Viewing posts categorised under: Tax

Spanish Tax Reforms

By John Hayward
This article is published on: 29th September 2014

The latest news we have, is that there are likely to be significant cuts in income tax in the election year of 2015. The average reduction in Spanish income tax will be 12.5%, and 72% of those earning up to €24,000 will be as much as 23.5% better off, according to the Hacienda. In addition, the bands of tax are being reduced to 5 from 7.

Taxes on savings are also being reduced over the next 2 years, to the levels we saw in 2011. In addition, there are other tax benefits for families and small and medium-sized companies

Full details can be found by visiting this link to the Hacienda´s website http://bit.ly/1yDs915.

These are proposals at this stage and are subject to possible changes before the end of the year. However, it is clear that there will be changes.

As a guide, here are the existing rates and the proposed new rates.

In the meantime, if you would like ideas of how to reduce Spanish Income and Savings Tax, look at ways of increasing your income in a low-risk environment, or you would simply like to review your overall financial position, contact me below.

Tax Residency in Italy

By Gareth Horsfall
This article is published on: 22nd September 2014

Tax Residency is always one of those issues that raises it head in batches, from time to time.

So, I thought I should clarify the matter again.

Residency determines where you may or may not be located for tax purposes.

The notion that you can be resident in Italy but pay tax elsewhere is an outdated notion and one that should be forgotten.

RESIDENCY IS A MATTER OF FACT AND NOT ONE OF CHOICE.

Here are the facts as determined by Section 2 of the Italian Income Tax Code:

An individual is considered resident for tax purposes in Italy if, for most of the calendar year (183 days), you are:
* registered with the Registry of the Resident Population (Anagrafe).
* resident or domiciled in the territory of the Italian state, as defined by Section 43 of the Italian Civil code.

And, according to Section 43 of the Italian Civil code:
* Your place of residence is the place where you, the individual, have your habitual abode.
* your place of domicile is your principal place of business and social/family interests.

Employment income is considered ‘produced’ in Italy if the work activity (i.e. business) is performed on Italian territory (this also means internet activity that is carried out in Italy, even if the focus of the internet activity is in another country).

Italy has been quite vocal about trying to clamp down on people who are claiming residency in Italy (and using public services) but not submitting tax returns, and also those who are operating business activities in Italy but claiming residency for themselves, or the business, elsewhere.

In reality it would be hard for the authorities to track them down, but with the open exchange of information agreements between Italy, UK, Germany, France, Spain and now the USA, it is hard to imagine how computers will not, before long, be merely churning out lists of wrongdoers every week.

The better way is to plan your way around your residency and your respective tax authorities.

Make sure you get your residency options right first time. By this, I mean talk to the people who understand these issues, plan carefully in advance of taking residency in Italy or elsewhere and, ensure that you take advantage of the tax breaks available to you. Failing to do so can create burdensome Italian administrative headaches after the event.

In any case, we should remember the words of Benjamin Franklin who once said

“An ounce of prevention is worth a pound of cure”.

If you have any questions regarding your own residency or if you would like to try and plan your way around your residency in a more tax efficient manner then you can contact me.

Are you a resident in Italy and what taxes apply to you?

By Gareth Horsfall
This article is published on: 18th September 2014

Tax List

Not a week goes by these days, where I am not contacted by someone who has a question about their residency in Italy, and what that means for them fiscally. Either by people who are about to move to Italy or others who have already been living here for some time and want to become ‘in regola’.

The conversation then naturally flows into the minutiae of exactly what are the taxes that need to be paid in Italy.

So, following on from last week’s E-zine about residency and how it is actually defined, I thought I would write and explain those pesky taxes that apply to expats who have income being paid and/or assets held in other countries. I will repeat this towards the end of the year when some of you may be finalising your tax positions for 2014, but it may act as a good guide for those who are thinking about, or in the process of, doing something about their Italian tax returns for 2014.

Where to start?

Well, firstly I start by confirming that, as a resident in Italy, you are subject to taxation on your worldwide assets and income (with some exceptions). That means that if you are a resident in Italy (see my blog post RESIDENT EVIL for details of residency), then you are required to declare your assets and income, wherever they might be located or generated in the world.

