Proposed French Tax Changes
By Spectrum IFA
This article is published on: 26th September 2013
The Project de Loi de Finances 2014 was published on 25th September 2013. The proposals aim to create economic growth and reduce unemployment.
Shown below is a summary of our understanding of the principle changes that will come into effect, if passed by parliament. Noticeably, there are no proposals to change the wealth tax regime (Impôt de Solidarite sur la Fortune) or social contributions.
INCOME TAX (Impôt sur le Revenu)
The following is proposed:
*The barème scale, which is applicable to the taxation of income, to be revalued as follows
| Income |
Tax Rate |
| Up to €6,010 |
0% |
| €6,011 to €11,991 |
5.5% |
| €11,992 to €26,631 |
14% |
| €26,632 to €71,397 |
30% |
| €71,398 to €151,200 |
41% |
| €150,201 and over |
45% |
* To increase the décote – which is the tax deduction granted to low taxpaying households – from €480 to €508.
It is proposed that the above provisions will apply in 2014 in respect of the taxation of 2013 income.
Reform of the Plan d’Epargne en Actions (PEA)
The following is proposed:
* To increase the maximum amount that can be invested in a “classic” PEA from €132,000 to €150,000; and
* To encourage more households to invest in small and medium enterprises, it is intended to create the “PEA-PME” into which the maximum amount that can be invested would be €75,000.
CAPITAL GAINS TAX – Financial Assets (Plus Value Mobilières)
As announced by President Hollande earlier this year, it is proposed to reform the taxation of capital gains arising from the sale of securities held by individuals. The proposals aim to encourage investors to take more risk and to save for the long-term.
If passed, gains arising will be taxed at the progressive rates set out in the barème scale above, after the deduction of an allowance, as follows:
* 50% for a holding period from two years to less than eight years; and
* 65% for a holding period of at least eight years.
The above allowances would also apply to gains arising from the sale of shares in ‘collective investments’, including investment funds, providing that at least 75% of the fund is invested in shares of companies.
Furthermore, to encourage investment in new small and medium enterprises, higher allowances against capital gains for investments in such companies will be provided, as follows:
* 50% for a holding period from one year to less than four years;
* 65% for a holding period from four years to less than eight years; and * 85% for a holding period of at least eight years.
It is proposed that the above provisions will apply in 2014 in respect of the taxation of gains made since 1st January 2013.
CAPITAL GAINS TAX – Property (Plus Value Immobilières)
There has already been considerable media reporting on the proposed reform of the capital gains tax regime for property sales, as if this had already been enacted into law. In part, this is understandable since the forms for reporting the property gains – calculated in accordance with the regime proposed below – have been available via the French government tax website since the beginning of September. However, the text of the budget indicated that the reason that this had been done was to encourage immediate activity in the property market – in other words, to discourage people from further delaying property sales until the proposals are actually implemented into law.
One can only guess that the government has a high level of confidence that the proposal will go through. However, only time will tell whether or not this has been a prudent step, i.e. to allow the proposed regime to be applied before actually being enacted into law.
The proposals are shown below, which will benefit the majority of people, but not all. In the event that these are not enacted, we have to assume that any adjustment to the taxes, in respect of properties sold between now and the end of the year, will be addressed at a later date.
FOR SALES OF PROPERTY (i.e. maison secondaire):
If the budget proposals are passed, gains arising after the deduction of an allowance (taper relief), will be taxed at the progressive rates set out in the barème scale above. The taper allowance would be as follows:
* 6% for each year of ownership from the sixth year to the twenty-first year, inclusive; and
* 4% for the twenty-second year.
Thus, the property will become free of capital gains tax after twenty-two years of ownership.
However, for social contributions (currently 15.5%), it is proposed to apply a different scale of taper relief, as follows:
* 1.65% for each year of ownership from the sixth year to the twenty-first year, inclusive;
* 1.6% for the twenty-second year; and
* 9% for each year of ownership beyond the twenty-second year.
Thus, the property gains will become free of social contributions after thirty years of ownership.
Finally, in order to further enhance activity in the property market, it is proposed to allow an exceptional reduction of 25% against the taxable capital gain, for sales completed during the period from 1st September 2013 to 31st August 2014. Thus, this exceptional reduction would reduce both the capital gains tax and the social contributions liabilities.
