Viewing posts categorised under: Uncategorised
UK Pensions and Living in France
By Amanda Johnson
This article is published on: 30th May 2013
When I see the Charente melons being planted in the fields near my house, I realise that the winter has finally left us and another year has flown by. To many people who now live in France, each year that passes brings us one step closer to retirement and being able further enjoy our French adventure. Working and living in France brings different factors to bear than being in the UK and without careful consideration and planning these can result in your pension being lower than anticipated.
People often ask me: “How much will my UK pension likely be & how can I maximise my pension when I come to retire in France?”
Helping people understand what their pension position is and how they get best manage retirement plans in France is a key part of my role. Here are some of the areas we discuss:
- UK state pensions
- Work & other private pensions
- French retirement options (including returning to the UK)
- Inheritance
- Peoples increasing life expectancy
- Property and other assets as a pension pot
- Paying tax on your pensions (how & where)
Having left the UK, you may not have paid sufficient National Insurance (“NI”) contributions or if self-employed, paid a different NI class to qualify for a full state pension.
You may have pension pots from working at different companies and having moved to France want an opportunity to understand how these will mature and whether they can be better put to work for your retirement plans. Inheritance issues and any property you are thinking of using to supplement pension income is also worth noting.
Finally, how and where you pay tax on your pensions can be discussed to ensure that the tax you pay is as low as possible.
If you are living and working in France and have not considered your retirement plans, perhaps you would like me to visit you and have a free financial health check or simply email me with any questions and I would be happy to help.
“The goal of retirement … “
By Spectrum IFA
This article is published on: 26th May 2013
Take control of your UK pension: QROPS
By Craig Welsh
This article is published on: 24th May 2013
24.05.13
Many expatriates remain unaware that British pensions can be transferred out of the UK. Should you be looking at QROPS to take control of your UK pension?
Since April 2006, individuals who have left the UK – and left behind private or company pension benefits – are entitled to a QROPS pension transfer. HMRC introduced the ‘Qualifying Recognised Overseas Pension Schemes’ (QROPS) to allow non-UK residents to transfer their frozen pensions outside of the UK.
This has led to many expats contacting their advisers for further information on how to improve their retirement options. And it’s not limited to the British; there are many foreign nationals who have built up a pension pot while working in the UK that can benefit from a QROPS pension transfer.
Pension transfers under QROPS are a tax efficient way for expats to greatly enhance their pension flexibility. Pensions in the UK are subject to very restrictive tax rules when it comes to succession planning and this can be much improved by moving the pension to another jurisdiction.
In some circumstances it may not be appropriate to transfer your pension, therefore, It is essential that a proper analysis is carried by a licensed and fully qualified adviser. This is a highly specialist type of financial planning and should not be entered into lightly. Should I consider using QROPS?
If you fit the profile below, then you should consider contacting us for a free analysis of your situation:
- You are no longer resident in the UK.
- You do not intend to return to the UK.
- You have a UK pension (or a number of pensions) with a total minimum value of GBP 50,000.
So what are the key benefits?
Succession Upon death most people would like to think that as much of their assets as possible would be passed onto their heirs. However, in the UK there can be a tax charge of 55 percent on your remaining pension if it is in drawdown and paid out as a death lump sum.
Furthermore, with many conventional final salary schemes, the widow’s/widower’s pension is only half the main pension, sometimes less if the spouse is quite a bit younger. A QROPS gives you the option to pass on the pension fund to your spouse, children and/or grandchildren as a pension or a lump sum, free of tax.
Investment choice By moving an arrangement out of the UK, there is a much wider choice of international investments available. Some existing pension schemes can be very restrictive in the choice of funds (UK only), or permitted investments. Most QROPS transfers can provide access to a wide range of sophisticated funds to suit your risk profile and lifestyle stage.
Currency Risk The underlying investments and income payments from a QROPS scheme can be denominated in a choice of currencies to reduce the risk of currency fluctuations. Many British retirees have suffered as the British pound depreciated in recent years against the currency zone they are living in. A QROPS can help you manage this risk.
Flexibility in retirement Your circumstances can change during your retirement years, for example, you may still do some work or you may move countries again. You will therefore need a number of options when it comes to taking your pension benefits.
