Viewing posts categorised under: Premium Bonds

Premium Bonds in France

By Andrea Glover
This article is published on: 13th May 2022

13.05.22

I meet many clients who are originally from the UK and hold Premium Bonds. In this article I want to talk through the tax and practical consequences of holding them as a French tax resident, as well as looking at a more suitable alternative.

Premium Bonds are a popular way to save money in the UK. Rather than offering a guaranteed interest rate, you could win tax free prizes between £25 and £1M every month. According to the NS&I website, there have been over 400 winners receiving the million-pound prize since 1994 and the average prize fund rate is 1% per annum. So, for the vast majority, the average prize rate is not keeping up with normal inflation rates.

Since BREXIT, it is important that NS&I customers living in the EU hold a UK bank account. Not having a UK bank account could invalidate the terms of your NS&I customer agreement and you may have no alternative but to close your account. Even if your terms are not invalidated, without a UK account NS&I would need to send you a warrant (like a cheque) which could be challenging to deposit into a non-UK account.

In France, Premium Bond winnings are not tax free – they have to be declared in your yearly tax return and are subject to tax in the same way as UK bank interest. On death, France will apply the relevant inheritance taxes to your worldwide estate, which would include Premium Bonds held in the UK. There is a double tax treaty between France and the UK for inheritance tax, which means that credit is given in France for any tax paid in the UK. So, you do not pay tax twice, but you do pay whichever is the higher amount.

Given the above, you may conclude that Premium Bonds are no longer an appropriate investment as a French tax resident. So, what are the alternatives?

In my experience, an Assurance Vie (AV) is one of the most suitable options to consider as a home for the cash in value of your Premium Bond savings. An AV is an insurance-based investment product and has the following advantages:

The investments that you place within your AV are never touched by French income tax or capital gains tax whilst they stay inside the AV, unlike Premium Bond winnings
If you keep the AV going for at least eight years, you then qualify for a special income tax-free band, on any withdrawals
On death, you can leave each individual beneficiary up to €152,500 completely free of French inheritance tax, if you invest before the age of 70. This is of great advantage to blended families, as beneficiaries do not have to be directly related
If you invest after the age of 70, you can leave a combined total of €30,500 inheritance tax free to all beneficiaries
International AVs are available which allow you to invest in sterling. Therefore, your Premium Bond proceeds do not have to be exchanged into euros, unlike a French based AV

In conclusion, if you hold Premium Bonds, speak to a regulated Financial Adviser to seek advice as to whether they remain suitable for you as a French tax resident.

*First published in www.thelocalbuzzmag.com

UK Investments & ISAs – Tax Treatment in Spain

By Chris Burke
This article is published on: 16th April 2018

16.04.18

With automatic exchange of financial information between most countries now standard practice, most of us already recognise the importance of declaring our assets properly and fully. In the UK, if your accountant or tax adviser declares your assets incorrectly, they are liable; however, that is NOT the case in Spain. I have been contacted by many people with various stories of how their accountants in Spain have reported assets. Sometimes it feels like people are speaking to numerous accountants until they find the one with the answer they want – if the declaration is incorrect though, and leads to an investigation, you are personally liable. Therefore, it is essential to have your assets reported correctly.

It is quite straightforward to understand the Spanish tax treatment of your UK assets. If they are NOT Spanish compliant – that is to say, not EU based and regulated AND the company holding these assets doesn’t have a fiscal representative and authorisation in Spain – then income and investment growth are taxable annually. Note that investment growth on assets such as shares, ISAs and premium bonds is taxable regardless of whether you have taken any income or withdrawals.

Below you will see the main list of investments that need to be declared and the tax rates that apply annually:

Type of Assets/Investment	Tax Payable	Type of Tax
Investment funds/stocks/shares	Yes, on growth	Capital Gains Tax (19-23%)
ISAs	Yes, on growth	Capital Gains Tax (19-23%)
Premium Bonds	Yes, on gain/win	Income Tax (19-45%)
Interest from Banks	Yes, on growth	Capital Gains Tax (19-23%)
Rental Income	Yes	Income Tax (19-45%)
Pension Income	Yes	Income Tax (19-45%)

Expenses may be able to offset some of the tax on gains, and for long term property rentals you can receive up to 60% discount on net rental income. However, tax reliefs and allowances that applied in the UK are not available to you in Spain.

There are ways of reducing these taxes, by having your finances organised correctly, and in many cases there is also scope to defer tax. This means there is no tax to pay if you are not taking an income or withdrawals from your investment. In fact, the more your money grows, the greater the potential tax saving.

The first thing you should do, and any financial adviser or tax adviser should do, is consider ways of mitigating your tax, both now and in the future. Otherwise you could end up with a ‘leaking bucket’. Many accountants are starting to increase charges for declaring UK assets, which need to be listed individually and where there is often lack of familiarity with the assets held. By the time you have paid the tax for NOT drawing your money, paid your accountant and lost any tax relief that applied in the UK, in most cases there are more cost effective, tax efficient, Spanish compliant options available. Furthermore, for those returning to the UK, there is still generous tax relief which applies to certain Spanish compliant investments.

For an initial discussion regarding your finances and practical guidance on planning opportunities, please get in touch – my advice and recommendations are provided free of charge without obligation – chris.burke@spectrum-ifa.com