FOR SALES OF BUILDING LAND:
With effect from 1st January 2014, the capital gain on land sales will be calculated without taking into account the period of ownership (i.e. the taper relief will be abolished).
However, there is no mention in the budget of whether or not the taper relief will still apply to sales whereby a compromise de vente has been signed before 1st January 2014, which was widely expected to be the case.
It is also noticeable that the budget does not make any provision for taxation of the gain at the barème scale rate. Therefore, unless there is an amendment to the text of the proposed law, we have to assume that the gains will remain taxable at the fixed rate of 19% (plus social contributions, currently 15.5%).
The exceptional reduction of 25% of the capital gain will not be applicable to sales of building land.
The bill will now be debated by the National Assembly and the Senate, during the weeks ahead and so it cannot be ruled out that some changes may take place before the final text of the draft law is agreed. The final bill will then be referred to the Constitutional Council for review before entering into law.
26th September 2013
This outline is provided for information purposes only. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.
If you would like to discuss how these changes may affect you, please do not hesitate to contact your local Spectrum IFA Group adviser.
TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 Paris « Société de Courtage d’assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d’immatriculation ORIAS 07 025 332 – www.orias.fr « Conseiller en investissements financiers, référencé sous le numéro E002440 par ANACOFI-CIF, association agréée par l’Autorité des Marchés Financiers»
La Tour de Finance Friday 4th October – Maine et Loire, Saumur
By Amanda Johnson
This article is published on: 20th September 2013
Question: I would like to speak to a financial adviser about my finances but do not feel I have enough money to warrant talking to one?
There are many people who feel like this which is why I give people the opportunity to meet me in person for an informal chat over a coffee at the Open Door in Civray (last Tuesday in each month) or Thursday mornings at Café des Belles Fleurs in Fenioux.
I aim to give people the chance to ask questions relating to their financial position, changes in tax & inheritance laws or their own personal circumstances since their last review. These informal surgeries allow us to quickly see whether you would benefit from a free consultation in the comfort of your own home.
During September & October I will also be at the following events:
• The Deux Sevres Trade Fair on Saturday 21st September from 10.00 am until 17.00 where you can have a chat and enter a Free Prize draw to win a hamper.
• Le Tour de Finance event on October 4th in La Salle des Caleches at the Bouvet – Ladubay Wine House near Saumur.
Event format
- 10:30 Welcome coffee and pastry platter
- 11:00 Forum commences (various presenters will give 15 minute presentations). To keep the topics varied, only one company will represent a specialist area i.e. investments, pensions, currency transfer etc
- 12:30 A light luncheon buffet accompanied by local wine and soft beverages will be served allowing delegates to network with other delegates and the speakers
- Followed by an optional tour of the caves of Bouvet-Ladubay and a wine tasting!
If it has been some time since your last financial review, perhaps you would like to attend one of these events?
To register for this seminar please contact myself or e-mail seminars@spectrum-ifa.com
Inflation is when you pay ….
By Spectrum IFA
This article is published on: 20th September 2013
Nice-Cannes Relay Marathon
By Amanda Johnson
This article is published on: 15th September 2013
After completing my first Race for Life in France last year, Sarah has very kindly given me the opportunity to share an event that I am taking part in this November. It is the Nice-Cannes relay Marathon and I am running as part of a team of colleagues who will divide the 42 kilometres distance. I am in training as we speak!
I am very proud to be taking part and The Spectrum-IFA Group is raising money for our charity for 2013; “GIVEWATTS.org”.
There are thousands of people living in Off-Grid areas in Kenya. They are organised communities but spend up to 40% of their income on kerosene to burn for light which is not only expensive but dangerous, with terrible fumes, a high CO2 impact, the risk of starting a domestic fire and of burning a child. It also gives off a terrible dull yellow light.
Consequently many parents don’t let their children study after dark. Grades are held back and a chance to escape the poverty-trap is limited.
GIVEWATTS is doing a very simple but effective thing: providing high quality solar lamps that also have a USB charger built in for mobile phones, avoiding the need to walk for miles and to pay to charge them!
