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Investments and investment risk

By Spectrum IFA
This article is published on: 16th September 2014

As I am writing this article, the hot topic of the moment is of course the Scottish Referendum on Independence. The polls are swinging from one direction to the other, but only by a small margin between the ‘yes’ and the ‘no’ camps. The final result will most likely be very close.

Even the Queen has uncharacteristically got a little involved in the politics, by expressing her hope to a well-wisher in Scotland that people will think very carefully about the future. Whatever the result of the referendum, it is clear that the United Kingdom will change.

What will happen to investment markets if Scotland votes yes? Well the wider world outside of Scotland seems to have woken up to what is actually happening in Scotland. Sterling has weakened amidst the uncertainty of the outcome, but beyond this, I am not bold enough to forecast any further effect on markets. Like any other investment risk, it needs to be managed.

On this subject, The Spectrum IFA Group has produced a Guide to Investment Risk. This has been written in plain, no nonsense, down-to-earth English and covers a range of assets classes and strategies. The individual articles included in the Guide can be found on our website at: spectrum-ifa.com/spectrums-guide-to-investment-risk/

Alternatively, if you would like to receive a full copy of this Guide, please contact me.

We are also taking bookings for our Autumn client seminar – “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

Places for our seminars are limited and must be reserved, in advance. So if you would like to attend the event, please contact me as soon as possible. The date for the local seminar is
Friday, 10^th October 2014 at the Domaine Gayda, 11300 Brugairolles.

Alternatively, 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.
Thursday, 9th October – Chateau La Coste, 13610, Le Puy-Sainte-Réparade.

For full details of all venues can be found on our website at spectrum-ifa.com/seminars

If you cannot attend one of our seminars and you would anyway like to have a confidential discussion about any aspect of financial and/or inheritance 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 at spectrum-ifa.com/spectrum-ifa-client-charter

Scottish Independence: A major faultline exposed in the UK?

By David Hattersley
This article is published on: 15th September 2014

Whatever the outcome of the referendum on September 18^th, the willingness of people to take risks to free themselves from Centralised Government (ie. in this case, Westminster) has exposed the growing dissatisfaction with large centrally controlled government. This would still apply to the UK, even without Scotland. No doubt there will be intense negotiations over the coming months in relation to the outcome of the referendum.

With the UK elections due soon, this could give rise to the same dissatisfaction in the UK, particularly if it is seen that the Scots get greater freedom. As a result, the UKIP could gain some seats based on their anti-EU stance, or there could be a change in the balance of power in key seats. The potential then arises of a coalition, but how will that be formatted? Will there then be a referendum on an exit from the EU?

So, where does this leave investors? The UK has been seen as a “safe haven“ for investors and this is bound to change, at the very least just in perception. Markets do not like uncertainty and this inevitably leads to greater volatility. Currency, bonds, gilts, property and equities will all be affected.

A globally diversified portfolio, in a wide range of asset classes, will help spread the risk compared to a UK-biased selection. This is where Independent International Financial Advice is vital! Protection of wealth can only be achieved where all asset classes are considered as part of a portfolio.

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.

Quick tips when relocating to Switzerland

By Chris Eaborn
This article is published on: 3rd September 2014

03.09.14

House Contents Insurance and Civil Liability Insurance

It is cost-effective to insure your own possessions, as well as the act of damaging someone else’s property or person through a combined “RC Ménage” policy. The liability cover also covers you for accidental damage (not wear and tear, which you are not responsible for) to a rented property which can be helpful as landlords here are VERY strict about any damages when you eventually vacate your property. An average family household costs approximately CHF 300-500frs per year in total for the combined policy of Contents and Liability insurance, although this will differ depending on circumstances. Jewellery should be separately listed.

Fire/Natural Disaster Insurance

This applies only if you live in Canton of Vaud: you have to buy a “fire/natural damages” insurance policy through an agency called the ECA. This cover is not expensive but it is compulsory. Normally, you will be sent a questionnaire in French to complete a few weeks after you move in to your new home. In the interim you are NOT insured, therefore we strongly recommend that you take the initiative to enrol as soon as you move in. We can provide the simple enrolment forms in English for you and a full summary of cover in English. This policy costs approximately CHF 50-100frs a year.

