Viewing posts categorised under: Investments
Producing Income from Your Investments
By Peter Brooke
This article is published on: 13th April 2014
13.04.14
If you’ve managed to put aside money for your retirement, good job — no one else has been saving for you. But how do you change the balance of your assets to be able to draw an income to supplement a smaller, land-based income or to pay for your lifestyle into retirement?
* Restructure your investments before you need the money. This gives you time to ride out any difficult market years before you retire or move ashore. Crises in stock markets always affect stocks in pre-retirement worse, so protect the value of your funds in the few years running up to taking an income, but keep one eye on inflation as this will reduce the buying power of the “pot” of money you’ve built up.
* Consider the total value of your retirement assets — shares, pensions, funds, investment properties, cash and bonds — as one entity. Then ask yourself, “If I had all of this as cash today, what assets would I buy to give me the income I need?” This question helps you reassess all your assets and bypass any loyalty to a certain asset type, such as property. If Dave bought an apartment nine years ago for €180,000, rented it out and paid off the mortgage, and the apartment is now worth €280,000 with rent at €1,000 per month, after management charges, this works out as a 3.8 percent yield. Dave may do better using the money from the property elsewhere, perhaps by reinvesting in bonds.
* Once the income starts, look at each asset class in terms of income stream and cash flow rather than capital appreciation. It’s important to try and grow the “pot” to beat inflation, but the income is paramount. Yields on equities today are outstripping most government bonds; the capital may fluctuate but the income will remain. To draw an income of €3,500 per month, you need an asset pot of approximately €900,000. With €42,000 per year, a proportion of the cash can be put in longerterm assets (property, equities, etc.) to help grow and replace the funds you withdraw.
Many yacht crew have a large proportion of their assets inside insurance bonds, as they offer tax-advantageous growth and income. However, some don’t offer a way to take a “natural income,” as the funds are all accumulating-type funds. The income that you draw down by cashing in fund units affects the underlying balance and needs to be rebalanced with a steady internal income stream.
Delaying Savings
By Peter Brooke
This article is published on: 12th April 2014
12.04.14
No one wakes up in the morning and thinks, “I must start my pension planning today.”a “I must start my pension planning today.” I’ve not even done that, and it’s my job! Perhaps if someone had pointed out to me 15 years ago what the impact this thought process may have had on my own financial future, I may have listened and (may have) done something about it.
Let’s consider the rather simple examples of two people who joined the yachting industry at the same time, with similar careers, but different saving scenarios.
Scenario 1: James took his first job as a deckhand at the age of 23, earning €2,000 per month. His income went up by a healthy five percent each year, every year until he left yachting at 45 with a final salary of €7,300 per month.
From the very start of his career, James invested 25 percent of his salary every year. This means that by the end of his yachting career, he had earned a total income of €1.25 million and had put aside €310,000. He had managed to achieve an average annual growth rate of five percent on his invested money, which meant his savings pot was now worth €495,000. If he leaves this to grow for another 15 years before using it as a pension scheme, he will retire at 60 with a fund of just over €1 million — a very healthy fund.
Scenario 2: John had a very similar career, but only started saving 25 percent of his salary after being in the industry for 10 years. Even though he still had earned €1.25 million over his career, he only had put away €225,000, which, with the same growth as James, was now worth €290,000 due to the lesser amount of time to compound the growth. Leaving this amount to grow for another 15 years would give John a pension fund of €600,000 — quite a bit shy of James’s healthy fund.
In the real world, yachting salaries rarely grow in a straight line, but this simple example shows how delaying the start of a long-term savings program has a massive effect on your long term wealth and control. In order to retire with the same fund as James, John would have to save approximately €1,500 per month, every month from when he leaves yachting. If he is now working on shore, this could be difficult to achieve as costs normally not associated while aboard will now be added, such as rent, food and every day expenses.
It’s interesting to note that James still actually spent more than €930,000 over his 23 years in yachting, which is an average of €3,400 per month for that period. Are there many yacht crew who actually spend this much on living costs, and if not, could he have saved even more for his long-term future? The answer is obvious.
Should I use a Financial Adviser?
