Do you need to submit a Modelo 720?

By Barry Davys
This article is published on: 16th January 2024

16.01.24

Do you need to submit your M720 to the Hacienda before 31st March?

If you have assets outside of Spain you may need to report these to the Spanish tax man on the Modelo 720. In effect it is a “census” as it does not trigger any payment of tax. However, it does help the Hacienda cross check information.

If you have bought or sold an overseas asset in the last calendar year, you may need to submit a M720, even if you have previously submitted a form. Also, if the value of your overseas assets have increased by more than 20,000€ since you last submitted a form you may also need to re-submit. If the answer is “Yes” you must submit your form before the 31st March.

Here is a link to the obligation to report on the Agencia Tributaria (Hacienda) website which lays out if you need to report your bank accounts, investments and properties that are outside of Spain. Google Translate does a good job of translating this, if needed.

You may have seen in the press that the European Court ruled on the M720 rules. I am pleased to report that the fines for non-reporting or mis-reporting have been struck out by the court and new, much lower, fines will be put in place.

Please note that we are seeing articles saying the M720 is no more. This is not the case. In fact the court, whilst removing the very high fines, also said in it’s ruling that they could see the need for the M720.

Please feel welcome to email me if you have any queries about your Modelo 720. If your query relates to share options and the M720 you can choose a time that is convenient tor you for a call using my online system.

M720 confirmation on fines and reporting official ruling - free download in English

Are there ISAs in Spain?

By Chris Burke
This article is published on: 14th January 2024

14.01.24

When living in Spain it shouldn’t take too long to discover that personal finances work very differently from many other European countries, particularly the UK. Independent advice is hard to find – most people talk to their bank and are told that their main option is to invest in the bank’s own standard products and solutions, which for many people are not suitable or appropriate.

If you are based in Barcelona or thinking of moving to Spain, please click here to contact Chris

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Many people from the UK are used to a more sophisticated way of investing, maximising tax efficiency and mitigation through solutions such as ISAs and pensions. These can greatly reduce the tax you pay making a big difference to the amount of money you end up with, in some cases incredibly so.

Is there a Spanish equivalent of a UK ISA?
In short, there is something very similar. It can greatly reduce the tax you pay as your investment grows and can even be set up for your children to benefit independently.

Are there Spanish equivalents of a private pension in Spain?
Yes, there are, however these are vastly different to in the UK. In the UK you can contribute up to £60,000 per year to a private pension. In Spain you can only contribute €1,500 per year. A self-employed person can contribute an additional €4,250 per year. Very few employers in Spain have their own pension schemes and those that do have a limit of €10,000 per year that can be jointly contributed to.

How does the equivalent of the UK ISA in Spain work?

As your money grows any gain you make is not taxable until you receive this money (achieving compound growth). When you access this money, any gain is offset proportionally against the original investment amount, and as such removing this proportion of the gain. For example, if your investment grows by 50%, any partial withdrawals you make have this portion deducted against the gain you have made. Over the years this can make an incredible difference to the tax you pay, particularly as this investment income falls under Capital Gains tax (savings tax) and not income tax, which can become VERY important when paying tax on your monies (pension income falls under income tax).
As a reminder, the tax rates are:
Capital gains tax ranges from 19-26%, income tax from 24-47%.

Many people use this option for their mid-term and retirement planning because they have some flexibility, are portable should you move elsewhere and are also highly tax efficient and compliant in Spain.

Important note on UK ISA’s

Whilst UK ISAs are tax efficient in the UK (all gains are tax exempt), as a Spanish tax resident this is not the case – any gains that arise in your UK ISA must be declared annually and tax paid on these even if you do not access the money. This makes UK ISAs as a Spanish tax resident very inefficient and why many people look for alternatives.

UK ISA Tip when moving to Spain
Before you become a Spanish tax resident, if you encash your UK ISA you realise any gains that would be taxable when you become a Spanish tax resident. This not only includes any annual gain, but more importantly the gain from inception, which as a Spanish tax resident you would be liable for when you encash.

If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, fact based advice, don’t hesitate to get in touch with Chris.

Click here to read independent reviews on Chris and his advice.

Interest in deposit accounts

By John Hayward
This article is published on: 11th January 2024

11.01.24

Timing when to invest for long term needs is trickier than solving a Rubik’s Cube wearing boxing gloves

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As we enter a new year, we face another year of known and, so far, unknown global problems which could impact our finances. Many “experts” will guess and then advise us what will happen but, as so often in the past, be wrong, or lucky if the guess works out to be true. The world is governed by a handful of people. Therefore, there are very few who really know what is happening.

