Viewing posts categorised under: Spain

Has your bank in Spain paid you over 3% p.a. interest on your savings recently?

By John Hayward
This article is published on: 19th September 2017

The probability is that it hasn´t. However, you could have made more than 3% a year in a low risk savings plan with one of the biggest insurance companies in the world. We have many happy savers who have seen steady growth of over 3% a year for the last few years. How? Read on…

Saving money in a low interest world

Losing spending power to inflation
With special offers currently being offered by banks of 0.10% APR interest and inflation in Spain running at 1.6%, there is a guaranteed loss of the real value of money at the rate of 1.5% a year. There are some who would be disappointed, if not angry, if their money in an investment had lost 7.5% over 5 years yet this is exactly what has been happening to people over the last few years without them really appreciating it. 3% a year is not only an attractive rate of return but it is necessary to cope with inflation and provide real growth.

Spanish compliant insurance bonds
ISAs, Premium Bonds, and some other investments in the UK are tax free for UK residents. They are not tax free for Spanish residents. We are licensed to promote insurance bonds in Spain which are provided by insurance companies outside Spain but still in the EU. In fact, even after Brexit, these companies will still be EU based and so Brexit will not have the impact on these plans that it could have on UK investments. As the bonds are with EU companies, and the companies themselves disclose information to Spain on the amount invested, as well as any tax detail, the bonds are Spanish compliant which makes them extremely tax efficient. We do not deal with companies based outside the EU as we are satisfied that the regulation within the EU is for the benefit of the investor. We do not have the same confidence in some other financial jurisdictions and neither do Spain.

What investment decisions do you have to make?
Although we have the facility to personalise an investment portfolio within the parameters laid down by the EU regulators, offering discretionary fund management with some of the largest and best known investment management companies, we can also use a more simple approach for those who do not require any input into the day to day investment decisions.

So what has happened over the last 5 years?
The chart below illustrates the performance of one of fund’s available to you compared to the FTSE100 and the UK Consumer Price index. The argument to stay invested when markets fall is valid when one looks at the FTSE100 roller coaster line with the increase we have seen over the last year or so since the Brexit vote. However, anyone accessing their money around the time of the vote could have seen a 25% drop in the investment values. Not so with the fund in the insurance bond.

Real cases

Real case 1 – £40,000 invested 24/07/12. £50,770 as at 14/09/17. Up 26.92% in 5 years

Real case 2 – £356,669 invested 10/09/14. £431,177 as at 14/09/17. Up 20.88% in 3 years

Real case 3 – £316,000 invested 05/04/16. £334,422 as at 14/09/17. Up 5.82% in 18 months

Real case 4 – £80,000 invested 13/07/16. £86,160 as at 14/09/17. Up 7.70% in 15 months

Real case 5 – £20,000 invested 27/01/17. £20,712 as at 14/09/17. Up 3.56% in 8 months

These growth rates are not guaranteed but are published to illustrate what has actually happened and that the percentage returns on the fund are irrespective of the amount invested.

How can they produce such consistency?
Each quarter, the insurance company estimates what the growth rate will be for the following 12 months. This rate is reviewed based on the views of the underlying management company with people situated in all parts of the globe specialising in their own particular area. In good times, the company will hold back money that it has made so that, when things are not so good, they are still able to pay a steady rate of growth to their savers.

I don´t want to take any risk
It is difficult to avoid risk. In fact it´s practically impossible. A risky investment is seen by many as something which has a good chance of failure, either in part or completely. Stocks and shares are seen as risky whilst putting money into a bank deposit account is not. It is generally known that stocks and shares can go down as well as up but some people are unaware, or simply ignore, the risk of keeping money in a perceived “safe” bank deposit. Bank accounts have limited protection against the bank going bust. Then, if it came to the situation where a bank had to be bailed out by the government, it could take months, if not years, to access your money. As already mentioned, if the account is making less than inflation, you are losing money in real terms. So a bank account is far from risk free. The fund illustrated above is rated by Financial Express as having a risk rating of 22% of that applicable to FTSE100, much further down the risk scale and in an area that many people feel comfortable with.

What are the charges?
We explain in detail the underlying costs. In my experience, far too many people commit to a contract without understanding what they have, having received little explanation of the terms and conditions. This is where we differ to most. Different companies have different ways of charging and we run through all of the charges so that you are happy with what you have. The real examples above have had charges deducted and so these are the real values. Your bank may not charge you for the 0.10% interest (less tax) they are paying you but they are making money through investment but not passing anything on to you even though you supplied the money they invest.

What do I need to do next?
Contact me and I can review your savings, investments, and pension funds. I can then explain how you could arrange these in a tax efficient way whilst giving you the opportunity to access the growth that is available, for an improved lifestyle and to cope with rising costs.