By Peter Brooke
This article is published on: 10th April 2014
10.04.14
Creating a financial plan is not complicated; it’s an audit of where you are today, financially, and where you want to be at different life stages. This requires creating a list of what you have, earn, own and owe and deciding to put something aside to cover different goals for the future.
I have met yacht crew who have worked for 20 years without implementing a financial plan, and when they want to leave yachting, they have no pensions and minimal savings or investments, leaving them with a simple choice: live on very little or keep on working.
We can agree that having a financial plan, however simple, is important, but why have (and pay) someone to help you bring this together?
The process: Although creating a plan is quite simple, a financial adviser will ensure that all areas are discussed and re-examined so nothing is left out. All of the horrible “what if” questions should be covered.
Implementation: A good adviser will have access to thousands of products for different clients with different needs. The more choice available, the more assistance you will need in choosing the best ones, but also, the more independent the advice will be. A small advisory firm is likely to have only a few products to choose from and will display less independence.
Professionalism: If we are ill, we go to a doctor — financial advisers have qualifications to diagnose our financial problems and help put together a plan to make us better. And as with a doctor, a financial adviser should have qualifications in his or her trade, even specializing in certain areas.
Regulation: A financial adviser will be regulated by a government body and will have to display a certain competency and have insurance in order to practice.
Knowledge: Qualifications don’t guarantee knowledge; good advisers should continually improve their knowledge and should be able to prove this through their ability to explain complex issues.
Humanity and perspective: Most importantly, you need to trust your adviser. This person or firm should be your trusted adviser for most of your life; they need to be able to empathize with the different situations in which you’ll find yourself over the years. They should be able to draw on experience from other clients to help solve issues you face; they should be able to offer perspective on the decisions you make.
This last point is the hardest to prove and is probably best achieved through a combination of your own gut instinct and referrals from friends and colleagues. Do your own research on all of the above factors, ask around, and keep asking around until you have a short list of advisers to meet. Then follow your own feelings about whether you can trust them; the relationship should be a long-term one, and you will end up telling them a lot of very personal information over time.
Brandeaux February Update 2014
By Chris Burke
This article is published on: 25th February 2014
Brandeaux February Update 2014
Brandeaux Student Accommodation Fund (Sterling) Limited
Brandeaux Student Accommodation Fund (Multi Currency) Limited
Announcement
Further to the recent press speculation, the Brandeaux Student Accommodation Fund (Sterling) Limited and the Brandeaux Student Accommodation Fund (Multi Currency) Limited confirm that they are continuing to actively review various options with the aim of creating liquidity for their existing shareholders. The options being considered include a potential initial public offering of the assets of the Brandeaux Student Accommodation Fund (Sterling) Limited. The consideration of an initial public offering is at an early stage and there is no certainty at this time that this option will be pursued.
A further statement will be made as and when appropriate.
The above is an extract from Brandeaux on the February update of their suspended funds. In many cases we will be able to help you if you have money frozen in these funds, please contact one of our advisers to find out more
Written by: Chris Burke based in the Barcelona/Costa Brava area
If you are based in that area contact Chris at: chris.burke@spectrum-ifa.com
If you are in another area please complete the form below and we will put a local adviser in touch with you.
Investments can have too much structure
By John Hayward
This article is published on: 24th February 2014
What are structured products?
Structured products are usually set up as an investment of a lump sum in exchange for a return based on the performance of an underlying index such as the FTSE100. They are arranged as fixed term contracts of, normally, 5 to 6 years although some can pay out earlier under certain circumstances. They can be bought from a variety of sources and are particularly popular with banks.
Structured products could be suitable for someone who is willing to buy and hold, understanding that if markets fall sufficiently, then the return could be less than what was paid in. Some structured products offer capital guarantees. This ´promise´ of the return of your initial investment can be somewhat veiled in that the guarantee could be based on the particular underlying index not falling below, say, 50% of its starting level. For example, the initial investment is made and the FTSE100 and that point stands at 6000. 5 years later, the end of the contract, the FTSE100 is at 5700. In this case, the client would receive the full initial investment even though the index level has fallen. Some suggest that the FTSE100 falling by 50% is not likely thus selling the product as risk free. The FTSE100 certainly has fallen by more than 50% in the past (eg. 1999 to 2003).