Lamps are not given to the parents, they are provided with micro-finance. The school calculates the average a family is spending on kerosene. That is the instalment amount they pay to the school to repay the lamp, thus, there is no extra cost/or resistance barrier to overcome and the lamp immediately 100% replaces kerosene. As soon as that person has finished paying they are 40% a week better off and they own the lamp.
For more information please look at our devoted web page on our website spectrum-ifa.com/givewatts or contact me.
Here is a photos of my colleague Chris, Board Member of GIVEWATTS Switzerland, who visited earlier this year.
LE TOUR DE FINANCE IS COMING TO ITALY
By Gareth Horsfall
This article is published on: 13th September 2013
Following the success of Le Tour de Finance in France, The Spectrum IFA Group, in collaboration with Currencies Direct, is proud to announce that Le Tour de Finance for expats will be arriving in Italy. On the 26th and 27th September 2013 Le Tour de Finance will be making its first appearances at the Circolo dei Forestieri, Bagni di Lucca and Ristorante Pomerancio, Umbertide, respectively. Le Tour de Finance brings professional experts in expat finance, in Italy, closer to you.
The following professionals will be speaking on the day:
- Currencies Direct
Talking about how to save money on currency transfers and making the transfer process easier.
- Studio Gaizo Picchioni, Cross border specialist commercialisti, Judith Ruddock
Discussing the latest changes in tax reporting and how it may affect you, and how to ensure that as a resident in Italy, you are ‘IN REGOLA’.
- The Spectrum IFA Group, Italy: Gareth Horsfall and Michael Lodhi (Group Chairman)
Why financial planning for expats in Italy is important to avoid pitfalls and traps that you may not otherwise know about, or see.
- QROPS. How UK pension holders can benefit from transferring their fund to a recognised overseas pension scheme.
- Studio Legale Metta, Nick Metta
The legal and administrative issues faced when making an Italian or foreign will, for an Italian property and foreign owned assets.
- Jupiter Asset Management, Rob Walker
Talking about the state of the world financial markets, economies and current government policies, how this may affect us all in the near future and how we can protect ourselves from the negative impacts of these decisions.
The events will commence at 10.30 and finish at 14.00 with welcome caffe and snacks on arrival, followed by brief presentations, a FREE buffet lunch and then time to ask questions of the experts and meet other like minded individuals.
Register for this FREE event by sending an email to info@spectrum-ifa.com or calling +39 3336492356
LIMITED AVAILABILITY.
Come and meet the Spectrum IFA Group on Le Tour de Finance this Autumn
By Spectrum IFA
This article is published on: 2nd September 2013
The Spectrum IFA Group are delighted to be taking part in 13 events in Italy, France and Spain during September and October.
These events are designed to bring financial and tax information to the English speaking expatriate communities around Europe. The idea is to give expatriates first hand access to financial experts varied areas of the financial world.
We will normally be talking about financial planning in each Country, Pension Transfers (QROPS) and changes in the local tax rules and how these impact expatriates.
Each seminar will include a speaker from a large, well know investment management house, this Autumn one of BlackRock, JP Morgan or Jupiter Asset Management will be attending. They will give their firm’s view of global markets and currencies.
Life Assurance companies SEB Life International, The Prudential along with Standard Bank International will participate at some of the events along with Foreign Currency Transfer specialists, Currencies Direct.
To find out which event is nearest to you and register, visit our seminar page.
If none are in your area use our contact page to get the information.
Gareth’s personal story of profit and loss
By Gareth Horsfall
This article is published on: 2nd September 2013
I am not sure when my interest in financial services, financial markets and investment, actually began. However, I think I can attribute it in some part to a time when my mother and father were investing in the famous UK clothing retailer, NEXT. I fondly recall the enthusiasm in our house when they purchased the shares for 9 pence, then quickly saw the price grow to 99p (before selling) and bagging a handsome profit in the process. I never knew how much they invested, but no matter, they must have made a reasonable profit. The fact that the shares then climbed to over £10 over the coming years was always a bone of contention, but that is just one of the risks of investing.
