Viewing posts categorised under: Tax

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

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

Capital Gains Tax and the Expat Property Owner

By Lorraine Chekir
This article is published on: 28th May 2014

You have realised your dream, bought a property in France, perhaps as a holiday home to start with but now you have moved here, maybe to work, or perhaps you have retired. The big question is what to do with your property or properties in the UK?

When moving to a new country many people are a little nervous about letting go of their old one, rightly so after all holidaying is one thing, but living in a foreign country quite another. So often people keep their property in the UK, for a while at least, however this can have Capital Gains Tax (CGT) implications on a future sale.

A tax treaty signed between France and the UK which became operative on 1^st January 2010, meaning that for former UK residents now resident in France, they are liable for french CGT on the future sale of any property including your former main residence. However no liability will apply in the UK.

Main Residence
If you sell your UK home when you move to France or within a relatively short space of time (usually within a year) then no CGT will be payable in either France or the UK. If however, you hold into it for a while ( then or rent it out) then you will pay CGT on it in France just like any other maison secondaire, with no allowance being made for the fact that it was your main home for a period of time.

Buy to let
If you sell your UK buy to let property when you move to France rather than at a later date then you will pay UK CGT. To work out how much tax you will have to pay, take the selling price of the property, then deduct the buying price. You can deduct the costs of buying and selling, e.g. solicitor’s fees, stamp duty, estate agents fees, advertising etc. You can also deduct the cost of

improvements to the property but not routine maintenance and repairs. There is also an annual exemption allowance (£11,000 for 2014/2015 tax year). CGT rates are 18% or 28% for higher rate tax payers. HMRC website provides a step by step guide.

Any buy to let properties that you own in the UK and subsequently sell after you become a french resident will be liable to French CGT.

Ownership
An important point to note, if you are married, but your UK property is only in one person’s name, it may be sensible to transfer the property into joint names prior to any sale to reduce any potential UK CGT liability. There is no CGT payable between spouses/civil partners and the CGT calculation on sale will be based on the original purchase price for both parties.

In France Gift Tax applies between spouses and applies to gifts made in the previous 15 years so it is sensible to take advice from a professional before taking any action.

French CGT
Like UK CGT, you start with the sale price and deduct the purchase price plus any associated buying and selling costs and costs of improvements (but not repairs or DIY, invoices need to be provided from registered builders etc). If you have owned the property for more than five years the notaire can apply an allowance of 15% of the original purchase price of the property – even if you haven’t done any work!

For EEA residents the starting rate for french CGT is 19% plus 15.5% social charges however these start to reduce on a sliding scale from year 6 of ownership onwards. After a full 22 years have passed the CGT reduces to nil, however it is 30 years before the social charges reduce to nil. Additional charges apply for gains above 50,000 euros.

Working out when, where and how much Capital Gains Tax you should be paying can be quite a headache and the best thing to do is take advice from a professional.

This article is for information only and should not be considered as advice and is based on current legislation. 25/05/2014.

Tax Returns, Pensions & Seminars

By Spectrum IFA
This article is published on: 28th April 2014

What do the above have in common? Well nothing really except they are all topical now! Let’s start with tax returns ……..

I was really surprised to receive the French tax forms so early this year and then I realised why. The date for submission of paper returns has been brought forward to 20th May or if you submit your declaration over the net, then you have until 27th May to do this. Does this mean that we are going to get our tax demands a week or two earlier this year and perhaps with an earlier deadline date for payment? Well I guess that we will just have to wait and see.

No-one should ever try to second guess the Fisc or think that they can out-manoeuvre this government department. I hear some interesting stories of people being contacted and questioned about why they are not registered in the French tax system. You would be amazed at what is used to check – telephone bills, utility bills, etc., etc. How long will it be before our use of cash machines and our bank and credit card transactions in shops might be used to verify how much time we spend in France? Scary thought and actually they probably don’t need to go that far, as we can be tracked through our mobile phones and probably also our internet use.

Are you convinced now to register in the system? You’re still not sure if you are resident? OK, call me and with just a few questions, I will be able to tell you.

