Viewing posts categorised under: France

Spring cleaning your finances

By Claire Cammack
This article is published on: 22nd April 2021

22.04.21

“When the dust settles on Brexit!” has been heard many, many times over recent months and even the last couple of years. But what of it? With the UK and some former EU partners enduring a bitter relationship, and the UK’s Prime Minister seemingly giving free rein to his ministers, it is difficult for many to see a clear direction. Though a clear direction is coming, according to the financial expert sector – and it may not be welcomed by expatriates! Generally, it is accepted that the UK will introduce hard measures to hang onto funds and to introduce punitive tax penalties for those funds that leave the kingdom.

Brexit seems to be “done and dusted”, yet where are we all? The global pandemic has clouded the issue but has forcibly created time for us to tackle the things that had been put off for too long. So what better time for a spring clean in your financial affairs.

Pensions will be hit first, according to the experts, then lump sum investments, if not simultaneously. It will not only be the UK taking measures. France, particularly, will be looking to gather what they can from expatriates living in France.

You don’t have to sit back and wait for governments to take action – and endure stress in the process! There are actions that you can take now and the first is to book a financial review with your Spectrum adviser who has a wealth of experience and resources available and at your disposal. We can quickly identify opportunities to bring your finances under your control and maximise investment and tax efficiency.

It’s not too late to act now to firm up your overall living status and ensure that all is in apple pie order for your peace of mind. Contact your Spectrum adviser for an expert appraisal of your situation.

Why do I need a Financial Adviser?

By Philip Oxley
This article is published on: 21st April 2021

21.04.21

Top 10 reasons!

As 2021 progresses and hopes of a better year than the last increase, I thought I would write about a question that arises for me occasionally in social situations. From time to time, I am asked, “Why do I need a financial adviser?”, or sometimes it’s simply an assertion, “I don’t see the point of having a financial adviser”. My usual response is to give a brief overview of what I do, however, depending on the circumstances, I don’t always offer a thorough response and then subsequently regret not having taken the opportunity to fully outline the benefits offered from the work my peers and I do.

I appreciate that in terms of popularity and reputation, my industry is not at the top of the pile – sometimes being undermined by the disturbing stories of people being scammed (particularly in the field of pensions), and also a small minority of advisers who are exposed as either not qualified/licensed to operate, or who fail to act in the interests of their clients.

However, I know from the feedback that my colleagues and I receive from many of our clients that the work we do is appreciated and valued by many – sometimes for quite different reasons. So, I thought I would outline the benefits of why, if you do not currently have an adviser, you might want to consider exploring whether your finances could benefit from professional advice and ongoing support.

This list is not meant to be exhaustive and I have tried to avoid a generic list, instead drawing upon feedback and anecdotal evidence from individuals – some clients, some not…yet! Hopefully, my list provides a selection of reasons why I believe the work we do can be of significant value to many.

1. Saving money/growing money

The fundamental purpose of my role is to help my clients save money, and to grow and protect the money they already have. Such savings can be made through lower fees, reduced currency exchange risk, tax-efficient investment structures, and ensuring the best pension scheme for the client is selected. These same actions can also have a positive effect on the growth and protection of a client’s money. By choosing the right investment, an impact can be made on reducing inheritance tax liability for loved ones. Furthermore, if the worst happens to you, by selecting the best pension structure, you can ensure that your loved ones can be beneficiaries of your entire pension, in accordance with your wishes.

2. Greater choice of options

Of the financial solutions that I can offer my clients, few (if any), are available through banks or insurance companies – schemes offered directly through these organisations are usually the company’s own in-house products. I am not suggesting that these options are not suitable, but the advantage of using a financial adviser is the breadth of choice and the ability to select the best available products that most accurately suit the individual. Also, whilst some financial products are available directly to the consumer, many are not and can only be provided in conjunction with professional advice.

3. Sounding board

Sometimes in life, it is nice to have someone to discuss important matters with. People often turn first to their spouse or partner, friends, and sometimes work colleagues. I often speak to people who believe that they have their financial affairs in good order, but they value having a professional and independent “financial health check” to confirm that they are on track, or to provide an objective perspective on some of the areas that might need some attention.

4. Acting as your better conscience (or encouraging people to do what they know is right!)

Let’s be honest, most people enjoy spending their money – whether it’s on their home (often, but not always, a good investment), clothes, food, entertainment, cars (virtually guaranteed to be money-losing, unless classic/vintage cars are your thing!), and holidays.

It is not always easy to take a portion of your regular income and set it aside for the medium to long term, and of course, not everyone has the luxury of having a surplus at the end of each month.

However, a good comprehensive financial review doesn’t just analyse your assets (e.g., pensions, investments, savings, property), and liabilities (e.g., mortgage, credit card debts, car, and business loans), but also reviews your income/expenditure and your long-term wants/needs, to help assess whether there is the capacity to save, and how much.

A good financial adviser will encourage you to think about the long term and help you to take the right steps towards financial security.

5. “I have no money to invest” / “I can’t afford to use a Financial Adviser”

This is a response I occasionally hear, however, irrespective of financial situation – whether the individual’s money is invested in their business or home, or they live on a low income – I am always happy to conduct a financial review. I can usually share some valuable insights, even if the person does not subsequently become a client. Do not let these reasons put you off speaking to an adviser – my confidential financial reviews are free of charge, and there is no obligation to accept my advice (although, I am pleased to say, most people do!).