Legal Insurance (“Protection Juridique”)

Attorneys are very expensive and local law is complicated. You can buy a very good insurance policy that pays your legal expenses if you are sued or wish to pursue another person/company (for example, a dispute with a neighbour, or with a service provider, or with your employer). Such a policy costs around CHF 350 per year for a whole family and covers you worldwide, including litigation concerning a driving incident and costs approximately CHF 200 for an individual per year. In addition, and if you prefer, you can exclude driving which makes it even less-expensive still. This insurance is highly recommended as Swiss law is complex, attorneys are expensive and even minor legal disputes, such as defending yourself against a driving offense, can be stressful and distracting if you are trying to handle them by yourself. In the event of major disputes, which could incur a huge cost along with expensive attorney fees, it allows you to choose a lawyer who speaks a language of your choice such as English.

Arriving to/Departing from your Rental Property

When you arrive, make sure you inform the landlord promptly of anything that is not working or that you did not see during the initial inspection or the landlord will expect you to pay for it. When you vacate a property there is a very strict inspection. You will have to have cleaned it to such a degree that they will check for dust in the extractor fans!! It is recommended to get a professional cleaning company to do this or you may have a long wrangle over your deposit and unwanted hassle at the close-out.

Rental Guarantee Insurance: If you do not wish to tie up, typically three months’ rent, you can have this released by taking out a rental deposit insurance. It costs around 5% of the rental deposit amount, per year, so for a CHF 10’000 deposit, you instead pay about 500frs per year.

In Case You Ever Have a Fire or Burglary – Video/Photo your possessions!

We strongly recommend you take a video of your house contents to act as an aide-memoire in case of a fire/burglary. If you were unfortunate enough to have a fire and a total loss of everything, imagine how difficult it would be to sit down and list “everything” right down to the smallest items. This video would also be hugely helpful to an insurance company as it would show that you did own all of the items you listed, even though you would not be expected to have receipts for absolutely everything you own (you could also include a scan of any receipts that you have for larger items such as jewellery/furniture). It will probably only take 15 minutes of your time to do this and you could upload the video to a Cloud storage service or place the disk drive in a bank safety deposit box or give it to a family member to store for you off premises from your home.

A home safe is also a great idea for storing financial papers and family photos on disk (it costs a few hundred francs for a good safe- go for as heavy a model as possible, preferably 100kg-200kg).

Driving

Car insurance: Please be aware that Swiss insurers are strict about reducing/dismissing claims for break-ins where something is left visibly in the car. We suggest that you never leave anything in plain view – lock it in the boot/trunk or in the glove-box (preferably with it locked).

Speed limits are VERY strictly policed here, and if you are caught at 30kph over the limit you face not a civil action but a criminal one – with a 3 months ban PLUS a fine of up to 20% of your salary – PLUS your car insurance premiums will go up. Better to know now as there is no lenience because you “did not know”!

Drink driving– Switzerland has a very low limit, and it is strictly enforced, so it is advisable to avoid alcohol or grab the train.

It is also the law that you drive with your headlights on all of the time.

For motorway driving you have to purchase a “Vignette” from any petrol station or Post Office and display it prominently in your car windscreen. The police enjoy random checks especially in February/March to try and catch people out who don’t have one!

Train

If you use the train more than a few times a year, buy a 50% discount card. The Half-Fare travel-card is available for 1, 2 or 3 years and allows you to buy 1st or 2nd class tickets for half the price.

Order your Half-Fare travel-card at your local station or on the Internet at SBB Ticket Shop.

The Half-Fare travel-card is valid for the entire Swiss public transport network, which covers a total of 26,800 kilometres. The map on their website gives details of the routes and public transport services included.

It costs CHF175 for one year, CHF 330 for 2 years and CHF 450 for 3 years. It also gives discounts on the Metro, buses and ferry-boats.

There is a special offer (as of January 2014) for 16 year olds, for a half-fare card for CHF 98frs.

Local-Amenities Guide In English

There is a great book called “Know It All Passport” which includes everything you need to know, in English, about local services and leisure amenities. This is a great resource to help settle you in, especially if your French is still a “work in progress”! www.knowitall.ch lists the outlets where you can buy it.

Groceries and Wine/Beer- ordered online- delivered to your door

www.leshop.ch is an online grocery order service (English available) for Migros, one of the largest and best supermarkets here. They provide excellent service, deliveries are normally very accurate and arrive in good shape. No more heavy shopping bags and check-out queues! Other grocery stores also offer this service.