It was shortly after this that I decided to give investing a go myself and took advice from the family friend who advised my parents to buy shares in NEXT. I remember his ’stock pick’ to this day: Fulcrum Kitchens and Bathrooms. I charged in with both feet and purchased £350 worth of shares at 24p each. And then forgot about them. The next I knew I received a notice of the winding up of the company. The ordinary shareholders would receive zero after the sale. This was my first foray into the world of investing.
However, I wasn’t deterred. My next opportunity didn’t come until a few years later when my grandparents gifted £2000 each to my sister and I. This time I was less speculative and went along to the financial adviser at my bank at the time. He advised me to invest in a PEP (Personal Equity Plan) and place the money in a Balanced Managed fund. And then I forgot about it. It was some years before I would need the money (to clear some debts) and was surprised at the time to learn that the fund was now worth 50% more. An annual average return of 9%.
Years after this, when I had less money, after buying a house, I wanted to start investing again and so I started putting some money away into an ISA on a regular basis. And once again, I fell into one of the best known traps in the business. I thought I knew more than the experts. I invested my money in the tech boom shares around the year 2000. I don’t think this needs any explanation. I never recouped my losses, even years later, and I eventually switched the money into a highly speculative emerging market investment, which is where it remains today with the hope that one day it will regain its losses. This was another important lesson in my development to becoming a financial adviser.
Other factors also swayed my reasons for choosing this work and following my principles when dealing with people. My mother invested her life savings with a financial adviser who advised her, incorrectly, to invest her monies into technology shares around the year 2000. She suffered the same fate as me, but with more serious consequences given that she was a lot closer to retirement. I took over the management of her portfolio (at her request) a few years later. I decided then that people should benefit from what I did and that if I could not provide what a customer needed (in most cases, growth or income on their investments), then I should not be doing this work.
Experiences like these taught me a few lessons. Firstly, that well meaning friends can be detrimental to your wealth. That is not to say that they are always wrong, but quite often their advice can be skewed towards their own good and bad experiences and less towards a rational and objective view of an individual’s finances.
The second thing I learned was that I would only become a good financial adviser if I knew my work. I couldn’t expect to sit a few exams and be able to deliver good and safe advice for my customers. I had to understand my work, and so I committed to reading as much as I can. I still do so and, coupled with the experience I have acquired by investing through 2 of the worst stock market crashes in recent history, (2000 Tech boom and 2007/8 The Great recession), I feel I am better prepared to advise others who may not have access to the same information or experiences that I have.
Lastly, it was apparent that going to see a financial adviser was the wisest choice I made. I did not have complete control over these choices, but this turned out to be my best financial decision. So I can see the value in what I offer now, and see how I can be of use and real benefit to my customers
All in all, financial services are constantly changing. For expat finances, this is great news. The profession has changed for the better and serious professionals are filling the places of those who have left the industry or moved on. This has created an opportunity for me to deliver high quality financial advice to the Expat/English speaking market in Italy, a country which I have grown to love and where I wish to remain.
My aim is for the Spectrum IFA group to become the most trusted and recommended financial services group for Expats and the English speaking community throughout Italy.
If you would like to know more or speak with me, you can contact me on gareth.horsfall@spectrum-ifa.com, or call me on 0039 3336492356.
My UK will and living in France
By Amanda Johnson
This article is published on: 15th August 2013
Question: Is it true that even though I live in France, new legislation is coming which means I can use my UK will when I die and will pay less inheritance tax as a result?
From August 17th 2015 European law will allow British Nationals the option of electing to use their UK wills in France. The inheritance tax regimes for France & the UK are quite different and professional advice should be sought before deciding which option is going to be correct for you.
Under the UK system each person has £325,000 of tax allowances before paying death duties on their estate, whilst in France it is 100,000 Euros per child per parent. Clearly the more children you and your spouse have the greater the allowance before paying death duties in France. You also have the tax advantages in France of using an Assurance Vie, where you can leave additional money per beneficiary outside of your inheritance tax bill.
As you can see where you pay inheritance tax is not a straightforward decision and opting to use a UK will is not necessarily a good idea for everybody. Although the new regulation is still two years away, understanding how you can maximise your inheritance tax allowances now, coupled will an understanding of which regime will suit your personal circumstances better after August 2015 is a sensible idea and getting the right advice is very important.