6. Protection and risk

Many people associate financial advisers with pensions or investing/growing wealth. However, a crucial part of good financial planning is about protecting any wealth that you already have, and making contingency plans for all possible disruptive events that might come your way. When conducting a confidential financial review, I always ask if such matters have been considered, and whether arrangements are in place to provide financial protection in all eventualities. Life insurance is not always necessary, but a will is essential – I can put people in touch with English-speaking professionals in France who can assist in both these areas.

7. No time

For those whose lives are extremely busy (I think many of us can relate to this category!), they simply do not have the time (and/or inclination – see point 9!) to look after their financial affairs. Often people know they should be devoting at least some attention to their long-term financial security, but just never seem to get around to taking action. Sometimes, these people are well-informed and know very clearly what their financial objectives are, but do not have time to implement their plans and would rather a professional undertake this work on their behalf.

8. Retirement planning

In this area, the work we do is not just about advising individuals on the importance of saving for the future or selecting the best scheme for their individual needs.

For British nationals living in France who have private pension schemes in the UK, a proper analysis should be conducted to decide if it is best to leave their pension schemes where they are, move them to a UK-based SIPP, or possibly offshore into a QROPS. There is no one correct answer and I am not going to get into the detail of this now – it was the subject of my last article!

The second critical element of this work is to forecast what level of income someone will require in their retirement once other sources of income reduce or cease, and to then plan how that need will be met through rigorous financial planning.

9. No interest in financial affairs

Of course, this is one that I struggle to understand! I have a relative, who will remain anonymous, who encapsulates the example perfectly. This is someone who is financially comfortable, but genuinely finds the subject of savings/investments (or anything to do with managing their money), of absolutely no interest – to quote, “Boring”!

As long as their money is secure and providing some growth, then they will quite happily entrust as much of the decision making as possible to their financial adviser. The key to this working is to get to know the individual very well, understand their risk profile, and be clear on the circumstances of when they wish to, or must, be consulted on decisions.

10. Knowledge/expertise

The final reason to use a Financial Adviser (and I accept this is obvious, but I needed a tenth!), is for the knowledge and expertise they can offer on available products (relevant to the country in which they work). The good ones will ensure that they thoroughly understand their clients, establish solutions that align with the individual’s aspirations, risk profile, and ethical stance. It is important that your adviser is permanently based in France, works for a French company, and is properly licensed with the relevant regulatory authorities. Above all, make sure they are someone you feel a connection with, who understands you, and who you feel confident in establishing a long-term working relationship with to support your financial goals.

In conclusion, last year was incredibly challenging for many people – both financially and emotionally – and whilst some of the restrictions we have all lived within have eased, realistically, it will be some time before life resumes with some sense of normality. Whilst everyone’s health – physical and mental – must always take priority, I honestly believe that knowing that your money is protected and growing tax efficiently, and that you have taken the necessary steps towards your long-term financial security, is one less thing for you to worry about and makes a small but important contribution towards peace of mind.

Big brother is watching… or might be

By Katriona Murray-Platon
This article is published on: 2nd April 2021

02.04.21

After the fun and festivities of March (or those that could be had in current circumstances) it’s time to get down to serious tax work in April. The tax forms and dates of submission have not, at the time of writing, been released so that will have to wait until next month’s Ezine but usually the forms are available around the second week of April. If this is your first year of declaring in France you will have to go to the tax office to get the paper forms to complete. After submitting your first paper return you should then be given details to allow you to log on to your online account and do future returns online. The paper returns you will need are usually the 2042, sometimes the 2042 pro if you have professional income, the 2047 for all foreign source income and the 3916 for bank accounts and assurance vies (section 7 of the form).

The 3916 has recently been amended to take into account the new information that needs to be declared. Make sure you tick box 8UU for bank accounts and 8TT on the 2042 form to flag the fact that you have foreign assurance vies.

Under Article 1649 AA of the French Tax Code, those tax payers who have foreign assurance vies must declare the policy number, the amount of the investment, the start date of the policy and the duration of the contract or investment, any top ups or payments or reimbursements of premiums made during the tax year and, if relevant, the amount of any withdrawals or the surrender value,

Article 344 C of the Tax Code has now added new requirements concerning the information for foreign assurance vie policies which are:

The identification of the policy holder: name, forename, address, date and place of birth,
the address of the head offices of the insurance company or similar institution and, if relevant, the subsidiary which grants the cover,
the person covered by the policy, its reference numbers, the nature of the risks covered,
the amount covered by the policy and the duration of this cover,
the dates of any amendments to the contract, total or partial withdrawals, which have taken place during the calendar year.

Our policy providers are aware of this new law and will send out the relevant information for you to add into your tax returns or attach as a document online.

Those who have regular at home services and pay via CESU usually receive a tax credit for these expenses, 60% of which is paid in January. From June 2021 the tax office will be trialling a new system of immediately paying the tax credit for home help for those employers in Paris and the Northern departments who use the CESU system, before progressively rolling out this system across the whole country in 2022.

According to a study from the US bureau of Labor Statistics in 2015 which looked at the number of jobs a person held between the ages of 18 and 50, the average person will have had 12 jobs. This is during a span of 32 years, so therefore the the number is likely to be higher for a person’s entire lifetime. This means that you are likely to have several pensions with several pension providers without knowing the value, investment strategy, performance or fees on these investments.

