Investing for a higher Income

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

Investing for a higher Income

Investing for income, rather than capital appreciation, is as old as investing itself but its relevance becomes more noticeable in times of low bank interest rates. (Or historically low as the media likes to keep reminding us).

It offers an additional lifeline for those who need to live from the interest from their savings and not just accumulate for a point in the future. The relevance is bigger for those who are not working and do not have a regular income due to ill health, out of work or in retirement.

To elaborate this theme, I have written in the past how an investment should be considered to behave like a garden. It should be well cared for, maintained, trimmed, fed and watered otherwise it becomes out of control and the weeds take over. In no time the tendered beauty and joy of a well cared for garden, diminishes.

Well, I would like to expand on that concept further to explain the purpose of investing for income.

For most of our working lives we try to accumulate capital, save from the very money that we earn to amass the assets that we will one day live off in retirement. But during this time, you may be unaware that you are actually investing for income as well. Its just that the income is being reinvested back into your account to make the capital appreciation quicker. The difference is that when you reach the point when you want the income, you invest in those assets which pay the better levels of interest and have it paid out instead of reinvested.

If we think about it another way, it is the equivalent of the garden. A beautiful cottage style garden that you cultivate from seed and over many years that you carefully tend to. The flowers bloom each spring, and you diligently tend to the plants as they grow, check for problems, apply pest control methods, trim the flowers to put on your kitchen table and enjoy the joy that it brings for you and the family over the years. During this time you may have a small vegetable plot. (the equivalent of an income). But during your working years you have to invest in earning a living and this may prevent you from expanding the vegetable plot, after all you earn enough money to buy vegetables from the supermarket instead of growing them. The garden provides joy and pleasure but only a small amount of income.

When you finish working and your income level may drop, you now have more time to spend on the part of the garden that can provide you with more of the supplemental income.

But, there are 2 types of vegetable plot, those that provide and those that don’t. The difference relies heavily on the soil. The fertility of soil in which you plant those veggies. If your soil becomes too abused it will stop producing. (Note, Westernised economies and the reason for low interest rates). So you have to look at either changing the type of vegetables you plant (crop rotation) or changing the soil. Both can be as effective as one another.

This is the basic concept of investing for income. If one area is not providing sufficient rewards, then it is time to look elsewhere. (Note, bank interest rates are so low that to maintaina standard of living it is necessary to look at other forms of income producing assets)

Example

I would like to talk about Vodafone for a moment and in particular shares in Vodafone. We all know the name but you may not know the significance of Vodafone as an income producing share.

The talk of shares in companies scares alot of people, but Vodafone is a good example of a reliable company that rewards it shareholders with good dividends (income) for being an investor. At the time of writing, if you invested in Vodafone stock today, you would be rewarded with an interest rate of 5.13%. And Vodafone also has a long history of paying income to its investors and more importantly a rising income.

See the table below for the facts

Year ended 31 March	Interim Dividend	Final Dividend	Total Dividend	Growth %
2010	2.6600	5.6500	8.3100	6.95
2009	2.5700	5.2000	7.7700	3.46
2008	2.4900	5.0200	7.5100	11.11
2007	2.3500	4.4100	6.7600	11.37
2006	2.2000	3.8700	6.0700	49.14
2005	1.9100	2.1600	4.0700	100.00
2004	0.0535	1.0780	2.0315	20.00
2003	0.7946	0.8983	1.6929	14.99
2002	0.7224	0.7497	1.4721	5.00
2001	0.6880	0.7140	1.4020	5.01
2000	0.6550	0.6800	1.3350	4.95

The thing to note is that from the 10 years till 2010 Vodafone increased its dividend 231.98%. If this were the equivalent of bank interest, assuming bank interest started at 3% in 2000, then you would be receiving 6.959% interest on your bank interest in 2010. (The dividends have also been increased through 2010 to 2013 as well !!, so the rate today would be even higher). All this through 2 stock market crises (the tech boom and bust of 2000 and more recently the financial market collapse of 2008/2009). It should be noted that the underlying stock price has increased during this time as well.

I am not recommending that you go online today and buy Vodafone stock. With all investments of this type it comes with risks, management of the business, future profitability of the business and ability to continue to pay dividends, profit warnings, market sentiment, to name a few. However, you can minimise your risk of investing in this way by investing through a fund that specifically invests, manages the risk and can pay out the income.

The point of this blog post is to reiterate the point that if you feel that bank interest is not satisfactory for your living requirements, or you have a tax bill because of being resident in Italy and need supplementary income to pay it, or you just need some more income to make life easier then there are alternatives to leaving the money in the bank or investing in Government Bonds (the historical investment choice of type for the ‘average’ Italian).