Tax Returns

Everybody with income over CHF 120k is required to make an annual tax return. If your company does not provide access to an accounting firm to do this for you, we can introduce you to excellent local accountants who are English-speaking, not too expensive and will take the hassle of this from you.

If you earn less than CHF 120K, you should make a “Simplified Tax Return” as there are personalised deductions you can apply for that can’t have been taken into consideration at payroll level. For example, you can deduct credit/mortgage interest and you can deduct for contributing to the 3^rd Pillar (mentioned later)….

Tax-Savings

You may be able to make additional back-payments into your company pension. Currently, this is up to 20% of your salary per year for 5 years, which will be fully tax-deductible. Additionally, in the event that you decide to stay in Switzerland and buy a house, this can be pledged as collateral to the bank, thus reducing the size of deposit that you need. We can help you understand the pros/cons of making back-payments.

“3^rd Pillar”- this is a private pension which you control. It is totally separate from the company pension and is portable. You can invest CHF 560 per month (maximum CHF 6’739 per year and the amount increases slightly periodically). If you think you will be here for a while, this is a good idea, as both as a disciplined savings vehicle and to help reduce your taxes – and even possibly assist in buying an apartment/house. There are some very attractive products that offer excellent investment returns potential, with a guaranteed capital along with a minimum return every year, even if the investment markets go down! Plus, you benefit from the markets when they go up. Again, we can help you evaluate the various different options available and “what happens if?” scenarios. Products vary hugely in terms of cost/benefits so a comparison is highly advisable.

Buying a House

This typically requires a 20% deposit but it is now possible for Swiss and certain European nationals to obtain a 90% mortgage. Interest rates are extremely low (roughly 2% if you have a mix of variable and fixed rates) and mortgage interest is tax deductible. We recommend you consider buying only if you plan to be here at least 5 years or would be prepared to leave your capital locked-up and rent out the property if you leave Switzerland. This is simply because there are around 5% fees in buying (“Frais Notaires”) plus, if you sell, there are capital gains taxes and realtor sales commissions to pay. Therefore, it may not be a good investment in the very short term.

You can borrow to finance not only a main residence but also a secondary residence such as a ski chalet.

There are various types of mortgage on the market- if you would like information, again, we can assist you in choosing the right type of mortgage and setting it up with leading partner banks and insurance companies who offer home-loans and help you to set it up in the most tax-optimised way. We can also assist with mortgages in France and in other countries. Please contact me on the phone numbers or email address listed below.

Banking / Private Banking

We can refer you to a local personal banker who speaks English and will take care of “everything” for your everyday banking needs as well as to international banks who specialise in dealing with expatriates.

We have also negotiated exclusive conditions for top-end Private Banking. Again, you can contact me on the numbers and email address listed below.

Making or Updating Your Will (Testament)

If you are not Swiss, you should have a local Will or your Estate is very complicated because local Estate law is similar to France in that it is under the Napoleonic Code (forced-heirship rules), meaning that your money would not necessarily go where you want it to! Non-Swiss nationals have the right to nominate the law of their home country in the administration of their Estate. We can provide you with guidance to write your own Swiss Will, which is relatively simple and does not cost you anything.

Investment Planning

We can help you review any existing investments and pensions and advise you on the impact of your move to Switzerland, as well as about any savings/investment you may wish to make now that you will be Swiss resident. We are Independent and can choose from across the wide choice of institutions on the market. We also have access to structures where you can deal assets yourself, if you wish to.

In particular, we are specialists in finding savings/investment solutions for internationally-orientated clients who may have careers that move them around and who do not simply wish to accumulate small “pots” in each country in which they work.

Foreign Currency Transfers

If you have regular payments, perhaps for funding an overseas mortgage, or you move money to/from Swiss francs, than using your regular bank for this service can be extremely expensive. Margins are undisclosed and, typically, include a spread of 4-5% with even commission on top! This is even if you move money from, for example, a CHF account to a Euro account with the same bank! We can arrange a free account with a leading currency-transfer specialist company through which you can convert currency at institutional rates, saving significantly versus foreign currency transfers through your bank.

Helicopter Rescue Service (Rega)

Helicopter rescue may be covered by your health insurance. However, the service itself is privately funded, receiving no State aid and, if you become a patron (currently CHF 70 a year for a family or CHF 30 a year for an individual), all fees for their services are waived.