I offer a free consultation in the privacy of your own home to discuss your circumstances and explain how to maximise your tax free allowances here in France.
It is very important to manage your money so that it works hard for you, after all you’ve worked hard to earn it and have already paid tax on it, so why would you choose for your loved ones to pay more than they need to when you are gone?
Property and inheritance tax increases in the Valencian Community
By John Hayward
This article is published on: 11th August 2013
As of 7th August 2013, the Valencian government has increased Stamp Duty (ITP – Impuesto de transmisiones patrimoniales) and Inheritance Tax (ISD – Impuesto sobre sucesiones y donaciones). The ITP is more obvious an increase as it will increase from 8% to 10%.
The ISD is a little more complicated. Up until this point, residents of the Valencian Community benefited from a 99% reduction on whatever the tax bill was. Therefore, very little was due. Now spouses, descendants and ascendants will have their personal allowances on receipt of benefits increased from €40,000 to €100,000. However, the reduction is being lowered to 75%.
Example. Property owned in joint names and deemed to be owned 50/50. Spouse dies leaving 50% to the surviving spouse. There is no inter-spouse exemption in Spain. Property valued at €400,000. €200,000 (50%) inherited. Deduct allowance of €100,000 which, based on current rates, leaves a tax bill of €12,415. Reduce this by 75% and the tax due will be €3,103*. This needs to be paid within 6 months of the death. Under the old system, the tax bill would have been based on €200,000 less €40,000 allowance. This would result in a tax bill of €23,141 which, although higher than the figure above, would then be reduced by 99%, leaving a tax bill of €231*. (* Subject to personal circumstances and specific assets)
As one can see, many tax residents on the Costa Blanca can look forward to sizeable tax increases. A concern is that bank accounts can be frozen on death which could mean the money to pay this tax might not be available within the 6 months stipulated. Simply becoming non-resident, which has been seen as a solution to the recent asset declaration ‘problem’, wouldn’t work here as the inheritance tax due for non-residents is even worse.
A solution could be to have money in a low risk insurance bond, recognised by Spain for tax purposes but not based in Spain and, importantly, not frozen on the death of a policyholder. Apart from being far more tax efficient than a bank account, it could provide the money at a time when there is plenty of other expense, as well as at a time when there is the human aspect of grief.
(Detailed Valencian and Castilian versions of the law can be found on the Valencian government’s website. Click here to view them.)
Get your nest egg working harder
By Charles Hutchinson
This article is published on: 1st August 2013
Returns from bank savings accounts are at an all-time low, and savers are becoming increasingly frustrated. Expatriate financial advice expert Charles Hutchinson, of the Spectrum IFA Group, explains how expats can get their ‘nest-egg’ working harder.
Most of us know by now that interest rates in the western world are at extremely low levels, with the Euro base rate at 0.75%. In the UK it is even lower, at 0.5%. While helps some people such as mortgage holders with tracker rates, savers are being punished as banks have continually cut the interest rates paid on savings accounts. Retirees drawing a pension, or looking to buy an annuity have also been hit hard in this low-interest rate environment.
Low Interest Rates Here to Stay
First, it doesn‘t look like this will change for quite some time yet. The prevailing policy of central banks has been to increase money supply (quantitative easing, also known as QE), maintain liquidity in the banking system and keep interest rates low. Even a slight increase in the base rate over the next couple of years is unlikely to result in decent interest rates on savings.
Second, inflation is running at around 2-3% depending on which part of Europe you live. It just feels like everything is getting more expensive, especially food and energy costs. The end result is that we are effectively losing money by leaving it in the bank!
Of course, we all need to leave some cash in the bank, as our emergency fund. Most financial planners would recommend that you leave at least 6 months income as your emergency fund.
It is the ‘nest egg’ money (the savings that we don’t really need in the short-term) that we can do something about.
How Can You Get Your Nest Egg Working Harder?
With the objective of ‘beating the bank‘ over the longer-term, a diversified portfolio of investments can be built. In plain English this means spreading your money across different types of ‘assets’ and not having ‘all of your eggs in one basket’. Assets primarily fall into one of the following categories; equities (shares in companies), fixed-interest bonds, property, cash or commodities.