The people offering any guarantee could be a third party. This is where we have another level of risk, known as counter-party risk. If the third party fails then the guarantee could be worthless.
Another risk is people wanting to access their money before the fixed term is up. The problem is that these products often have no secondary market which could mean you may not be able sell it without suffering a significant loss.
As with all types of investments, there are varieties on a theme, some suitable, some not, depending on one´s risk profile. Complete understanding is essential from the outset.
For more information on how we can protect your savings whilst offering low risk, liquid investments, contact one of our advisers.
Suspended – 20% tax on overseas transfers into Italy
By Gareth Horsfall
This article is published on: 20th February 2014
Suspended – 20% tax on overseas transfers into Italy
The witholding tax of 20% on overseas transfers into Italy has been suspended.
No sooner had the law regarding the 20% withholding tax on transfers from overseas been introduced, than it is suspended. Until July 2014.
The main isssue with the law was one of distinguishing between transfers from abroad that were ‘profit from investment’ and those that were income from other sources, such as pensions. And if you made an auto certificazione’ with your bank to state that you were not bringing money into the country, from profit on investment, then would you have to sign another auto cetificazione when you did? and what happens if you forgot but still declared the asset on your Unico’? These are just some of many questions which needed answering. In the end the law was just another example of very badly thought out policy which really should have been planned more carefully. (Interestingly I have just seen a report that the EU has not condemned the law but says that it needs more thought, essentially)
Athough, the more I think about the law itself, as a way to catch those who were not making accurate declarations, the more I admired it. But once again it came down to implementation and even the best laid ideas are doomed to failure without adequate planning and thought.
That all being said it now seems that, at least for the meantime, Italy will be resorting back to the, what now seems the almost historic, share of information agreements with co-operating countries.
As you may or may not know the EU has an open share of information agreement. Some UK rental property owners found this out to their chagrin in 2012 when the Guardia di Finanza went knocking on doors asking why rental income from a UK property (which interestingly was already being declared and tax being paid in the UK) was not being declared on the Italian tax return. Some of the fines which I heard of were astronomic.
Luxembourg and Jersey have now signed up to a free exchange of information on interest payments, in the EU, from 1st January 2015. Austria will likely follow as the 1st January 2015 marks the entry into force of the mandatory exchange of information agreement across Europe.
The Isle of Man and Guernsey have already agreed a full and open share of information agreement with the EU on income from interest and so the information on offshore bank account holders is fully reported.
And the USA has already entered into agreement with Italy under its FATCA law (Foreign Account Tax Compliance Act) which allows for a free exchange of information on resident individuals in either country. In fact there is a new acronym doing the rounds: GATCA. Global Account Tax Compliance Act.
One of the most interesting points about the Italian move to withhold 20% at source was that it was an open attack on profit from investment.. The share of information agreements, to date, have been mainly focused on interest from savings. Could this mean that the EU is about to enter the next phase of tracking down mis-reported incomes and/or gains from investment. Probably! The mandate has been clear since the implementation of the EU Savings Tax Directive that ultimately the EU will have an open information policy across all EU states on all incomes and profits from savings and investments. We may laugh at the inadequacies of the Italians to implement a law, which on the surface of it seemed ridiculous, but it would not surprise me to see this being the first of many steps throughout the EU to open the information exchange channels even further and to exchange information on almost every financial asset you can think of.
As I have said many times before, if you are a resident in Italy, now is the perfect time to be planning to stay ahead of the game. Many things can be done now to limit losses, limit potential fines, and plan efficiently for tax and it needn’t be painful or frightening.