In such situations, pensioners need to consider the PCLS (Pension Commencement Lump Sum – up to 30 percent with a QROPS scheme) and the level of regular income you need. A good solution under QROPS will allow you to vary your income in the future, rather than fixing it at one rate. Professional Advice Above all, getting professional advice is crucial, as well as choosing the right jurisdiction in which to transfer under the QROPS provisions. The pension should still be treated as a pension, i.e. it is not intended to be a way to ‘cash-out’ early. HMRC will come down hard on individuals, schemes and jurisdictions which abuse the rules.
A suitably approved scheme provider is also essential. At Spectrum we offer a free analysis of your pensions by our highly qualified advisory team, as well as our ongoing advice on portfolio management and the various retirement options.
What is risk? – Property
By Peter Brooke
This article is published on: 20th May 2013
In this series of articles we are considering the different TYPES of RISK we take when investing in different assets. This should help to build a portfolio in which we fully understand what risks each part of the portfolio expose us to.
We, as Anglo Saxon and Northern European types tend to have a bit of an obsession with owning property; it is an important part of our culture and we feel secure in the knowledge we own real estate.
It is very understandable, especially for an Englishman, why owning your own home is a very good idea (control of what it looks and feels like, feeling of “home”, long term outlook etc) but I believe that many people will tend not to look at ALL of the basic investment factors when selecting a property to buy (to live in or as a pure investment)… including risk.
Of course, location (location, location), price, quality, taxes and running maintenance costs are normally considered to some extent but for some reason many investors tend to believe that property is in some way risk free; . Like all investments we should “buy with our heads” and “sell with our hearts”, too many of us get this the wrong way round and ignore some of the issues that can really cost us dearly. Let’s look more closely at the property specific risks.
Liquidity Risk – the biggest single risk when buying property! Can you get your money out if you need it (or if something better comes along)? On the whole the answer is ‘no’ – or at least not quickly. If you find a buyer tomorrow you are unlikely to have your money back within 3 months; if you are looking for a quick sale then you can seriously damage your return by taking a low offer.
Interest rate risk – if you are borrowing to buy, as most people do (and probably should) then there is a risk that your cash flow will be affected and the total cost of your property over its life could go up dramatically, if interest rates move.
Market/Investment risk – as we saw in 2008 the price of property can fall as well as increase…. Again many investors feel that property is in some way a sure fire investment guaranteed to make money – like all other forms of investment asset this is only true if you buy the right property, in the right place at the right price. When property markets crash they tend to do so heavily and take a longer time to recover than more liquid markets.
Tax/Governmental Risk – one of the easiest assets to tax more in times of economic strife are properties, especially those owned by investors (as they tend to be easy political targets). Increases in local rates and taxes on property are easy to push through and raise a significant sum for government.
This article is for information only and should not be considered as advice. This article is written by Peter Brooke The Spectrum IFA Group
More on risk and investing in different assets
‘Ask Amanda’ – The Deux Sevres Magazine & the Vendee edition
By Amanda Johnson
This article is published on: 15th May 2013
Welcome to “Ask Amanda”.
I have been writing regularly for the Deux Sevres Magazine and am delighted to be invited to now contribute to the Vendee edition. I want to start by introducing myself.
I am Amanda Johnson and have lived in the Loudun area, with my family, for the past 7 years. I am a Financial Planner working with the regulated Independent Finance company “The Spectrum IFA Group”. We specialise in helping expatriates understand the benefits and obligations of living in the French system. Bilingual, with 20 years of financial experience in the UK, I am authorised through Orias in France and The Spectrum Group is also registered with the AMF.
Living in France is very rewarding but many of the rules and regulations, especially when it comes to taxation, inheritance, retirement planning, buying and renovating your home, differ from the UK. Working closely with colleagues throughout France ensures I can share experiences, best practices and keep you abreast of changes in French financial law. This is why I consider it important to have a servicing strategy of regular face to face meetings with my clients.
I am frequently asked about Inheritance tax planning and can usually make recommendations that ensure when you have lost a loved one any financial loss is kept to a minimum? I can help you optimise your savings by offering a range of investments in major currencies, protecting you from exchange fluctuations and from inheritance tax should the worst happen. I can also review existing pension arrangements giving advice on your future retirement plans.
