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Have you or someone you know had to pay Spanish non-resident inheritance tax since 2010?

By John Hayward
This article is published on: 11th November 2014

11.11.14

Further to the judgment made by the European Union Court of Justice (ECJ) on 3rd September 2014, that Inheritance and Gift tax rules in Spain were discriminatory between residents and non-residents, several key firms of accountants and lawyers have implied that anyone who has been subject to the higher non-resident rates in the last 4 years could make a claim.

There has not been any formal approval by Spain but proposals are to treat those non-Spanish tax residents living in the European Union (EU) or the European Economic Area (EEA) as if they lived in one of the autonomous regions of Spain where tax rates tend to be heavily discounted. The region will be determined by where you have spent most time in the last two and a half years or by where the majority of your Spanish assets are situated if you live outside Spain.

Gifts outside the EU or EEA to a Spanish resident could be subject to the rules of the autonomous region where the recipient has his/her residency.

Although the changes have not yet been formally approved, lawyers are submitting tax returns on the basis that the qualifying non-resident will receive the tax advantages of the relevant autonomous region.

This will mean that, for example, children living outside Spain, inheriting from parents in Spain, will no longer have the much higher (generally) “National” Spanish taxes to pay. Parents will be able to gift property to their children without necessarily needing to make expensive tax avoidable arrangements.

However, not all autonomous regions are so generous with their discounts. Whereas Valencia offers very large discounts to all direct family members, Murcia, next door, only offers significant discounts to those under 21. Also, there are limits on discounts in most, if not all, regions and so they may not cover all of the assets. Therefore it is extremely important to have assets positioned in the most tax efficient manner. This needs to be legal as well.

How can we help?

1/ If you or someone you know has paid inheritance tax on money from an EU or EEA resident who has died in the last 4 years, you may be able to make a reclaim. We have lawyers who can help with this on a no win, no fee, basis. (We are not tax advisers)

2/ We are experienced in helping you arrange your finances in a Spanish tax compliant manner, helping you and your loved ones to reduce the impact of Spanish taxation.

EU SUCCESSION REGULATIONS – the perfect solution?

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

10.11.14

The EU Succession Regulations (also known as Brussels IV) were adopted on 4^th July 2012. The UK, Ireland and Denmark opted out of the Brussels IV, but residents of these countries are still affected, particularly if they have cross-border succession interests.

The default position is that the law of “habitual residence at the time of death” will apply to the succession of the entire estate of persons who die on or after 17^th August 2015. However, a person may choose the law of the country of his “nationality” to apply by specifying this in a will. If the person has more than one nationality, he can choose whichever he wishes.

Therefore, except for residents of the UK, Ireland and Denmark, a foreigner (not necessarily an EU national) living in any of the other 25 EU States can elect the country of his nationality to apply to the succession of his estate. Interim measures are already in place to make such a ‘nationality election’ now in a will, but it will not be effective until 17^th August 2015.

There is considerable misunderstanding about the Regulations and whilst it is true that people will be able to choose the succession rules of their country of nationality this will not change the inheritance tax rules that apply. Therefore, if at the time of your death you are French resident or you own property in France, even if you have chosen the succession rules of another country, it is still the French inheritance tax rates that will apply. This means that the amount of French inheritance tax that your beneficiaries will have to pay will depend upon their relationship to you.

Unfortunately, I am finding that people who are purchasing property now and are planning to live in France may not be seeking adequate inheritance planning solutions. They believe that they can rely on the EU Succession Regulations to protect the survivor, but sadly they are not aware of the potential inheritance tax issues that can exist.

For example, the most common scenario that we come across is one that involves there being children from a previous marriage. Currently, unless the couple buy the property ‘en tontine’ or the children enter into a family pact with their natural parent, the surviving step-parent will not have full control over the property. The EU Succession Rules achieve the same effect as these techniques, if the couple elect for the succession rules of their country of nationality to apply and that country does not have any concept of children being ‘protected heirs’.