France has clearly realised this situation as well. Retirement plans for French companies are held by insurance companies, so when you leave the company you may not continue to receive information on what rights you have accrued. Now, thanks to new legislation, insurers must send the information on file to a centralised body. If you are or have been an employee in France you can go to the website info-retraite.fr to be informed of what rights you may have. The new law also requires employers to communicate a statement of the retirement products to those leaving the company. When I left my job in Paris I had a PEE (Plan d’Epargne Entreprise or company savings policy) which I had done nothing with. I was advised that as I was no longer an employee of the company this was just being eaten up by fees. I closed it down and reinvested the money into two assurance vies for my sons which are now growing nicely.

The Spectrum IFA group offer a free review of your pensions. We will help you obtain the relevant information from your pension providers and prepare a free report on your current pension plans and their benefits and whether they can or should be combined into one self investment pension plan or qualified overseas pension scheme. As I often say to clients, I agree with the many eggs in baskets principle but it is better having your baskets on a shelf where you can see them rather than eggs hidden around the farm!

If you have an SCI remember to put the 4th May in your diary (may the fourth be with you!) as this is the deadline for the income tax return for SCI companies that are not subject to corporation tax. This is also the deadline for accountants to file the income statements for those with industrial and commercial businesses (BIC), non commercial businesses (BNC) and agricultural businesses (BA). The deadline is extended to 19th May for online declarations. As yet the other tax filing deadlines are not known.

In the finance law for 2020 (article 154) a new law allowed the tax and customs authorities to use certain data published on the internet (Law no 2019-1479 of 28.12.19). The decree implementing this data mining provision was published in the Official Law Journal on 13 February 2021 (no 2021-148 of 11.02.21). This means that the tax authorities are allowed, experimentally and for only three years, to use information published by tax payers on social media (Facebook, Instrgam etc), sales sites (Ebay, Leboncoin etc) and other networking sites such as Airbnb and Blablacar. After researching, analysing and modelling fraudulent behaviour, the tax authorities can then use this data. They do not however have unlimited power, they are subject to the CNIL (National Commission for Freedom and Information Technology) and Parliament, to whom a report must be submitted in August 2022 and August 2023. The data mining can only be used to track non disclosed business activities and false declarations of off shore domiciles. Only “deliberately divulged” information can be collected and used, access to which does not require a password or subscribing to the website. Private posts or comments from third parties cannot be used. The data must be erased after 30 days if it isn’t going to result in an investigation. Data on sensitive subjects such as political views, religious beliefs and health information must be erased after 5 days on the same grounds. Whether this experiment will be extended or not remains to be seen but in the meantime it is another reason to be careful what you put out on publicly accessible social media.

If you have any questions or would like to speak to me about any of the points mentioned above please do let me know. Thank you to those who have got back in touch after reading my Ezine or have let me know that you are still enjoying reading these emails.

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RISK Can you avoid this in financial terms?

By Occitanie
This article is published on: 26th March 2021

26.03.21

Welcome to edition number ten of our newsletter ‘Spectrum in Occitanie, Finance in Focus’, brought to you by your Occitanie team of advisers Derek Winsland, Philip Oxley and Sue Regan, with Rob Hesketh now consulting from the UK.

It seems remarkable, to me anyway, that we are already nearly a quarter of the way through the year. We still have the same problems to deal with, namely the fallout from Brexit and the continuing scourge of the Covid 19 virus, where the UK and France seem to be on diverging paths, both in terms of infections and vaccinations. With this in mind, we decided that it might be a good idea to talk today about risk, and how we might learn to live with it.

What is Risk?
Firstly, it is important to realise that risk is everywhere, and in various forms. In a sense it is like oxygen; without it, nothing happens. Sometimes you can see it, but most of the time you cannot. One thing that Covid 19 has taught us is that the very air that we breathe and the everyday items that we touch can kill us, and that is a sobering thought. The real definition of risk is the possibility that something bad might happen, either to you or because of something that you do; or even do not do. That is what makes risk exceedingly difficult to avoid. Often, we think of risk as taking a chance or a gamble, but sometimes a decision not to do something is just as risky.

Can I avoid Risk?
Yes, it is certainly possible to avoid some risks, but sometimes this has unintended consequences. If you do not eat, you cannot get food poisoning, but if you cut out that risk altogether, the end result is not positive. When it comes down to it, you have to accept risk. The real trick is calculating those risks and evaluating the likelihood of something bad happening. In investment terms, if you do not invest (and take some level of risk), you eventually run out of money. Unless of course you have a never ending and regular source of income – wouldn’t that be nice?

What is Financial Risk?
Basically, the danger of losing some or all of your money. And it comes in all shapes and sizes. There is a bewildering array of types of risk that analysts use to make them sound clever. There are however some really big ones that you need to look out for, and here are what I consider to be the most important. Have a think about how you would rate them in order of importance.

Specific and Market Risk
Here we have in fact two slightly different risks. Specific Risk is the danger of investing in one individual share, fund, or bond. If you limit yourself in this way, you put yourself at far greater risk of loss. All your eggs are in one basket. Market Risk is the danger of losing money even if you have spread out your investments more widely. Whole sectors can suddenly dip and turn against you.

Institutional Risk
You may have the best investment portfolio in the world, but what if your chosen investment company goes bust due to mismanagement, or maybe a rogue trader? Think Equitable Life, or Nick Leeson at Barings Bank.