Preparing your loved ones for life after your death

By John Hayward
This article is published on: 9th September 2017

09.09.17

Having recently attended a funeral for a good friend of mine, I was reminded of the problems a death can create, aside from the actual act of dying. It appeared that, although he had organised a funeral plan, he had not made it clear where his Will was. Even if the Will was found, most Wills are written to distribute unspecified assets. An heir needs to know what assets there are before claiming anything. A draw full of files might appear organised but much of the content may be out of date or even completely irrelevant.

Who is the household´s financial controller?
In my experience, when dealing with couples, one party, normally the husband, deals with all things financial. This has resulted in many widows having a hard time with finances on the death of the husband. The thought of picking a phone up to contact their bank is daunting enough. Forgetting one of the six security questions is fatal. Logging into the online banking system is totally out of the question, even if they knew what the user ID and password were.

What can you do?
It is a really good idea to make a list, with company name and reference number, of all the bank accounts, insurance policies, investments (insurance bonds/unit trusts/shares), premium bonds, and anything else which would make life easier for those looking after your affairs on your demise. Here is a link which illustrates just how much information could be required. Are you confident someone will easily be able to put all of this together?

How can we help?
Many years ago, I was a “Man from the major UK insurance company”. I still tend to work on the home service principle. Meeting people in their homes has always been more attractive to me as paperwork will often be to hand. There is also the possibility of a cup of tea and a digestive. There have been times when I have found investments that people were unaware of and also helped to cull the collection of paperwork, creating more storage space, and possibly room for a new sofa (from the proceeds of the policy they didn´t know about). Obviously, I do not wish to major in house clearance but I am happy to help people organise their paperwork, review existing investments and pensions, and make life easier for those with the task of dealing with everything later. Hopefully much later.

Fun financial fact
According to several reports, in 2012, in the USA, a 1 cent coin cost 2.4 cents to make. By 2016, the cost had reduced to 1.5 cents. Making cents still does not seem to be making sense.

Brexit: the effect on your money

By John Hayward
This article is published on: 2nd September 2017

What’s going to happen when the UK leaves the EU on 29th March 2019?

This is a question which is as easy to answer as predicting what the weather will be like on that day. The one thing which is certain is that the next day will be 30th March and it will be a Saturday.

How do we cope with the stream of commentary telling us pretty much nothing other than the EU’s frustration at the UK’s “cake and eat it” stance as well as its “magical thinking”? This rhetoric has made me think more of Alice in Wonderland. It is clear that people are getting a little tired of the lack of information that is being supplied. We know that there are serious financial considerations to be addressed. The problem is that we don’t know what they are right now.

What we can do is try, as best as possible, to cover whatever position we are placed in post-Brexit. For those of us living in Spain, positioning our money in a tax compliant and favourable way was imperative even before Brexit came along. Now it is even more important. There are certain investments such as ISAs, National Savings, and Premium Bonds, which are taxed favourably in the UK, for UK residents. They are treated differently for Spanish residents and it is likely that many holding these investments are not declaring these investments correctly. This may not be a huge problem right now as the UK is part of the EU and accountants and gestors are possibly treating non-compliant investments as if they are compliant. Things may be very different after Brexit and so it is vital to review what investments are held and where they are based.

What rate of tax is paid on savings in Spain?
There are currently three rates. 19% (First 6,000 euros), 21% (6,000 to 50,000 Euros), and 23% (Over 50,000 Euros). These rates apply not only to savings but also to gains on other assets such as investments, dividends, and property. For residents, these assets do not need to be in Spain to be subject to this tax. There are no capital gains allowances for the majority of people and so great care is required when selling assets and a review of assets and ownership is of major importance before the possibility that Brexit will also mean the loss of all EU tax breaks.

Fun financial fact
Consumer prices in the United Kingdom rose by 2.6 percent in the year to July 2017. In Spain it was 1.55%. We have to be aware that investments must perform at least at the rate of inflation to retain the same real spending power. In November 2008, Zimbabwe had an inflation rate of an estimated 6.5 sextillion%* (That’s 6,500 followed by 18 zeros). You would have needed one mean investment to match this rate.

*Source: Forbes

Is buying Property in Barcelona a good investment?

By Chris Burke
This article is published on: 29th June 2017

29.06.17

Over the years, we’ve heard the arguments as to which is the better investment: Property or investments. Both have their advantages and disadvantages, and there are several aspects of each that make them unique investments in their own way. To make money with either investment requires that you understand the positives and negatives of both.

Ever since the Olympic Games in 1992, Barcelona has become a very popular place to visit, live, work and invest.

Why is Barcelona such a great place to live?
From a logistical point of view, quality of life, the cost of living and the culture/the way people live here, it’s easy to see why Barcelona is such a popular place to live. It has a good International airport 15 minutes away by car that flies to most destinations, and the most popular several times a day (to London for example you have more than 30 flights a day in the summer). You can live as cheaply or as expensive as you wish and still enjoy the beautiful city (even the museums are free on at least one night of the year) as well as the surrounding countryside and beaches. With France only being just over an hour away, the Ski slopes two and a half, it’s easy to see why it’s such a popular place to live. The city has a very laid back feel and is easy to get around. I have never heard anyone say they have had enough in Barcelona, put it that way. Yes, it does have some problems like any city, notably organised theft but if you are aware of these then you can easily stay away from them.