TAX ON INCOME

If you are in receipt of a pension income, for example, and it is being paid from a private pension provider overseas or a state pension, then that income has to be declared on your Italian tax return (nb. different rules apply to Government service pensions, where tax is generally deducted at source in the country of origin and there is no further requirement to report the income in Italy). If tax is deducted at source in the country of origin, the income must still be declared again in Italy. A tax credit will be given for the amount of tax paid in the country of origin (assuming that country has a double taxation agreement with Italy), but any difference between the tax rates in the country of origin and Italy will have to be paid.

It is a similar picture for income, generated from employment. This is a slightly more complicated issue that depends on many factors and, therefore, I shall not dwell on it here. If you have any questions in this area you can contact me on the details at the bottom of this page.

INVESTMENT INCOME AND CAPITAL GAINS

This is one area where Italy excels above other countries, in that its system of calculation is very simple. As of 1st July 2014, interest from savings, income from investments in the form of dividends and other income payments are taxed at a flat 26%. Capital gains tax is the same rate of 26%.

** Interest from Italian Government Bonds and Government Bonds from ‘white list’ countries is still taxed at 12.5% rather than 26%, as detailed above. This is another quirk of Italian tax law as this means it is more convenient, from a tax position, to invest in Government Bonds in Pakistan or Kazakhstan, than it is to buy corporate Bonds from Italian corporate giants ENI or Unicredit. **

PROPERTY OVERSEAS

Property which is located overseas is taxed in 2 ways. Firstly, there is the tax on the income and, secondly, a tax on the value of the property itself.

Income from property overseas.

Unlike rental property located in Italy, which is taxed at the rate of approx 23% depending on what kind of rental you operate, overseas income from property is added to your other income for the year and taxed at your highest rate of income tax.

There is one advantage to this, in that tax in the country of origin has to be applied to the income in the first instance. Therefore, the net income (after expenses) in the country of origin is added to your other income in Italy for the year. This can be quite useful if the property/ies are investment properties, the expenses are high, the country of origin allows multiple deductions and the net income position is low. However, as I have written before, if you are reliant on the income to live on, then a high net income position (before declaration in Italy) can result in a much lower net amount (after Italian tax) depending on the amount of other income you receive each year. Once your total income for the year moves above €28,000 you enter into the punishing 38% tax bracket in Italy.

This can prove to be a tax INEFFICIENT income-stream for those hoping to live in Italy by relying on income from property overseas.

The other tax is on the value of the property itself, which is 0.76% of the value.

However, value must be defined in this instance. For EU based properties, the value is the Italian cadastral equivalent. In the UK (the area I am most familiar with), that would be the council tax value NOT the market value. You will find that the market value will, in most cases, be more than the cadastral equivalent value.

In properties located outside the EU, the value for tax purposes is defined as the market value of the property ONLY where evidence cannot be provided of the purchase value of the property, in which case this would be used instead.

TAXES ON ASSETS

It would not be right that other assets escaped Scot free! (Talking of Scots, it will be interesting to see how the markets react tomorrow to the possible Independence vote of Scotland. I will be watching and reporting on events depending on the outcome)

BANK ACCOUNTS AND DEPOSITS

A very simple to understand and acceptable €34.20 per annum is applied to each bank account or deposit account that you own overseas with an ‘average’ balance of €10,000 in it, each calendar year. This includes fixed deposits, current accounts, short term cash deposits, CD’s etc. The charge is the equivalent of the ‘bollo’ which is applied to all Italian bank accounts each year.

Lastly, we have the charge on other foreign-owned assets (IVAFE). This covers shares, bonds, funds, portfolio assets or most other types of assets that you may hold. The tax on these is 0.2% per annum, based on the valuation as of 31st December.

This guide is only meant to be a broad outline of the taxes that affect most expats. It is not a full tax list and does not take into account personal circusmstances. It is intended to be a guideline to help you make the right decisions. My experience over the last 4 years has been, in most cases, that expats will end up paying more by being resident in Italy (which most seem to accept as OK) but, there are often a number of financial planning opportunities, to generate capital in more effective ways, that people are NOT taking advantage of.