For those of you completing French income tax returns, don’t forget to include a list of foreign bank accounts and life assurance policies. You don’t have to declare amounts (unless you are subject to wealth tax), only the existence of the accounts and policies. If you don’t, the penalty is at least €1,500 per undisclosed account/policy or €10,000 if the bank account is in one of those uncooperative States or territories that have not concluded an agreement with France to exchange information. So even if it is an account that does not pay interest and there is very little in the account, declare the existence or risk the penalty!

Moving on to the other ‘hot topic’ of the day ……… I am already hearing about lots of people who are being cold-called about the UK pension reform. Apparently, these calls are being made by people operating from Spain or Cyprus or perhaps some other place. Typically, they are offering to liberate your UK pension plans now. What do these people know about the French tax system and the implications for you? For that matter, do they even understand the UK tax implications for you?

Rob and I have both written articles on this subject and I hope that we are sending out a strong message of the need to exercise caution. Every case will need to be considered on its own merits – there will be no ‘one size fits all’. Anyway being able to cash in large pension pots is only a proposal at the moment. We will have to wait for the result of the consultation and then probably a few months more to know the outcome. So if you get any of those calls coming from outside of France, my advice is to tell them not to waste your time!

The final thing that I want to mention is our client seminars – Le Tour de Finance. This is a tour that travels around France, where we bring ‘experts to expats’ and we are now taking bookings for the Spring tour for which there will be presentations on the following subjects:

Assurance Vie (two of our favoured providers will be presenting)
QROPS & Pension Investing (very topical)
Currency Exchange (is this a good time to exchange Sterling to Euros?)
Health Insurance (are you affected if the UK stop issuing S1s to early retirees?)
Wills in France & UK (are you affected by the EU succession rules from 2015?)
International Banking (do your current bankers meet your needs?)
Tax Advice in France (do you need help with those tax returns?)

Spectrum advisers will also be on hand at all events to answer questions. Maybe you need to have a more in-depth review of your financial situation. If so, we can arrange this with you.

As always, there is no charge for any of our seminars and the speakers’ presentations are followed by a buffet lunch/refreshments. The dates for the local events are:

21st May – Hotel La Villa Duflot, 66000 Perpignan
21st May – Hotel Abbaye École de Sorèze, 81540 Sorèze
22nd May – Côté Mas, 34530 Montagnac
23rd May – Montpellier Massane Golf & Spa Hotel, 34670 Baillargues

Each event starts at 10.00 am with a welcome coffee and ends at 2.00 pm after a buffet lunch, with the exception of Sorèze, which starts at 5.30 pm, finishes at 9.00 pm and refreshments will be served. The seminars are always very popular and so early booking is recommended.

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

Are you a Spanish tax-resident for tax purposes

By Chris Burke
This article is published on: 5th March 2014

If you are currently living in Spain, you would assume that you would also be a Spanish tax resident. That is not always the case. The underlining rule is that if you live more that 183 days of the calendar year in Spain then you are deemed to be tax resident also. Although this is usually the deciding factor there are exemptions to the rule. If the ‘centre of your interests’ is arguably in the United Kingdom, Her Majesty’s Revenue and Customs (HMRC) could reason that you are responsible for tax there, not Spain.

Where is your ‘centre of interests’? Well, you could quite conceivably spend most of your time in Spain whilst still having a house in the UK, a business or job based in the UK, children in school in the UK and/or a spouse in the UK. If all these were the case then you would almost certainly be UK resident for tax purposes. You would also be liable to tax in Spain (in theory) if you spend more than 183 days here. In practice there is however a ‘double tax treaty’ in existence between the UK and Spain which ensures you do not have to pay tax twice as a result.

If you currently reside in Spain and the majority of your ‘centre’s of interest’ are (in Spain) then you will be deemed as a tax resident by the Hacienda (the Spanish tax authorities) and liable to pay taxes on your assets world-wide.

French Trust Law

By Spectrum IFA
This article is published on: 3rd March 2014

As a financial adviser to the expatriate community, I am contacted by lots of people who have either already moved to France from another country, or are planning to do so. Amongst many other things, people are seeking advice as to how best to structure their financial assets for tax-efficiency in France. Since most of the people I advise originate from Anglo-Saxon countries, it may be the case that they may have an interest in a trust, which creates difficulties for them, due to the French tax treatment of trusts.