Property
Historically, mathematically, it is hard to beat Property as an investment if purely making an overall gain on the money you do invest is your end goal in Barcelona, just as in many other major cities. Property is something that you can physically touch and feel – it’s a tangible good and, therefore, for many investors, feels more real. For many decades this investment has generated consistent wealth and long term appreciation for millions of people. And therefore it should be part of anyone’s assets if they are able to afford one.

What you do have to consider though is why are you buying this property? Is it for a home i.e. an emotional purchase, or purely an investment? For what length of time? What is likely to happen in your life in the next 5-10 years? What currency do you have your money in now? These are some of the key questions to ask yourself.

If you are buying for a home, what you would call an emotional purchase, then in terms of evaluating as a good investment it’s almost irrelevant. This is going to be your home, so whether it goes up in value a great deal, a little or not at all (unlikely over a 15-20 year period) it’s about being happy living there, by yourself or with your family, is all that matters. It’s the memories that count perhaps more than anything else. As long as you don’t pay way over the market value for a property, in the long term you should be fine as an investment and as a home. If it’s purely for an investment, then you need to take into consideration a lot more factors.

Currency
If your money is in a different currency to Euros, is it a good time to change that?

Brexit (particularly if you are British)
Many would argue that keeping a ‘foot’ in the UK with assets or currency is a good thing to do. You never know what is going to happen, it gives you options in the future. You might not want all your assets in Euros, in case you decided to return to the UK as some people have. If there has been a big swing in currency against the pound, this could seriously limit where you do live/your options.

The Costs of Buying a Property in Barcelona
Buying a property in Catalonia is expensive. The costs of purchase are approximately 13% in total. Comparing that to the UK, which up to the value of £250,000 it would cost you approximately 3%, and over £250,000 it would be around 6%. Adding to that the cost of then selling your property at 5% in Barcelona as opposed to 2% in the UK, it is around 10% more expensive here than in the UK to buy and sell somewhere. So if you are looking for a short term investment and particularly if your money is in sterling, taking those factors into account it’s going to be more challenging to make it work for you.

If you are solely interested in investment return, then you have to look at the ‘Yield’ of a property and be unemotional regarding it. This tells you how much of an annual return you are likely to get on your investment. It is calculated by expressing a year’s rental income as a percentage of how much the property cost.

In other words, if the estimated monthly rental on a flat is €1,000, the annual rental would be 12 times that, or €12,000. And if the flat cost €200,000 to buy, then the “yield” would be described as 6% (annual rent, divided by the cost of the property, multiplied by 100). This is known as the ‘gross yield’ which is before all other expenses on running the apartment; the ‘Net Yield’ would be after all costs’.

Therefore, as an investment most professional property investors will not purchase anything less than 7% Yield (gross depending on the maintenance costs of the property annually) otherwise mathematically the property is not giving enough return, even though many will argue the price is increasing and therefore in real terms your investment is rising. But for most property investors, it’s ALL about the Yield.

It’s also all very well buying property in an upward market, as many investors will tell you. The secret to making a profit on property investing is very simple: buy at a good price and sell for much more. That all sounds very easy, but if the charges are excessive it could take quite a while for that to come to fruition.

However, Barcelona in general is on a good upward trend which helps, and also it’s clear to see that if you look hard enough, there are some bargains still to be found. And perhaps one of the biggest benefits of buying in Barcelona, is that you can fix your mortgage ‘for life’ at a very good rate at present, something which is unheard of in the UK. Currently you can get around 2.5% fixed for the life of your mortgage http://www.spectrumspanishmortgages.com/en/home/ Let’s just think about that for a moment. So let’s say your mortgage is €1,000 a month now, in 25 years time it will STILL be €1,000 a month. Historically inflation goes up by 3% every year, meaning every 24 years inflation doubles. So, IF you could get a mortgage at the same rate in 24 years time it would be €2,000 a month, however it is more likely the rate will be higher then as we are at a time when the rates are incredibly low. So, to put it in real terms, in 24 years your salary, should you stay in the same job, should have gone up with inflation and therefore doubled, yet you will STILL be paying the same mortgage of €1,000. Therefore, every 8 years your mortgage outgoing will be decreasing by a third in real terms.

If you are going to own more than one investment property, it would probably be more tax efficient to put these into a Spanish company (S.L.) and have these managed for you. Arguably it would save you money in taxes and inheritances later (although these laws do change) by taking money out through dividends.

What other options do I have?
If you want to ‘flip’ your money, that means to invest in something short term, make a profit and take your money out then your options are limited. Stocks can be volatile over that period of time, back accounts offer tiny interest rates and in general you are looking at more high risk strategies. One of the reasons for this is, yes over a period of time property is a great performing asset, but property prices don’t just keep going up, or even stay the same. If you were to buy at the wrong moment, when the market freezes or crashes, you could find it very difficult to get out of that particular property without holding it for a long period of time or losing money. Cyclically they can crash, and when they do, this can cause major headaches/heartache for the owners. Not just from a loss in value either.