If we haven’t discussed these already or if you would like an initial chat to discover whether any of those opportunities are open to you then you can contact me on the email address below or I can be reached on cell: 333 6492356. There are no fees for consultations.

CGT and social charges applied to rental income and investments in France

By Amanda Johnson
This article is published on: 14th September 2014

I often get asked to explain how French Capital Gains Tax is applied and when & if they can expect social charges to be levied on their investments. These are two very interesting areas for expats:

Capital Gains tax

A capital gain arises when an asset has been sold for more than it was originally bought for. For example if you originally invested £50,000 in a unit trust and now sell it for £75,000. Your gain is £25,000 and therefore has a potential liability for Capital Gains Tax. Different levels of relief apply depending on how long you have held this investment, so not all of the gain is subject to tax.

Capital Gains Tax is also due is when a house is sold for profit which isn’t your primary residence. You may live in France permanently in rental property however, if you have sold your UK home and made a profit, this profit is subject to Capital Gains Tax in France. This applies even if it is the only property you own. Again there are different levels of tax relief depending on how long you have owned the property.

There are tax efficient investments and savings for expats that shelter your liability to capital gains and now you are living in France you should be taking advantage of them.

Social Charges

Social Charges are applied to all income, irrespective of where it is earned. There are as several exceptions to this, namely Government & UK State Pensions. If you rent out property in the UK, although you may pay your income tax in the UK you will have to pay Social Charges on the income in France. Social Charges also apply if you receive an income from savings, investments or a private pension.

There is a double taxation treaty in place which means you won’t pay income tax twice when you complete your tax return here in France but income tax should not be confused with Social Charges.

Social Charges can also be charged on certain Assurance Vies’ and this depends on the type of fund that you are invested in. If your Assurance Vie is invested in a Fonds en Euros, where growth is physically applied periodically, social charges will be due. This is not the case on several other Assurance Vie options, where social charges are only levied once a withdrawal is made & only apply to the gain proportion of the withdrawn amount.

If you have existing investments whether in France or in the UK it is worth contacting me to chat about the most tax efficient way to hold your savings and keep the tax you pay to a minimum.

Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please contact me below and & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.

Making a Will in Switzerland

By Chris Eaborn
This article is published on: 12th September 2014

12.09.14

Wills in Switzerland

Swiss Law

As a general rule, the Estate of anyone residing in Switzerland is governed by Swiss material law, especially by the relevant provisions of the Swiss Civil Code, which definitely apply in the absence of a Will, notwithstanding the deceased’s citizenship, personal status or religion.

Swiss law, which was influenced by the Napoleonic Code, provides for various solutions, either mandatory or optional, and includes the so-called rules of “forced heirship” – according to which some heirs (the spouse, the children and, in some cases, the parents of the deceased) are in any event entitled to a minimum portion of the Estate (similar rules apply in most countries on the continent and in Scotland).

Choice of Law

According to the Swiss Federal Law on Private International Law, foreign residents in Switzerland may, by making a Will, direct that their Estate be governed by the law of their country of origin and, thus, avoid all or some of the rules set by Swiss law.

This choice of law (that is not permitted in the event of double citizenship including Swiss citizenship) does not affect the jurisdiction of the Swiss authorities and, depending on the deceased’s Canton of residence, inheritance tax must still be paid in Switzerland (taking into consideration the deceased’s Estate on a worldwide basis).

As regards American citizens, it may be wise to specify the law of the relevant US State (with which they have some connections, e.g. California), while Brits should refer to “English law” (or “Scottish law” for the Scots) rather than UK or British law since it does not exist as such.

Making a Will

If made in Switzerland, the Will must have the form prescribed by Swiss law. As a rule, it must either be entirely handwritten, dated and signed by the “Testator”, or made before a Swiss Notary Public (where the Will is actually drafted by the Notary and signed by the Testator in the presence of two witnesses who are often the Notary’s assistants).

Typed Wills or so-called “joint” Wills (one single Will made by two people) are prohibited and void.

Handwritten Wills may be drafted in any language, while Wills made before a Notary Public are usually in the local official language (i.e. in French in the French-speaking area of Switzerland, such as Geneva or Vaud).