Below is a link explaining the benefits in English.

http://www.rega.ch/en/goenner/goennerbestimmungen.aspx

Health Information and Service Providers

The below link is an excellent resource for finding a doctor nearby, as well as general information in English.

http://www.health.ch/english/index.html

Although some of the information may seem a little overwhelming, once initial formalities have been taken care of, living in Switzerland is extremely straightforward. We hope that some of the information contained here is helpful and that you will agree it is a fantastic place to live!

We will be delighted to assist you both now and in the years to come, whether you remain here indefinitely or move around the world!

Please note that this document is intended for general information purposes only for private use. E&OE.

Le Tour de Finance returns this autumn

By Spectrum IFA
This article is published on: 2nd September 2014

After a very successful string of events earlier in the year, Le Tour de Finance is back during October 2014.

These previous events were great success, with large numbers attending all the events with fact filled sessions followed by an opportunity for an informal questions and answers session over complimentary refreshments and a buffet.

The relaxed and open forums are a chance to expand your knowledge of personal finance as an expat resident in France. The panel of speakers are experts in their respective fields and are there to answer questions you may have about protecting and strengthening your personal financial situation while a resident in France.

The Spectrum IFA Group is an European leader in professional personal financial advice and will be covering subjects such as; QROPS, pensions, tax advice, investments and wealth management, healthcare, and mortgages.

Le Tour de Finance is an excellent and relaxed forum in which you can get those important questions answered, plus mingle in a pleasant and relaxed atmosphere with other expat residents whilst enjoying a buffet lunch. The free sessions commence at 10.00 and will finish at 14.00.

Wednesday, 8th October – St Endréol, 83920, La Motte, the Var.
Thursday, 9th October – Chateau La Coste, 13610, Le Puy-Sainte-Réparade.
Friday, 10th October – Domaine Gayda, 11300 Brugairolles.

To book your place please click here

Le Tour de Finance – “Bringing Experts to Expats”.

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 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

Inheritance Planning in France

By Spectrum IFA
This article is published on: 15th August 2014

If you are resident in France, you are considered also to be domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend upon the relationship to your beneficiaries.

There are strict rules on succession and children are ‘protected heirs’ and so are entitled to inherit a proportion of each of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, then three-quarters of your estate must be divided equally between them.

You are free to pass on the rest of your estate (the disposable part) to whoever you wish, through a French will and in the absence of making a will, if you have a surviving spouse, he/she would be entitled to 25% of your estate.

If you are not French resident, but own property in France, the same French inheritance rules and tax rates will apply in respect of that property – in effect, as if you were French resident.

You may also be considered domiciled in your ‘home country’ and if so, this could cause some confusion, since your home country may also have the right to charge succession taxes on your death. However, France has a number of Double Taxation Treaties (DTT) with other countries covering inheritance. In such a case, the DTT will set out the rules that apply (basically, ‘which’ country has the right to tax ‘what’ assets).

For example, 1963 DTT between France and the UK, specifies that the deceased’s total estate will be devolved and taxed in accordance with the person’s place of residence at the time of death, with the exception of any property assets that are sited in the other country.

Therefore, for a UK national who is resident in France, who has retained a property in the UK (and does not own any other property outside of France), the situation would be that:

any French property, plus his/her total financial assets, would be devolved and taxed in accordance with French law; and
the UK property would be devolved and taxed in accordance with UK law, although in theory, the French Notaire can take this asset into account when considering the fair distribution of all other assets to any ‘protected heirs’ (i.e. children).

If a DTT covering inheritance does not exist between France and the other country, with which the French resident person has an interest, this could result in double taxation, if the ‘home’ country also has the right to tax the person’s estate.

Hence, when people become French resident (or own French property), there are usually two issues:

how to protect the survivor; and
how to mitigate the potential French inheritance taxes for other beneficiaries.

At this point, there are probably many people saying “but the law has changed and now I can leave my assets to whoever I wish”.

This, of course, refers to the fact that legislation has been passed by the European Union, which will give non-French nationals, who are resident in France, the ability to choose the succession rules of their country of nationality, rather than being subject to the French rules. However, this will not be effective until 17^th August 2015 and even at this stage, following analysis by the international legal profession, certain difficulties with the practical application have already been identified.