Potential Property investment issues
Imagine your 2 properties are rented out as investment. However, what if one of your tenants decides not to pay anymore, because they lost their job, or just because they decide they don’t want to (this happens more than you think). That income needs to be covered. In the UK you have procedures in place to remove these tenants fairly for both sides within 3 months. IN Barcelona, this is not the case. The laws are on the side of the tenant, and most lawyers will tell you the best way to get your non paying tenants out is to pay them off, unbelievably! And even then they could still refuse to leave and there is not much you can do until the end of their contract.

Let’s imagine that none of this happens, that you have a successful property investment over 15 years and you manage to double your investment of €200,000 into €400,000. Of course, you also have fees of 18% to consider (13% on buying, 5% on selling, although remember you are selling at €400,000, not €200,000 so its 5% of the higher figure. So actually you receive €400,000 minus approximately €46,000, that’s a gain of €154,000 over a 15 year period). Now you have to pay capital gains tax on that gain which starts at 19% up to 23%, which would be €34,300, so you would be left with €119,700. Which assuming the rent you received covered the mortgage and not much else is a decent sum.

However, let us imagine that instead of owning two properties, you only owned one. The other you invested in a portfolio that matched your risk/reward profile, that was liquid (you could have access to this after 5 years, with limited access before it) and very tax efficient.

Being cautious, let us say you achieved 4% gain per year on your investment which would value that at €360,018 (4% compounded interest over 15 years). There are no other charges or taxes to worry about except capital gains tax on that amount. If you have done this with a Spanish compliant product, you would qualify for ‘Spanish proportional Tax’ which means the gain would be offset by the original investment amount. Therefore, in the above scenario you would pay €35,584 capital gains tax on the property, leaving you a net profit of €124,434 . However, if you took this as an annual income of say €14,000, then just over half would be tax exempt, see below:

€14,000 drawdown per year from €360,018, tax payable of €1,187 per annum.

You can repeat this year after year, and on the basis that 4% interest is earned from the €360,018 at €14,000 annually, this effectively covers the €14,000 a year you take as income, meaning you could receive this every year paying the same tax, still keeping the same capital amount of €360,000.

So in real terms, over another 15 years you would pay little more than €17,805 in tax, from taking €210,000 income AND still have the capital of €360,000 which you can use/assign to someone else or pass on to heirs.

You would have liquidity (access to money if needed) and perhaps most important FLEXIBILITY. To help your children with university fee’s, provide yourself a tax efficient income or just take the money whenever you needed it (after 5 years).

Like property, investments are not guaranteed although over the last 30 years they have well outperformed property. In the UK for example, property has achieved around 402% return in that time, compared to UK equities (stocks) which have achieved 1433% (dividend shares re-invested).

To summarise, Barcelona Property can be a very good investment, but nothing is guaranteed in life except death and taxes (Benjamin Franklin). You should have a ‘basket of investments/assets including property/investments’ if possible, that are well thought out giving you the freedom, flexibility and liquidity to provide income for you.

Investing in turbulent times – presentation, Costa del Sol

By Spectrum IFA
This article is published on: 15th June 2017

15.06.17

The Spectrum IFA Group and Tilney Investment Management co-sponsored an excellent presentation and lunch on 13th June at the exclusive Finca Cortesin Hotel & Spa on the Costa del Sol. The Spectrum IFA Group was represented by our local adviser, Charles Hutchinson, assisted by his wife Rhona and Jonathan Goodman who attended along with Richard Brown, Lewis Cohen and Harriette Collings from Tilney.

For this event, around 25 attendees were invited and selected for this exclusive venue. They were given a very interesting interactive talk by Richard and Lewis on investing in these turbulent times, followed by a mingling lunch and refreshments in the Moroccan Room where everyone was able to personally discuss their questions with staff from both companies in a glorious and relaxing setting with gardens and fountains close by. The feedback from the attendees has been most impressive.

Spectrum was very proud to be involved with Tilney in this superb event. It is hoped this will be repeated again in the future.

Why robots will never replace Investment Advice

By Chris Burke
This article is published on: 7th June 2017

07.06.17

Particularly when markets are/have done well like recently, Stock picking (A situation in which an analyst or investor uses a systematic form of analysis to conclude that a particular stock will make a good investment and, therefore, should be added to his or her portfolio) is somewhat discredited these days, because low-cost passive fund managers argue that their tracker model delivers better value to savers by betting on an index, not individual companies.

And there is good argument to back it up

An article in The Wall Street Journal shows that between 1926 and 2015, just 30 different shares accounted for a remarkable one-third of the cumulative wealth generated by the whole market — from a total of 25,782 companies listed during that period. These statistics demonstrate that “superstocks” are what produce the true profits in the long run.

