenty-first year, inclusive;
➢ 1.6% for the twenty-second year; and
➢ 9% for each year of ownership beyond the twenty-second year.
Thus, the property gains will become free of social contributions after thirty years of ownership.
Furthermore, in order to encourage activity in the property market, an exceptional reduction of 25% of the taxable capital gain will be allowed for sales completed during the period from 1st September 2013 to 31st August 2014. Thus, this exceptional reduction would reduce both the capital gains tax and the social contributions liabilities. However, the exceptional reduction is not available to properties transferred between spouses and partners who have entered into a PACS, nor to ascendants or descendants.
For sales of building land:
As was widely publicised, the government had proposed to abolish the taper relief on sales of building land with effect from 1st January 2014. However, this was censured by the Constitutional Council
Therefore, the same taper relief rules apply as indicated above for second properties; however, these are effective from 1st January 2014 (rather than 1st September 2013).
The exceptional reduction of 25% of the capital gain does not apply to sales of building land.
For sales of property (i.e. maison secondaire) – non-residents of France
With effect from 1st January 2014, different rules apply for non-residents. It will now be possible to claim an exemption of up to €150,000 of the gain, in respect of one property, subject to the following:
➢ that the owner was fiscally resident in France for at least two complete years at some point prior to the sale of the property; and
➢ that he/she is resident in an EU or EEA country, or in a country or territory which has entered into a full agreement with France to combat fraud and tax evasion, at the time of the sale of the property.
Furthermore, if the property is not available for the owner’s use (i.e. it is let), the sale must take place prior to 31st December of the fifth year of the owner leaving France. However, there is no time limit if the property has been continuously available for the owner’s use since at least 1st January of the year prior to the sale.
Reform of the Plan d’Epargne en Actions (PEA)
With effect from 1st January 2014, the following changes have been made:
➢ The maximum amount that can be invested in a “classic” PEA has been increased from €132,000 to €150,000; and
➢ To encourage more households to invest in small and medium enterprises, the “PEA-PME” has been created into which the maximum amount that can be invested is €75,000 per taxpayer in the household.
Assurance Vie
➢ Previously, for amounts invested before age 70, on the death of the insured person each beneficiary would have be liable to fixed rates of tax on amounts exceeding an abatement of €152,500, as follows:
➢ 20% on the portion of the benefit up to €902,838; and
➢ 25% on the amount exceeding €902,838.
With effect from 1st January 2014:
➢ The amount of €902,838 is reduced to €700,000 and the 25% tax rate is increased to 31.25%.
Death benefits paid to a spouse, or to partner linked by a PACS, remain free from the above taxes.
➢ To encourage more households to invest in small and medium enterprises, a new type of assurance vie contract is introduced – “euro-croissance” or “vie-génération”. In recognition of the greater investment risk with this type of investment, an additional 20% tax allowance will be given against the benefit payable on death, before the abatement of €152,500 is applied.
➢ Previously, for old assurance vie contracts, which were set up prior to 25th September 1997 and relative to premiums paid by 31st December 1997, the social contributions were calculated at the applicable rate according to when the gain was made. This treatment was favourable, as the social contributions rate has varied from 0.5% to 15.5%. For the future, the full rate of 15.5% will apply to the total amount of the gain.
Reporting Requirements
The reporting requirements relating to bank accounts and investments established outside of France have been strengthened. Whilst it is already the case that the existence of foreign assurance vie had to be reported, it was not necessary to disclose the value of the investment, unless the taxpayer was subject to wealth tax. For the future, it will be necessary to report the surrender value or the amount of any guaranteed capital, as at 1st January of the year of the declaration, as well as any amounts invested during the previous year.
Failure to report the information will result in a fine of €1,500 per contract not reported. Furthermore payments made from abroad into undeclared contracts will be treated as taxable income in the year that the payment was made.
2nd January 2014
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.
If you would like to discuss how these changes may affect you, please do not hesitate to contact your local Spectrum IFA Group adviser.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Use the tax structures in France to their full potential
By Spectrum IFA
This article is published on: 2nd January 2014
This is my first article of 2014, so Happy New Year everybody. Let’s hope it’s a good one, without any fear. (John Lennon, 1971)
I’m feeling a bit ‘wordy’ this week, so I thought it might be a good idea to use someone else’s instead of my own (perhaps I should do that more often). I saw this very interesting quote whilst browsing the net over the Christmas break:
‘If you think education is expensive, wait until you see how much ignorance costs in the 21st century’ – Barack Obama, 2013
OK, before we start to discuss this in context, there will be many of you I’m sure who will be up in arms shouting ‘That isn’t an Obama quote, that was written by Derek Bok of Harvard University’ Wrong. Actually it started life as part of a newspaper article in New York in 1913, but that’s another story. Barack Obama most definitely did say this in 2013. He didn’t have UK expats living in France in mind at the time, I’m sure, but I’m not going to let that stop me hijacking his words to my own ends.