A perfect solution? Maybe, if the only objective is to protect the surviving step-parent, but if the step-parent wishes to leave the property to the step-children, then there will still be a 60% inheritance tax bill, so perhaps not quite the perfect solution!

Actually, I have greater concern about some expatriates who are resident in France now, who are already making new French wills, choosing the law of nationality to apply to their succession. This may be fine if there is a ‘stable family relationship’ and the couple only have children of their marriage, particularly as it is likely to cost less in legal fees than the alternative of changing their marriage regime to one of “Communauté Universelle avec une clause d’attribution intégrale de la communauté au conjoint survivant”, which would achieve the same effect.

However, many people have already undertaken inheritance planning (and paid for this), which has achieved the objective of protecting the survivor and mitigating the potential inheritance tax bills of their heirs, as far as possible. Depending on the situation (value of estates, stable family relationship or not), it is highly likely that the planning already undertaken will be better for the majority of cases and making a new will now might turn out to be a costly mistake for the potential beneficiaries.

Like all aspects of financial planning, every case should be looked at on its own merits and what seems clear is that there will be some cases where the ‘French way’ may still be best. For example, take my own situation where as a British citizen who is in a French civil partnership (PACS) with someone who has dual US and British citizenship, as well as him having two daughters and two grandchildren living outside of the EU, we will not be rushing ahead to request that English succession rules apply to our estates. Instead, we will definitely continue to depend upon our French family pact and assurance vie because in that way, we know that when the time comes, the survivor will be fully protected and the potential inheritance tax bills of our heirs have been mitigated.

Hence, as can be seen, tried and tested solutions already exist for dealing with property, plus assurance vie will continue to be an effective succession planning tool for financial assets. You can find out more about the ‘French way’ by reading my article on ‘Inheritance Planning in France’ on our website at https://spectrum-ifa.com/inheritance-planning-in-france/ or by contacting me directly for a copy.

Brussels IV aims to harmonise the approach to succession across the EU with the intention that the civil rules of only one jurisdiction apply to the succession of a person’s estate, i.e. habitual residence or nationality. However, due to the opt-out of the three Member States, this has already created uncertainty. In addition, it is not clear how the Regulations will work at a practical level, in particular, how the courts in one country will administer the succession of both moveable and immoveable assets in another country. Hence, even some international legal experts are not yet drafting transitional provisions into wills that involved a cross-border succession, as there is still too much uncertainty. We can only hope that there is further clarification before August 2015.

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.

Tax Efficient Savings in Luxembourg

By Michael Doyle
This article is published on: 6th November 2014

06.11.14

Two of the main concerns many of my clients have whilst living in Luxembourg are:

The low interest rates they receive from saving in the bank.
How can they save in a tax efficient way?

At the moment, as most of you will already know, whilst leaving your funds to accrue in a bank account in Luxembourg you can receive interest of around 1%. However, due to the European Savings Directive, you lose 10% of this as a tax, thus you will receive around 0.9% interest net.

Putting this in perspective, most of us have to save for the future, either for our pension provision or for our children’s further education. Based on the Liverpool Victoria Study in November 2007, it said that University costs increase at approximately 7.5% per annum (the current level of inflation for educational costs). This was further supported by an article in The Sunday Telegraph, (26^th August 2007), which stated:

“School fees have risen 41% in the past 5 years”

Fees at many universities in the UK now stand at £9,000 per annum.

So the question we have to ask ourselves is whether or not by leaving our money in the bank, will we be able to meet all of our future goals?

One solution is to look at saving through a Life Assurance wrapper.

A wrapper is effectively an “investment platform” through which an enormous range of underlying investments can be purchased. Whilst the wrapper will be provided by a life assurance company, it is important to note that you are not paying a premium to purchase additional life assurance. It is, to all intents and purposes, an investment contract.

So what are the benefits of saving within a wrapper here in Luxembourg?