If you have income and assets in Italy or overseas and want to know how to potentially reduce your tax liabilities and plan more effectively, whilst ensuring you are ‘in regola’, then you can contact me on gareth.horsfall@spectrum-ifa.com or call me on 3336492356
Brandeaux Suspended Funds Update
By Chris Burke
This article is published on: 19th February 2014
The following is an extract from Brandeaux on the latest update of their suspended funds. In many cases we will be able to help you if you have money frozen in these funds, please contact me below to find out more:
Chris Burke
Partner
Office; 34 936652828
Mobile; 34 689915730
chris.burke@spectrum-ifa.com
Ground Rent Income Fund Limited, The Ground Rent Portfolio Limited Ground Rent Portfolio Plus Limited (the “Ground Rent Funds”)
Brandeaux Dual Asset Fund (Sterling) LimitedBrandeaux Dual Asset Fund (US Dollar) LimitedBrandeaux Dual Asset Fund (Euro) Limited(the “Dual Asset Funds”)
Brandeaux Student Accommodation Fund (Sterling) LimitedBrandeaux Student Accommodation Fund (Multi Currency) Limited(the “Student Funds”)
(and together the “Brandeaux Funds”)
The Ground Rent Funds
Update on sales The Brandeaux Update of 26 September 2013 reported that the Ground Rent Funds were in negotiations on sale transactions representing approximately 80% of the total value of the ground rent properties.
Brandeaux is pleased to report that property sales to release approximately £173 million of liquidity available for shareholders have now been achieved representing approximately 37% of the total remaining assets of the Ground Rent Funds. The sale prices for these properties are in line with the directors’ expectations as communicated in our last Brandeaux Update of 26 September 2013 and therefore there is no change to the current share price of any of the Ground Rent Funds.
The potential buyer for the remaining properties that we reported in our September Update as being at an advanced stage failed to complete the purchase in the agreed time frame. This was unexpected and disappointing, but the continuing interest that has been shown in these properties is very positive and a reflection of their inherent value. Brandeaux has recommenced marketing of these properties and will report progress as it develops. In addition, Brandeaux is actively marketing two remaining portfolios and has received significant interest.
Future of the Ground Rent Funds Given the desire that has been expressed by investors in the Ground Rent Funds to realise liquidity, and following the positive results achieved in property sales so far, the directors of the Ground Rent Funds have resolved to market and sell all the remaining properties within the Ground Rent Funds. Once completed, the intention is to wind-up the Ground Rent Funds.
The directors do not wish to wait until winding-up the Ground Rent Funds is completed before releasing to shareholders the proceeds of the sales achieved thus far and so, after allowing for ongoing operating cash requirements and transaction costs, it is intended that the net proceeds will be released to shareholders as quickly as possible. It is presently anticipated that this will take place early in the New Year.
In view of the intention to wind-up the Ground Rent Funds, the directors consider that the best way of ensuring that all shareholders benefit fairly from the liquidity created by the sales is to make compulsory pro rata share redemptions to all shareholders. The effect is that every shareholder will
receive a proportion of the available liquidity based on their current percentage shareholding. The directors have written separately to all shareholders in the Ground Rent Funds to provide further details of the arrangements, process and timing of the redemptions.
The directors will keep under review the progress of further sales and whether further redemptions can be made as further property sales are achieved prior to the commencement of the winding-up process. It is not possible to say definitively when further property sales will complete and, therefore, when the winding-up process will commence. However, the directors are taking steps to progress these matters as quickly as possible while at the same time preserving shareholder value.
The Dual Asset FundsThe Dual Asset Funds, which are shareholders in Ground Rent Income Fund Limited (as well as in Brandeaux Student Accommodation Fund (Sterling) Limited), will receive their share of the net proceeds of the Ground Rent property sales as these are distributed. The Dual Asset Funds will distribute their share of the proceeds of each redemption to their own shareholders on the same basis as the Ground Rent Funds, namely by way of a compulsory pro rata share redemption to all shareholders. It is intended that this will be carried out promptly following the share redemptions by the Ground Rent Funds. The effect is that every shareholder will receive a proportion of the available liquidity based on their current percentage shareholding.
The directors have written separately to all shareholders in the Dual Asset Funds to provide further details of the arrangements, process and timing of the redemptions.
Future of the Dual Asset Funds The Dual Asset Funds were created to give investors exposure to both the Ground Rent and Student Accommodation asset classes within one fund. Once the Ground Rent Funds are wound-up, the Dual Asset Funds will no longer be invested in both asset classes. The directors therefore intend to wind-up the Dual Asset Funds in due course. In order for this process to be completed it will be necessary for the Dual Asset Funds to first realise their investment in Brandeaux Student Accommodation Fund (Sterling) Limited and then distribute the proceeds to shareholders. Accordingly, it will be necessary for liquidity to be achieved in the Student Funds before the Dual Asset Funds can be wound-up.