Fortunately, in the Western world at least, we are allowed to get on with our lives with an element of freedom. As financial advisers, especially as old as me, we can make some judgement based on how people react to global events. Some people over react, fed by questionable journalism. In the investment world, this leads to the wealthy becoming wealthier aided by panic selling by the less wealthy enabling the wealthier to buy into the market at a lower cost.

2022 was a rotten year overall for investments. 2020 was not great but people then were more concerned about living with Covid-19 than what was going on with their money. Stock and bond markets both had a torrid time, mainly as a consequence of Covid-19 which introduced high inflation once we had a chance to spend money again. A consequence of this was a reluctance in 2023 to commit to investing at a time where inflation was rampant. History has shown us that investing in traditional markets can overcome inflation. With high inflation came attractive interest on cash, something that we had not seen in decades. Back to the history book and we see that interest rates on deposit accounts have not outpaced inflation over the long term. However, the expression “long-term” seems to disappear from the vocabulary of some investors and short-term problems become the index to follow. Many have caught the interest rate bug over the last few months feeling that doing this would be sensible in the short term and then switch into investment markets when the time is right(?). Paraphrasing Jim Bowen of Bullseye fame, “Let’s look at what they could have won” had they not taken this approach.

Let us look at two different examples of investors. One who was invested on 1st January 2022 with 50% in the Rathbone Strategic Growth fund and 50% in Aegon High Yield Bond fund who decided to sell on 31st December 2022 due to the downturn in 2022 and another who was thinking about investing on 1st January 2023 but decided not to. In both cases, they eventually put their cash into a deposit account with a fixed rate of 5% (for 12 months) in July 2023.

	1/1/22 to 31/12/222	1/1/23 to 31/12/23
Rathbone and Aegon	-9.10%	11.45%

The person who sold from the two funds at the end of 2022 was 9.10% down for the year and only recouped 2.50% (6 months at 5% p.a.) by the end of 2023 instead of 11.45%.

In a similar way, the potential investor, who was holding off until things improved, missed that particular bus. Again 2.50% versus 11.45%. I appreciate that there are underlying charges with our products but nowhere near 9% a year and there are also tax considerations with the deposit account being taxed annually whereas the Spanish compliant bonds that we promote have tax deferred, if not completely negated.

Very few are smart enough or knowledgeable enough or lucky enough to time markets correctly. In the last year we have seen this proven once again.

When I tell people that they should be prepared to leave their money invested for at least 5 years, I often get the response that they are not young and that they may not survive 5 years. In a region such as the Costa Blanca where I live, with 300 plus days of sunshine a year and plenty of olive oil, the risk people face is living too long! In the “good old days” when the life expectancy was 65 or less, long term care and dementia were not a consideration. Making money work over the long term is not only a good idea but possibly essential.

We have products that can work with you and your family throughout your life, and beyond. Following the scaremongering headlines is not a great idea and can be very harmful to your wealth, and your health.

I know that it is possible to solve a Rubik’s Cube wearing boxing gloves but try it.

Financial planning tips for Portugal

By Portugal team
This article is published on: 10th January 2024

10.01.24

Good financial planning can protect your family´s future, save money and provide peace of mind. But where do you start? When it comes to living in Portugal, understanding some basic rules, your options and the right questions to ask, can really make the difference.

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1. You cannot choose where to pay your taxes. Where you pay tax is based on your tax residency. If you are a tax resident in Portugal, you must declare and pay tax on your worldwide income and gains in Portugal. Tax may also be due in another jurisdiction, but this does not negate your responsibility to also report it in Portugal. For example, if you receive rental income from a UK property, tax is due in the UK but the income is also reportable and taxable in Portugal. You will get a tax credit so you will not pay tax twice, but tax still may be due in both countries.

2. Some individuals believe that if they do not bring assets/income into Portugal, they do not have to report or pay tax on it. This is not the case, as Portugal does not have a remittance basis of tax. All income and gains are taxable in Portugal, irrespective of where they arise.

3. Many UK nationals believe that once they have left the UK, they will no longer be subject to UK Inheritance Tax (IHT). Unfortunately, this is not the case. IHT is based on your domicile, not your residency and losing a UK domicile of origin is a tricky process that requires an individual to sufficiently break ties with the UK, no longer see it as “home” and have the intention to never return. Specialise advice must be sought.