The research also calls into question the cult of equity, which has been followed by professional investors for more than 50 years. The experts argue that shares decisively outperform bonds and cash over time. But Bessembinder’s research shows that the returns from 96% of American shares would have been matched by fixed-interest instruments, which generally offer more security and liquidity, and suffer from lower volatility than stocks.

Spotting a business that can grow 10 or 20-fold over a period of years is a rare art

Of course, getting stock selection right is very difficult indeed when such a tiny proportion of shares contribute so much to total performance. It requires investors who are truly patient and at times extremely brave.

Amazon is one of the heavy hitters that delivered a quarter of all wealth creation in the stock market during the 90 years to 2015. Yet between 1999 and 2001, the online retailer’s shares fell by 95%. Many investors probably gave up then, and having been burnt once, shunned its 650-fold appreciation over the past 16 years.

While empirically that may appear to be correct, intuitively it feels questionable

Economies grow thanks to new technologies and entrepreneurs, who run a fairly small number of outstanding companies funded through private capital. Half the top 20 wealth creators referred to above are in sectors such as pharmaceuticals and computers. Identifying those sorts of promising industries is not too hard. But I do not believe there is a computer program — or robotic system — that can pinpoint the great achievers of the next 10 or 20 years.

Choosing the special businesses and executives that will create enormous value, and probably large numbers of jobs, is as much a creative undertaking as a scientific one.

Rigorous analysis must include a host of variables that artificial intelligence would struggle to understand — adaptability, trust, motivation, ruthlessness and so forth. I suspect all the best investors emphasise the importance of judging management when backing companies; I am not confident that computers can do that better than humans. In mature economies such as the UK, such sustained compound growth happens all too rarely.

To achieve it, a business should enjoy high returns on capital, strong cash generation, plentiful long-term expansion opportunities and a powerful franchise. And you need to buy the company at a sensible valuation. In a world awash with cash, such attractive businesses command very high prices. But if you believe the model can endure, they might be worth it.

Article written by Luke Johnson, who is chairman of Risk Capital Partners and the Institute of Cancer Research.
Sources: Bessembinder’s research and The Wall Street Journal
To read the article in full, click here:
Why a robot will never pick the superstocks of the tomorrow

A look at tax rates across Europe

By Chris Burke
This article is published on: 31st May 2017

In a recent article in the Guardian newspaper, Patrick Collinson examines how the average burden on British people earning £25,000, £40,000 and £100,000 compares with taxes paid by similar earners in Europe, Australia and the US.

Chris Burke from The SpectrumIFA Group in Barcelona calculated the figures for Spain and explains “homeowners also pay an annual tax on the value of their property, currently around €900 on a home valued at €300,000, so slightly less than typical council tax rates in the UK. However, he says that inheritance tax has shifted enormously in recent years, having been raised to 19% during the financial crisis but now starting at just 1%”.

Labour’s plan to tax incomes over £80,000 more heavily is a “massive tax hike for the middle classes” that will “take Britain back to the misery of the 1970s”, according to rightwing newspapers. But are British households that heavily taxed?

A comparison of personal tax rates across Europe, Australia and the US by Guardian Money reveals how average earners in Britain on salaries of £25,000, or “middle-class” individuals on £40,000, enjoy among the lowest personal tax rates of the advanced countries, while high earners on £100,000 see less of their income taken in tax than almost anywhere else in Europe.

The survey found that someone earning £100,000 in the UK in effect loses about 34.3% of their pay to HM Revenue & Customs once personal allowances, income tax and national insurance are taken into account. The one-third reduction is roughly the same as the US, Australia and Spain, but a long way behind the 38% in Germany, 41% in Ireland, 45% in Sweden and up to 59% in France (though the French figures include very large pension contributions).
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Note that these figures are a rough guide only. International tax comparisons are bedevilled by large numbers of factors. We compared rates for a single person with no children and with no special allowances. Most countries tax individuals rather than households, but France taxes couples, which has the impact of reducing the burden on a high earner with an at-home partner. Autonomous regions within countries impose their own varying taxes. We converted euros, dollars and krona into sterling at a time when the pound had fallen rapidly; some earnings might have translated into higher tax bands abroad before sterling plunged.

Some countries, such as the US, raise relatively large revenues from property taxes. Others squeeze revenue from sales taxes – 25% in Sweden, 19% in Germany. While there is some harmonisation of income tax rates, social security varies dramatically. Australia imposes a small medical levy of 2%. France’s charges can be as high as 30%.

One of the most striking facts to emerge is church taxes. In Germany, individuals are expected to give 8% of their income to the church.

EU officials may look forward to the day when the single currency is teamed up with a single tax policy. But what emerges from our survey is how elaborate each country’s tax and social security systems are. Britain’s actually looks relatively simple compared with France’s. The Brexit negotiations will be a walk in the park compared with any attempt to harmonise the EU’s 27 national tax and social security systems.