Although it is not legally required in Switzerland, when a handwritten Will may predictably need, at some point, to be proven in the US, it is worth asking two witnesses to certify the Will at the time it is signed by the Testator, as this would be expected by a US probate Court.

Making a Will before a Notary Public is especially advisable when the mental capacity of the person making the Will could later be questioned (due to illness, age, potential influence of other people, etc.).

Usually, Wills made with the assistance of a Notary Public are kept by the latter who must send them to the competent local Court or authority upon the testators’ death. When Wills are made privately, it is wise to leave them in some place where they will be found easily, but they can be lost or destroyed. It goes without saying that any Will may, at the Testator’s discretion, be changed, amended, replaced or cancelled at any time by their authors and mere photocopies are not effective.

Appointment of an Executor

Under Swiss law, when there is no Will, the Estate is usually handled by the heirs (who must act jointly).

An Executor (or more than one) may however be appointed by Will and, upon the Testator’s death, will be required by the competent local Court (the Judge of the Peace in Geneva and Vaud) to accept this mission. The Will may include some specific instructions to the Executor who is generally entitled to deal with the Estate without any restriction.

The appointment of an Executor in a Will (and a possible Successor Executor – contingent in the event of the death or incapacity of the first one) is recommended when some assets are held abroad (especially in the US, in the UK or in other common law jurisdictions), when some of the heirs are under 18 years of age or when the situation may prove complex for some other reasons.

Where no Executor was appointed, the local Court may, under some circumstances, appoint an Administrator to take care of the Estate and to protect the heirs’ interests, especially if they are not all known.

Probate Process

Anyone finding a deceased’s Will in Switzerland must send it to the local authorities. Probate proceedings include the notification of a copy of the Will to all the heirs and beneficiaries and, depending on the circumstances, to any relatives possibly entitled to a portion of the Estate.

If the heirs suspect that the deceased was insolvent, they may reject the inheritance within 90 days. Alternatively, they may, within 30 days, apply with the local Court for a formal inventory to be drawn up (at their own expenses) and only accept the inheritance accordingly.

When the heirs accept (even tacitly) the inheritance, they immediately become the successors of the deceased for all the Estate assets and liabilities. They must act jointly and they are severally responsible for the deceased’s debts and obligations (including outstanding contributions or taxes owed in connection with undeclared assets).

Usually, when the deceased was a foreign national, Swiss Courts require that the heirs submit a formal statement to be issued by a Notary Public, in accordance with information that must be given by two witnesses who have no interest in the Estate and who must confirm the deceased’s family status, along with a list of all relatives who may be entitled to the Estate. In the event of any doubt or if no one is able to provide the requested information, the Court may order that a formal notice be published in the official gazette, allowing any potential heir to challenge the Will within 1 year.

In some cases, the heirs also have to submit a legal opinion confirming the solution resulting from the application of some foreign rules (if selected in the Will) that are sometimes regarded as rather “exotic”.

Once the situation is clarified (and, where applicable, after a fiscal inventory is filed and inheritance tax paid), the Court issues a Certificate of Inheritance naming the heirs and allowing them to fully access the Estate assets and arrange for these to be distributed amongst them.

IN SHORT:

Non-Swiss can (should) ask for their Estate to be governed by the law of their home country and state the country (i.e. will therefore avoid Napoleonic Code).

They must clearly state in the Will that this is what they want to do, g. “I direct that my Estate shall be governed by *** law”.

If it is not made before a Notary Public, the Will must be handwritten and married couple must write a Will each (so-called “joint-wills” are invalid in Switzerland).

A handwritten Will does not have to be witnessed and it should be kept in a safe place.

The appointment of an Executor (or more than one) should be considered.

It is helpful to attach a list of worldwide assets such as the name of the bank, branch and account number in which accounts are held, details of life policies or any other assets, as well as the contact details of people who could inform the heirs (such as Attorney, Financial Advisor or Accountant).

Creating or Updating your Will / Estate Planning – The Right Questions

If you died today, how would your Estate be handled?