If you would like to know how to build a portfolio of income producing assets or would like to discuss any other ways of improving your current financial situation then you can contact me on gareth.horsfall@spectrum-ifa.com or call me on 3336492356.

Aude Flyer

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

Another busy year is under way; at least it’s certainly started that way. I can’t believe that March is on the horizon already. January saw the gathering of most of the Spectrum clan in Davos for the Financial Forum. This is our annual conference; a time to gather together to discuss the last year and to ponder what might await us in the coming months. As it transpired, 2013 was a fabulous year for Spectrum, with business up a massive 51% over the previous year, which had in itself been a record year.

We are joined at these events by market experts from leading financial houses to offer their input on various financial topics. These sessions are always informative, and often entertaining. The ‘most entertaining’ title clearly went to a Swiss lawyer, who took us through the demise of the famous Swiss Banking Secrecy era, a subject very pertinent to Daphne’s article two weeks ago. Amazingly tax fraud, or ‘frode’ as it became for the session, is not illegal in Switzerland. It is a civil infringement of course, and subject to fines, but the genteel Swiss still recognise that to err is human. Anyone can forget a few tax details here and there, can’t they? Not if you live in France or the UK you can’t, so please bear that in mind.

It is amazing to me how administratively far behind you can get when you take a five day break from the office. Despite keeping in email contact and handling any urgent items by phone, my in-tray was overflowing when I returned from Davos. This was partly because of my policy of sending out policy statements to all my clients just after the end of each quarter. I find this can tend to focus the mind on investments, and helps both me and my clients to keep on top of things. Anyway, the two factors combined to ensure that any leisure pastimes I might have had planned were put aside for a while.

Since then of course a more normal timetable has been restored, and it is largely business as usual, albeit still busy. Meeting new clients for the first time; writing up reports and then arranging follow-up meetings; executing (hopefully) the ideas presented in the reports, these are only a part of a day’s work. Monitoring existing business on a regular basis is vital, hence the quarterly reporting. Then there is also the financial ‘agony uncle’ side to the work, which I find extremely interesting. E-mail enquiries generated from any number of sources covering all types of financial questions land in my in-box every week. Sometimes I read them and have no idea what the answer is (such as ‘where can I source bulk volumes of ice cream for my new business in Carcassonne?’ or ‘can I use my UK credit card on motorway petrol pumps on national holidays?). Yes, really.

Life as a financial adviser is fairly consistent. There are only so many mainstream subjects (not ice cream) that can crop up in my daily routine, so it is refreshing when something out of the ordinary comes up, and recently I had a very interesting time doing some research for a new client who wanted his money to be invested in SRI funds. I doubt that many readers will have heard of SRI, but it stands for ‘Socially Responsible Investing’, perhaps better known as ethical investments. This is not new to me of course, but it isn’t something that crops up in many client meetings. I tend to think of new clients in investment terms along the scale of carnivores or herbivores; meat eaters or vegetarians. Meat eaters will invest in most things, and tend to assume that they are not consuming, or indeed investing in, anything toxic. Vegetarians are more complex. A normal Veggie will need reassurance that he is not eating any meat or meat derivative products. In other words he doesn’t want to invest in any of the bad people who pollute our world physically or morally. Then there are the Vegans, who are not satisfied by the Veggie approach. No occasional fish or eggs or milk for them; they are straight down the line. No meat. Period. The Vegan investor isn’t satisfied with avoiding the bad guys; he’s out to find the good guys and invest in them. He wants to support irrigation projects; AIDS and Cancer research; sustainable energy sources and the like. Vegan investors can be difficult to please, as to some even ‘profit’ is a bad word, but trying can be a rewarding experience.

Back to more mundane matters next month, but until then, keep the calls and mails coming!

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

By phone on 0468 247758 or mobile 0631 787647

Or by mail at rob.hesketh@spectrum-ifa.com You can find out more about Spectrum on spectrum-ifa.com

Is my Assurance Vie flexible?

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

How flexible is my Assurance Vie, should my needs or circumstances change in the future?

When you take out Assurance Vie it is not only important that the money you put in is invested properly for your requirements and attitude to risk today, but that it can be managed, reviewed regularly and changed should your circumstances alter in the future.

Here are several questions you may want to consider when you when choosing or reviewing your Assurance Vie:

How do I change how the money is invested within my assurance vie?

During your annual review or should your circumstances change, it is important to be able to review your Assurance Vie and understand how it is performing. If it is not matching your requirements the mechanism for changing or swapping how your money is invested should be simple and not cost prohibitive.