France

Gross salary £25,000
After tax £17,050
Tax rate 31.8%

Gross salary £40,000
After tax £23,520
Tax rate 41.2%

Gross salary £100,000
After tax £40,600
Tax rate 59.4%

Spain (Catalonia)

Gross salary £25,000
After tax £20,812
Tax rate 16.7%

Gross salary £40,000
After tax £31,000
Tax rate 22.1%

Gross salary £100,000
After tax £65,700
Tax rate 34.3%

Germany

Gross salary £25,000
After tax £18,923
Tax rate 24.3%

Gross salary £40,000
After tax £27,256
Tax rate 31.8%

Gross salary £100,000
After tax £61,740
Tax rate 38.3%

Sweden

Gross salary £25,000
After tax £19,500
Tax rate 22%

Gross salary £40,000
After tax £30,000
Tax rate 25%

Gross salary £100,000
After tax £55,000
Tax rate 45%

Ireland

Gross salary £25,000
After tax £21,183
Tax rate 15.3%

Gross salary £40,000
After tax £29,624
Tax rate 26%

Gross salary £100,000
After tax £59,000
Tax rate 41%

United Kingdom

Gross salary £25,000
After tax £20,279
Tax rate 18.9%

Gross salary £40,000
After tax £30,480
Tax rate 24.8%

Gross salary £100,000
After tax £65,780
Tax rate 34.3%

To read the full article please click here
First published Saturday 27 May 2017, author Patrick Collinson

Who would inherit your Assets if you die without a will?

By Chris Burke
This article is published on: 26th May 2017

You might be surprised to know that 59%, that’s over half of UK adults, have not written a Will. And if you are over 55 there is a 36% chance you haven’t either. The main reason for this…….most people believe they are not wealthy enough to need a Will, or they are too young to make one. But what would happen to your assets if the worse did happen?

Is there a living husband, wife or civil partner?

If you are married, or have a civil partnership then it’s actually very straightforward and they would inherit your entire estate. But would you want that? And how about if by some awful miracle both of you departed this happy land, what would happen to your assets then? But let us put those to one side for now; imagine you have children, whom decide where they will be raised and who with? If you are living away from the UK this makes it even more complicated. If you don’t have a Will, you are leaving all of this to the authorities and not planning to protect yourself and your loved ones for the sake of a simple document.

Imagine you have a partner, but are not married and not in a civil partnership, would you be surprised to know they have no right to your assets? How would that affect them?
Let’s imagine, as more people these days are for various reasons not having children, that down the family line to Great Aunts/Uncles there is no one related to you. You might not be very happy to know that ‘The Crown? Inherits your assets, that is the Royal Family. In fact fewer people in the UK have Wills than a year ago.

Back in August 2015 the Wills laws changed in Europe, with the main different being you can CHOOSE which laws you wish your Will to follow. The choice is either your country of domicility (usually where you were born/hold a passport for) or the country you reside in now. If you are British most people choose the UK as the laws are easier, you have more control and less complex than those in Spain.

Find out here who would inherit your assets by clicking on this link:
www.gov.uk/inherits-someone-dies-without-will

To enquire about making a Will, don’t hesitate to get in touch and we can arrange for you to talk this through with a Will writer so you know:

The process involved
The costs
How it works
There is no charge for this peace of mind

Sources:
HMRC website
*unbiased.co.uk research conducted by Opinium Research between 19 to 23 August 2016, among 2,000 nationally representative UK adults aged 18+

“How dare they move abroad and take their wealth with them!”

By David Hattersley
This article is published on: 19th April 2017

19.04.17

Taken from a (fictional) script of a new episode of “Yes Minister”, re-introducing the following cast.

Chancellor of The Exchequer: The Right Honourable Jim Hacker
Permanent Secretary to the Treasury: Sir Humphrey Appleby
Principal Private Secretary to Jim Hacker: Bernard Woolley

Sir Humphrey, bursts into the office of the Chancellor, unannounced, hot, bothered, angry and ranting.

Sir Humphrey: The PM has just announced another election, What is that woman playing at !!. Heavens above it was only weeks ago that we spent ages working on the Budget, which may never come into effect, or at least until it becomes law, by which time we may, heavens forbid, have had a change of government, and have to start all over again. Teaching newcomers about the real facts !!!!!……. How can I run the nations Treasury on that basis????. It reminds of the last time a lady PM was in charge, daring to throw her hand bag around dictating what we could and couldn’t do. It created chaos. We have only just managed to get back to a kind of orderly sensible running of this department and the Civil Service. What is the point of having a Cabinet if you don’t share the information first.!!!!

Bernard: Sir Humphrey, please calm down a little. To be fair, it’s only a few months since the Minister was appointed. It’s not as if he fully knows the ropes yet. Besides, we tried to contact you this morning at your office, immediately after the Cabinet meeting, but were told that you were at your club having breakfast with old friends from Oxford and were not to be disturbed as you were talking about important issues in relation to the Budget.

Sir Humphrey: Minister you should have let me know earlier. Surely the PM must have known that she was going to make this U – turn, despite saying only a few months ago she wasn’t going to have a General Election until 2020. That’s the trouble with politicians, changing their minds, to the whim of the public at a moment’s notice. We seem to be moving to the policies of our neighbours in the EU, in particular Greece, France and Italy along with the US where a populist trend or tweet is considered grounds to react without the calm sensible order to the stability that we in the Civil Service desire.

