Buying a second home as a summer retreat
By Tim Yates
This article is published on: 27th January 2014
You don’t have to be a millionaire to get in on the game. In Southern Europe, particularly in Italy, Spain and France, it is very common for people with ordinary incomes to buy second properties. “They [the French] use them as holiday homes and rent them out when they are not using them,” said Tim Yates, a financial adviser with the Spectrum IFA Group in Valbonne, southern France.
Minimum reporting threshold for funds held abroad – clarified
By Gareth Horsfall
This article is published on: 27th January 2014
If 2013 was the year for confusion about how to report assets held abroad then, at least, in 2014 the Italian Government is offering some further clarity.
As of 2014, there will no longer be any minimum threshold when reporting assets held abroad. Previously, any amount below €10000 in investments and €5000 in cash deposits was not expected to be reported. From 2014 all amounts, no matter how large or small, will be expected to be reported on the RW form as of 31st December.
If you would like to know about this or, other taxes that apply to Italian tax residents, how to plan to reduce your own Italian tax liabilities, or want to know how you can find new sources of revenue to supplement that which the Government keep stealing away, then you can contact me on gareth.horsfall@spectrum-ifa.com or call me on +39 3336492356. We are here to help.
French Residency – Dispelling the Myths
By Spectrum IFA
This article is published on: 22nd January 2014
French residency is a popular topic of discussion for expatriates when they get together in a social setting. So many times I hear people saying that they “choose” not to be French resident and just to be sure, they make sure that they do not spend more than 183 days a year in France. Come April/May time, the chatter on this subject increases. So too do the differences of opinion, mostly about whether or not someone should complete a French income tax return.
Well to dispel the first myth – residency is not a choice per se. Based on the facts, you are either French resident or not.
The rules on French residency are really quite straightforward – although admittedly some cases are not! For example, take a couple who are lucky enough to have a property in each of France, the UK and Spain. None of the properties are rented to tenants and so all are available for their own personal use. Every year, they spend five months a year in France, four months in the UK and three months in Spain. They receive pensions from sources outside of France and most of their financial capital is in offshore bank deposits in the Channel Islands. They also have current bank accounts in each of the three countries.
Where are they resident – well the simple answer is “France”. Why – because this is where they spend most time in a year.
Hence, the second myth of the perceived ‘183 day rule’ is also dispelled.
When anyone has interests in various countries, it is often found that they satisfy the internal criteria for residence of more than one country. Understandably, this can be confusing. In France, you only have to satisfy one of the following four conditions and you will be resident in France:
(1) France is your ‘home’: If you have property in France and another country, but the latter is not available for your personal use (for example, because it is rented to tenants), then France is your home.
(2) France is your ‘centre of economic interest’: Generally, this means where your income is paid from. In addition to pension, salaries, etc., this can include bank interest and other investment income.
(3) France is your place of ‘habitual abode’: Notably, no reference is made in the law to the number of days that you actually spend in France and this is where many people are caught out, believing that if they do not spend at least 183 days in France, then they can decide that they are not resident. This is not the case and your place of ‘habitual abode’ is, quite simply, where you spend most time.
(4) Nationality: If your residency has not been established by any of the above points, then it will be your nationality that determines your residence, however, this is very rare.
As a French resident, you are obliged to complete an annual income tax return and must declare all your worldwide income and gains (even if the income is ultimately taxable in another country). In addition, depending upon the value of your assets, you may also need to complete a wealth tax return.
Thankfully, there are Double Taxation Treaties (DTTs) existing between France and all the EU States (and also with many other countries in the world). For anyone with interests in more than one country, the existence of a relevant DTT is very important. This is because a DTT sets out the rules that apply in determining which country has the right to tax your various sources of income and assets, with the aim of avoiding double taxation.
However, France does not have DTTs with the popular offshore jurisdictions of, for example, the Channel Islands and the Isle of Man. Hence, for any French resident with bank deposits in these jurisdictions, where withholding tax is being charged on the interest, there is no mechanism to offset this against the French income tax that is also payable. Probably the best thing to do to avoid paying tax twice on the same source of income is to shelter the financial capital within an investment that is tax-efficient in France. Notwithstanding this, as everyone’s situation is different, it is also very important to seek independent financial advice before taking any action.