A big issue, however, is that when the EU legislation is in effect, this will not change the inheritance tax rules that apply. Therefore, even if we have the freedom to decide who inherits our estates, this will not reduce the potential inheritance tax liability. Hence, there will still be a need to shelter financial assets from French inheritance taxes.

As concerns protecting the survivor, currently, there are a number of solutions that exist in France. For example:

You can change your marriage regime to one of “Communauté Universelle avec une clause d’attribution intégrale de la communauté au conjoint survivant”, so that all of your combined assets are held within a ‘community pot’. Subsequently, on the death of the first person, the assets in the ‘community pot’ are transferred to the survivor with little administration, thus, providing full protection for the survivor.
However, the downside of taking such a course of action is that your children will only have one set of inheritance allowances from the surviving parent (€100,000 per child) and so depending upon the value of your combined estates, this could result in a potential French inheritance tax bill. Therefore, an extra solution may be needed for financial assets, in order to mitigate the potential inheritance tax bill for your children or other beneficiaries.

In any event, this possibility is not usually open to couples who have children from previous relationships, since step-children may challenge such an arrangement.
When purchasing property, it is possible to do this ‘en tontine’. Subsequently, on the death of the first person, it will be considered that the property has been owned by the survivor since the outset. However, this does not provide protection for financial assets and so an additional solution is needed.
Furthermore, a potential disadvantage of purchasing a property en tontine exists, if either (or both) of the couple have children and the natural parent of those children is not the survivor. This is because the step-children will no longer be protected heirs and so will not have any right to inherit a share of the property. Should the step-parent subsequently leave the disposable part of his/her estate to the step-children, they will be faced with a French inheritance tax bill of 60% above an allowance of €1,594 (2014 rate).
You can make a ‘donation entré epoux’, which provides for the survivor to have outright ownership of the disposable part of the deceased’s estate and usufruit (life use) of the remainder.
For property, the ‘right of use’ is easily definable, since the survivor can live in the property, receive any rental income and make any alterations necessary. However, he/she cannot sell the property, without the agreement of the other ‘shareholders’ and would have to distribute their share of the proceeds to them, when the property is sold.

For financial investments, keeping the ‘right of use’ is complicated and often creates problems. There can be doubt as to whether the survivor can draw capital as well as income and what the ‘income’ actually signifies. Hence, it is preferable to find another solution for financial assets.
It is possible to enter into a ‘family pact’ with your children. This is a complex arrangement, whereby the children effectively agree to give up their French inheritance rights, at least until the death of the survivor. However, this gives the survivor greater control over assets and keeps the step-children’s potential inheritance tax bill to a minimum.
Since giving up inheritance rights is considered to be such a serious matter in France, two Notaires would be involved in this process – one of whom would represent the children and thus, would be appointed by the Association of Notaires.

Whether or not any of the above solutions is the right one for you will depend upon your personal situation and, in effect, the value of your combined estates. In any event, all of the above must be carried out at the Notaire’s office and so it is very important to take the Notaire’s advice on the solution that is best for your particular situation.

As concerns potential inheritance taxes, fortunately, French inheritance tax between spouses (and partners who have entered into a Pacte Civil de Solidarité, commonly known as a PACS) was abolished in 2007, and so this is not an issue for the survivor.

Furthermore, the allowance between a parent and a child is reasonably generous at €100,000. However, at the other end of the scale, i.e. for ‘non-related persons’ (which includes step-children), the tax rate is 60% on anything inherited above €1,594.

In reality, there is little that can be done to mitigate any potential French inheritance tax bill in respect of property assets, once the standard French allowances have been used up. Hence, in such a situation, it becomes very important to shelter financial assets, as part of the inheritance planning solution.

This can be done by using Assurance Vie, which is highly beneficial for:

protecting the survivor;
mitigating the potential French inheritance taxes for your beneficiaries; and
providing you with control over who receives your financial assets after death

For a quirk of historical reasoning, the benefits payable on death from an Assurance Vie investment, fall outside of your estate. For amounts invested before age 70, each beneficiary (whatever their relationship to you) is entitled to a tax-free allowance of €152,500 and taxation is limited to 20% on any benefit paid above this amount (although a higher tax rate of 31.25% applies for amounts exceeding €700,000 per beneficiary).

