Viewing posts categorised under: Spain

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)

Modelo 720 Reporting Time!

By Chris Burke
This article is published on: 23rd March 2017

23.03.17

Just a reminder that time is running out for submitting your Modelo 720 declaration.

All those tax residents in Spain, (those living in Spain for more than 183 days a year or where Spain is the main base for your business), should be aware that as a result of legislation passed on 29th October 2012 residents in Spain who have any assets outside of Spain with a value of €50.000 or more, are required to submit this declaration form to the Spanish authorities. (that’s €50.000 or alternative currency equivalent).

This declaration can be made online, through the Tax Office`s web page www.agenciatributaria.es where the Modelo 720 (Tax in Spain) can be located and completed. It must be filed between January 1, and March 31, of the first year of residence, to avoid being investigated or fined by the Spanish authorities. I would personally recommend speaking with your accountant / Gestoria to avoid mistakes.

The assets outside of Spain that are subject to this declaration form fall into 3 asset categories:
1. Property
2. Bank accounts (cash)
3. Investments

To warrant a declaration the total value of assets should exceed € 50.000 in each or any one of the categories; e.g. if you have 3 bank accounts and totalling up all the balances it exceeds the €50.000 limit you are subject to making the Modelo 720 declaration. However, if you have a bank account at €30.000 and say, investments valued at €30.000 then there would be no reporting requirement as they are in separate categories and each individual total value does not exceed the €50.000.

A declaration must be submitted individually, regardless of the percentage of ownership (in joint accounts). For example, if you have a joint bank account with a value exceeding €50.000, although your particular (say €25,000) share is below the threshold, each owner would still be required to submit an individual declaration based on the total value of the account.

Although this declaration of assets abroad is solely informative and no tax is charged, failure to file, late filing or false information could result in serious consequences.

For this reason, we recommend that everybody arranges to declare their assets, to avoid the imposition of fines from a minimum of €10,000 to a maximum of 150% of the value of those undeclared assets located outside Spain. Once you have made your first declaration it is not necessary to present any further declarations in subsequent years, unless any of your assets in any category increases by more than €20.000 above the initial value declared.

Banks start plans for Brexit

By Chris Burke
This article is published on: 22nd March 2017

22.03.17

After U.K. Prime Minister Theresa May set a date to trigger the formal mechanism for quitting the EU, within weeks some of the worlds Big investment banks will begin the process of moving London-based operations into new hubs inside the European Union.

The biggest winners look likely to be Frankfurt and Dublin. Those people familiar with the plans, asking not to be named because the plans aren’t public, include the Bank of America, Standard Chartered Plc and Barclays Plc. To ensure continued access to the single market they are considering Ireland’s capital for their EU base. Meanwhile, Frankfurt is being eyed by Goldman Sachs Group Inc. and Citigroup Inc respectably others said.

Dublin shares similar laws and regulations as its U.K.neighbour and is the only other English-speaking hub in the EU. Whilst Frankfurt is a natural pick, given a financial ecosystem featuring Deutsche Bank AG, the European Central Bank and BaFin.

Executives want to have new or expanded offices up and running inside the EU before the U.K. departs in 2019. With banks increasingly expecting a so-called hard Brexit – the loss of their right to sell services freely around the EU from London.

It is thought London could lose 10,000 banking jobs and 20,000 roles in financial services as clients move 1.8 trillion euros ($1.9 trillion) of assets out of the U.K. after Brexit, according to think tank Bruegel. Other estimates range from as much as 232,000 jobs to as few as 4,000.

QROPS Pension Transfer

By Chris Webb
This article is published on: 20th March 2017

If you ever worked in the UK, no matter what your nationality, the chances are you were enrolled in a private pension scheme. The UK government continues to tweak legislative changes affecting the expat’s ability to move this pension offshore. On the surface, these changes appear to limit transfer options, but in reality they have strengthened the legal framework offering expats continuing advantages.

Background

When you leave the UK your private pension fund remains valid but is frozen, or deferred, until you reach retirement age. The pension income you then receive is taxable in the UK no matter where you are based in the world. Once you die the pension will continue in the form of a spouse’s pension if you are married; otherwise it will cease. When your spouse dies, all benefit payments come to an end.