Inheritance taxes should also not be overlooked. As a French resident, you are considered domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend on your relationship to your beneficiaries. However, there are some DTTs on inheritance taxes between France and other countries (although nowhere near as extensive as the number of DTTs that exist for other taxes). Again, it is important to seek advice on your own personal situation because it is my experience that ‘one size does not fit all’.
In summary, French residency is a fact and not a choice. However, by seeking advice, action can be taken to mitigate your future personal French tax bills, as well as the potential French inheritance tax bills for your beneficiaries.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of French tax legislation. Hence, if you would like to have a confidential discussion about your personal situation, please do not hesitate to contact Daphne Foulkes by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on + 33 (0)4 68 20 30 17.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Are you sure your bank accounts covered by the €100,000 government guarantee?
By Graham Keysell
This article is published on: 2nd January 2014
Graham Keysell of the Spectrum IFA Group is increasingly concerned about the safety of some expats’ investments.
Keysell says “I am extremely alarmed at the number of people I’m meeting who have been persuaded to invest in ‘Comptes Titres’. These accounts are designed for those who want to actively trade in shares, funds, bonds, etc. in a tax efficient manner. For whatever reason, people think that they are ‘high interest deposit accounts’ which they are definitely not.”
“Even worse, these people have unwittingly left it to their banks to decide on where the money is invested. This is invariably in bonds in the banks concerned and occasionally in shares in these banks”. He continues, “With the prevailing uncertainty in financial institutions, would any of these people have knowingly lent money to a bank or bought bank shares? You only have to look to what’s happening to bondholders in the Co-op bank to appreciate the danger. ”
With the meagre interest rates on offer for ‘classic’ bank accounts, it is no surprise that investors are attracted by quoted returns which can exceed 5% per annum. This is what a bank bond may pay out over 5 or 7 years.. The attraction is obvious, but he has yet to meet anyone who understands the risks they are taking.
“I have met elderly widows who have been persuaded to invest their life’s savings in these ‘Comptes Titres’. Nobody has explained to them that these are not covered by the €100,000 French government guarantee. If you read the small print, it is absolutely clear that investors in bank bonds will be the last to be paid out if the bank becomes insolvent. It is obvious that shareholders are also risk losing some or all of their money. I have no doubt that some people could be financially ruined if they have the majority of their savings in these accounts”
He continues “My own French step-son was advised to invest in such an account. I asked him to phone his ‘counsellor’ at the bank and she assured him that the government guarantee applied. It was only when I showed him the ‘small print’ in the Terms & Conditions that he changed his mind.”
For those people who have invested in these accounts and are worried about their exposure to risk, the solution is not obvious. The price they paid for the bonds is frequently higher than the price they can now be sold for. Keysell’s advice is to check the current value online before taking any decision about whether they want to sell some or all of their holdings in these accounts.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Legge di Stabilita 2014
By Gareth Horsfall
This article is published on: 1st January 2014
Legge di Stabilita 2014
There have been some interesting points from the new economic laws introduced in 2014 The main ones that might affect you are below, and for some of you, you might wish to hold your breath..
Rentals – Goodbye Cash
From 2014 owners of properties in Italy, which they rent, will be expected to have the rent paid only through trackable methods of payment. i.e through a bank account. (I assume that means Italian or overseas bank as long as it is trackable) Penalties of sanctions against both parties (renter and owner) can be made if they are not adhered to and subsequently found out. The only thing that seems to be excluded is public buildings, such as Case Popolare. I have not seen nor found the supposed sanctions that they intend to impose for non compliance and neither can I find information on how they intend to police it.
Daylight robbery
In 2014 the imposa di bollo on securities and deposit/bank accounts in Italy will continue at €34.20 per account. Great news I hear you say! Maybe, but then a new rate of IVAFE (the tax on overseas assets) has been announced of 0.2% on the amount (at 31st Dec) that will replace the previous 0.15% in 2013.
Minimum reporting threshold for funds held abroad
If last year was the year for confusion about how to report assets held abroad then, at least, in 2014 they are offering some further clarity.