All investments grow within the wrapper free of income tax and capital gains tax.
As the wrapper is considered a life assurance contract it is not affected by the European Savings Directive.
The premiums you pay could be tax deductible (subject to personal circumstances).
You have access to investments perhaps only available to institutional investors.
Lower minimum entry levels in underlying investments.
Access to some of the top fund managers in the world.
The flexibility to change your investment strategy at any time.
The ability to access your funds if required.
Higher bank rate. For example, there are currently bank rates offered within the wrappers of 4.25% per annum.
Security.

Every person’s circumstances are different and you should always seek Independent Advice before making any investment decision. Here at The Spectrum IFA Group we offer a no obligation Financial Review before offering any advice.

How my Spectrum IFA Group Financial Adviser in Spain saved me 82,947euro in tax!!

By Barry Davys
This article is published on: 5th November 2014

05.11.14

Mr Blood had lived in Spain for eight years. However, as a result of a pension mis-selling review in the UK by a large UK bank he received compensation to cover a pension shortfall. The client was extremely satisfied with the amount of the compensation. Advice was requested from his Financial Adviser (IFA), Barry Davys of The Spectrum IFA Group, on how to invest this compensation to ensure that his pension fund returned to its true value.

Whilst this payment of compensation is tax free in the UK, Mr Blood is resident in Spain. In Spain these types of payment are taxable. Fortunately, the IFA knew the differences in the tax regimes. Barry had a tax lawyer calculate the amount of tax due on the compensation payment and Mr Blood was, not surprisingly, horrified to find that the tax to be paid was 82.947,91€.

Despite the client having signed a letter of acceptance with the bank and the compensation having been paid, Barry reviewed the case and found that the letter of acceptance did not sufficiently identify the issue of Spanish tax, having only emphasised the UK tax situation. Barry opened negotiations with the bank. As the regulatory requirements in the UK required the bank to put the client in a “no loss” position, the payment of tax resulted in a loss. To be fair to the UK bank they accepted this principle and agreed to pay a further compensation to cover the loss from having to pay tax.

The payment of a further 82,947€ could have seemed like a satisfactory outcome. However, any payment to cover the client’s loss as a result of the tax payment would be subject to taxation on the additional payment too. Our adviser again instructed a tax lawyer for the calculation of the gross amount required to ensure the client was put back in a no loss situation. Further negotiation by the IFA resulted in a grossed up additional payment to the client of 178,000€. This resulted in Mr Blood being recompensed in full for the loss.

Case Study Key Points

The key points in this case study show that a knowledge of UK and Spanish tax law was required to identify the problem. Secondly, knowledge of regulatory requirements helped ensure a successful negotiation between the bank and the IFA. Using specialist tax lawyers to calculate liabilities strengthened the client’s position. Finally the IFA’s knowledge of UK and Spanish pension law helped to identify what options were available for reimbursement.

On payment of the additional compensation Mr Blood commented;
“I was frankly shocked to learn that the Spanish Hacienda doesn’t recognize compensation for a loss as exactly that; a compensation. My initial dealings with the bank quickly highlighted my lack of experience with financial matters, and I was relieved that Barry agreed to negotiate on my behalf. His in-depth knowledge of the financial services industry and his negotiation style delivered for me the best possible outcome I could have wished for me and my family. I sincerely believe this outcome was only possible with his support.”

Barry Davys was also pleased. “It is extremely gratifying to be able to help someone in this way. The years of studying taxation, pensions, regulations etc. feel worthwhile in situations such as these. It is an extremely interesting time in Spain with many changes in taxation. I look forward to the challenge of continually helping international people with their financial planning to put them in the best possible position”.

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The Spectrum IFA Group sponsors What Larks English Theatre Group

By Victoria Lewis
This article is published on: 3rd November 2014

03.11.14

Victoria Lewis and The Spectrum IFA Group are proud to be sponsoring the local English theatre group What Larks for their upcoming productions of ‘Barbara’s Wedding’ and ‘A Well Remembered Voice’.

The double bill of two beautiful J M Barrie short plays has been chosen to commemorate the centenary of the beginning of the 1st World War.