Foreign Exchange Risk
One day we may have just one global currency. Then we will be able to forget the pitfalls of F/X risk. Until then we need to be very wary, especially we UK expatriate residents in the eurozone. In just twenty-one years the exchange rate between the pound and the euro has fluctuated between 1.75 and 1.02. That is a massive trading range. Big enough to put a huge dent in even the best investment performance. Worse still, it was not a linear move. It keeps on going up and down.

Inflation Risk
Remember 23% inflation rates in 1975? I do. Great for reducing the value of debt very quickly, but equally adept at destroying the value of savings and investments.

With all these dangers lurking at every corner, you may well be considering the mattress as a suitable home for your money. Forget it. Inflation risk will kill you, even if your house doesn’t burn down, taking the mattress and your savings with it.

The plain fact is that we all need to accept some level of risk. There is a risk/reward ratio; there is no gain without some degree of risk. The more risk you take, the more chance you have of seeing exceptional returns, but there is also more chance bad things can happen to your investment. The trick is to evaluate your true appetite for risk, and that is not as easy as it sounds. Left to his or her own devices, a single investor will tend to overestimate an appetite for risk and end up with a more aggressive portfolio than he or she feels comfortable with when a market ‘realignment’, sometimes referred to as a crash, happens a few months or years later.

The truth is that we need someone to hold our hand and lead us through this risk minefield. If we try to navigate the minefield ourselves, we are likely to lose a financial limb or two, or even worse. There are various levels of help available to us

The most effective, in theory anyway, is the DFM, the Discretionary Fund Manager. He (or she) will sit down with you at the outset and ask you lots of clever questions which are designed to reveal your real appetite for risk (not just what you thought it was). You then pay a fee of around 1% of your portfolio each year for the DFM to invest your money for you and produce as good a return as possible without exceeding your risk pain threshold.

If you decide that you cannot afford a DFM, or maybe you have not got quite enough money for a DFM to offer his services to you, the next best thing is MAP, which stands for Multi-Asset Portfolios. They are offered by insurance companies or investment services providers. These funds are specifically designed to offer you investments that are graded for risk and ensure that your investments are spread out over many markets and sectors, thereby reducing your ‘specific’ risk. Both DFM and MAP investments can be held in what are known as ‘open architecture’ bonds within assurance vie policies in France.

Many of you will also be acquainted with the ‘closed architecture’ assurance vie offered by Prudential International. This assurance vie effectively combines the dual role of the DFM and MAP. Their PruFund range of funds is administered by Pru’s own in-house team of fund managers, and each fund is invested in a wide range of markets and sectors.

In essence then, my message is this; do not take on risk without knowing exactly what you are doing, but do not avoid investments. If you do not know exactly what you are doing, get a professional to do it for you. They are acutely aware of all kinds of risk, and how to use it proportionately. Your friendly local International Financial Adviser (that’s us by the way) is there to act as a conduit to guide you into safer investment waters.

Do not be afraid to ask for advice. It also happens to be free.

Please do not forget that, although we may be restricted on where we can travel at present, we are here and have the technology to undertake your regular reviews and financial health checks remotely. If you would like a review of your situation, please do not hesitate to get in touch with your Spectrum adviser or via the contact link below.

Occitanie@spectrum-ifa.com

Should I leave money in the bank?

By Michael Doyle
This article is published on: 22nd March 2021

22.03.21

For citizens living in France, assurance vie is known to be one of the safest ways to invest money and organise your inheritance. It is an insurance instrument that serves as a tax-efficient investment vehicle containing one or more underlying investments.

Why It’s Considered Better Than the Bank?
In November 2020, the Banque de France told us that the average interest rate on bank deposits is 0.46%, unchanged since August 2020.

Any gain on your deposit would be subject (in general) to a 30% charge between tax and social charges, leaving a return on investment of just 0.32%.

Couple that with the fact that inflation in France in 2020 was 0.46% (www.statista.com) and you are effectively losing money by leaving it in your bank account.

A well-managed cautious portfolio held within an assurance vie returned about 4% in 2020.

Benefits of Inheritance
When you set up this form of investment before you turn 70, each beneficiary is entitled to a tax-free deduction of €152,500 for money invested before you turn 70, with taxes limited to 20% for everything beyond that (although sums exceeding €700,000 per beneficiary are subject to a higher tax rate of 31.25%).

Why Should You Invest in Assurance Vie?
Investments held within an assurance vie grow income tax and capital gains tax free, so you have a gross roll up of any gains within the investment.

Tax and social charges are paid only on withdrawal, however as part of the return is capital much of these gains are offset.

Advantages for Foreigners
If you are a foreign national living in France, assurance vie should be a key investment, particularly if you expect to live there for the long term. As a British expatriate living in France, you have a host of international assurance vie policies at your disposal, most of which are Brexit-proof. Not only are these policies consistent with the European Union rules, but they also operate across borders in the United Kingdom, meaning you can take them with you if you change your home again or go back to the UK.

Moving to France from the UK: Figuring Out Where You’re a Tax Resident

By Michael Doyle
This article is published on: 18th March 2021

18.03.21

Is the dream of waking up every day to a breakfast of freshly-baked bagels as you look at the Eiffel Tower from your Paris balcony beckoning you? Okay, this might not be exactly what life for the average French resident is like, but living in France often holds appeal for those on the other side of the channel.