As of 2014, there will no longer be any minimum threshold when reporting assets held abroad. Previously, any amount below €10000 was not expected to be reported, but from 2014 all amounts, no matter how large or small, will be expected to be reported on the RW form as of 31st December.
Those are the main points that will be affecting you in the years to come. Certainly for anyone with any financial assets the increased bollo is a blow. As always seems to be the case in Italy, at the moment, most of these taxes are self defeating in that they pull more money into the Government coffers and pull it away from the pocket of those who could spend it and create future economic growth. Incentives are being offered to business owners and start ups to stimulate business growth in Italy, but, honestly, at the current levels of taxation it is impossible to see why an entrepreneur would want to set up in Italy when the chances of success due to tax and red tape burden are so great.
The sad truth is that it is going on all over Europe to reduce National debt levels and will continue for some time to come. We will all have to swallow the bitter pill for the time being and just plan to be more effective and reduce tax liabilities where possible.
Diversification could pay dividends
By John Hayward
This article is published on: 14th December 2013
For most people the aim of diversifying their savings and investments is to reduce risk. This is a creditable approach but the proof of its creditability can generally be seen over the long term.
The danger of focusing on the FTSE100
“The FTSE100 has gone up 50% over the last year. Why haven´t my savings gone up by the same amount?” Focusing on the FTSE100 can be misleading as it represents a small percentage of global economic performance and, for the cautious investor, is not a realistic indicator. If the savings had increased by 50% in a year, undoubtedly they would have gone down by a similar amount in times gone by. When putting together a cautious portfolio for the retired expatriate, who tends to focus on capital protection, firing 100% of the cash at equities would seem risky if not careless.
Investment cycles
The fact is that ALL investments tend to work in cycles. With a diversified range of investments, whether this is based on asset type or geographical area, history has shown us that when one might be going down there is another going up. If everything moved by the same amount, albeit at different times, there is the risk that, over time, nothing would be accomplished as the ups would merely counter the downs.
Timing the markets
There is an expression that it is time in the markets not timing the markets. The perfect situation would be to time exactly when to get into, and then out of, investments. There are not many, if any, that get timing correct.
The benefits of dividends
In volatile equity markets, dividend paying shares and funds can create cashflow. Whilst the underlying capital might be reducing in value due to a major global catastrophe in or mismanagement of finances by those in global authority, many companies could be making significant profits and translating these into dividends. There are funds which have been pay 5% or more a year in dividends. In time, whilst the dividend flow has been merrily producing the necessary income stream, the underlying investments should rise. One thing is clear. After a perceived Armageddon there has often been an opposite and greater Valhalla.
The long term view
The problem is that, as much as people say they understand the long term nature of investments, when there is a downturn in markets there tends to be panic. They sell when markets have fallen and potentially guarantee a loss.
The need to improve on bank deposit returns
The simple truth is that interest rates are low and are likely to stay that way for some time to come. Traditional savings are not paying what they use to. Low interest rates are great for mortgage holders but not for those who rely on interest to pay their bills. Therefore there is the need to find other sources for the desired income.
With a well-diversified portfolio ranging from deposits for today´s expenses through to equities for longer term needs, reviewed on a regular basis, the chances of having an affordable retirement are greatly improved. Wrapped in a Spanish compliant life bond, you can also benefit from very low taxes in Spain.
Whether it is QROPS, financial planning, or life assurance advice in Javea, Denia, Moraira, Valencia, Madrid, Barcelona or Malaga, we can help with your financial planning needs.
Finances and stepfamilies
By Spectrum IFA
This article is published on: 2nd December 2013
Here are some tips for swimming in the blended family waters, financially and otherwise. “In France, it is not possible to add the name of a new spouse to the deeds without encountering some tax liability,” said Daphne Foulkes, a financial adviser with The Spectrum IFA Group in France.
Fact or Fiction
By Amanda Johnson
This article is published on: 5th November 2013
There are so many differing thoughts and views on Expat forums and websites, how do I know what is fact and what is opinion?
Living permanently in France, one thing I notice is the vast amount of information available for expats. Whether on the internet via websites and discussion forums, or as printed media, such as The Vendee Magazine, there is always information and opinion for any specific queries you may have.