In 2011, France introduced legislation, which defined the taxation rules and reporting requirements, concerning trusts with at least one of the following:

French resident settlor;

French resident beneficiary; or

French situated assets – even if the settlor/beneficiaries are not living in France.

Basically, the law is aimed at the ‘family type of trust’ and generally excludes trusts falling outside of this area. A summary of the taxation treatment is shown below.

Income tax relating to trusts

Distributions received from a trust (whether capital or income) are treated as investment income, in the hands of the taxpayer. Therefore, 100% of the amount received is added to other taxable income of the household and taxed according to the progressive rates of income tax set out in the barème scale, for which the highest rate is 45%. Social contributions (current rate 15.5%) are also chargeable on the amount distributed.

Wealth tax (ISF) relating to trusts

The law aims for transparency, so that the real ‘owner’ of the assets placed in a trust can be identified. This will either be the original settlor or where that person has died, the beneficiary is subsequently deemed to be the settlor.

The trustees are required to report the annual value of the assets of the trust and to pay a levy, based on the highest percentage rate of ISF (currently 1.5%) of the underlying value of the trust’s assets. However, the levy is not payable if the French resident taxpayer has already declared the trust assets for ISF. Failure to report by 15^th June each will result in a fine of 12.5% of the value of the total trust assets or if greater, €20,000. The settlor and/or the beneficiaries are jointly and severally liable for the payment of the levy and for any penalty as a result of non-reporting.

Gift & succession duty regimes relating to trusts

Lifetime gifts and inheritance transfers from a trust with a French resident settlor or ‘beneficiary deemed settlor’, as well as to beneficiaries who have been resident in France for at least six out of the last ten years, are liable to taxation; so too is the transfer of assets into a trust. For non-resident settlors, the transfer of French assets into or out of a trust (for example, property) is also caught by the rules.

Using the market value of the assets, as at the date of transmission, the tax liability is as follows:

For trusts set up after 11^th May 2011, or for trusts set up in a jurisdiction that has not concluded a Tax Information Exchange Agreement with France (referred to as a “non-cooperative territory”), the tax rate is 60% in all cases.

For existing trusts, which are set up in a “cooperative territory”, the rate of tax is as follows:

if the relationship between the settlor and the beneficiary can be identified, the tax rate and allowance will be according to the standard IHT barème scale;

if the beneficiaries are, globally, the descendants of the settlor, the tax rate will be the top rate for descendants in direct line, i.e. 45%; and

anything else will be subject to a tax rate of 60%, unless covered by specific exemptions in the French tax code.

Overall, trusts do not work well in France and an alternative structure is needed to achieve the same objectives. Therefore, seeking professional advice from someone who understands both the Anglo-Saxon systems and the French system is essential.

France’s Fight Against Tax Evasion

By Spectrum IFA
This article is published on: 3rd February 2014

As part of France’s continuing efforts to combat fiscal fraud, a new piece of legislation was enacted into law on 6^th December 2013. This has far-reaching effects, including:

Criminal sanctions for serious cases of fiscal fraud are to be increased to a maximum of seven years imprisonment and a fine of €2 million, when the fiscal fraud is facilitated by:

the use of foreign bank accounts or foreign life assurance policies;
foreign entities, including trusts, set up outside of France;
the use of false identity or false documents; or
artificial or fictitious tax residency.

Undeclared monies held outside of France, whereby the taxpayer cannot prove the provenance, to be taxed at 60%.

If, as a result of failing to declare assets outside of France, a taxpayer does not make a wealth tax return because the ‘none inclusion’ of the assets indicates that they are under the wealth tax threshold limit (currently €1.3 million), the penalty is to be increased from 10% to 40% of the tax due.

The period during which the tax authority can take action to prosecute is to be increased from three years to six years.

As concerns trusts, legislation was already introduced in 2011, which has required the trustees to declare to the French tax authorities the existence of the trust with at least one of the following:

French resident settlor;
French resident beneficiary; or
French situated assets – even if the settlor/beneficiaries are not living in France.

Since 2011, failure to declare the existence of a trust has resulted in a penalty of the greater of 5% of the value of the total assets of the trust, or €10,000. The new law increases the fine to 12.5% of the value of the total trust assets or if greater, €20,000.