The fairly obvious point here is that ignorance is not bliss; in fact it can be painfully expensive, and that does apply to UK expats living in France. The plain and simple truth is that unless you take steps to understand and use the tax structures in France to their full potential, the resulting tax bill to you, or your children or any other intended beneficiaries can be amazingly high. The French would never fall into these traps, so why should we? The answer is ignorance, laced with a liberal dose of laissez-faire.
Education is where I come in. I can teach you how to navigate the minefield that occupies the territory between the UK and French tax systems. I can show you how to structure your investments to ensure you enjoy maximum tax efficiency. All that means is making sure that you pay all the tax you have to pay, but not a centime more. Tax evasion is a fools game; the real deal is to make sure that you’re not paying more than your fair share of tax.
This can mean spending some pounds or Euro along the way. Very often you will need to invest via an insurance based tax wrapper. I know we’re verging on the technical here, but I can explain to you how it all works. You may well need the wrapper. It costs money but it can repay you many times over; possibly scores or hundreds of times over. It also treats everybody fairly, as the cost is on a percentage basis. Think of it this way, if you own a fleet of vintage cars you’ll need an impressive amount of garage space to protect them from the weather and all other manner of risk. If all you have is a motorbike, a garden shed will do the job. It doesn’t matter whether you have £20,000 or £20,000,000 to invested in the UK or sitting around in bank accounts anywhere. Every one of these pounds or Euro has the right to be protected from tax and given a fair chance to grow to as great a degree as possible.
And while we’re on a ‘quote’ theme, here’s another one for you:
‘It’s almost impossible to verify quotes found on the internet’ – William Shakespeare
A real forward thinker our Bill, obviously. My interpretation of what he (or whoever did write it) means is that you should under no circumstanced take what you read on the net for gospel. Just as you should not rely on your neighbour who ‘knows about these things’ or that nice couple you met at a dinner party last week. Place your trust in people who are professionals; registered and regulated here in France.
PS: As I’m putting the finishing touches to this I’ve just seen a rival newsletter from that small rotund Norman person, and blow me down, Mary T is quoting from the same John Lennon song. Shows we must be on the same wavelength I suppose, and there’s room for everyone. Happy New Year!
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Are you sure your bank accounts covered by the €100,000 government guarantee?
By Graham Keysell
This article is published on: 2nd January 2014
Graham Keysell of the Spectrum IFA Group is increasingly concerned about the safety of some expats’ investments.
Keysell says “I am extremely alarmed at the number of people I’m meeting who have been persuaded to invest in ‘Comptes Titres’. These accounts are designed for those who want to actively trade in shares, funds, bonds, etc. in a tax efficient manner. For whatever reason, people think that they are ‘high interest deposit accounts’ which they are definitely not.”
“Even worse, these people have unwittingly left it to their banks to decide on where the money is invested. This is invariably in bonds in the banks concerned and occasionally in shares in these banks”. He continues, “With the prevailing uncertainty in financial institutions, would any of these people have knowingly lent money to a bank or bought bank shares? You only have to look to what’s happening to bondholders in the Co-op bank to appreciate the danger. ”
With the meagre interest rates on offer for ‘classic’ bank accounts, it is no surprise that investors are attracted by quoted returns which can exceed 5% per annum. This is what a bank bond may pay out over 5 or 7 years.. The attraction is obvious, but he has yet to meet anyone who understands the risks they are taking.
“I have met elderly widows who have been persuaded to invest their life’s savings in these ‘Comptes Titres’. Nobody has explained to them that these are not covered by the €100,000 French government guarantee. If you read the small print, it is absolutely clear that investors in bank bonds will be the last to be paid out if the bank becomes insolvent. It is obvious that shareholders are also risk losing some or all of their money. I have no doubt that some people could be financially ruined if they have the majority of their savings in these accounts”
He continues “My own French step-son was advised to invest in such an account. I asked him to phone his ‘counsellor’ at the bank and she assured him that the government guarantee applied. It was only when I showed him the ‘small print’ in the Terms & Conditions that he changed his mind.”
For those people who have invested in these accounts and are worried about their exposure to risk, the solution is not obvious. The price they paid for the bonds is frequently higher than the price they can now be sold for. Keysell’s advice is to check the current value online before taking any decision about whether they want to sell some or all of their holdings in these accounts.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Financial Peace of Mind
By Amanda Johnson
This article is published on: 13th December 2013
Are you thinking about what to give your family & loved ones for Christmas? How about financial peace of mind!