Jim: The Cabinet meeting was held this morning. This U turn was only discussed this morning. It was felt that it was in the best interests to enable the PM to be elected as the leader of the party best in the position to negotiate a favourable exit. We needed to do this as soon as possible, so that stability is returned quickly. You seem to forget the previous lady P.M., whom you deride, and may I remind you, “Was not for turning”, who was then thrown out of power by a small number of people, and the electorate was not given the chance to vote . This is democracy at its finest, I think the PM should be applauded for taking this risk, as we all are.

Sir Humphrey: calming down…..mumble mumble, …… Minister I suggest we look at the best way to ensure that the best bits of the Budget that can be carried forward and that we can get some additional revenue coming into the State coffers without too much difficulty.

Jim: Mmm, I am a little concerned that perhaps some elements are a little too hasty and need further thought and consideration. We need to consider that the UK is still part of the EU, and is still subject to the freedom of movement of goods and services as enshrined by the EU/EEA constitution.

Sir Humphrey: In the mean time Minister, due to the election and additional delays we still need to make things harder to protect against a possible net capital outflow for those that are bringing forward plans to retire overseas. I was talking this morning to the FCA, along with the friends from Oxford who are either CEO’s of product providers concerned about retaining their funds under management, along those who are trustees of UK pension schemes. Maybe in two years time we will be well shot of the EU and bothersome elements of the EEA, and can then treat ex pats and the Europeans that move back to their original country as one. As for the Scots we are bribing them with more money than we can afford to stay within the UK. However they seem intent on holding another referendum to leave the Union and join the EU. In that event we can borrow President Trump’s brilliant idea by rebuilding Hadrian’s Wall to stop those heathen coming in. And that can be paid for by increasing the duty on their Scotch.

Bernard: errmmm can I remind you Sir Humphrey, that if what is left of the Union leaves the EU, and just stays in the EEA , then what is left might not get the benefits of the subsidies of the Common Agricultural Policy. That could mean that things like Scottish Salmon, Lamb, Beef and Irish butter from remaining members will get these subsidies whilst what remains of the UK won’t as we will have lost the benefits of the CAP.

Sir Humphrey: Look , after all it was the English electorate that voted to leave and they will have no sympathy with any of them whatsoever. This is especially after that brilliant campaign by the Daily Blurb to stop winter fuel payments to pensioners living in the sunny Costa’s.

Jim: Didn’t they have snow on the Costa’s recently, that seems pretty wintery to me !

Sir Humphrey: Yes, but Minister , that is once every 30 odd years, a one off .

Jim: About the same number of years since there has been snow in London on Christmas Day then!!!!! Their homes are not built for winter, and those that live 10 kms inland have had to suffer cold winters regularly.

A by now exasperated Sir Humphrey: You haven’t given me the chance to explain the wider picture….. We have to take a long term view. The best bit Minister is when 70% of the ex pats return to be with children & grandchildren, or illness, and they eventually need residential care. They will have to pay for this, but not via HMRC taxation, more a sort of stealth tax. Most won’t realize this as it is not direct taxation, but capital assets have to be liquidated to pay to local Social Services under the Care Act. This leaves a maximum of £23,350 per individual that cannot be used for this purpose. It avoids the pesky IHT rules and allowances, with very little being passed to the next generation. That means that they too will have to work longer and harder, still paying tax of course, without the help of a legacy. That solves the problem of demographics, we have to take the longer view. So we hit them on the way out and on the way back in a triple whammy for daring to retire abroad, and not staying to pay taxes in this glorious country of ours as it moves back to its former glories. After all the opportunities we have given to the great British public over the years, for some of them, how dare they move abroad and take their wealth with them. Ungrateful peasants.!!!

Jim: Doesn’t that discriminate against the very idea of freedom and choice, they took a risk. I remember the 60’s and early 70’s when one was limited to the amount of money one could take out of the UK under exchange controls, for those lucky enough to go on holiday abroad in those dark days. My parent’s passports were stamped accordingly to prevent capital flight and a further fall in Sterling. It is wrong, to return to those dark old days and take that freedom away, that’s not playing cricket.

Sir Humphrey: Yes Minister ,but we will also potentially lose further tax payers when some of the companies in the City relocate part of their operations to Europe, along with research companies that may relocate to Scotland so that they still benefit from EU grants. Someone has to pay for that loss and we have to be realistic and find a way that is politically acceptable to the remaining electorate and protect our interests’ as a result of an additional loss to the countries coffers. I know it may not be cricket, but that is a just a game, to which incidentally I will thoroughly enjoy watching from the members pavilion at Lords , after meeting up with the ex leader of UKIP who has just been nominated as a member. Perhaps you’d like to become a member too Minister, I am sure that could be arranged.