4. “I have to transfer my UK pension overseas”. You do not have to transfer your UK pension overseas if you are resident in Portugal. Whether an overseas transfer is right for you will be dependent on several factors and your objectives. For example, if you intend to drawdown your pension fully, a transfer overseas is likely not required, as this will incur fees and may provide little or no additional benefit. Alternatively, if your pension benefits are close to the new “UK lifetime limit” an overseas transfer may save a lot of potential future taxation.

5. Pensions and taxation. Whilst pension are tax efficient during NHR, post NHR pension income is generally taxed at scale rates. Some individuals claim the 85/15 treatment in Portugal which is reserved for annuities, and whilst may not be picked up on by finances, this is a grey area of planning and if audited the onus is on the individual to prove the type of income payment and the source/contributions.

6. Investing in a QNUPS (Qualifying Non-UK Pension Schemes) or investment bond? The right structure will be dependent on your personal circumstances, but the main difference in taxation between the two is that QNUPS income is always taxable, so you can find yourself paying tax even if no gain has been made or you have made a loss! With a bond, only the gain element is taxable.

7. “Putting assets within a QNUPS will guarantee protection from UK IHT”. Whilst using QNUPS can protect your wealth from UK IHT, this is not guaranteed, and careful planning must be done. HMRC are clear that a QNUPS must be used for pension purposes and not for tax avoidance purposes, otherwise the QNUPS will fail. Putting large portions of your estate in a QNUPS and funding them to a level that is clearly in excess of pension provision needs may be an indication of tax avoidance for HMRC.

8. “As long as I don’t take income from my investments, I won’t pay tax”. Tax is due on an arising basis i.e. when income/dividends are paid or capital gains are realised on sale/switch unless held in a pension, company, trust or investment bond. Therefore, even if you have not physically taken the money out to your bank account, tax is still due.

9. If you are selling your home in Portugal capital gains tax is due on 50% of the gain at scale rates. There is main residence relief if you use 100% of the proceeds to buy a new home or invest the proceeds in a pension or long-term investment, the latter allowing you to release capital and provide a future income.

10. If you are selling a property with an active AL license, or one that was cancelled within 3 years of sale, 95% of the gain is taxable at scale rates. This is often overlooked and an unpleasant surprise on sale.

Italian Tax Changes 2024

By Andrew Lawford
This article is published on: 9th January 2024

09.01.24

Happy New Year to everyone! I hope that you have had an enjoyable festive season and are feeling ready for 2024.

In keeping with the long tradition of Italian governments fiddling with tax rules, 2024 brings with it a number of changes, so let’s dive in and have a look at what to expect.

If you are based in Italy or thinking of moving to Italy, please click here to contact Andrew

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IRPEF marginal tax rates

For 2024 we will have only 3 marginal tax rates:

€ 0 – 28,000	23%
€ 28,000 – 55,000	35%
€ 55,000+	43%

This abolishes the previous band from €15 – 28,000 which was taxed at 25%, which will result in a net saving for someone with an income of €28,000 of €260 per annum. Don’t get too excited though, because if you have an income above €50,000, the reduction in IRPEF rates is offset by the withdrawal of certain tax breaks, which could lead to you paying the same amount as before.

Residency rules
2024 introduces a modified formulation of the definition of tax residency, in particular through Art. 2 of the TUIR (the Italian tax code). Without getting too deeply into the details, the emphasis seems to have moved from a strict presumption based on whether you have, in fact, declared residency in your local municipality to one based more generally on your physical presence and an evolved conception of domicile. Not much will change for you if you live year round in Italy and are already used to filing tax returns, but if, for example, you have made a determination that you aren’t tax resident in Italy in spite of the fact that you spend a large amount of time here, it would be a good idea to review your position to make sure that it is (relatively) clear under the modified formulation. The changes also need to be considered in the light of any double tax agreements and, from what I have been reading, even the experts are confused about what all this will mean in practice. None of the above is helped by the fact that the Agenzia will not give an advance ruling on whether a given individual is tax resident or not – they will tell you what they think if they ever subject you to an audit!

Careful planning and prudence remain key to protecting your position, so do get in touch if you would like to discuss further, as I can provide an introduction to an experienced tax adviser as part of an overall review of your financial situation.