As we approach the season of goodwill, many of us think about how we can help our families more. Whilst you are our choosing presents or perhaps arranging to spend the festive period with your nearest & dearest there is something you can do which may give them peace of mind well into the future. You can arrange for a financial review with me, which is free & provides the following benefits:
Peace of mind for you
Your financial review will look at your current financial situation and help you ensure that all investments are working for you in the most productive and tax efficient way, whilst taking into consideration your own risk profile
Peace of mind for your children
We will look at your potential inheritance tax obligation & ways to keep this to an absolute minimum
Peace of mind for all of your dependents
There are many options available for your investments or UK private pensions that can provide a more efficient & tailored way to pass money onto your dependents in the event of your death
If you want to know more about these areas you can either drop in to the Café des belles Fleurs in Fenioux where I hold a financial surgery on a Thursday morning, come and see me at Open Door in Civray last Tuesday morning in the Month, register for our newsletter or speak to me directly. Please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
Have a fabulous Christmas & New Year from all at The Spectrum-IFA Group
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Fact or Fiction
By Amanda Johnson
This article is published on: 5th November 2013
There are so many differing thoughts and views on Expat forums and websites, how do I know what is fact and what is opinion?
Living permanently in France, one thing I notice is the vast amount of information available for expats. Whether on the internet via websites and discussion forums, or as printed media, such as The Vendee Magazine, there is always information and opinion for any specific queries you may have.
The hardest task I find is sifting through the raft of varied opinions and recommendations, to get to the facts which will help me choose the path which is right for me. If I want an electrician or heating engineer to look after my house, I will look for someone whose business is registered to provide the service I want and has a proven track record in this industry. I am sure most of you would do the same?
Managing your finances is another key area where you want to be sure the information you receive is accurate, up to date and provides you with the professional peace of mind you need to protect your assets. The Spectrum IFA Group’s French company, TSG Insurance Services S.A.R.L. is regulated in France by ANACOFI-CIF and ORIAS (see our website for details of these organisations) to provide financial advice. Our free financial consultation means that you do not have to spend your valuable time separating fact from opinion when ensuring your estate is as tax efficient as possible.
When it comes to keeping abreast of changes to French financial legislation you can always register for the Spectrum IFA Group’s regular newsletter. It will provide details on changes in the law and the impact this could have on you, as well as bringing you details on financial road shows which you can attend and hear from many leading financial organisations first hand.
Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
And Another Debt Crisis
By Spectrum IFA
This article is published on: 1st November 2013
We have been living through the Eurozone sovereign debt crisis and now we have the US debt crisis again. It feels like déjà vu, as it was around this time last year that there was much talk about the US fiscal cliff.
Just hours before the deadline of 17th October, the US Congress passed a bill to re-open the government and raise the federal debt ceiling – well at least until next year – as new deadline of 7th February was set. The consequences of not having made this ‘temporary fix’ would have resulted in the US defaulting on its sovereign debt. Default would have been catastrophic for the US and also for the global economy.
The Republicans lost this battle and probably the war against ‘Obamacare’. The reputation of the party is damaged and they will need to work very hard to earn the trust of the American people in time for next year’s mid-term elections.
Naturally, the uncertainty prior to the deadline made the stock markets a little nervous, but there were no big falls. Likewise, when the deal was reached, there was no big rally in markets. Generally, markets only react to the unexpected and I guess that it was unthinkable that the US would default on its debt.
However, the US economy was damaged by the theatrics of the bat and ball game by the politicians. The ratings agency, Standard & Poor’s, estimates that the partial US government shutdown shaved $24bn from the American economy; the US government estimates that this will cost 0.25% of GDP in the fourth quarter of 2013. The US dollar fell and Fitch put the country’s credit rating on negative watch, whilst one of the Chinese ratings agencies downgraded it a notch.
The Fed has since met and has decided that there would be no change to its $85bn per month asset purchasing scheme, a strategy that was put in place in September 2012 in the hope to drive down long-term interest rates and spur growth. The job market remains sluggish and inflation below its 2% target. Most economists think that the uncertainty stemming from the government shutdown will force the Fed to wait until 2014 before beginning its asset purchase tapering. Short-term interest rates were also kept at zero and so no encouragement for savers, a situation that has existed since December 2008.
Turning to the Eurozone, there are slight signs of economic recovery. At the early September press conference of the ECB, President Draghi described the economic recovery as “weak, fragile and uneven”. The benchmark interest rate was kept on hold at 0.5%. Draghi said that rates were likely to remain at this level for an “extended period”. More bad news for savers.
Since that meeting, the unemployment figures for September across the 17 Eurozone countries have been published. Rising by 60,000 to 19.4 million, this is the 29th consecutive monthly increase in unemployment. At 12.2%, the jobless rate is the highest since monetary union began at the end of the 1990s, according to data from Eurostat, the EU’s statistical agency. Youth unemployment amongst the under-25s is running at 24.1% and alarmingly at over 40% in Italy and 50% in Spain.