Just make sure that the new rules and regulations brought in after the United Kingdom’s exit from the European Union don’t catch you out when you move and pay tax somewhere new.

In this series of articles, we’ll be covering a range of tax issues, starting with how to know where you’re a tax resident.

Being a tax resident in France

To be considered a tax resident in France, it must be your “main home.” If this doesn’t apply to you, there are four other conditions that determine whether you can be classed as a tax resident:

If you spend more than 183 days of the tax year there (which is the same as the calendar year)
If you spend more time in France than elsewhere in the world
If a substantial portion of your assets are in France
If your principal business activities are based in France

Being a tax resident in the United Kingdom
The same basic principles apply for determining whether you’re classed as a tax resident in the United Kingdom. Your eligibility depends on where you fall in the Statutory Residence Test, which involves three parts: the automatic overseas test, automatic residence test, and sufficient ties test.

These first two tests are pretty simple and involve a few components assessing how many days you spend in and out of the country. However, the sufficient ties test is a little more complex, with various conditions that can be classed as your ties:

How much you’ve worked in the UK
Having family in the UK
Available accommodation in the UK
Spending more than 90 days in the UK over the last two years
Spending more time in the UK than anywhere else

These aspects all have their own complicated definitions, so it’s best to consult a specialist for more specific advice.

Where are you a resident?
Thanks to the Double Tax Treaty between the UK and France, it’s only possible to be a tax resident of one country at any given point. Plus, in addition to both countries’ criteria, the Tax Treaty has its own “tie-breaker” rules.

Relying on your own interpretation of the criteria or your predictions for where you’ll spend the most time in the future is riskier than you might think. Unexpected circumstances like illness can alter your plans, and you may misinterpret the rules or definitions set by authorities.

As you can see, although figuring out where you’re a tax resident sounds simple, it can be complicated if you’re frequently moving between and conducting business in both countries. To protect your finances and your peace of mind, it’s best to arrange an appointment with a professional.

Investing 101 for Expats Living in France

By Michael Doyle
This article is published on: 16th March 2021

16.03.21

With today’s economic environment of record low interest rates and high inflation, it’s crucial to understand your investing options. This article will clarify what you need to know about investing as an expat living in France and how we are here to help you.

First, what are your investment objectives? Do you want to preserve your wealth and continue its growth trajectory? Then we recommend reviewing tax efficient savings and investment insurance policies. These can be linked to a whole range of investment assets, from fixed interest securities and bonds, to developed or emerging market equities, specialist funds investing in soft commodities like agriculture or hard commodities like gold and silver, and lastly, alternative investments.

Which investments fit your portfolio best depends on the amount of risk you are willing to take and what kind of returns you are seeking. So, let’s break down the specifics you need to know when thinking about your portfolio.

• Fixed Interest Securities and Bonds are a form of lending that governments and companies may use as an alternative way to raise funds. When you buy a share in a company you own a small part of that company, when you buy fixed interest securities, you become a lender to the issuer. The benefits may include protection during market volatility, consistent returns and potential tax benefits. Some downsides include potentially lower returns, interest rate risk, and issues with cash access.

• Developed Market Equities are international investments in more advanced economies. The benefits include investing in a mature economy that has greater access to capital markets. Drawbacks include more expensive market valuations and potentially less upside.

• Emerging Market Equities are international investments in the world’s fastest growing economies. Some benefits include the potential for high growth and diversification. The potential downsides include exposing yourself to political, economic, and currency risk depending on which countries you choose to invest in.

• Specialist Fund Investing is ideal for investors seeking exposure to specific areas of the market without purchasing individual stocks. One popular area is natural resources, with the three major classifications of agriculture, energy, and metals. A benefit to investing in commodities is that they’re completely separate from market fluctuations so it diversifies your portfolio and offsets stock risks while providing inflation protection. However, commodities can be exposed to uncertain government policies.

• Alternative Investments are financial assets that do not fall into one of the conventional equity, income, or cash categories. Examples include: private equity, hedge funds, direct real estate, commodities, and tangible assets. Alternative investments typically don’t correlate to the stock market so they offer your portfolio diversification but can be prone to volatility.

Overall, it’s important to have a diversified and balanced investment portfolio so understanding each category is key. Keep in mind that when it comes to investing, advice is not one-size-fits-all. That’s why we are here to help personalise your investment portfolio to match your specific needs.

In today’s financial climate it is vital to understand your investing options. Many experts have a positive outlook as vaccine distribution increases and fiscal stimulus boosts economies. Intelligent investing is essential when building and maintaining wealth so consult with your Spectrum IFA financial adviser and start planning today!

Assurance Vie, an Alternative Way to Save For Your Retirement

By Michael Doyle
This article is published on: 15th March 2021

15.03.21

Many people are looking for an alternative to setting up a regulated pension for their retirement savings. Whilst there is tax relief on pension contributions in the savings phase, they are happy to give this up for more flexible and tax-effective income during retirement. In France, the most popular vehicle used for long-term savings is a contrat d’assurance vie, in which investors have the opportunity to invest regular premium savings or a temporary amount.
What Is an Assurance Vie?