In addition, a public register of trusts is to be established by the Minister of Finance. This will require full details of the trust to be published, including the name(s) of the trustees, the settlor and all of the beneficiaries, as well as the date of establishment of the trust. Therefore, the text of the law is wide and in effect, requires information concerning non-resident beneficiaries to be made public and may also require the names of potential beneficiaries to be published.

France, like many other countries, is targeting tax evasion more and more. Banks and insurance companies are required to report information to tax authorities about their clients and tax authorities around the world are exchanging information. The EU is also proposing to amend EU Directive 2011/16 to expand the field of the mandatory automatic exchange of information between tax authorities to include capital gains, dividends, bank account balances. Banking secrecy will clearly become a thing of the past!

It’s a fool’s game to try to hide assets and pretending not to be resident is not a good idea. One way or another, the taxman always finds out and the penalties can be very costly. It is much better to seek regulated advice from professionals who are registered here in France.

Does any of this concern you? Would you like to ensure that you and your potential beneficiaries do not pay any more tax on your financial capital and investment income than is necessary? If the answer to either of these questions is yes, then please contact me for a confidential discussion.

We are also now planning for our Spring Client Seminars. As always, there is no charge for any of our seminars and the speakers’ presentations are followed by a buffet lunch, so places must be booked in advance. The planned dates for the next local events are:

21^st May at Castelnaudary
22^nd May at Perpignan
23^rd May at Montpellier

As the seminars are always very popular, early booking is recommended.

If you would like to discuss your financial situation, in confidence, or if you or you wish to attend one of the seminars, please contact me or by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on 04 68 20 30 17.

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 at https://spectrum-ifa.com/spectrum-ifa-client-charter/.

20% withholding tax on all transfers from abroad into Italy

By Gareth Horsfall
This article is published on: 1st February 2014

As of February 1st 2014 banks in Italy will be obligated to withold 20% of the amount relating to transfers coming into personal accounts from abroad. The 20% will be witheld at source, by the bank, unless an exclusion has been applied to declare that the money is not profit from financial transactions being made abroad.

The witheld tax will be assumed to be an advance tax on ‘profit from investment’ and that the tax will need to be declared and paid on it anyway on the end of year on the RW form. The tax will be witheld every 16th of the month following the transfer and the accumulated amount can be used as a deduction against your end of year tax bill.

(Profit from investment includes ‘interest from savings, income from property (i.e rentals, gains from the sale of property etc. This is what they are trying to target!!!)

Even if an exclusion is filed for and granted (at the bank) your name and details will be submitted to the Agenzia delle Entrata. In addition, you have until the 28th February following the year of the deduction (28th February 2015) to apply, to the bank, for an improper application of the witholding tax and request a refund.

The exclusion will be granted by production of a self certification in the form of a letter sent to the bank. It is likely that this self certification will cover a full tax year, in which the remittances were made, but as yet the rules are unclear.

As you can imagine the banks have been caught a little bit on the hop and are not really ready for the implementation of this little piece of legislative wonder.    However, if you are remitting funds into Italy in the form of pensions, bringing cash in to renovate a house, income from running a business abroad etc then you must go and speak with your bank manager about how to self certify that the funds have not been generated from profit on investments abroad.

The main aim of the witholding tax is obviously to flush out those who are avoiding paying tax on assets overseas. The government is very cleverly avoiding the necessity of tax collection through third party intermediaries and instead going directly to the source of remittances into the country, the banks and other financial institutions.   Since the banks are wholly unprepared for this it could mean a messy period whilst it gets sorted out. The banks are likely to be inundated with self certifcation letters and the hope is that they can administer this without problem.

As an example of the chaos, it is unclear at the moment whether remittances under a SEPA transfer will be subject to the witholding tax although it is just a matter of time before that is resolved.