Jim: Sir Humphrey, I am pleased for you as a civil servant that you are to be able to spend 5 days off watching a Test Match live. As a working politician I still have the dispatch boxes to go through, and attend to the needs of my constituents. So I am lucky to watch the one hour highlights on TV, so I will have to decline your offer. And there is a minor chance that unlike you I might be out of work in a few weeks time, can’t afford to be a member of Lords, and revert back to a real job.

Moving away from fiction lets deal with the facts

Factual time line.
UK Statutory Residents Test . Finance Act 2013. Note how helpful it is for those coming in, and how difficult it is for those leaving in relation to tax.

UK sited residential property held by ex pats once tax resident abroad. Finance Act 2014. From April 6th 2015, any gain from that date in the value of the property thereafter, upon sale will be liable to UK Capital Gains tax, and as such the gain will be paid directly to UK HMRC.

Care Act 2014.Statutory testing of benefits for care .Introduced two stages April 2015, & then April 2016. The April 2016 element included a revised increased of the thresholds re residual capital and was deferred in April 2015 until at least April 2010 when it will be reviewed again.

FCA ruling. April 2016. Advice and the report required on the potential transfer to a QROP of a Defined Benefit Pensions can only be carried by a UK regulated IFA who charges fees upfront.

Finance Bill March 8th 2017. A potential tax surcharge of 25% of the pot after transferring a UK pension to a QROP.
( Qualifying Recognized Overseas Pension ) Exemptions apply to this particularly if you reside in EEA/EU for five complete tax years after the transfer is completed. A review of all QROP’s providers to see that they match the new rules, in particular those that are outside the EU/EEA area. The rules are more onerous for non EEA / EU residency of both individual and provider. In addition as a “foreign pension” paid to a returning ex pat a QROP will no longer benefit from 90% of this being liable to UK income tax. It will revert to a 100% with immediate effect.

An unusual element of the bill was the fact that it came into effect on the 9th March, allowing no time for those plans already in progress. It is unusual to take such a draconian step and not allow sufficient time for those cases in the process of being progressed to be halted in such a manner.

March 29th 2017. The date the UK formally triggered Article 50 to leave the EU. This has already negated the EU element of the EU/ EEA referred to above re QROP’s.

April 18th 2017 Announcement of UK General Election for June 8th 2017.

A further note is that UK HMRC will still allow personal allowances on taxation of assets held in the UK for non-resident UK citizens living abroad within the EEA. This was dated the 7th April 2017, direct from UK Gov HMRC website. Whether that will continue in the future, will be dependant on the outcome of Brexit negotiations, and that is the great unknown. If you follow the logic applied to the above and the UK does leave the EEA, you have been given at least advance warning.

Most of us as regulated advisers in the EU have come across some UK providers of all manner of, Unit Trusts, ISA’s and Pensions in particular making life extremely difficult too.

So action is required , one has to say immediately, before it is too late. Finally my thanks to the BBC and Antony Jay/Jonathan Lynne for the original Yes Minister,and in particular that episode where Sir Humphrey extols the virtue of the UK remaining in the EU. Thank you for the inspiration to write an updated version that is current, possible and satirical.

Spanish State Pension system about to go Bankrupt?

By Chris Burke
This article is published on: 4th April 2017

04.04.17

During 2017 or early in 2018, the Spanish State Pension system is due to run out of money. At one point, the reserve fund the government created for this was standing at 66 million Euros.
Why has this happened?
During the crisis, millions of jobs were lost, and with them, an almost parallel reduction in contributions to the Social Security. Furthermore, a large part of the new jobs are precarious – temporary, part-time or free-lance – and with low salaries. This means that contributions to the system are way below expectations and the minimum required for it to be able to meet outgoings with incomings.
While this has been happening, payments to retirees have been increasing. In the last 11 years the number of actual pensioners has increased by over a million (8.3 million up to 9.4 million). The average pension amount paid out has also increased, from €647 per month to €906 from 2006 to 2016. In 2007, 79 billion Euros was paid out in pensions, compared to 117 billion in 2016, an increase of 48%. In real terms, the annual deficit for the year is 19 billion Euros.
This issue of funding pensions is made even harder by the lack of people in employment. In many European countries it’s normal for 50% of the population to be in work, in Spain it’s only 40%.
Ideas on how to solve the problems being explored
These range from not putting a cap on contributions (this would generate more income in the short term, but mean more pensions payable in the long run). A more popular idea is to allow those people retired to still work and receive their entire pension, which would generate increased state contributions. Gaining more support is the change to stop those who are not contributing to the system to not receive state pensions/handout, such as widows and orphans. These would instead be funded from current tax revenues.
In essence Spain may have to look at what many other countries are changing, such as making people contribute for more years and lower percentages to effectively cut the average pension payments. As well as increasing Social Security contributions. But what does remain clear is, if you are ONLY relying on the state to fund your retirement, you could be looking at grave consequences.
To talk through what your retirement looks like, and what you can do to shape it, feel free to contact Chris.
(Source ‘The Corner’ Fernando Barciela)