There is no limit to the number of beneficiaries that you can name. Hence, whatever your family situation, it is possible to pass on your capital to whoever you like, without them suffering excessive rates of French inheritance tax. Thus, the survivor can be protected and the capital can subsequently pass to your other beneficiaries, following the death of the survivor.

For amounts invested after age 70, the inheritance allowance for all of your beneficiaries is reduced to a total of €30,500 (plus the investment return on the total amount invested). In effect, therefore, it is only the amount invested that exceeds €30,500 that would be taxed at standard French inheritance tax rates.

Sadly, social contributions are now chargeable on any gain in the policy paid out as a death benefit. Despite this charge, this type of investment is still highly effective for inheritance planning, particularly since Assurance Vie is also personally tax-efficient, since the tax treatment is more favourable than most other types of French investments.

Inheritance planning is a highly specialised and complicated subject. Everyone’s family situation and level of wealth is different and it is very important to seek professional advice, so that the best course of action for you can be established.

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 taxes.

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

How to protect yourself in uncertain times

By Spectrum IFA
This article is published on: 15th August 2014

Wealthy individuals have a lot more in common than just their wealth. Ambition, skill, patience, consistency and a strategic game plan are all vital to ensure success. Keeping an eye on the end goal and never giving up have been key to reaching greater heights.

Only a minority of the population become extremely rich, as the likes of Warren Buffet, Richard Branson or Paul Getty, but this does not mean that we can’t enjoy a comfortable lifestyle with luxuries and freedom.

World stock market performances over the last 60 years reveal that the enduring trend is up and it is evident that any sharp downward movements often coincided with world calamities. Even with the peaks and valleys, stock market performance over time still yields inflation-beating returns for those who remain loyal.

Despite this, investors are concerned about the fluctuating Gold price and negative impact of the mining and metal strikes in South Africa and the developing Russian/Ukraine crisis which is already a cause for alarm – Russia is now talking of disallowing air travel over its skies to the East thus hampering tourism, the lifeblood for many of the Asian Tiger’s economies.

Hearing the words ‘hang in there’ is not enough reassurance for those trying to save for retirement or financial independence. This in turn affects investors who feel the pinch whether it be through investment of stocks directly through their own portfolio comprising retirement annuities, pension plans, QROPS, unit trusts or any other long term investment products which are exposed to the share market.

The critical questions is …

“How you manage your income and investments to shield against market volatility?”
Well, there are basically two main strategies that need to be developed in order to provide an effective buffer against economic turmoil.

The first is effective management of income and the second is a well-structured investment strategy.

Effective Money Management
It is little wonder that rising interest rates cause such widespread concern when so many people and businesses are exposed to excessive debt. If you take an average small- to medium-size business owner, they will probably have an overdraft, two car leases, a home mortgage and perhaps credit card debt. In anyone’s book, this results in a big chunk of money to repay before the school fees have been paid or the life policy has been covered.

The first step to minimising the effects in uncertain economic times is to reduce debt. If you don’t have excessive debt, the impact of rising interest rates on your pocket will be negligible and it’s worth bearing in mind that if you have cash reserves, the higher rate will benefit you greatly.

Well-structured investment strategy
The consensus amongst investment experts is to advise individuals to construct an investment portfolio in order to take advantage of long term trends. If the long term structure of an investment portfolio is healthy, short term storms can be weathered.

The first defence against any volatility in the markets is diversification. What this means, is that investors need to ensure that their investment portfolio is structured in such a way that they have investments in different asset classes such as cash, bonds, property and equities.

Uncertainty and volatility are intrinsic to investment markets. For this reason, investment should be viewed as simply a means to having enough money to live the lifestyle that you would like to live.

An investment portfolio should remain unchanged during times of volatility, unless the factors upon which the construction process was based have changed.

Investors should not change a long term game plan based on short term volatility. Attempting to time the market based on short term movements only increases portfolio risk.

The best way to protect yourself from market volatility is to first reduce your risk, which can be achieved by reducing debt. By doing this, you will have a lot less to worry about if inflation forces interest rates up.

The next step is to ensure that your investment strategy has a long term view and a financial planner will be your best resource when setting up a long term portfolio.

If you realise from the above the importance of seeking proper professional financial advice involving risk classification and correct diversification, why not give me a call in order to facilitate a meeting where we can do this.