An assurance vie is an insurance-based investment that can be as straightforward or as nuanced as you like. The following are the benefits of assurance vie for French residents:

While the funds remain within the assurance vie, there is usually no tax on any income or gains (i.e., the tax is deferred). However, social contributions are now withheld on an annual basis (rather than when the funds are withdrawn) for sums invested in a fonds en euros portfolio, just as they are for French bank deposits
A portion of any withdrawal is regarded as a capital withdrawal and is tax-free
An assurance vie becomes more tax-effective over time, and after eight years, the income can be offset against a tax-free allowance of (currently) € 9,200 per year for a couple submitting a joint tax return or €4,600 for an individual
You have total control of your money and may obtain monthly income payments from the insurance provider. However, withdrawals in the policy’s early years you can incur penalties, depending on the contract you select
If your circumstances or attitude toward investment risk changes, you might be able to change the funds in which you invest
For inheritance purposes, assurance vie is extremely tax-efficient

Assurance vie is the traditional form of saving for millions of French citizens. Several billions of euros are invested by French banks and insurance firms that sell their own branded products.

Additionally, a much smaller group of non-French companies have designed French-compliant policies for the expatriate market in France. These businesses are generally located in heavily regulated financial hubs like Dublin and Luxembourg.

However, before selecting such a firm, make sure that it is a product completely compatible with French law to get the same tax and inheritance benefits as the French equivalent product.

Below are some of the benefits of a foreign assurance vie policy over a French assurance vie policy:

Other currencies, such as sterling, US dollars, and Swiss Francs, may be used to save
There is a wider variety of investment options available, including access to top investment management firms and capital-guaranteed products and funds
The report is written in English, making it easier for you to comprehend the terms and conditions of the assurance vie program
The assurance vie policy is generally portable, which is beneficial when travelling within the EU (or many other countries in the world)

When it comes to EU countries, the taxes can be confusing. In these jurisdictions, the plan is often accepted for its beneficial tax performance.

How Does Assurance Vie Work?
Your one-time or regular investment or premiums are paid to an insurance firm, which then invests the funds with the investment managers of your choosing. These are typically unit-linked investments, such as equity or bond funds, but they may also be deposits or unique products sold by different financial institutions.

You may invest in a range of funds which the insurance provider can pool together to create a mutual bond, which is your assurance vie policy. The value of the units you keep in managed funds is likely to increase over time if you have selected your investment wisely.

As a consequence, the value of your assurance vie policy will grow accordingly. You must, however, be fully conscious of and comfortable with the level of risk you are taking. As with any unit-linked investment, your fund’s value will go up or down depending on what is happening in the investment markets. Short-term market instability, on the other hand, typically has a lower impact over time

How Do I Choose What to Invest Inside My Assurance Vie?
You may hold strong opinions on the subject or have no opinions at all. In any case, having an excellent financial planner on hand is helpful. His or her job is to help you comprehend the full definition of investment and decide your attitude toward investment risk.

Without acknowledging any risk, there is little reasonable chance of making a significant return on your savings. Even leaving your savings in a bank these days carries the risk of not receiving a ‘real’ rate of return, i.e., one that keeps up with inflation.

An adviser can show you various types of investment options, clarify how they operate, their track record, and the nature and level of risk that the investment entails. Although you make the ultimate decision, his or her support may be helpful.

Following the initial investment, there should be regular follow-up meetings to assess your investment’s success and make any appropriate adjustments. This may be because your circumstances have changed or because certain funds aren’t performing as well as anticipated, and you’d like to replace them with funds that are.

Can Capital Be Guaranteed Via a French Assurance Vie?
The willingness to invest in a fonds en euros is a common feature of the French assurance vie (though this is also available, in limited circumstances, from insurance companies outside France).

Since your money, as well as any interest and year-end bonus applied to it, is guaranteed, this unique type of fund is structured to shape a very conservative base for your overall investment.

The majority of foreign companies that supply these forms of funds also provide sterling and US dollar equivalents. Intending to increase returns, the funds invest mainly in government and corporate bonds, with some exposure to equities and assets (real estate). Your money will earn interest over the year.

The insurance firm is allowed by statute to refund the bulk of the funds to your account in the form of a year-end bonus. The remaining portion of the fund’s return is kept in the insurance company’s reserves to smooth out potential investment gains, such as in periods of weak market results. However, the rate of return on the fonds en euros is ordinarily low due to the quality of the guarantees. Still, it is generally better than the interest received on a bank deposit account with immediate access.

However, the French tax authorities consider this form of a fund to be so without risk that annual social charges are imposed on the gain, potentially lowering the return rate over time.

It is also possible to invest in structured bank deposit offerings through some foreign assurance vie policies. The investment return is related to the stock market, but the capital invested is guaranteed.

How Is an Assurance Vie Taxed?
Only the benefits portion of every amount you withdraw is taxable, and after January 1, 2018, the tax treatment differs depending on whether premiums were charged before September 27, 2017, or after that date.

Premiums paid before September 27, 2017
You may either be taxed at the set prelevement rate or file an annual income tax return, depending on your tax situation. The following is how the prelevement scale works:

Withdrawals made within the first four years are taxed at a rate of 35 percent
Withdrawals made between years four and eight are taxed at a rate of 15 percent
After eight years, withdrawals are taxed at a rate of 7.5 percent

Furthermore, social charges are imposed on the benefits portion of the amount withdrawn, at a rate of 17.2 percent. People prefer the progressive rate tax if it is lower than their marginal rate of income tax.