If you take any part of your fund and then die before you fully retire, a lump sum can be paid to your spouse.
In April 2006 Her Majesty’s Revenue and Customs (HMRC) introduced pension ‘A’ day. This liberalised UK private pensions and allowed people leaving the UK to transfer them overseas, often to a new employer. In doing this the UK complied with European legislation which allows all citizens the freedom of movement of their capital. Thus ‘Qualified Recognized Overseas Pension Schemes’ (QROPS) were born.

Recent Chamges 2017

During the March UK budget there was a very unexpected announcement regarding pension transfers out of the UK. The headline was :

“HM Revenue & Customs (HMRC) has announced that Qualifying Recognised Overseas Pension Schemes (QROPS) transfers for individuals not in the European Economic Area (EAA) will be hit with a 25% tax charge”.

At first glance it sent shockwaves through all concerned with pension transfers, after a moment to digest the news it became much clearer that there were exceptions to the rule, detailed below:
1. The QROPS Trustee is in the EEA and the client/member is also resident in an EEA country (not necessarily the same EEA country);

2. The QROPS and the member is in the same country; or

3. The QROPS is an employer sponsored occupational pension scheme, overseas public service pension scheme or a pension scheme established by an International Organisation (for example, the United Nations, the EU, i.e. not just a multinational company), and the member is an employee of the entity to which the benefits are transferred to its pension scheme.

It is also important to understand that if a client was to move outside of the EEA within 5 years of the transfer then the tax rate would apply.

In most of the cases I deal with this new tax ruling will not affect the transfer. Since moving to Spain all but one of the transfers I have implemented are EU based.

Implementation

QROPS are not necessarily the right thing in every single case. In order to decide whether it would be advantageous to transfer your pension or leave it in the UK, with the intention of drawing the benefits in retirement, please contact me so that I can carry out a personalised evaluation. There may be compelling arguments, outside of the evaluation alone, which are often overlooked and may affect you in the future.

One of these is that a large number of UK schemes are currently in deficit to the point that they will be unable to pay future projected benefits. This would mean that even though it looks as though there are arguments to leave your UK pension in situ it may actually be wiser to transfer it.

In order for you to make the best decision you need to professional advice on what would be the best situation for you. This will entail seeking details of the current UK schemes, including transfer values, the types of benefits payable to you and options going forward when you get to a retirement date and when you die.

Advantages & Disadvantages of a Transfer Between a QROPS and a SIPP

Advantages

Lump Sum Benefits
QROPS – If you transfer your benefits under the QROPS provisions to a Malta provider, in accordance with the rules of this jurisdiction, you may be able to take a pension commencement lump sum of up to 30% (unless you have already taken this lump sum from the UK pension). Under the current HMR&C (Her Majesty’s Revenue and Customs) rules to qualify for the lump sum option you must be age 55 or over. Your remaining fund is then used to generate an income without having to purchase an annuity. The 30% pension commencement lump sum is only available once you have spent 5 full, consecutive tax years outside of the UK (in terms of tax residence), if you are within the first 5 years, we strongly advise you to limit the pension commencement lump sum to 25%. From 6 April 2017 this 5 year period has been extended to 10 years.

SIPP – The maximum Pension Commencement Lump sum from a SIPP would be 25%.

No Liability to UK Tax on Pension Income
QROPS – This will be paid gross and you declare the income in the country you are resident in as long as the QROPS jurisdiction has a Double Tax Treaty (DTT) with the country that you are resident in. Transferring under the QROPS provisions ensures that, if tax is due on pension income, it will only be taxable in the country of your residence.
SIPP – This should be able to be paid gross, although many clients find this to be a very awkward process to solve as the pension company does not always talk to the HMRC and therefore at least for the first year or two the pension is paid net of basic rate tax and sometimes even on an emergency tax basis. This can be reclaimed, but will involve more paperwork than that of a QROPS.

No Requirement to Purchase an Annuity
There is no longer a requirement to ever purchase an annuity with either your UK pension or in the event you make a transfer under the QROPS provisions. Therefore the rules below are the same for a QROPS and a SIPP.

With both a QROPS and a SIPP the maximum age you must start to draw an income is from age 75. The Pension commencement Lump Sum must be taken by this age or the option to take it after this age is lost.