Over the coming months I will be detailing questions I am asked and providing answers which have helped my customers & I hope will assist you. For a Free Consultation, on Inheritance tax, investments, retirement planning and tax efficient buying or renovating your home, or to review your current circumstances, please contact me.
What is risk? – Bonds
By Peter Brooke
This article is published on: 23rd April 2013
In this series of articles we are considering the different TYPES of RISK we take when investing in different assets. This should help to build a portfolio in which we fully understand what risks each part of the portfolio expose us to.
The term bond is broadly used in the financial industry; here we concentrate on the “investment asset” often known as fixed interest, fixed income or debt securities. Government Bonds have their own specific names too; e.g. UK GILTS, US T-Bills & German BUNDS.
If a company or government needs to raise money and doesn’t want to (or can’t) issue new shares or borrow from a bank they may issue a bond. It promises to repay the bond holder its face value on a set date in the future and until then will pay interest for the loan (the coupon). Bonds are issued on the ‘issue date’ but can be freely traded on the bond market so their price can fluctuate with normal market conditions. The fluctuation in price means that the ‘yield’ changes too – this is the fixed coupon but if bought at a different price gives a different actual yield.
When a company is wound up (e.g. on bankruptcy) the bond holders, as creditors, are repaid from the assets of the company before shareholders; this means that bonds are considered safer to hold than shares. The coupon must also be paid before any dividends. So what risks should we consider before buying bonds:
Default Risk – can the bond issuer repay me my coupon every year AND can they pay me back at the end of the term?
Interest rate risk – as rates go up, bond values fall (and vice versa). In a low interest rate environment are we exposing the value of our capital to risk if interest rates are increased?
Market risk – these are investments, and though considered safe a flow of money out of the bond markets because of lack of confidence can affect prices.
Issuer specific risk – a lack of confidence in the future of the company can, like shares, create a selling of the bonds too.
Liquidity risk – if buying smaller company or peripheral government bonds, it can be tricky to sell them should you need to quickly.
SAFETY vs RISK – at the moment developed government and many ‘blue chip’ company bonds are trading at record low yields, and though they are considered SAFE (as they are unlikely to default) this doesn’t mean they are without RISK. If a bond has a yield of 1.5% and interest rates go up by 1% it is possible to lose 10% of the capital value… this is now not LOW RISK.
Buying bonds through a fund can often help reduce many risks; the manager can choose which sectors to invest in or not and can manage the specific risks appropriately. We favour global strategic bond funds as they have a very broad remit and a very large bond universe to invest into.
This article is for information only and should not be considered as advice.
Spain – Overseas Tax Reporting and Financial Planning Seminars
By Spectrum IFA
This article is published on: 13th March 2013
An opportunity to meet with The Spectrum IFA Group
Spectrum seminars are a series of events for English speaking expatriates seeking information on a range of different financial products and services; from investments to pensions, healthcare to international transfers and banking to taxation. You can learn about Overseas Tax Reporting and how to make the most of your money, while chatting to like-minded people from your area.
Entry is free for all events; please send an email stating the event you wish to attend, to book a place. Booking is mandatory due to limited availability of seats.
| Date |
Location |
Booking and Information |
| 20 March 2013 |
Barcelona |
|
| 27 March 2013 |
Menorca |
|
| 4 April 2013 |
Sitges |
|
| 22 April 2013 |
Mallorca |
|
| 23 April 2013 |
Madrid |
|
What is risk? – Bank accounts and Cash
By Peter Brooke
This article is published on: 12th March 2013
RISK: The dictionary definition: exposure to the chance of injury or loss; a hazard or dangerous chance.
We all think the concept of LOSS as being the principle financial risk, but there are different types of risk which can affect the value of our capital and the return we get from it;
The safest form of investment asset is considered to be CASH, but what are the risks (OF LOSS) if I hold €100 000 in my French bank account?
- 1. Counterparty & Jurisdictional Risk – If my bank (my counterparty) goes bust the French (my jurisdiction) government will currently underwrite the first €80 000 of all individual deposits – a potential 20% counterparty risk in having this much money on my account. If I bank with a big name in a well protected jurisdiction I should be ok, but should I move the excess to another bank to reduce risk?