Important information for IFA’s who have clients invested in The Ground Rent Funds and the Dual Asset Funds through institutional platformsThe shareholders of the Brandeaux Funds are the institutional platforms that hold Participating Shares in these funds. Brandeaux does not have details of any underlying investors (neither their names nor bond numbers) and are unable to identify their individual holdings. IFA’s should contact the relevant platform for information concerning queries from their clients, and the process and timing of distributions from the platforms over which Brandeaux has no control.
The Student Funds The directors are actively continuing the process for the creation of liquidity for shareholders through property sales and other means, although the timeframe remains, at present, uncertain. A number of discussions have taken place over the past six months and the directors are actively looking at various alternative ways to create liquidity for investors but at this time there is nothing further to report.
A further update will be sent when there is information of significance to report.
16 December 2013
This Update is for information purposes only and is not intended as an offer or solicitation to anyone in any jurisdiction in which such an offer or solicitation is not authorised, or to any person to whom it would be unlawful to make such an offer or solicitation. Persons who receive this Update are required to inform themselves about and observe any such restrictions and should seek professional advice. This Update should be read in conjunction with the Funds’ Articles of Association and Private Placement Memoranda. Information and representations herein are based on information available at the date hereof, and are, therefore, subject to change. In particular, past returns are not a guide to future returns and the value of shares may go down as well as up. Moreover, returns in non-sterling denominated shares classes may increase or decrease subject to currency fluctuations. Brandeaux calculates its returns net of Brandeaux charges. This Update is distributed on behalf of Brandeaux Managers Limited by Brandeaux Administrators Limited, Brandeaux House, 13 Upper Mount Street, Dublin 2, Ireland, which is authorised and regulated by the Central Bank of Ireland under the Investment Intermediaries Act, 1995.
Investing for a higher Income
By Gareth Horsfall
This article is published on: 18th February 2014
Investing for a higher Income
Investing for income, rather than capital appreciation, is as old as investing itself but its relevance becomes more noticeable in times of low bank interest rates. (Or historically low as the media likes to keep reminding us).
It offers an additional lifeline for those who need to live from the interest from their savings and not just accumulate for a point in the future. The relevance is bigger for those who are not working and do not have a regular income due to ill health, out of work or in retirement.
To elaborate this theme, I have written in the past how an investment should be considered to behave like a garden. It should be well cared for, maintained, trimmed, fed and watered otherwise it becomes out of control and the weeds take over. In no time the tendered beauty and joy of a well cared for garden, diminishes.
Well, I would like to expand on that concept further to explain the purpose of investing for income.
For most of our working lives we try to accumulate capital, save from the very money that we earn to amass the assets that we will one day live off in retirement. But during this time, you may be unaware that you are actually investing for income as well. Its just that the income is being reinvested back into your account to make the capital appreciation quicker. The difference is that when you reach the point when you want the income, you invest in those assets which pay the better levels of interest and have it paid out instead of reinvested.
If we think about it another way, it is the equivalent of the garden. A beautiful cottage style garden that you cultivate from seed and over many years that you carefully tend to. The flowers bloom each spring, and you diligently tend to the plants as they grow, check for problems, apply pest control methods, trim the flowers to put on your kitchen table and enjoy the joy that it brings for you and the family over the years. During this time you may have a small vegetable plot. (the equivalent of an income). But during your working years you have to invest in earning a living and this may prevent you from expanding the vegetable plot, after all you earn enough money to buy vegetables from the supermarket instead of growing them. The garden provides joy and pleasure but only a small amount of income.
When you finish working and your income level may drop, you now have more time to spend on the part of the garden that can provide you with more of the supplemental income.
But, there are 2 types of vegetable plot, those that provide and those that don’t. The difference relies heavily on the soil. The fertility of soil in which you plant those veggies. If your soil becomes too abused it will stop producing. (Note, Westernised economies and the reason for low interest rates). So you have to look at either changing the type of vegetables you plant (crop rotation) or changing the soil. Both can be as effective as one another.