How often can I change the contents of my assurance vie?

Flexibility to change how money is invested within your Assurance Vie, simply and inexpensively is important. You cannot predict when you may wish to change how your money is invested or encounter an unexpected need to withdraw some of it at short notice, so having a local financial planner who can manage this process simply and efficiently is a good idea.

How flexible is an Assurance Vie should I decide to leave France and live somewhere else?

It is important to ensure you are Assurance Vie portable should you wish to change your country of residence?

Do I understand the charges applicable to my Assurance Vie?

Whether you already have an Assurance Vie or are looking to take one out it is important to understand your obligations regarding applicable charges, taxes and social charges. It is worth noting that where & how your money is invested can have impact on social charges you are liable to incur.

At The Spectrum IFA group we firmly believe that your free financial health check is just the start of our ongoing commitment to your financial well-being. If you want to understand more about the options you have with an Assurance Vie, 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.

Amanda Johnson

tel : 05 49 98 97 46 or 06 73 27 25 43

e-mail : amanda.johnson@spectrum-ifa.com

web: https://spectrum-ifa.com/amanda-johnson

March Financial Surgeries:-

Thursday 13^th March Café des Belles Fleurs, Fenioux 10.00 – 12 noon.
Tuesday 25^th March Pause Café, L’Absie 10.00 – 16.00
Thursday 27^th March Café Cour du Miracle Vouvant 11.00 – 15.00
Friday 28^th March Open Door Library, Civray 10.00 – 12 noon

Looking at financial stability throughout your yachting career

By Peter Brooke
This article is published on: 5th February 2014

05.02.14

While I have discussed strategies for individual investments, banking and insurance, I wanted to present what I believe to be the “Basic Rules,” which, if followed throughout your yachting career, will maximize your chances of financial success.

1. 1. Have a bank account in the same currency as your income.
  2. Have other currency bank accounts if you spend considerable time in other currency jurisdictions.
  3. Use a currency broker account to move money between accounts; this gives you control and saves money on the exchange rate and commissions.
  4. Clear debts as soon as you can, especially those with high interest rates.
  5. Check the medical cover available to you from the yacht; offer to pay a small supplement if it doesn’t cover you during holidays or when not on board.
  6. Conceptually plan out different financial “pots:”

* Emergency: at least three months’ salary in a bank account (preferably six months)
* Education: when and how much (is it for the next course?)
* Spending money: limit yourself to a set amount each month
* Property purchase money: how much will you need for a deposit, and when
* Long-term money: 25 percent of your salary

1. 1. Understand your tax residency status: Keep an accurate diary of where you spend your time. The places where you are most likely to be considered resident are:

* Your country of citizenship
* Where you own real estate
* Where you spend the most time
* Where your “dependent family” is based (your home)

1. 1. Save at least 25 percent of your income for the long term; you don’t pay any social security. If you worked on shore, your salary would be at least 25 percent less due to this.
  2. Invest time in your own financial education. Read my column in Dockwalk every month, look at investment websites, learn about inflation, property leverage, risk and compound returns.
  3. If in doubt, take advice. Understand your limitations and build a team of trusted advisers in different fields; speak to other crew about what they do with their money (but don’t follow just one).

When you get to the time when you want to leave yachting (be it after 5 years or 25) it is great to be able to do so because of the way you have managed your own resources… many people cannot leave the industry at the time they want to because they have not taken control of their futures.

Follow every one of these simple rules and you I am certain that you will get the most out of your yachting career…and will leave it feeling that it not only gave you great memories and friends but helped you look forward to a long and fruitful second career or retirement.

This article is for information only and should not be considered as advice.

France’s Fight Against Tax Evasion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at https://spectrum-ifa.com/spectrum-ifa-client-charter/.

20% withholding tax on all transfers from abroad into Italy

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

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

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

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

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

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

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

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

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

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

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

Property rentals in Italy – goodbye cash 2014

By Gareth Horsfall
This article is published on: 29th January 2014

From 2014 owners of properties in Italy, which they rent, will be expected to have the rent paid only through track-able methods of payment.

The money will need to be paid by bonifico / bank transfer. (I assume that means Italian or overseas banks as long as it is track-able) Penalties of sanctions against both parties (renter and owner) can be made if they are not adhered to and subsequently found out. The only thing that seems to be excluded is public buildings, such as Case Popolare or other similar public buildings.

Obviously, this move is intended to ensure that all monies from rentals (holiday or long term rentals) are being declared properly in Italy How it will be policed is another matter, but if the last 2 years are anything to go by they will surely find a way, or at least target a select few which will create a panic that will bring the masses into line.