- 2. Inflation Risk – with time the COSTs of goods and services tend to increase; this eats away at the real value of money or ‘it’s buying power’. Today global inflation is approximately 2.5%p.a.
But that’s not the whole story as inflation is based on an average ’basket of goods and services’. At different stages of our lives the inflation of different elements within the ‘basket’ can vary: The cost of living might drop for a family with a mortgage when interest rates fall, but an elderly couple with food and fuel bills, and no mortgage feels the pinch as oil, coal and food prices rise.
- 3. Interest rate risk – the bank pays me interest on my money and lends it out at a higher rate and pockets the difference as profit. If interest rates are high I am taking risk that my return may fall; can I get a similar return for similar risk elsewhere?
If interest rates are low, like today, then I am swapping interest rate risk for inflation risk by having my money on account. It is therefore the amount of my return OVER INFLATION which should be my only concern when looking at the amount of risk I am willing to take.
Today if I am lucky enough to earn 0.5% interest it means I am losing 2% per year…. guaranteed.
- 4. Default risk – the bank should continue to pay me the interest as it receives it from its lenders. There is a small risk here if I choose a weaker bank.
But by banking my money I am NOT taking the following risks:
- Liquidity risk – I can get to my money anytime.
- Investment risk (volatility of returns) – my money is just in a bank account, the interest may change a tiny amount but the capital value remains stable (except for inflation).
- Opportunity risk – as my money is not tied up I can use it to buy any sudden opportunities that come along (once I understand the risk/return swap).
This article is for information only and should not be considered as advice.
Top Tax Tips for Expats in Italy
By Gareth Horsfall
This article is published on: 4th March 2013
Here are my top tax tips for living or moving to Italy.
1. Beware of the DIY approach.
Always discuss your tax situation with an experienced and knowledgeable commercialista. Taxes in Italy are not that much different to other countries around Europe and you might be surprised at just how littel you have to pay. The DIY’ers rarely find the tax breaks and end up paying more than they need to.
2. A Tax Residence of choice does not work.
Just because you are spending 3 months of the year in the UK does not mean you automatically qualify for UK residency when in fact you are actually spending more of your time in Italy. The double tax treaty will not cover you in this case.
3. Don’t think you can hide.
If you an Italian tax resident (i.e you spend more than 183 day here a year), then the Guardia di Finanza can find you. There is always a paper trial, utility bills, mobile phone records, airline tickets, credit card and bank statements, as well as visual evidence from neighbours, gardeners, cleaners etc. It is much better to be ‘in regola’ and know that the knock on the door is highly unlikely.
4. Beware the UK 90 day rule.
Quite a few people I meet try to claim UK residency because they go back to the UK for at least 90 days a year out of the last 3 years. This is not a law and is ignored by the courts. The Italian tax authorities would swiftly brush this aside as an excuse if they were trying to determine tax residency in Italy or not.
5. Don’t rely on a double taxation treaty to protect you.
A double taxation treaty is merely a statement saying that you cannot be a tax resident of 2 countries at the same time. So, you have to be resident in at least one country in any one year. The Italian’s will quite quickly assume that you are Italian tax resident if there are any signs of regular/permanent establishment in the country.
6. Be very wary of trying to be non resident anywhere.
If you are claiming to be a non tax resident anywhere then you could misunderstand the rules of the countries that you are living in. It is possible but most countries will deem you to be tax resident even if you spend less than 6 months of the year in the country. They just find it hard to accept that you can be non resident anywhere.
7. Don’t forget to register your presence.
Some people move to Italy and then decide not to report that they are living there and try and live under the radar. It is illegal to NOT complete tax returns and and a criminal offence in Italy. Even if you are paying tax on pensions in other countries, have assets overseas or income from other sources, the tax code in Italy states that as a tax resident you are liable to taxation on your worldwide income and assets. However you might get some Double tax treaty relief’s from Italy for paying taxes in another country already.
8. Tax favoured investments in one country do not necessarily apply in Italy.
The classic example is the UK Individual Savings Account. (ISA). It is not recognised as a tax free account in Italy and is therefore taxed on income and capital gains. You might need to re-examine all your old investments and replace then with tax efficient investment for Italy (namely the Life assurance Investment Bond).