This is the basic concept of investing for income. If one area is not providing sufficient rewards, then it is time to look elsewhere. (Note, bank interest rates are so low that to maintaina standard of living it is necessary to look at other forms of income producing assets)
Example
I would like to talk about Vodafone for a moment and in particular shares in Vodafone. We all know the name but you may not know the significance of Vodafone as an income producing share.
The talk of shares in companies scares alot of people, but Vodafone is a good example of a reliable company that rewards it shareholders with good dividends (income) for being an investor. At the time of writing, if you invested in Vodafone stock today, you would be rewarded with an interest rate of 5.13%. And Vodafone also has a long history of paying income to its investors and more importantly a rising income.
See the table below for the facts
|
Year ended
31 March
|
Interim
Dividend
|
Final
Dividend
|
Total
Dividend
|
Growth % |
| 2010 |
2.6600 |
5.6500 |
8.3100 |
6.95 |
| 2009 |
2.5700 |
5.2000 |
7.7700 |
3.46 |
| 2008 |
2.4900 |
5.0200 |
7.5100 |
11.11 |
| 2007 |
2.3500 |
4.4100 |
6.7600 |
11.37 |
| 2006 |
2.2000 |
3.8700 |
6.0700 |
49.14 |
| 2005 |
1.9100 |
2.1600 |
4.0700 |
100.00 |
| 2004 |
0.0535 |
1.0780 |
2.0315 |
20.00 |
| 2003 |
0.7946 |
0.8983 |
1.6929 |
14.99 |
| 2002 |
0.7224 |
0.7497 |
1.4721 |
5.00 |
| 2001 |
0.6880 |
0.7140 |
1.4020 |
5.01 |
| 2000 |
0.6550 |
0.6800 |
1.3350 |
4.95 |
The thing to note is that from the 10 years till 2010 Vodafone increased its dividend 231.98%. If this were the equivalent of bank interest, assuming bank interest started at 3% in 2000, then you would be receiving 6.959% interest on your bank interest in 2010. (The dividends have also been increased through 2010 to 2013 as well !!, so the rate today would be even higher). All this through 2 stock market crises (the tech boom and bust of 2000 and more recently the financial market collapse of 2008/2009). It should be noted that the underlying stock price has increased during this time as well.
I am not recommending that you go online today and buy Vodafone stock. With all investments of this type it comes with risks, management of the business, future profitability of the business and ability to continue to pay dividends, profit warnings, market sentiment, to name a few. However, you can minimise your risk of investing in this way by investing through a fund that specifically invests, manages the risk and can pay out the income.
The point of this blog post is to reiterate the point that if you feel that bank interest is not satisfactory for your living requirements, or you have a tax bill because of being resident in Italy and need supplementary income to pay it, or you just need some more income to make life easier then there are alternatives to leaving the money in the bank or investing in Government Bonds (the historical investment choice of type for the ‘average’ Italian).
If you would like to know how to build a portfolio of income producing assets or would like to discuss any other ways of improving your current financial situation then you can contact me on gareth.horsfall@spectrum-ifa.com or call me on 3336492356.
Looking at financial stability throughout your yachting career
By Peter Brooke
This article is published on: 5th February 2014
05.02.14
While I have discussed strategies for individual investments, banking and insurance, I wanted to present what I believe to be the “Basic Rules,” which, if followed throughout your yachting career, will maximize your chances of financial success.
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- Have a bank account in the same currency as your income.
- Have other currency bank accounts if you spend considerable time in other currency jurisdictions.
- Use a currency broker account to move money between accounts; this gives you control and saves money on the exchange rate and commissions.
- Clear debts as soon as you can, especially those with high interest rates.
- Check the medical cover available to you from the yacht; offer to pay a small supplement if it doesn’t cover you during holidays or when not on board.
- Conceptually plan out different financial “pots:”
* Emergency: at least three months’ salary in a bank account (preferably six months)
* Education: when and how much (is it for the next course?)