Lifestyle Investing
You need to be clear about your ‘Risk Profile’. At Spectrum, we carry out a ‘Risk Profiler’ exercise which aims to establish the level of risk you are comfortable with and helps you understand the relationship between risk and reward. We then employ a forward-looking ‘Life-styling Process’ which means building a portfolio to match your own personal situation and objectives.
The eventual portfolio should therefore match your risk profile, usually measured from ‘cautious’ at the lower end of the scale, ‘balanced’ and then ‘adventurous’ at the higher end. The investment strategy should therefore be appropriate for your stage of life.
What assets to invest in
There are literally thousands of investments funds and vehicles to choose from. At Spectrum, we filter these by using strict criteria when choosing clients‘ investments. For example we only use;
- UCITS compliant, EU regulated funds, ensuring maximum client protection and highest levels of reporting.
- Daily priced funds, providing clients with daily liquidity, so that clients do not get ‚locked-in‘.
- Financially strong and secure investment houses.
- Funds which are highly rated by at least two independent research companies.
Multi-asset funds
Multi-asset funds are popular with clients as they are managed by experienced asset managers who, through active daily management, can offer access to all asset classes within a single fund. Their job is to capture capital growth while also protecting investors when markets suffer a downturn. Some fund managers have a great track record of doing this, for example Jupiter Asset Management’s Merlin International Balanced Portfolio, which has returned +35% (Euro share class) since launch in Sept 2008, with relatively low volatility.
Multi-asset funds can be used as a ‘core‘ holding within a portfolio, with more specialised and sector-focussed funds making up the rest of the portfolio.
Equities (shares)
Many blue-chip companies have very strong balance sheets and pay dividends of around 4%, which is higher than current interest rates. This dividend income can be re-invested into your capital (unless you need the income). The capital value of course will fluctuate but if you are investing for the longer-term you have time to ‘ride out‘ any volatility.
Equity funds can be global in nature, regionally specific (for example focussing on emerging market countries) or even country specific. Other types of equity funds focus on smaller ‘growth-orientated’ companies rather than those blue-chip, dividend paying stocks.
Ethical Investing
Ethical funds are also an interesting option. These are funds which only invest in ‘ethical’ companies. They are screened and assessed on criteria such as environment, military involvement or animal welfare.
Fixed-interest bonds
This includes government bonds and corporate bonds. Western government bonds were traditionally seen as ‘safe havens‘ however yields are now currently as low as cash. It may be wiser to look at corporate bonds, and these are categorised in terms of risk (higher-yielding bonds means higher capital risk). Emerging market bond funds (with exposure to local currencies) could also be considered.
May investors like to get exposure to bonds via a fund, which is a diversified mixture of bonds. One good option may be Kames Capital’s Strategic Bond Fund, with a return of +57% (Euro share class) since launch in Nov 2007.
Commodities
Commodity-focussed funds can be volatile and would normally make up only a small part of a portfolio. However there is potential for long-term growth by investing in companies with exposure to precious metals and resources (gold, silver, iron ore, copper) as well as other ‘soft’ commodities such as agricultural resources and the food sector.
Property
Collective property funds or property-related shares could also form a small part of your portfolio. Physical property by its nature is illiquid but by using a property fund you can obtain exposure to shares in property companies, keeping your money liquid.
Review Your Portfolio Regularly
It is vitally important that your portfolio is regularly reviewed. One reason why people do not get the most from their finances is the lack of regular attention paid to their arrangements. Consider using a regulated, independent adviser who should offer regular reviews as part of their ongoing service.
At Spectrum we have an in-house Portfolio Management team, who help advisers and clients monitor their portfolios regularly for performance and suitability. One aspect of our regular reviews is ‘profit-take alerts’; when one area of your portfolio has out-performed then why not take some profits? Investors can really benefit from such regular service.
Charles Hutchinson has been with The Spectrum IFA Group since inception and is one of the founding partners. He helps expats in Southern Spain with their financial planning. The Spectrum IFA Group is a pan-European group of independent financial advisers. Feel free to contact Charles at charles.hutchinson@spectrum-ifa.com or call him on 952797923