Is there a Will and where is it?
Which debts should be eliminated?
Which assets should be sold (such as business or real estate)…
… and which ones should be kept (such as heirlooms)?
Who is to receive which assets (financial and sentimental)?
Are there any distribution clauses (e.g. to give your watch to your son/daughter when they reach age 18)?
Who is to take legal responsibility for any children under age 18?
Who is to assist the heirs and to ensure that your instructions will be implemented?

Financial Planning

Did you know that, if you are a US citizen, Swiss banks can be required to freeze your accounts until all US taxes are declared and paid, thus a joint account could be frozen?
If a joint account holder passes away, the account can be frozen until Swiss taxes are cleared up, with the surviving spouse only able to present bills for living expenses to be paid.
If a married couple has children and one of the parents dies without leaving a Will, the child/children are deemed to inherit 50% of the Estate and depending on the Canton, may have to pay Inheritance Tax. In the Canton of Vaud, children may however be “gifted” up to CHF 50’000 per year each – tax free.

Careful individual planning allows to identify and solve a number of issues like these.

We offer a free initial consultation should you wish to discuss these or other financial planning matters and should legal advice be required, we will work in conjunction with excellent English-speaking Attorneys and likewise have access to excellent English-speaking Accountants if pertinent.

This notice is for information purpose only and does not constitute legal or other professional advice. Any specific queries should be looked at individually with a professional advisor. This document may not be disseminated or published without written authority.

Do you know which country you are resident in?

By Spectrum IFA
This article is published on: 25th August 2014

In my travels I meet lots of people who claim not to know where they live. This isn’t an age or an alcohol problem, and to be fair it would be better to describe them as not knowing where they reside, or are resident. In many cases a few minutes explanation, or a paragraph in a report, does the trick. There are a number of die-hards however who really don’t want to recognise the obvious. And then sometimes it isn’t really all that obvious at all.

The problem is that the central argument is so convoluted that it is far too long to cover completely in this article, and of course we also need to look at what the French regard as the deciding factors in French residence. So what I’m going to do here is dip into both pools and see if I can point you in the right direction, with the clear risk that I might confuse you completely.

The French side of the equation is quite easy to understand (if you want to, that is).
You are resident in France if:
a) Your home is in France, which includes where your main home is or where your family lives.
b) Your principal place of residence is in France. This applies if you spend more than 183 days in France per year. Even if you spend less than 183 days per annum in France but have a permanent home available in France, you’re ‘in’.
c) Your business activities in France, whether salaried or otherwise, are managed from France unless you can show that this business activity is incidental to your main employment.
d) The centre of your economic interests is France, meaning that you have your main investments in France or they are managed from France or that you derive the majority of your income from French sources.

So many times I hear ‘but I have a UK address and no-one can tell how much time I spend in France’. A dead give-away in anyone’s language that. It’s nearly subtle, but really it’s the same as the difference between tax avoidance and tax evasion, and it’s the wrong side of the coin. In the modern days of passport scanning it is also plainly incorrect. If you really want to ignore all of the points above and claim to be non French resident, you must really be claiming to be UK resident, mustn’t you? So let’s look at how HMR&C have ‘clarified’ UK residence. Please note we are ignoring UK domicile here, That’s another can of worms altogether.

Here’s what it takes to be a guaranteed UK resident.
You need any of these factors:
a) You spend 183 days or more in the UK.
b) You have only one home and that is in the UK (or more than one home and all are in the UK).
c) You work full time in the UK, ie, a continuous period of 9 months and at least 75% of your duties are carried out in the UK.

Now for most of the people I meet this presents a bit of a problem. Ever helpful though, HMR&C do recognise that there can be people who qualify for UK residence that can’t claim any of the above, so to help them they have come up with a list of ‘connecting factors’. I call them ‘back door passes’.

Connecting factors

If you have family in the UK – spouse/civil partner and/or minor children.
Whether there is available accommodation in the UK.
Substantive employment in the UK (40 or more days).
UK presence in previous years – if you have been UK resident for more than 90 days in either of the previous two UK tax years.
More time spent in the UK in the tax year than any other single country.