* Spending money: limit yourself to a set amount each month
* Property purchase money: how much will you need for a deposit, and when
* Long-term money: 25 percent of your salary
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- Understand your tax residency status: Keep an accurate diary of where you spend your time. The places where you are most likely to be considered resident are:
* Your country of citizenship
* Where you own real estate
* Where you spend the most time
* Where your “dependent family” is based (your home)
-
-
- Save at least 25 percent of your income for the long term; you don’t pay any social security. If you worked on shore, your salary would be at least 25 percent less due to this.
- Invest time in your own financial education. Read my column in Dockwalk every month, look at investment websites, learn about inflation, property leverage, risk and compound returns.
- If in doubt, take advice. Understand your limitations and build a team of trusted advisers in different fields; speak to other crew about what they do with their money (but don’t follow just one).
When you get to the time when you want to leave yachting (be it after 5 years or 25) it is great to be able to do so because of the way you have managed your own resources… many people cannot leave the industry at the time they want to because they have not taken control of their futures.
Follow every one of these simple rules and you I am certain that you will get the most out of your yachting career…and will leave it feeling that it not only gave you great memories and friends but helped you look forward to a long and fruitful second career or retirement.
This article is for information only and should not be considered as advice.
20% withholding tax on all transfers from abroad into Italy
By Gareth Horsfall
This article is published on: 1st February 2014
As of February 1st 2014 banks in Italy will be obligated to withold 20% of the amount relating to transfers coming into personal accounts from abroad. The 20% will be witheld at source, by the bank, unless an exclusion has been applied to declare that the money is not profit from financial transactions being made abroad.
The witheld tax will be assumed to be an advance tax on ‘profit from investment’ and that the tax will need to be declared and paid on it anyway on the end of year on the RW form. The tax will be witheld every 16th of the month following the transfer and the accumulated amount can be used as a deduction against your end of year tax bill.
(Profit from investment includes ‘interest from savings, income from property (i.e rentals, gains from the sale of property etc. This is what they are trying to target!!!)
Even if an exclusion is filed for and granted (at the bank) your name and details will be submitted to the Agenzia delle Entrata. In addition, you have until the 28th February following the year of the deduction (28th February 2015) to apply, to the bank, for an improper application of the witholding tax and request a refund.
The exclusion will be granted by production of a self certification in the form of a letter sent to the bank. It is likely that this self certification will cover a full tax year, in which the remittances were made, but as yet the rules are unclear.
As you can imagine the banks have been caught a little bit on the hop and are not really ready for the implementation of this little piece of legislative wonder. However, if you are remitting funds into Italy in the form of pensions, bringing cash in to renovate a house, income from running a business abroad etc then you must go and speak with your bank manager about how to self certify that the funds have not been generated from profit on investments abroad.
The main aim of the witholding tax is obviously to flush out those who are avoiding paying tax on assets overseas. The government is very cleverly avoiding the necessity of tax collection through third party intermediaries and instead going directly to the source of remittances into the country, the banks and other financial institutions. Since the banks are wholly unprepared for this it could mean a messy period whilst it gets sorted out. The banks are likely to be inundated with self certifcation letters and the hope is that they can administer this without problem.
As an example of the chaos, it is unclear at the moment whether remittances under a SEPA transfer will be subject to the witholding tax although it is just a matter of time before that is resolved.
The whole idea seems rather counter productive to me, in that 20% on an amount remitted into Italy is not the same as 20% on the interest on funds that have been legitimately held abroad as savings. Ultimately, the funds being remitted into the country are less than before and hence less funds to spend and use in the economy. I have my sneaking suspicion that this is merely a way to generate more information for the Agenzia. For those who are declaring their assets and incomes correctly and are ‘in regola’ it will be mostly a form filling exercise, lodging these forms with the bank and ultimately, the legislation will be of little concern. The only benefit being that the Agenzia has more ways of matching assets held abroad versus remittances from abroad and amounts declared on the RW (end of year tax declaration) and ensuring that 1+1+1=3
If you would like to contact me to discuss possible financial planning opportunities around this, or any other matter you can do so on gareth.horsfall@spectrum-ifa.com or call me on +39 333 6492356.