Inbound Workers Incentive
Those who took up residency before the end of 2023 can continue to use the previous rules, which are far more generous than the updated version, in force from the beginning of 2024.

The incentive currently available is reduced from the previous 70 – 90% income tax reduction to a 50% reduction, capped at an annual gross income of €600,000. The requirement for the time spent as non-resident of Italy prior to making use of the incentive has been increased to 3 years, (or 6 – 7 years if there is continuity in the employment relationship). There is also an increased requirement to maintain Italian residency for 4 years (previously 2), and a requirement for a high level of specialisation in the qualifications necessary for the job in question.

Given the growing complexity of the requirements, it is worth spending some time assessing your personal situation if you are considering making use of these incentives. It is also worth noting that the incentives do not apply to pension contributions, which may reduce considerably the value of the tax break for anyone not planning on being resident in Italy for the long-term.

It is worth reminding anyone making use of these incentives that they apply only to work income; any investments or passive income generated must be declared and taxed according to the ordinary rules. There are plenty of tax planning opportunities available for people transferring residency to Italy, so please do get in touch to discuss your own particular situation – it is never too early to start this process, as a number of potential tax efficiencies are lost if they are not put in motion before becoming Italian tax resident.

Short-term rentals and cedolare secca
For anyone offering short-term property rentals in Italy through Airbnb or similar, there are some changes coming in 2024. In particular, in order not to be considered a business activity, you can’t be renting out more than 4 separate properties. You are also only eligible for the cedolare secca flat tax of 21% on 1 property, while the rest will be taxed at a

rate of 26%. Platforms like Airbnb will continue to withhold 21% from the amounts charged, but this will only be by way of a provisional tax payment, with the property owner having to make up any shortfall in their tax returns.

Aside from the above, you should also take care to register for the new obligatory CIN (codice identificativo nazionale), details of which should be available in the coming weeks. This is a new registration requirement and the CIN must be displayed outside the building in which the short-term rental property is located, or you risk a fine of up to €8,000. There are also new safety requirements relating to fire extinguishers and gas alarms, so make sure you review the new regulations as soon as you can.

Increased IVIE (wealth tax applied to foreign real estate)
As if life wasn’t already tough enough for those owning property outside of Italy (and particularly outside of the EU), the IVIE rate goes up in 2024 from 0.76% to 1.06%, calculated either on the equivalent of the valore catastale (if the property is within the EU), or on the lower of cost or market value if it is outside the EU.

For many people, owning foreign property is simply a sign of the connection they maintain with their country of origin. However, unless you really do need a property in another country, it may ultimately be more trouble (and cost) than it is worth once you take into consideration the difficulty of managing property from afar and its tax treatment. Consider that financial assets, which are vastly easier to manage and can provide a tax-efficient income if set up correctly, are subject to a wealth tax that is more than 80% lower than the tax applied to real estate and can qualify for a 100% inheritance tax exemption. I can provide an objective financial analysis for anyone considering alternatives to their foreign property investments.

CFCs and holding companies
Controlled Foreign Companies (CFCs) have long been a difficult area and tend to get mixed up in the general issue of residency, given that foreign corporate entities can be classified as Italian residents in a similar way to individuals who may consider themselves to be non-resident for tax purposes. The Italian tax treatment of CFCs has hitherto based itself on a threshold level of taxation for the CFC in question: if it is taxed at less than 50% of the equivalent Italian tax, this will attract negative consequences. This threshold level has since been simplified to 15%, with further consideration being given to holding companies that may enjoy a participation exemption. This is a very complicated area, but suffice to say that reviewing any holdings you might have in foreign corporate entities, especially if these are controlling interests, should be part of your Italian financial planning. I can provide appropriate introductions to experts in this field as part of an overall review of your situation.

Financial Update France January 2024

By Katriona Murray-Platon
This article is published on: 8th January 2024

08.01.24

The new year is a great time for setting goals and making resolutions. I read that, according to a recent survey, saving money was the most popular resolution (after losing weight)!

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Saving money is a very important habit to have throughout your life. The great thing is that it is never too late or early to start saving and you don’t need to put aside a lot. Just like it is not a good idea to do fad diets but more to make manageable improvements to your lifestyle, it is better not to make too ambitious savings plans but to put aside small regular amounts that build up over time.