Pay attention here, – it’s getting complicated! To be counted as UK resident, and therefore not French resident, you need to combine days spent in the UK with the connecting factors as shown below:

Number of days that make you UK resident	Connecting Factors
16 – 45	4 factors
46 – 90	3 factors
91 – 120	2 factors
121 – 182	1 factor
183 or more	Always resident

There, easy isn’t it? Alternatively of course, one could take one’s head out of the sand and go legal as a French resident…

If you have any questions on this, or any other subject, please don’t hesitate to contact me.

The Spectrum IFA Group advisers do not charge any fees for their time or for advice given, as can be seen from our Client Charter.

UK Pensions and Non-Residents

By Spectrum IFA
This article is published on: 18th August 2014

A couple of things have come out of the UK government’s office recently. Both are important, but for some expatriates, one of these is going to have a bigger impact than the other.

The first was the result of the consultation on the UK pension reform, which was published in July (and we can now expect a Pensions Bill in the Autumn). The outcome is that not much has changed from what had already been proposed, which you can read about in my previous article at https://spectrum-ifa.com/proposed-uk-pension-changes/

However, a couple of things have been fine-tuned. For example, the age from which you will be able to take your total pension pot as cash on the grounds of triviality will be possible from age 55, rather than the current age 60. Also for those who still prefer the security of a lifetime annuity, the rules will be changed to allow a longer guarantee period than 10 years but of course, this will reduce the amount of the annuity at start.

One important point that has been clarified concerns pension transfers from Final Salary Schemes to Defined Contribution Schemes (DCS). We now know these will still be allowed, but only from those schemes that are funded. Therefore, members of unfunded public sector defined benefit schemes will not be allowed to transfer their benefits to a DCS. This may not appear to be an issue – after all who would want to transfer their pension benefits out of such schemes? In effect, the government – or in reality, the UK taxpayer – underwrites the cost of these pension schemes.

Well this brings me to the second ‘thing’ …….

……. non-residents could lose their UK tax-free allowance on UK taxable income.

For those of you who have not already picked up this news, this is something that could come into effect in April 2015. A consultation has been launched by the government with a deadline of 9^th October for interested parties to respond.

For French residents, this concerns those who are receiving public sector pensions, UK property rental income and/or UK earnings. If it comes into effect, the result will be that for a basic rate UK tax payer, unless your average tax rate in France is at least 20%, then your combined UK and French tax bill will be higher. This is because the method that is used to give relief from double taxation in France, limits the amount of that relief to the amount of French tax attributable to such income. Based on the 2014 rates, for a couple in France this would mean that they have to have combined taxable income of at least €112,000 per annum or for a single person, at least €57,000. If you are below this level, then you would be affected.

My initial reaction to the above was that those with public sector pensions are being treated unfairly. They cannot transfer their pension benefits out of the current scheme and so are forced to be subject to UK tax with the possibility of paying up to £2,000 a year more (based on UK 2014-15 rates), but they are unlikely to get the full relief from France. However, thankfully, the UK government has recognised that as the public sector pensions are, in theory, only taxable in the UK, then it is quite likely that entitlement to the personal allowance will be maintained.

Sadly, not so for property rental income (or earnings), as the UK government considers that people will usually be also liable to tax in their country of residence. However, the method of the calculation used to give relief from double taxation is identical for all these three categories of income, which is based on taking in to account the gross amount of income (i.e. before UK tax deduction). Had the previous method of calculating the relief still been in operation, there would not be any potential issue, since the calculation used the amount of income after deduction of UK income tax.

The other change that is taking place in the UK that affects non-residents who own property is the introduction of capital gains tax for properties sold after April 2015. When combined with the potential increase in UK income tax on any property rental income, this makes holding property for investment purposes a lot less interesting.

Are you affected by these changes? If so, please feel free to contact me if you wish to have a confidential discussion to see if your situation can be improved.

Now is also a good time to mention that we are taking bookings for our Autumn client seminars, which will be taking place across France – “Le Tour de Finance – Bringing Experts to Expats”. Our industry experts will be presenting updates and outlooks on a broad range of subjects, including:

Financial Markets
Assurance Vie
Pensions/QROPS
Structured Investments
French Tax issues
Currency Exchange

The date for the local seminar is Friday, 10th October 2014 at the Domaine Gayda, 11300 Brugairolles. This is always a very popular event and so early booking is recommended.