9. Watch out for tax free lump sums from pensions
The UK pension system allows a 25% lump sum pension payment on retirement. In Italy that lump sum is taxable and therefore it might be advisable to take it before you leave for the country. You might also consider moving the pension fund to a QROPS ( Qualified Recognised Overseas pension Scheme). This means you can put the pension outside the UK tax system, avoid having to buy an annuity and potentially avoid the 55% charge on the fund at death.
10. Don’t be worried about tax planning in Italy.
Life in Italy is great. Taxes are not that different to those in other European countries. If you plan early enough and do things properly you will not pay that much more than if you were a UK resident. I often tell clients that for a few hundred euros more, it really is not worth taking the risk.
Investment options – Captial protected plans
By Craig Welsh
This article is published on: 3rd October 2011
This summer we have seen severe volatility in global financial markets, with concerns over the European debt crisis and the pace of the global economic recovery being the principle causes. At this article, we look at investment options for people not comfortable with taking on a lot of investment risk.
Whether it is savings you have built up, a redundancy package (a Stamrecht construction for example) or money from the sale of a property, one should investigate about how to sensibly invest for the longer-term.
Stock markets have enjoyed a relatively fruitful time since the lows of spring 2009, with the S&P 500 index, EuroStoxx 50, and FTSE 100 gaining around 75%, 55% and 66% respectively up until July this year.
However when markets see a drop like we have seen (the Eurostoxx 50 lost 20% through August and September) it usually provokes one of two reactions – either concern / anxiety / panic and a reluctance to invest ANY savings in equities, or indeed you see it as a great opportunity to invest at lower prices (buying low to sell high) and get prepared to pick up a bargain.
Many bank savings accounts are failing to pay an interest rate which is any higher than inflation. This means that the value of your long-term savings can be eroded simply by leaving them in the bank.
I have some savings which can be set aside. What are my options for investing?
First, it is always recommended to leave some savings as accessible cash in the bank (at least 6 months income, which you can easily access if required).
Second, you need to establish your attitude to investment risk and return, or your “Risk Profile” as it is known. This should be fully clarified before entering into any investment.
Third, your time horizon is a crucial factor (how long do I have before needing this money?).
“Capital protected” options
There are many of these products available (most often promoted by banks) however not all of them are considered good value.
Independent advisers are in a position to research out the more attractive and sound offers. Characteristics of these products vary however they normally involve “tying up” savings for between 3 to 5 years, offer 100% protection of your capital while your overall return is linked to stockmarket growth.
Recently, the Spectrum IFA Group managed to negotiate exclusive terms with one provider that guaranteed an 8.15% return after one year (a cash deposit) on half of the invested amount, with the other half remaining invested for a further four years.
The return on the second half of the investment is dependent upon market performance, subject to a minimum return of 5%; a very popular plan and it is expected that a similar offer will be available soon.
We were also involved in the creation of a Protected fund from CitiBank and BlackRock which offers 80% capital protection, with a profit lock-in feature. This gives the investor exposure to equity growth with some downside protection. This is a daily-traded fund and so does not have any lock-in period.
Other capital protected plans that offer good value include a product from Barclays Bank which offers a 5-year plan with 100% capital protection and a potential return of 55%, depending on the averaged performance of the FTSE 100 Index. Investors who would like to benefit from positive stockmarket performance, but who are not comfortable with the risk of loss, may be attracted to this sort of plan.
There are also so-called “Kick-Out” Plans which offer a guaranteed rate of return, without the need for a rise in markets. For example, one investment grows at 9.5% per annum, with the return paid out as long as markets are at or above the same level as the starting point at any given six-month point, from and including the end of month 12. The plan “kicks-out” if at one six-monthly point (after year one) the index is at or is higher than its starting point.
It must be noted here that capital is at risk if markets fall by more than 50% at maturity and because of this we would highly recommend that investors take professional advice from a qualified adviser before investing in capital protected plans. What is crucial is who is providing the guarantee; the strength and regulation of the bank or counterparty must be analysed.
Diversification
The golden rule about investing! It is rarely advisable to “put all of your eggs in one basket” by choosing juts one option. You should try to split your capital between your preferred options and sit them together in a well-diversified, tax-efficient portfolio.
Review regularly!
Once investments are in place it is important to keep track of them, reviewing at least twice a year.