The French standard savings accounts are currently earning 3% which will remain as such until the beginning of 2025. You are allowed to put €22,950 of capital into a Livret A and €12,000 into a LDDS. Once you have reached these limits you cannot put any more into it but the interest compounded over the years can be added to these amounts. The LEP is the highest remunerated savings account, currently at 6%, however if you are eligible for this account you should take advantage of this rate as soon as you can as it may drop to 4.2% on 1st February. If you are eligible you can have 2 LEP accounts per household and can put up to €10,000 of capital into it. To be eligible one person alone must not have earned more than €21,393 in 2022 as declared in 2023. Your bank will not automatically suggest that you open this account so it is for you to check whether you are eligible and request to open a LEP. There are other savings accounts and term accounts that the banks may offer but the rates on these are around 3% and unlike the above mentioned accounts, they will be subject to tax and social charges.

Whilst we don’t know how the market will react to various events and political developments in 2024, fixed income assets could continue to provide good earnings this year. Our investment providers have seen good steady returns in 2023 in their more cautious funds. Whilst savings and fixed interest assets are good to have, it is also important to have some equity based investments. According to a Credit Suisse study published in February 2023, the actual annualised return (after inflation) on the savings accounts in France was -0.8% per year between 1923 and 2022, compared with +6.1% from shares.

On the 15th January, if you have had home help expenses (cleaner, gardener etc) you will get 60% of this tax credit paid to you. The remainder will be taken off your taxes in September.

I will be attending our annual conference in Budapest from 22nd to 26th of January and will have lots of information to pass onto you when I hear the presentations from our product providers. Also coming in my February Ezine will be the news from the adopted French Finance law for 2024.

It is never too late or too early to financial planning so do get in touch and recommend your friends to get in touch with me for a free financial consultation.

Happy New Year 2054

By Richard McCreery
This article is published on: 4th January 2024

04.01.24

A tongue in cheek look at the world
three decades from now

The year is 2054. The Trump family presidency is about to enter its fourth decade of ruling power, with Ivanka in charge ever since her father abolished the 22nd amendment of the US constitution that limits anyone to two terms.

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Today, the government has a 99% approval rating, according to the state-sponsored broadcaster Fox News, and the Trump family continue to win each election in a landslide, having introduced new rules to make the voting system fair and honest following the collapse of the Biden regime.

However, America is not the technological superpower it once was, having stubbornly doubled down on the use of oil, coal and gas whilst the rest of the modern world switched to clean, abundant renewable energy and electric cars. The technology-hating president Donald Trump eventually decided that the Big Tech billionaires such as Bezos, Zuckerberg and Musk were getting too big for their boots and nationalised their companies, declaring that it was his duty to the people to use his talent for business to run them himself. This move ushered in a new kind of capitalism as their huge profits were directed to fund the collapsing social security system, the construction of border walls sealing off America from Canada and Mexico, and enabling the Trump White House to install gold-plated toilets in every room, making it the envy of African dictators and footballers wives.

The US national debt has climbed to $340 trillion, a tenfold increase since The Donald regained power in 2024, but the Fed has kept interest rates at zero for most of the past three decades. The US Treasury has been able to fund the debt by creating a series of $1 trillion digital coins and by selling NFT trading cards. As a result, the ‘Trump’, the new name for the US Dollar, is one of the weakest currencies in the world – you currently get 250 Trumps to the Euro. The Trump administration has managed to stave off financial collapse by regularly threatening to ‘renegotiate’ America’s sovereign debt with its creditors, a scenario that everyone wants to avoid.

Whilst America has begun to resemble a strange version of Cuba or North Korea, Europe has enjoyed a surprising renaissance, thanks to its early adoption of artificial intelligence as a key element of government. For once, the hype turned out to be real (albeit 15 years after the first AI stock market bubble had popped) and AI advanced rapidly as it was entrusted to take over from politicians. A new law in 2035 stating that anyone who expressed a desire to go into politics would immediately be banned from going into politics meant that a new way to govern had to be found. By harnessing AI for the common good, rather than allowing it to be controlled by a few large companies or rich individuals, Europe has been able to rebuild its infrastructure, increase the leisure time of its working population with the introduction of the 3-day week and overtake the US and Asia in the development of new virtual reality worlds where most retired people now spend their final years – it has become possible to see the world, live out your dreams and fulfil your fantasies, all without leaving the comfort of your armchair.

Norway has become the most admired nation in the world, an example of good resource management and social equality. It’s oil fields were eventually depleted but, unlike other oil-rich nations like Saudi Arabia and Russia, Norway had invested its wealth for future generations into thousands of companies around the world. As the only country to have virtually no debt, Norway’s Krone has since taken the place of the US Dollar as the world’s reserve currency.