The events are taking place on:

Sunday 30th November –BEDOIN, 84410
Tuesday 2nd December – BONNIEUX, 84480
Sunday 7th December – AIX-EN-PROVENCE, 13100

Barbara’s Wedding:

The Colonel is in his dotage, and as his memory fades, past and present become intertwined.
He is visited by his beloved grandson and the young man’s fiancée, Barbara.
But are they really there? And who is it exactly that Barbara is marrying?

A Well-Remembered Voice:

A couple have lost their son in the trenches. The young man’s mother tries to speak to him through a séance, while his father simply reminisces, by himself. And yet in the process it is Mr Don, and not his wife, who is finally able to talk to their son, in a way he never could when the boy was alive.

Tickets are available from www.whatlarks.org

Savings solutions in Spain

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

29.10.14

Stockmarket falls and low interest rates
Have you seen your investments fall by over 4% in the last month? This could be the case if you have been invested in the stockmarket. Most people know that investments can go down as well as up. Over time, stocks and shares can make significant gains. However, it still hurts when one sees a loss of this amount in such a short period. Some people prefer to keep their money in cash but then we have another risk. Interest rates are low and, even with the suggested increases in 2015, they could remain low relative to inflation. What many people want, and probably need, is a steady increase in the value of their savings with as little risk as possible. So what is the solution?

The low risk solution
We at The Spectrum IFA Group have access to an insurance bond offered by arguably the largest insurance company in the UK and one of the largest in Europe. Their investment model has allowed consistent returns of over 4.5% a year (after deducting charges) whilst exposing the investor to a fraction of the risk of a stockmarket such as the FTSE100. Whilst the FTSE100 has fallen by more than 4% over the last month, this low risk approach has produced a gain of almost 1%.

Tax friendly in Spain and the UK
No tax is payable on the pure growth of the insurance bond. Even if withdrawals are made, the tax treatment is vastly more favourable when compared to bank accounts or other non-compliant arrangements (see an example of how tax is calculated here). If you are currently Spanish resident, but you subsequently move back to the UK, the bond can follow you and benefit from the advantageous tax treatment awarded to these policies in the UK.

Outside Spanish inheritance tax (IHT)
With Wills correctly drafted and you are deemed domicile the UK, this insurance bond is outside Spanish IHT because it is not based In Spain. With IHT in Spain extremely punitive for non-residents (law possibly to change in 2015), this is a huge benefit to the non-resident beneficiary. It can be written in joint names so as to avoid Spanish IHT on the resident owner.

No Modelo 720 declaration
As this bond is Spanish compliant, there is no obligation to declare it as an overseas asset on the Form 720. This is because the insurance company declares it to Spain each year.

To find out more about how we can help you arrange your savings in a more beneficial way, contact your local adviser or fill in the contact form below.

UK Pensions – Spend it or Save it

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

25.10.14

I make no apology for returning to one of my favourite topic this week – pensions. I am quite frankly aghast at what is going on in the UK at the moment. I expect that many of you might recognise this quote from our esteemed Chancellor:

‘People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long term economic plan.’

Fine words indeed, but this is what I think is really going on:

‘There are many people who have worked hard and saved all their lives, and I need to get my hands on that money. I can’t steal it, this isn’t Cyprus after all, but if I let you spend it, just think of the tax revenues I’ll rake in’.

Actually, I really feel sorry for the Pensions Minister, whose job it is to encourage saving via pensions. He really must feel as though he’s the bandmaster on the Titanic, and he’s never had to perform on a sloping deck before.

I have a whole list of problems with this new course being set by the government (note the continuing nautical theme there…). Firstly, we all know how deadly boring pensions are when we’re young. We’ve all been there. Yes, I know I should save, but I have a life to lead, and it’s not cheap. The older you get; the more interesting pensions become. You just have to hope that you see sense before it’s too late. But what happens for the future generations? If you can access your pension fund whenever you want to, why bother?