In France, the highest income tax rate is officially 45 percent. As a result, even though 35 percent appears to be a high rate, it is still the best choice for higher-rate taxpayers. After four years, you’ll have to reconsider which form to use. If your marginal tax rate is at least 30 percent, a prevelement rate of 15 percent is a better choice.

If you are a non-taxpayer (as more people are now since the 5.5 percent tax bracket was eliminated), you can opt to report the withdrawal on your annual income tax return.

After eight years, there is an extra income tax incentive to encourage people to save more for the long term. A single taxpayer is entitled to a €4,600 income tax credit against the benefits portion of any withdrawals made during the tax year. This is raised to €9,200 for married couples who are subject to joint taxation. There will be no income tax to pay if the benefits portion of total withdrawals made during the year does not surpass the allowances.

This might not seem like much, but it’s a valuable allowance, as shown by this example of Peter and Pam’s assurance vie policy, which they began nine years ago with a €100,000 investment. They have not taken any withdrawals, and the account is now worth €160,000. They want to buy a new car and need €15,000 to help pay for it, so they withdraw this amount. They receive a tax certification from the insurance firm when they make this withdrawal, showing how much gain is included in the amount withdrawn. The guaranteed value has risen by 60%, but the taxable benefit factor is only 37.5 percent (or €5,625) in this case. Since they have a tax-free allowance of €9,200 and they are subject to joint taxes, there is no income tax to pay.

Premiums paid from September 27, 2017
The tax rate varies based on the contract’s duration, plus whether capital remaining in the contract as of December 31 of the year before the withdrawal was above a threshold sum for contracts longer than eight years. The threshold amount is €150,000 per person (across all assurance vie policies), measured by the amount of premiums invested minus any money already withdrawn, rather than the contract’s value. Couples taxed as a household cannot share each other’s threshold because the threshold is not cumulative between individuals. As a consequence, one spouse can meet the threshold while the other does not.

On January 1, 2018, France adopted a 30 percent flat tax,’ consisting of 12.8 percent income tax and 17.2 percent social charges. As a result, for contracts that are less than eight years old, a flat tax is levied on gains in withdrawals which are deducted automatically by the insurance provider. The flat tax replaces the pre-September 27, 2017 rate of 52.2 percent (35 percent tax plus 17.2 percent social charges) for contracts of up to four years and 32.2 percent (15 percent tax plus 17.2 percent social charges) for contracts of four to eight years.

After eight years, the tax rate is 7.5 percent. In addition, there is 17.2 percent social charges to pay. The tax free allowance of €4,600 for a single taxpayer or €9,200 for a couple is still in place after eight years. When filing their French tax return, taxpayers can also choose to pay tax at their marginal rate in the ordinary income tax brackets (rates varying from 0-45%) plus social charges. Any excess tax already charged would be refunded after processing the tax declaration made in the year after payment of the withdrawal since the insurance provider will have already deducted 12.8 percent or 7.5 percent.

However, taxpayers should be mindful that if ordinary band taxation is selected for assurance vie dividends, this will extend to all other sources of investment profits, such as interest and persons, as well as capital gains from the selling of shares.

Does Assurance Vie Have Other Advantages?
Without question, assurance vie is also a powerful tool for estate planning, both in reducing French inheritance taxes and giving you leverage over who inherits your properties after you die. This form of investment is considered outside of your estate for

When you set up this form of investment before you turn 70, each beneficiary is entitled to a tax-free deduction of €152,500 for money invested before you turn 70, with taxes limited to 20% for everything beyond that (although sums exceeding €700,000 per beneficiary are subject to a higher tax rate of 31.25 percent).

The inheritance benefits are limited for sums invested after the age of 70. There is a €30,500 tax-free exemption in this situation (plus the investment return on the total invested) for all of the people who profit from it. Any portion of the premium that reaches €30,500 is subject to regular French inheritance allowances, which differ based on the beneficiaries’ connections to the policyholder. Any gain in the scheme paid out as a death benefit is also subject to social taxes at the current rate of 17.2 percent.

Assurance vie can be a valuable tool for estate planning and providing a tax-efficient source of income for the policyholder over his or her lifetime.

Time not timing – investing for the long term

By Michael Doyle
This article is published on: 8th March 2021

08.03.21

We often get asked the question, “When is the best time to invest my money?” Our answer is never based around when you should invest, but rather how long you can invest for.

• No one can predict the top or bottom of any market.
• The market has always exceeded its previous high when it has recovered.

So the question is not when you should invest your money in the market, but how long can you stay in the market to achieve your financial goals? Or to put it more simply, time is more important than timing.

During periods of stockmarket volatility, investors often become uncertain and lose sight of their initial long-term investment view. They often find themselves postponing a new investment, or even selling their current holdings with a view to re-invest when the markets stabilise.

What often happens in times of trouble, however, is that investors sell at a lower price than that which they bought at.

A study by Dalbar in Boston USA, highlighted a key area for private investor’s underperformance:

• According to Dalbar, from 1985 to 2004 the average personal investor achieved an annualised return of just 3.7% while the S&P500 returned 11.9% and inflation averaged 3%

A further study showed that playing the waiting game could cost you dearly. Investors who remained fully invested in the UK market over the period March 2003 until March 2008 would have received returns in excess of 60%. However, those investors who tried to time the markets would have had their returns cut to 40% if they missed out on the best 10 days of the market and those who missed out on the best 40 days would have seen returns of 4%!