The Krone has gold-like limited supply, is backed by real wealth and an economy powered by an abundance of clean thermal and hydro electricity. In 2031, Norway became the first country in the world to have an all-electric transport system, having waved goodbye to petrol engines long before anyone else. It’s cooler climate has also made it one of the world’s most popular holiday destinations now that parts of the Mediterranean region have become too hot to support life outdoors during the summer months.

Technological advances in the early 2040’s mean that global poverty, water shortages and hunger around the world may soon become a thing of the past. The spread of AI-powered nanobots throughout industry and agriculture has increased productivity by thousands of degrees of efficiency. No longer is output restricted by physical human strength, labour laws, poor education, the need for holidays or sick leave. Tiny machines that are able to reproduce as the work requires are now populating factories and fields in vast numbers, freeing humans from the slavery of the daily struggle to feed themselves or earn a living. This new workforce has massively increased our efficiency when using finite natural resources, it has created a recycling movement that ensures nothing is wasted and has generated an abundance of goods and services.

Education is now available to anyone who is connected to the world wide web, which these days is everyone. Society’s best teachers no longer stand in a lecture hall in Cambridge or Harvard, educating only a few privileged students. Today, they are treated like rock stars as they broadcast their lessons around the world to millions of people at a time, giving students everywhere the chance to be taught by the best in their field. However, despite a leap in global education levels, AI has not been able to come up with a way to genetically eliminate stupidity, even if it is now recognised as a medical condition for insurance purposes.

Instead, advanced neuroscience technology, first brought to the mass market by Elon Musk, allows a person to switch between their original brain and a Tesla artificial brain that is installed alongside. The new technology is prone to make mistakes and somewhat fails to live up to the hype but it is very popular thanks to its ability to allow the user to function in ‘self driving’ mode and switch off their real brain.

War has largely been eliminated in 2054. The spread of the internet to every part of the globe helped people of all nations and religions to bond and empathise with each other. For the first time in history, people were able to see and really understand how other people lived. They might not all agree with each other but the urge to kill has been reduced dramatically (except in America) and the need to occupy more territory has been negated by expansion into new digital universes and, soon, into space. The end of corruption in politics also meant that the world’s largest arms companies suddenly found themselves facing a demand shortage as government budgets were directed elsewhere, so they naturally directed their skills towards space exploration.

War isn’t the only thing that has been eliminated – so has smoking, alcohol, red meat, close human contact (unless you have a license), telling off children, boxing, speeding, fast food and swearing. The proliferation of cameras everywhere ensures the population remains polite and well behaved, much like Japan. Only the Clarksonites remain in defiance, an underground movement dedicated to preserving what they describe as the lost arts of fun, debauchery and common sense.

However, despite the relative sanitisation of humanity, in the year 2054 the future is looking bright. The stock market is up, house prices are up and most people around the world have food on the table and more tv programmes than they can ever watch. The depression years of the late 2020s, a hangover from the locked-down COVID era, have given way to a time of greater optimism, more peaceful co-existence and rising prosperity. Climate change has been arrested thanks to clean-tech, space travel is opening up new frontiers in human exploration and the virtual reality worlds are enabling new lives in the digital universe. It may not be perfect, but it is a lot better than anything the science fiction writers of the late 20^th century were predicting.

What does your investment portfolio look like?

By Portugal team
This article is published on: 16th December 2023

16.12.23

Many of us are guilty of jumping on the bandwagon when it comes to investing. Maybe you are focused on artificial intelligence this year, or you were sucked into the crypto hype in 2021, and these trends may have left your portfolio looking like a bag of pick n´mix.

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Downsides
Whilst diversification is key in any portfolio, too much diversification can also be a problem and often results in an incohesive portfolio without a clear investment strategy. It also requires a lot of effort, time and research, and can even lead to inefficiency and underperformance as you spread yourself too thinly.

Being overweight in certain areas can create risk, and being underweight can be a drag on your portfolio as positions are too small to make a meaningful impact on returns.

It is also easy to duplicate holdings or even end up with a similar allocation of holdings to that of a tracker fund, just at double or triple the cost.