Pensions instil discipline, or at least they used to. In my view, a pension fund isn’t even really your money. It is money that you give, or somebody else gives for you, to an independent body (a trustee) who will look after that money for you and let you have it back in sensible tranches so that it will support you for the whole of your post working life. Not everyone has one, but if you don’t you have to rely on independent means, and the UK State pension. You’d better have both, because the State pension isn’t going to fund much of a lifestyle.

What will happen from next April is a projected boom in capital spending, and the idea is that it’s you who will be spending your capital. Stand by for a blitz of promotional activity, in the UK at least. Car port; house extension; conservatory; double glazing; new driveway, new car; new anything, you’ll be urged to buy it. If you can’t face all the pressure, you’ll be offered a world cruise to get away from it all. Anything that means you spend money, and in the process pay more tax.

To my mind, this is madness. Back in the old days (showing my age here), you could rely on GAD to act as a moderator, controlling how much money you could sensibly use. GAD stands for The Government Actuarial Department, and is manned by an army of very clever qualified actuaries, basically expert mathematicians. Their job was to work out how much you could draw from your pension, whist at the same time ensure that your pension would outlive you. In other words, the pension would always support you. You were allowed to draw any percentage of ‘GAD’, as this figure became known; any percentage that is up to 100%. Don’t confuse that with 100% of your pension, which is what we’re looking at now. This 100% meant the maximum you could take out of your pension without it bleeding to death.

As the brake cable was gradually severed, that GAD figure became 120%, then 150%, and now we have the next logical step in the descent into eventual poverty.

I’m having none of this nonsense. I decided in 2006 to transfer my personal pension out of the UK into a QROPS, and I’m very glad I did. Last year I discovered that a smaller pension, which had been awarded to me as a result of the mis-selling scandal in the 1980s (interestingly I didn’t think that I had been mis-sold anything), had grown to a reasonable size, and was due for payment (another age clue).

In line with strict Spectrum IFA Group standards, I have sent all the details of this scheme to my pension team in head office, who are conducting a full review of all the terms and conditions relating to it. They will shortly provide me with a full report, and unless there is anything in that report to indicate that a transfer would be unwise, my pension will follow the original one out of the UK jurisdiction to a safer haven, free from meddling politicians and pushy salesmen.

Remember pension busting? That was all about rogue financial advisers, if you can call them that, urging you to take your pension abroad, where you would be shown weird and wonderful ways to access (illegally) your pension fund. How times have changed. Now you are being urged to at least consider taking your pension abroad with a reputable financial adviser, in order to protect it from the biggest pension buster of all time, the UK government.

If you have any questions on this, or any other subject, please don’t hesitate to contact your local adviser

How much is Inheritance Tax in Spain?

By John Hayward
This article is published on: 23rd October 2014

There are two sets of rules that could apply; one by the autonomous region and one by the State. For these purposes I will focus on my region, the Valencian Community, which covers the provinces of Castellón, Valencia, and Alicante.

There are several factors which determine how you or your estate is treated. These include;

Your relationship to the deceased or the beneficiaries.
Country and/or region the different parties are resident.
How much pre-existing wealth the beneficiary has.

Unlike the UK, where the total estate of the deceased is taxed after allowances, in Spain it is the individual inheritor who is taxed.

State rules

Basic allowance of €15,956.87 for those who qualify.

95% reduction on the value of the main residence (max. €122,606.47). The property cannot be sold for 10 years from the date of death to retain this reduction. If sold within 10 years, the tax will be recalculated. This reduction only applies to married couples and close family.

Valencian Community rules

If you are resident in the Valencian community you, or your beneficiaries, can benefit from much higher allowances and less restrictions.

95% reduction on the value of the main residence (max. €150,000). This cannot be sold for 5 years from the date of death to retain this reduction. If sold within 5 years, the tax will be recalculated. Again, this reduction only applies to married couples and close family.

€100,000 allowance for each qualifying individual. The allowance is more for younger children.

75% reduction on the final tax bill.