This applies across other major markets as the table below shows:

MARKET	INDEX	FULLY INVESTED	MISSING BEST 10 DAYS	MISSING BEST 40 DAYS
UK	FTS All Share	63.4%	40.0%	3.9%
US	S&P 500	56.4%	11.6%	-39.2%
GLOBAL	MSCI World	63.7%	21.6%	-26.2%

Sources: JP Morgan Asset Management/Bloomberg/Datastream

What we do know is that historically the markets have always recovered, as the table below shows.

EVENT	DATE	RESPONSE	AFTER 4 MONTHS
Pearl Harbour*	December 1941	-6.5%	-9.6%
Korean War	June 1950	-12%	+19.2%
JFK Assassination	November 1963	-2.9%	+15.1%
Arab Oil embargo	October 1973	-17.9%	+7.2%
USSR in Afghanistan	December 1979	-2.2%	+6.8%
1987 Financial Panic	October 1987	-34.2%	+15%
Gulf War	December 1990	-4.3%	+18.7%
ERM Currency Crisis	September 1992	-6%	+9.2%
Far East Contagion	October 1997	-12.4%	+25%
Russia Devalues Rouble / Long Term Capital Management Crisis	August 1998	-11.3%	+33.7%
World Trade Centre	September 2001	Dow -14.3% Nasdaq -11.6%	+5.9% +22.5%

*(The markets rose 8% during the year following Pearl Harbour)

Essentially what we can conclude is that most investors do not buy and hold for extended periods of time. Thus getting in and out of the market at the wrong times or switching funds with a view to chasing the top performers, unfortunately at a time when these ‘top performers’ have reached their peak.

Almost without exception, successful investment strategies rely on discipline, patience and taking a long-term view. Successful investors typically neither react to short market events, nor try to pre-empt short term market direction.

For advice on an investment solution aligned with your personal objectives and risk profile, feel free to contact me for an initial discussion.

Is your money safe under the mattress?

By Katriona Murray-Platon
This article is published on: 5th March 2021

05.03.21

March is my favourite month of the year, not least because I celebrate my birthday during this month and this year will be the end of my 4th decade. Traditionally it has always been a busy month because it is a great time for events and starting new projects. This month my colleagues and I will be attending another virtual property fair hosted by Your Overseas Home. The event we did last year was very good and lots of people were able to see our presentations and then chat to our advisers from the comfort and safety of their own homes.

By October 2021 I will have lived in France for 18 years continuously, but I first arrived for my Erasmus year in September 2001 making it 20 years since I started living in France. As you may know I am married to a Frenchman and I have adopted much of the French culture and way of life. But my husband and I have very different views in our attitude to risk and finances. My husband came from a farming background where money was hidden under the mattress, you only bought when you had the money and you insured everything that could be insured. My husband will take a 10 year extended guarantee on a toaster! I came from a background where it was common to use credit cards to fund Christmas and holidays and I went to university with a student loan.

The idea that money is safe under the mattress or in the bank is no longer true. In France the traditional popular savings accounts such as the Livret A and LDD now only have an interest rate of 0.5%. The other misled belief that French assurance vie policy holders have is that Euro Funds are a good investment and a safe investment. Whilst it is true that Euro Funds are still one of the least risky investments after the traditional bank savings accounts, their performance continues to drop year after year. The average growth rate of the Euro Funds in 2020 is 1.2% which, once you deduct social charges (17.2%) and take into consideration inflation (0.5%), the net gain is only 0.5%. One of my own French assurance vie policies, which is 69% Euro Funds, has made an average of 1.6% over the seven years since it was created. The problem with French assurance vies is that they are not bespoke; they come with certain formulas, some that you can contribute to monthly, some that you cannot, and depending on your choice you cannot go lower than the prescribed amount in Euro Funds, no matter what your risk profile.

When I compare this with the range of product providers we can offer our clients and the choice of funds, the difference is astounding. Thank goodness that as English speakers we have access to better investment possibilities from as little as £20,000/€25,000. The average performance of my clients’ portfolios is around 3% after charges, with no social charges taken at source, and they have a lot of choice and flexibility regarding which funds they want and how much of that fund they want their investment to be in. They also have access to English speaking product providers, English speaking fund managers and their own English speaking financial adviser who is supported by the knowledge and experience of all of the Spectrum advisers.

I am fully integrated into French society and believe in adhering to many things about French society, but when it comes to finances there are differences between us that we cannot ignore so it is not in our best interest to invest in French financial products.

The outlook this March is thankfully much better than last March. There is more good news for Prudential policy holders. At the end of February Prudential announced no changes to the Expected Growth Rate and upward Unit Price Adjustments in the PruFund Growth Sterling, PruFund Growth Euro and PruFund Cautious Euro funds.

For other funds and the markets in general the outlook is equally positive. “The combination of vaccine roll-out, substantial fiscal stimulus, and elevated consumer savings should drive a sharp recovery in economic and earnings growth,” said Ryan Hammond, a Goldman Sachs strategist, in a report this week.

Whilst mask-wearing and social distancing will still be necessary for some time to come, a lot of our friends and family members have been vaccinated, therefore reducing the risk to the most vulnerable. With the coming good weather, meetings and get togethers will be able to take place out of doors. As always, if clients are happy to arrange a face to face meeting, I look forward to seeing them for outside meetings in their lovely gardens. If however you prefer video meetings or phone calls that is also possible.

Wishing you all a bright, sunny and floral month of March!