More pitfalls
As humans, we are also prone to biases. The most common ones encountered when investing are:

Home bias: this is where we focus on investing within our home markets. Many UK advisers are guilty of this, with a weighting towards the UK market rather than a global approach.
Recency bias: this is the tendency to react and dwell on recent events and forget the long-term patterns and trends.
Confirmation bias: we often search for evidence that supports our views and see less value in opposing data. A lack of impartiality is likely to have a negative impact.
Confidence bias: We are inclined to overestimate our skills as investors. Even with all the money, backing and decades of research at their fingertips, professional fund managers often make mistakes. Can we really perform any better with consistency?

Lastly tax efficiency is often overlooked and can have a huge impact on returns when you consider the benefits of compounding over the years. It might cost you capital gains tax to restructure now, but it will save you from an even bigger tax bill in the future.

What is the magic number?
How many holdings you should have will depend on your preference for stocks versus funds, investment style and the time you have to dedicate to research and monitoring.

As a rule of thumb for non-professionals, a portfolio of stocks should sit at around 20 to 25 holdings, above this you are verging into professional manager territory and may not have the resources or time to back it up. For funds, diversification can be built in and so it is possible to hold just one tracker fund, or a small number of multi-assets funds (spreading investment manager risk).

What next?
If your portfolio is looking a bit haphazard, start as you mean to go on and regularly set time aside to do full reviews. It is much better to do this in one go, rather than bit-by-bit, as it will allow you to look at the portfolio as a whole and remain consistent.

You will want to look at what you are holding. Are you guilty of ´sunk cost fallacy ´and holding on to stagnant holdings or losses in the hope they will recover, meanwhile missing out on returns elsewhere? Or maybe you need to look at new investment opportunities, revisit costs versus performance, or rebalance.

If you are craving simplicity, utilising passive funds that focus of large markets can offer a good low-cost option with returns that even active fund managers often find hard to beat.

Financial update France December 2023

By Katriona Murray-Platon
This article is published on: 6th December 2023

06.12.23

Here we are already at the end of the year. 2023 has been a year of highs and lows, not for me personally or professionally, but in the markets. If you look at any of the main markets or indexes you can see that 2023 has been a challenging year for investors. Of course there are still several weeks left in December so it is too early to say how the year will end.

If you are based in the Poitou Charentes, Limousin & Aquitaine region or thinking of moving to France, please click here to contact Katey

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At the end of November the UK chancellor presented the autumn statement. Whilst much of this does not affect those of us in France, Mr Hunt did confirm that the triple lock would be maintained and the pension payment would increase by 8.5% in April 2024. If you are entitled to the new State pension you will get £221.20 a week from April. Those pensioners who qualified for their pensions before April 2016 will also see an increase from £156.20 currently to £169.50 per week. Unlike in the UK the tax bands in France have been increased for 2024 so this means that, subject to the exchange rate, pensioners in France will get more income but pay less taxes next year.

The Bank of England decided in November that it would not increase interest rates and would maintain it at 5.25%. Whilst this is unlikely to change in the medium term, with inflation falling to 4.7% in October, it has been no surprise to me to read in the UK press that many banks are dropping the high interest rate accounts that have been on offer over this past year.

Please remember that most companies and business owners have to pay CFE by 15th December. As the CFE is a local tax and the other local taxes like the taxe d’habiation and taxe foncière increased this year, it should come as no surprise if you find that your CFE has also increased.

As we head towards the end of the year there may still be some things you might want to consider doing to alleviate your tax burden next year. Tis the season for giving so if you haven’t already been making charitable donations monthly during the year or you want to make one off donations at this time of the year, you can deduct between 66% to 75% of the amount donated, depending on the status of the chosen charity, and up to 20% of your annual taxable income. Also, if you have a PER and are in a position to make a contribution to it before the end of the year, this is also deductible from your taxable income.

There was good news for those invested in the Pru as, at the quarterly review of the Expected Growth Rates on 27th November, there was no changes to the EGRs and no Unit Price Adjustments. This was welcome news since there had been three consecutive downward Unit Price Adjustments in the PruFund Growth Sterling fund in previous quarters.

Looking forward, I always like to remain positive and hopeful however I have learnt that it is also important to manage expectations. One of our product provides reminded me that there will be many countries heading to the polls in 2024 and that this is likely to cause turbulence and volatility in the markets.

The OECD predicts that “In the absence of further large shocks to food and energy prices, projected headline inflation is expected to return to levels consistent with central bank targets in most major economies by the end of 2025.” It further stated that whilst “Global growth is projected to be 2.9% in 2023, and weaken to 2.7% in 2024. As inflation abates further and real incomes strengthen, the world economy is projected to grow by 3% in 2025”. Of course, whilst these are based on careful analysis and good information, they are just predictions and as we have seen things often turn out better than most analysts ever predicted.