If you are concerned about this or another other financial planning issues regarding the latest taxes in the Legge di Stabilita 2014, then you can contact me on gareth.horsfall@spectrum-ifa.com or call me on *39 3336492356

Buying a second home as a summer retreat

By Tim Yates
This article is published on: 27th January 2014

27.01.14

You don’t have to be a millionaire to get in on the game. In Southern Europe, particularly in Italy, Spain and France, it is very common for people with ordinary incomes to buy second properties. “They [the French] use them as holiday homes and rent them out when they are not using them,” said Tim Yates, a financial adviser with the Spectrum IFA Group in Valbonne, southern France.

Click here to read the full article on BBC.com

Minimum reporting threshold for funds held abroad – clarified

By Gareth Horsfall
This article is published on: 27th January 2014

If 2013 was the year for confusion about how to report assets held abroad then, at least, in 2014 the Italian Government is offering some further clarity.

As of 2014, there will no longer be any minimum threshold when reporting assets held abroad. Previously, any amount below €10000 in investments and €5000 in cash deposits was not expected to be reported. From 2014 all amounts, no matter how large or small, will be expected to be reported on the RW form as of 31st December.

If you would like to know about this or, other taxes that apply to Italian tax residents, how to plan to reduce your own Italian tax liabilities, or want to know how you can find new sources of revenue to supplement that which the Government keep stealing away, then you can contact me on gareth.horsfall@spectrum-ifa.com or call me on +39 3336492356. We are here to help.

Rental Income from properties overseas and how to declare it in Italy

By Gareth Horsfall
This article is published on: 25th January 2014

One of the questions I am asked regularly is how income from property held overseas is taxed in Italy. Is it exempt from Italian tax because tax has been paid on it overseas first and is it subject to the same taxes as Italian rental income?

I would like to dispel any myth and confirm that you do have to pay Italian tax on the profit from any rental income on properties held overseas as a resident in Italy. (if it was really ever in doubt. Out of interest the arrangement is reciprocal, and any if you were resident in another country with rental property in Italy then it need to be declared as well).

The best way to organise your rental income
The law for Italian tax residents states clearly that the net profit (after expenses) from property overseas, must be declared in the Italian end of year tax return. The net profit is then assessed as income, added to the rest of your income for the year and tax paid at your highest rate of income tax (that could be as high as 43%).

Let’s not forget the IVIE tax as well which is 0.76% of the property council/cadastrale/rateable income (whatever you choose to call it) value of the property.

If tax has been applied in the country of origin, it is the law in Italy to declare the funds here as well and so annual declarations need to be made.

As an aside, it is relevant to note that in 2012 I received a deluge of enquiries from people who had been contacted by the Guardia di Finanza who had obtained information from HMRC (UK tax authorities) about people who have/had rental properties in the UK, were legitimately declaring tax in the UK, but who had failed to then declare that income in Italy. In some cases they were fined substantial amounts for merely this simple mistake.

However, all is not lost because there is a way to limit your Italian tax liabilties. If the property income is declared in the country of origin and all the costs are deducted from the income, still within the country of origin, then ONLY the net profit needs to be declared in Italy. In some cases it might also be necessary to declare the rental income in the country of origin even when that country no longer requires you to, for example the UK. If you have rental income under the basic allowance of approx the first GBP 10500 of income and therefore the UK no longer requires a declaration, it may still be wise to insist on making a declaration because the UK allow for multiple expense offsets for tax purposes. By following this process you are showing the Italian authorities your expense declarations and therefore it is acceptable for Italian tax purposes.

You may in some cases be able to reduce your net profit to zero.

To clarify, any rental income from properties held overseas must be declared in Italy, for Italian tax residents. This is the NET income (after expenses). And this net figure is added to your other income to determine at which rate of income tax it is assessed in Italy.

Depending on why you are investing in property overseas the advantages/disadvantages can work in 2 ways: .

If you have high expenses for the property then it can work in your favour as a capital appreciation investment. (assuming the value of the property goes up). Less income means less tax.
The downside of this arrangement is that someone with low expenses and high net income (maybe living from the income in retirement) will be assesed at their income tax rates in Italy (IRPEF) which could go as high as 43%

If you are concerned about your tax situation in Italy and would like an initial meeting to assess your liability then we are here to help. In addition, there might be other more tax efficient and less costly ways to produce income and grow your money. If you are interested in exploring these then you can contact me on gareth.horsfall@spectrum-ifa.com or on cell 333 6492356