But if you are reading this further afield, you may be interested in attending one of our other events:
Wednesday, 8th October – St Endréol, 83920, La Motte, the Var

Full details of all venues can be found on our website at Le Tour de Finance

Places for our seminars are limited and must be reserved, in advance. So if you would like to attend one of the events or you would anyway like to have a confidential discussion about any aspect of financial planning, please contact me either by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on 04 68 20 30 17.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or on the mitigation of taxes.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter

An insight into the good things happening with Spanish Tax

By Barry Davys
This article is published on: 16th July 2014

16.07.14

We are pleased to report that there are a number of proposed schemes to reduce the amount of tax paid in Spain. The proposed reductions in tax apply to personal income, corporation and savings (capital gains) taxes. This will reduce the burden of taxes and some schemes, such as the “Beckham” scheme for retired people, if it passes from a proposal into law, will be particularly beneficial.

Yet it is curious that these proposed changes are getting so much press. In some cases, the proposal is simply to reduce tax back to where it was before the crisis. In addition, there are already other schemes which have already passed into law which are very useful for people living in Spain. For example, if you live in Spain but work outside Spain there is an exemption from income tax for the income from that work. The maximum allowance is 60,100€ per annum. Mark Twain’s famous quote “reports of my death was an exaggeration” could also be applied to the “Beckham” scheme. There is still a version of this scheme which can be extremely beneficial for people who wish to sell property outside of Spain.

Then there is the taxation of pensions and investments. In the best case, and I emphasis this is the best case, the taxation on pension income and investment income can be as low as 3.25%. A recent report in the press was highlighting a proposed detrimental change in taxation to dividend income without also mentioning this other rate of investment tax.

During the next 6 months there will be up to 17 changes in tax in Spain. Most of the changes will be beneficial. We work with a number of tax lawyers and specialists and we give clients access to these experts for a reason. Spanish Tax need not be painful, but you do need someone on your side who knows their way around the system.

We recommend a strategy for making the most of the changes by taking the following action:

Have a review of your Spanish Tax situation to ensure you are compliant.
See if there are any back taxes you can claim for the last four years
Use the most appropriate of the new rules when they are passed into law (you can only do this if your affairs are in order).

More pain and no gain from interest rates

By Spectrum IFA
This article is published on: 10th June 2014

The European Central Bank made headline news again at the beginning of June, as it reduced its main interest rate from 0.25% to 0.15% and lowered its deposit rate into negative territory from 0% to -0.1%.

The reduction in the interest rate makes it less expensive for other banks to borrow from the ECB and ‘in theory’ this should result in credit flowing out to the wider Eurozone community. At the same time, the negative deposit rate means that the ECB will charge banks for keeping their excess liquidity on deposit with it. The thinking is that this should discourage the banks from making the deposits and instead, make the money available for lending to households and business thus, encouraging growth.

These measures are part of a package that also aims to increase the rate of inflation in the Eurozone, which continues to fall, as demonstrated by the change in the Harmonised Index of Consumer Prices for May, when the annual rate of inflation fell from 0.7% to 0.5%. However, there are many who think that the current measures are insufficient to turn the trend from continuing towards deflation and feel that more aggressive action should have been taken by the ECB, including an expansion of Quantitative Easing.

What does this mean for savers? There is only one answer and that is “bad news”. Even if the banks do start to lend more money into the wider community, since they can borrow from the ECB at 0.15% to do this, why would they borrow from the public (i.e. the savers) at a higher rate?

We have been living in a very low interest environment for several years now, although this is the first time that the Eurozone has gone into negative territory in ‘nominal’ terms. In ‘real’ terms (i.e. taking into account inflation), we have already experienced negative returns from bank deposits and even the most cautious of investors are now prepared to look at alternatives.