The hardest task I find is sifting through the raft of varied opinions and recommendations, to get to the facts which will help me choose the path which is right for me. If I want an electrician or heating engineer to look after my house, I will look for someone whose business is registered to provide the service I want and has a proven track record in this industry. I am sure most of you would do the same?
Managing your finances is another key area where you want to be sure the information you receive is accurate, up to date and provides you with the professional peace of mind you need to protect your assets. The Spectrum IFA Group’s French company, TSG Insurance Services S.A.R.L. is regulated in France by ANACOFI-CIF and ORIAS (see our website for details of these organisations) to provide financial advice. Our free financial consultation means that you do not have to spend your valuable time separating fact from opinion when ensuring your estate is as tax efficient as possible.
When it comes to keeping abreast of changes to French financial legislation you can always register for the Spectrum IFA Group’s regular newsletter. It will provide details on changes in the law and the impact this could have on you, as well as bringing you details on financial road shows which you can attend and hear from many leading financial organisations first hand.
Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
Millions of over 40s at risk of being left penniless after partners’ death
By Spectrum IFA
This article is published on: 1st November 2013
More than half of couples over the age of 40 are at risk of leaving one partner penniless in retirement in the event that the other one dies because they have failed to sort their financial affairs.
Some 53% of couples surveyed by Prudential said they had not made pension, will, or life insurance arrangements to ensure one of them will still get a retirement income after the other dies, the Daily Mail reports.
Women are particularly at risk, as one in five admitted they will be solely reliant on their partner’s income in retirement, meaning they could be left with nothing unless they take steps to ensure they’re taken care of should their husband die.
Vince Smith-Hughes, retirement expert at Prudential, said: ‘For couples looking to enjoy a comfortable retirement, organising and agreeing their income options should be a priority – long-term financial planning can be even more important than managing day-to-day finances.
‘Our research shows that even those couples who have discussed their retirement finances have still made decisions that could leave one of them without an income if they outlive their partner.’
People with money purchase pension schemes see them converted into incomes when they come to retire, this can either be by purchasing an annuity, or taking out an income drawdown product.
But there have been multiple examples of people reaching retirement and taking out a single life annuity, which pays out an income for the lifetime of the pension-holder only, not fully aware that it will not continue paying out to their spouse once they die. Taking out a joint life policy would ensure some form of payment would continue, while income drawdown plans will also pay out death benefits.
The plight of many married pensioners who unwittingly took out single life policies highlights the importance of taking financial advice when approaching retirement. Smith-Hughes said: ‘Having open and frequent conversations as a couple is definitely an important first step.
‘However, making the right decisions on the best retirement income options – including what happens when one partner dies – can be daunting.
‘That’s why seeking advice from a retirement specialist or financial adviser is just as important.’
To read the full article please click here
IFAonline
Author – Laura Miller
Who do you bank with?
By David Hattersley
This article is published on: 30th October 2013
Following the recent “Le Tour de Finance” seminar at the Marriott Hotel in Denia, one of the attendees approached me with interesting tale. The Lady was a British expatriate and long term resident in the Javea area. Like many retried expatriates she had been concerned about the security of her assets following banking issues in both UK and Spain, post 2008. She told me she had always felt safe banking with British household names whether at home or abroad. She was shocked to learn that Lloyds Bank’s Spanish operations had been sold to Banco Sabadell.
She felt this had not been properly publicised and she had not had clear information about the change from the bank. She visited her local branch and was surprised that the staff knew little about the change of ownership.
I was able to explain the €100,000 per account deposit guarantee scheme, guaranteed by the Spanish Government in the same way as UK bank deposits are guaranteed by the British Government to the tune of £85,000. This Lady had clearly done her homework and pointed out that the guarantee is per banking group and not per account. We agreed that bank accounts were necessary for emergency funds even when, given current interest rates they were guaranteed to lose money in real, spending power terms. We also agreed that for longer term investing, especially for income, there were much better options out there, one particular proposition from the Prudential, (fully Spanish compliant) had been highlighted during the “Le Tour” seminar.
Our motto is “With Care, You Prosper”, we urge our clients to take a very active interest in their finances, we are here to help our clients help themselves.