Example (Husband (deceased) and wife resident in Valencia)

Main residence value €350,000

Wife inherits husband´s half €175,000

less 95% reduction (up to €150,000) €142,500

Net value € 32,500

less Tax allowance €100,000

Result? NO TAX TO PAY*

If the property was sold within 5 years, or the wife did not want the restriction of having to keep hold of the property for 5 years, the tax bill would work out to about £8,500. However, this would then be reduced by 75% (as she is resident) giving a net tax bill of just over €2,000.

For a non-resident, the tax bill would be around €23,000.

This is a simplified example but it illustrates the enormous difference in tax treatment for residents and non-residents. For a resident couple, there is not likely to be a huge potential tax bill. The problem comes after this when the non-resident children and grandchildren inherit. Spain is under pressure to equalise the rates charged for residents and non-residents and there could be changes in 2015.

If you would like to know how much inheritance tax you or your loved ones could be obliged to pay, and look at ways at reducing or even negating the tax, contact your local adviser.

Please note that these rules are subject to alteration. We are not employed as tax advisers.
*There could be capital gains tax to pay.
Source: Generalitat Valenciana

Tax efficient saving in France with Livret A & Assurance Vie

By Amanda Johnson
This article is published on: 17th October 2014

When I was a UK resident I was able to take advantage of tax free savings schemes. Are there French products that will allow me to save, tax free, now I live in France?

There are two main tax efficient saving products you can take advantage of as a French resident, Livret A & Assurance Vie.

Livret A is a deposit based account which all banks and the post office offer. It gives you instant access however this is balanced by a modest rate of interest of around 1% p.a. There is also a maximum amount of 22,950 Euros per person you can hold within a Livret A.

An Assurance Vie is an investment which again all banks and financial institutions here in France offer.

I have written about this before yet I think a reminder of the important aspects of the mechanism of “assurance vie” is probably in order here:

An Assurance Vie (“AV”) is a type of insurance however unlike a life insurance policy you may have experienced in the UK, these policies shield any investments from virtually all forms of tax while the funds remain inside the AV. (some funds receive dividend income that has had withholding tax deducted).

AV’s become more tax efficient over time. After 8 years funds can be withdrawn from the AV and taxed at just 7.5% on the gain element only. Funds can be accessed at any time before that, with the gain declared on your annual tax return. Standard social tax remains payable on all gain, but only when drawn.

After eight years your gain is not only tax efficient, but it can be offset against a tax free allowance of (currently) €4,600 per person (€9,200 per couple) per annum. I would be happy to run through this with you as part of a free financial health check.

AV policies are not subject to succession law. Proceeds from an AV policy can be shared amongst any number of beneficiaries. Although the succession tax benefit is reduced when the subscribers are aged over 70, there are still worthwhile benefits to be gained in this area.

What should I ask for in an Assurance Vie?

Portability – Can I take it with me if I move back to England or to another country?
Regulation – Is the company advising me on an Assurance Vie regulated in France?
Fees – No up front entrance fees apart from the money I use to establish the policy?
Social Charges – If & how are Social Charges applied to my AV ?
Currency – Can I invest in Sterling? Euros?

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

Le Tour de Finance – France, October 2014

By Spectrum IFA
This article is published on: 14th October 2014

The Spectrum IFA Group took part in the recent legs of Le Tour de Finance covering 3 separate events in the South of France – Domaine de Saint Endreol (the Var), Chateau la Coste (Aix en Provence) and Domaine Gayda (nr. Carcassonne).

More than 150 expatriates attended the events to hear from a panel of financial services professionals (pictured) on a broad range of financial issues relevant to those of us living and/or working in France. Topics covered included Investments, Pensions advice (QROPs), Wills, Inheritance planning and Taxation.

The seminar was followed by a Q&A session along with a buffet where attendees had an opportunity to mingle and speak directly to the experts in order to ask specific questions relevant to their personal circumstances.

The companies represented were: Currencies Direct, SEB Life International, Standard Bank, Prudential International and Hent Artwell Avocats (Tax Lawyers). Feedback from those attending has been very positive and plans are already in an advance stage for Le Tour events during 2015.