The budget changes in the UK has meant that from April 2015 the restrictions imposed from drawing a pension income from a UK Pension Plan will be scrapped. This means that investors will be able to take the whole of their pension as a lump sum if they wish from age 55. The first 25% would be the standard Pension Commencement Lump Sum but the remaining amount would be subject to your marginal rate of income tax. The Malta QROPS have now followed these changes to allow full flexibility also.
This would not be possible with a Final Salary pension. It would need to be transferred to a SIPP or QROPS to utilise these options.

Secure Your UK Pension Pot
Some defined benefit schemes in the UK are in deficit. Since the deficit forms part of the balance sheet of the company, this can present a huge risk to your pension fund.
Transferring your UK benefits to a SIPP or QROPS provisions could enable you to have full control of these funds without worrying about the financial situation of your previous employer.

Ability to Leave Remaining Fund to Heirs
QROPS – All death benefits will be paid out from the Malta QROPS with 0% death tax no matter what age an individual is.
SIPP – The recent UK Budget has changed how death benefits will be paid to their heirs in the future. If death occurs before age 75 then any remaining balance in a pension fund can be paid tax free to any beneficiary. Otherwise if a member passes away after the age of 75 then there would be a tax charge, any lump sum benefit would be subject to the beneficiaries marginal rate of income tax.

A transfer under the QROPS provisions will allow the member to leave lump sums without deduction of tax to heirs no matter what age they pass away, so it is clear and simple. (this is not applicable to Defined Benefit schemes). The below table shows the situation more clearly.

Defined Benefit Plans

UK Pension – (generic pension benefits)
	Scenario	Death Benefits
SRA	Married couple 1^st to pass away	50% income to Spouse
	Married couple 2^nd to pass away	0% of total plan
	Single but with grown up children	0% of total plan
	Lump sum to future heirs	0% of total plan

QROPS- Malta
	Scenario	Death benefits
SRA	Married couple 1^st to pass away	100% of fund value to any beneficiary
	Married couple 2^nd to pass away	100% of fund value to any beneficiary
	Single but with grown up children	100% of fund value to any beneficiary
	Lump sum to future heirs	100% of fund value to any beneficiary

SRA – Selected Retirement Age

The tables are based on the usual death benefits being taken in retirement. Some plans may have slightly different death benefits which may be higher or lower than 50% income provided on death and guaranteed periods for the first 5 years. Please check the exact benefits within your scheme for a full exact comparison.

Currency
A standard UK pension will usually only be invested and pay benefits in Sterling, which means the member runs an exchange rate risk in respect of pension income, in addition to incurring charges in converting the pension payments to the currency of their country of residence.
A transfer under the QROPS provisions means that the pension payments can be made in the local currency, thus potentially eliminating exchange rate risk.

Lifetime Allowance Charge (LTA)

QROPS – There is no LTA charge within a QROPS so transferring larger plans to a QROPS may not be caught in this reduction in the future. Careful planning will be needed with your adviser if you are close to the limit in the UK. (a transfer to a QROPS is a crystallisation event, so will be tested against the LTA at that stage, any benefits above the LTA at time of transfer will be subject to a 25% tax liability.

SIPP – This is a restriction on the total permitted value of an individual’s total accrued fund value in UK registered pensions, currently £1m. Those who exceed this value face a potential tax liability of 55% on the excess funds on retirement at any time when there is a “benefit crystallisation event” that exceeds the LTA. A benefit crystallisation event is any event which results in benefits being paid to, or on behalf of, the member and so includes transfer values paid to another pension scheme, as well as retirement benefits.

Disadvantages

Charges
QROP & SIPP If you have a pension(s) with a combined transfer value of less than £50,000 then the charges may be prohibitive.

Loss of Protected Rights
QROPS & SIPP – A transfer may result in the loss of certain protected rights, including Guaranteed Annuity Rates, Guaranteed Minimum Pension, a protected enhanced lump sum, or rights accrued under a defined benefit scheme. (These are shown in the section “Analysis of Your Existing Pensions”).

Returning to the UK
If you return to the UK, then the QROPS administrator will have to report this ‘event to HMRC and the pension scheme will become subject to UK pension regulations again.
If it is your intention to return to the UK in the near future then a transfer under the QROPS provisions is usually inappropriate. If this was the case then we can help with our UK SIPP offering which may be more appropriate.