No matter what happens my job is to be there for my clients, to advise them on their investments and provide them with the proper information to help them make the right financial decisions so please do get in touch if you would like to arrange a phone call, video call or face to face meeting.

I shall be celebrating Christmas here in France and then New Years in the UK. There are still plenty of dates available for meetings before the end of the year but if I don’t speak to you before then I wish you all a very happy holiday season and all the best for the new year!

Livret A : Protection ou illusion face à l’inflation ?

By Cedric Privat
This article is published on: 5th December 2023

05.12.23

«Vous voulez faire fructifier votre épargne de manière sécurisée et sans payer d’impôt ? Vous pouvez ouvrir un livret A». source site officiel de l’administration française.

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Avec pas moins de 56 millions de livrets A comptabilisés à fin 2022, cette publicité semble avoir séduit les Français, mais qu’en est-il réellement de ce placement dont le taux d’intérêt est fixé par l’État ?

Le livret A est le placement préféré des Français. Huit Français sur dix le détiennent et ils ont déposé près de 26 milliards sur ce produit d’épargne sur les six premiers mois de l’année 2023. Du jamais vu…

Le Livret A est un placement sûr et liquide, ce qui signifie que vous pouvez retirer votre argent à tout moment sans pénalité. Le ministre de l’Économie et des Finances, Bruno Le Maire, a récemment fait le choix de maintenir son taux de rémunération à 3% soit l’assurance de bénéficier d’un taux fixe jusqu’en 2025.

Malgré son succès, ce produit d’épargne est souvent critiqué pour sa faible rémunération.

Ci-dessous un comparatif des 5 dernières années face à l’inflation :

Années	Taux annuel du livret A	Taux d'inflation
2023	2.92%	5.60% (prévision Banque de France)
2022	1.38%	5.20%
2021	0.50%	1.60%
2020	0.52%	0.50%
2019	0.75%	1.10%

Sources: Banque de France, Insee

Récemment, le gouvernement a dérogé à la formule de calcul fixant son rendement, calcul qui aurait potentiellement amené le taux à plus de 4%.

Le Livret A ne protège donc pas les Français d’une perte de pouvoir d’achat, et ne constitue pas un “rempart” contre l’inflation. Le taux réel étant négatif, l’argent placé perd de sa valeur au fil du temps.

Le livret A reste pertinent pour certaines situations
Par nature, le Livret A étant garanti, son rendement est faible. Mais malgré sa faible rémunération, il peut toutefois convenir à certains épargnants.

Il est simple, accessible à tous et garantit un capital entièrement disponible à tout moment.

Il permet de limiter le phénomène d’érosion monétaire pour ces sommes épargnées à court terme, afin de faire face à des besoins exceptionnels.

Le livret A est conçu pour constituer un matelas de sécurité. Il est recommandé de laisser sur son Livret A une épargne de précaution correspondant à 3 à 6 mois de dépenses courantes, de manière à faire face aux imprévus.

Quelles alternatives ?
La réponse dépend principalement des objectifs d’épargne, de la disponibilité recherchée et du profil de risque de chacun.

Pour les épargnants prêts à accepter un peu plus de risque et limiter la disponibilité quelques années, il existe des placements offrant de meilleures perspectives de rendement.

L’assurance-vie (produit le plus diversifié), le placement en actions (le plus dynamique) ou les SCPI (le plus stable) seront les options les plus cohérentes.

Le pouvoir d’achat est au centre des préoccupations des français et l’investissement est un moyen qui permet réellement de se prémunir de l’inflation et de construire ses projets d’avenir. L’épargne et l’investissement ne répondent pas aux mêmes enjeux.

Lorsque l’on dispose a minima de trois ans devant soi, il est inutile de laisser dormir cet argent, que ce soit sur un compte courant ou sur un livret.

N’oublions pas ce principe phare de la finance : il n’y a pas de rendement sans risque.

Le groupe Spectrum à Barcelone se propose d’étudier gratuitement votre situation afin de vous aider, de vous conseiller, de vous orienter ou de vous guider dans vos démarches patrimoniales.

N’hésitez pas à nous contacter afin d’obtenir les réponses d’un professionnel aux questions que vous vous posez.