The whole idea seems rather counter productive to me, in that 20% on an amount remitted into Italy is not the same as 20% on the interest on funds that have been legitimately held abroad as savings.   Ultimately, the funds being remitted into the country are less than before and hence less funds to spend and use in the economy. I have my sneaking suspicion that this is merely a way to generate more information for the Agenzia. For those who are declaring their assets and incomes correctly and are ‘in regola’ it will be mostly a form filling exercise, lodging these forms with the bank and ultimately, the legislation will be of little concern. The only benefit being that the Agenzia has more ways of matching assets held abroad versus remittances from abroad and amounts declared on the RW (end of year tax declaration) and ensuring that 1+1+1=3

If you would like to contact me to discuss possible financial planning opportunities around this, or any other matter you can do so on gareth.horsfall@spectrum-ifa.com or call me on +39 333 6492356.

French Residency – Dispelling the Myths

By Spectrum IFA
This article is published on: 22nd January 2014

French residency is a popular topic of discussion for expatriates when they get together in a social setting. So many times I hear people saying that they “choose” not to be French resident and just to be sure, they make sure that they do not spend more than 183 days a year in France. Come April/May time, the chatter on this subject increases. So too do the differences of opinion, mostly about whether or not someone should complete a French income tax return.

Well to dispel the first myth – residency is not a choice per se. Based on the facts, you are either French resident or not.

The rules on French residency are really quite straightforward – although admittedly some cases are not! For example, take a couple who are lucky enough to have a property in each of France, the UK and Spain. None of the properties are rented to tenants and so all are available for their own personal use. Every year, they spend five months a year in France, four months in the UK and three months in Spain. They receive pensions from sources outside of France and most of their financial capital is in offshore bank deposits in the Channel Islands. They also have current bank accounts in each of the three countries.

Where are they resident – well the simple answer is “France”. Why – because this is where they spend most time in a year.

Hence, the second myth of the perceived ‘183 day rule’ is also dispelled.

When anyone has interests in various countries, it is often found that they satisfy the internal criteria for residence of more than one country. Understandably, this can be confusing. In France, you only have to satisfy one of the following four conditions and you will be resident in France:

(1) France is your ‘home’: If you have property in France and another country, but the latter is not available for your personal use (for example, because it is rented to tenants), then France is your home.

(2) France is your ‘centre of economic interest’: Generally, this means where your income is paid from. In addition to pension, salaries, etc., this can include bank interest and other investment income.

(3) France is your place of ‘habitual abode’: Notably, no reference is made in the law to the number of days that you actually spend in France and this is where many people are caught out, believing that if they do not spend at least 183 days in France, then they can decide that they are not resident. This is not the case and your place of ‘habitual abode’ is, quite simply, where you spend most time.

(4) Nationality: If your residency has not been established by any of the above points, then it will be your nationality that determines your residence, however, this is very rare.

As a French resident, you are obliged to complete an annual income tax return and must declare all your worldwide income and gains (even if the income is ultimately taxable in another country). In addition, depending upon the value of your assets, you may also need to complete a wealth tax return.

Thankfully, there are Double Taxation Treaties (DTTs) existing between France and all the EU States (and also with many other countries in the world). For anyone with interests in more than one country, the existence of a relevant DTT is very important. This is because a DTT sets out the rules that apply in determining which country has the right to tax your various sources of income and assets, with the aim of avoiding double taxation.

However, France does not have DTTs with the popular offshore jurisdictions of, for example, the Channel Islands and the Isle of Man. Hence, for any French resident with bank deposits in these jurisdictions, where withholding tax is being charged on the interest, there is no mechanism to offset this against the French income tax that is also payable. Probably the best thing to do to avoid paying tax twice on the same source of income is to shelter the financial capital within an investment that is tax-efficient in France. Notwithstanding this, as everyone’s situation is different, it is also very important to seek independent financial advice before taking any action.

Inheritance taxes should also not be overlooked. As a French resident, you are considered domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend on your relationship to your beneficiaries. However, there are some DTTs on inheritance taxes between France and other countries (although nowhere near as extensive as the number of DTTs that exist for other taxes). Again, it is important to seek advice on your own personal situation because it is my experience that ‘one size does not fit all’.

In summary, French residency is a fact and not a choice. However, by seeking advice, action can be taken to mitigate your future personal French tax bills, as well as the potential French inheritance tax bills for your beneficiaries.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of French tax legislation. Hence, if you would like to have a confidential discussion about your personal situation, please do not hesitate to contact Daphne Foulkes by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on + 33 (0)4 68 20 30 17.

TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»