The slowdown in inflation is also becoming increasingly concerning. According to Eurostat, the Euro area’s inflation rate has dropped from 1.1% to 0.7%, which is considerably below the ECB’s target of being at or just below 2%. Lower energy bills in the Eurozone is one of the main factors that has pushed down the inflation rate, the complete opposite of what is being experienced in the UK at the moment. The ECB’s prime objective of price stability in the Eurozone is under pressure.
The inflation data has surprised the market and when combined with the strength of the Euro, questions are being asked about the risk of the Eurozone falling into a ‘Japan-like’ deflationary spiral. If the ECB considers that this is a real risk, it may need to act by cutting interest rates again. We will have to wait and see what the ECB does at its November meeting. Whilst it is unlikely that there will be an immediate cut in interest rates, perhaps it may give some signals in its ‘forward guidance policy’.
Closer to home, the French budget – Projet de Loi de Finances 2014 – is progressing through parliament. As expected, amendments have already been proposed and adopted by the National Assembly, including amendments to the government’s proposed reform of the capital gains tax regime relating to property. If the National Assembly’s amendment continues through to the final law, we could see the maximum taper relief applicable to property gains, for the purpose of the social contributions only (currently at the rate of 15.5%), being restricted to 28%, whilst the capital gains tax would be fully tapered out after 22 years of property ownership. The bill is now with the Senate for debate and so maybe they will reject the National Assembly’s proposal for fear that this will continue to stagnate the French property market.
The French footballers have also been in the news, protesting about the proposed total 75% tax rate that their employing clubs will have to pay on their salaries, just as have the farmers protested about the proposed eco-tax. If President Hollande gives in on these policies, the money will have to come from somewhere to balance the books. No doubt savers and people with wealth could be targeted.
With all this short-term ‘disruption’ going on, we have to keep an eye on our long-term goals and objectives. Interest rates are still not going to rise in the near future and could actually fall further at some point. Therefore, the alternative of investing in assets, other than cash, remains viable for income seekers and for those who wish to protect the real value of their capital over the long-term. As we have seen with the US debacle, the markets take these things in their stride.
The mitigation of taxes is also a very important subject that should be planned for and continually reviewed as governments change tax policy and individuals’ situations evolve. Having an adviser that understands how these things work where you live is an essential part of the ability to give professional advice. Sadly, from time to time, I come across a case where the potential client decides to retain their adviser in their former country of residence out of loyalty for past service, even though that adviser does not understand the intricate workings of the French tax personal tax system and the inheritance rules and taxes. Even worse, I come across cases where the adviser fights hard to retain the business, which might be tax-efficient under the country’s rules where the adviser is based, but not in France. Naturally, the client trusts that adviser and only after becoming French resident finds that this is a costly mistake.
If you would like to have a confidential discussion about how the proposed French tax changes may affect you or on any other aspect of financial planning, please contact your local French adviser.
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 on the subject of investment of financial assets.
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
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Successful LTDF seminar in Valbonne
By Spectrum IFA
This article is published on: 9th October 2013
Nearly half way through Le Tour de Finance the latest stage took us to Valbonne, Alpes Maritime. The seminar was located at the wonderful Château de la Bégude Golf Club. Guests were welcomed on a gloriously sunny morning with dew glistening on the nearby fairways. The seminar teed off at 10.30 after coffee and pastries.
The seminar was sponsored by The Spectrum IFA Group and compared by Peter Brooke. The fact filled seminar covered various subjects pertinent to expats living in France including; French tax laws and the recent changes, QROPS, Assurance Vie, currency exchange, investments and wealth management.
The expert panel of guest speakers included:
- Stephanie Glasper, Tax Lawyer, Hent – French tax update
- Pippa Maile, Currencies Direct – Currency exchange savings and strategies
- Michael Lodhi, Chairman of Spectrum – Inflation & QROPS update.
- Jeremy Ferguson, SEB Life International – Assurance Vie, Efficient Investing in France
- John Hall, Standard Bank International – Structured Deposits.
- Peter Brooke, The Spectrum IFA Group– Selecting funds & building portfolios
- Mark Riggall, JP Morgan Asset Management – the value of investment advice
Le Tour de Finance is an excellent and relaxed forum in which you can get those important questions answered. After the session finished guests re-located to the terrace over looking the 18th hole and were able to mingle in a pleasant atmosphere with other expat residents whilst enjoying a complimentary buffet lunch.
Le Tour de Finance has 3 events left in France:
- Wednesday 9th October – Var, La Motte
- Thursday 10th October – Vaucluse, Avignon
- Friday 11th October – Aude, Brugairolles
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