One such alternative is a particular fund in which many of our clients have already invested. Despite the fact that the fund is conservatively managed, over the last four years to the end of May, the Sterling share class has still been able to grow by more than 36% and the Euro share class by 30%. After taking into account annual management charges on the fund, the three year annualised return is around 7% for Sterling and around 5.5% for Euro. A growth fund is also available for those investors who wish to take more risk and USD share classes are available for both the cautious and the growth funds.

The funds are part of those of a large insurance company, which has a history going back for more than 160 years. The company is well capitalised and so clients feel comforted by the safety of investing with such a solid company.

One of the unique features of the funds is the delivery of a smoothed investment return. On a daily basis, each of the funds grows in line with an expected growth rate, which is the rate of return that the company expects the assets in which the funds are invested to earn over the long-term. This approach aims to smooth out the usual peaks and troughs of investment markets and so is particularly beneficial to investors seeking an income from their capital.

It is a well-known regulatory requirement for product providers and investment managers to tell investors that “past investment performance is not a guarantee of future performance”. Whilst this is true, in reality it is only by looking at the past investment performance of a fund that one can really judge the skill of the fund manager. This is not just about how good the manager is at picking stocks – but more importantly – about how risk is managed, particularly through market downturns. Happily, when I am discussing the above funds with clients, I am able to demonstrate the skill of this insurance company by showing a sixty-year history of positive investment returns on an annualised basis over 8, 9 and 10 year periods. This is another reason why cautious investors – who would have previously only ever placed their capital on bank deposit – are very comfortable about switching to this alternative choice.

Residency & Tax Returns in France

By Spectrum IFA
This article is published on: 4th June 2014

During May, I always receive lots of questions from people about French income tax returns. The most common ones are – should I complete a French tax return, do I have to declare that tiny bit of bank interest on my savings outside of France, do I have to declare dividends even if these are re-invested? If you are French resident, the answer to all of these questions is “YES”. In addition, depending upon the value of your assets, you may need to complete a wealth tax return.

Whether or not French tax returns should be completed is always a popular subject at social gatherings of expatriates and I have heard many people say that they “choose” not to be French resident. Well French residency is a fact and you only have to satisfy one of the following conditions and you will be resident in France:

France is your ‘home’. If you have property in France and in another country, but the latter is not available for your personal use (for example, because it is rented to tenants), then France is your home.
France is your ‘centre of economic interest’. Generally, this means where your income arises. In addition to pension, salaries, etc., this can include bank interest and other investment income.
France is your place of ‘habitual abode’. Notably, no reference is made in the law to the number of days that you actually spend in France and this is where many people are caught out believing that if they do not spend at least 183 days in France, then they can decide that they are not resident. This is not the case and your place of ‘habitual abode’ is, quite simply, where you spend most time.
Nationality. If your residency has not been established by any of the above conditions, then it will be your nationality that determines your residency, however, this is very rare.

So with residency established, when completing a French income tax return, you must declare all your worldwide income and gains, even if some of this is ultimately taxable in another country. If there is a Double Taxation Treaty (DTT) between France and the country where the income arises and that other country has the right to tax certain income, your French tax bill will be reduced to reflect this. If there is no DTT and you pay tax in the jurisdiction where the income arises, then this will result in you being taxed twice. Although France has many DTTs, this is not so with the popular offshore jurisdictions of, for example, the Channel Islands and the Isle of Man.

For those of you who have completed the French tax returns this year, if you had to complete the pink 2047 form, this means that you had foreign income and/or gains to declare. If this is for any reason other than pension income, earnings or perhaps property rental income from outside of France, then you may benefit from a discussion to check that you are not paying unnecessary taxes on any investment income. For example, it may be better to invest your financial assets in an assurance vie, which is more tax-efficient for French residency, when compared to foreign bank interest and dividends.

Inheritance taxes should also not be overlooked. As a French resident, you are considered domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France (except for anything that might be exempt as a result of a DTT), where the tax rates depend upon your relationship with your beneficiaries. However, by investing in assurance vie, in addition to the personal tax-efficiency for you, this type of investment also has the advantage that you can create valuable additional inheritance allowances for your beneficiaries.

If you would like to have a confidential discussion about your financial situation, please contact me by telephone on 04 68 20 30 17 or by e-mail at daphne.foulkes@spectrum-ifa.com.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter