Due to the increase in interest rates over the last couple of years, cash has been a relatively attractive investment however as rates on deposits have started to fall, more investors are again turning to investment portfolios to make their money work harder.
Where do you go as interest rates fall?
By Portugal team
This article is published on: 27th March 2024
27.03.24
But as the returns fall on cash accounts and short-dated bonds, where can investors turn?
Don’t fall into the reinvestment risk trap
As fixed terms come to an end, many institutions reoffer new terms but with lower rates. After becoming used to decades of very low (or no) interest being offered on savings, it is still easy to find any savings rate above zero attractive – even though we know this is well behind inflation, so the value is going backwards in real terms.
With cash looking less attractive as a long-term option, savvy savers are looking back to the markets to get their money working for the longer term.
But aren’t investments ‘risky’?
Risk is misunderstood and is often confused with volatility. Risk can be more accurately defined as the “chance of permanent loss of capital”, whereas volatility is simply the degree to which investments move up and down.
Although many feel shares in companies are a “risky” investment, if we look back over the past several decades, we can see the chance of permeant loss is very small when investing in high quality “blue-chip” companies such as Apple, Nestle or BP etc.
Volatility is what scares most investors- the ups and the downs. But putting this into perspective, most of us own a home and are aware of what the property market does, it also goes up and down. But unlike with an investment, you don’t have a ticker on your post box telling you the daily price, so you don’t see the volatility and therefore, do not “feel” the risk.
What about returns?
The return you achieve from your portfolio is determined primarily by the composition of the underlying portfolio i.e. the split between shares, bonds and other assets such as property and commodities etc.
Despite the doom and gloom in the world at the moment, markets have done very well over 2023, and whilst cash has offered attractive rates of 5-6%, the S&P500 achieved 24% over 2023.
Longer term returns
Whilst the returns achieved in 2023 are not guaranteed to continue, if we look back at longer term records, figures from Credit Suisse show that over a 123-year period starting in 1900, shares in developed equity markets have generated returns at 5.1% above inflation and emerging equity markets have achieved 3.8% over inflation.
The Credit Suisse figures also show that shares have outperformed cash (and bonds) in every one of the 21 countries their data covered over that 123-year period. This is quite remarkable given this period covers two world wars, two global pandemics, the great depression, dot-com bubble, and the global financial crisis!
So, shares could be considered lower risk than cash or property because of their proven ability to keep pace with inflation over time and therefore protect your money in real terms.
What steps can you take to maximise your annual investment returns?
The return you receive as investor will be determined by a range of factors and there are certain steps you can take to increase your return expectations:
Select the right funds: The difference in fund performance can be startling e.g. in a recent analysis we carried out of the US equity sector, the top performing funds was up 67% whereas the worst was down -25%!
Review regularly: Whilst a buy and hold approach is one of the most popular strategies for investors, reviews are essential. Not only to ensure your risk level, asset mix and diversification are in line with your objectives, but also to ensure your portfolio remains relevant. Looking over a 40-year period at the FTSE 100, only 24 companies (or arguably 35 including mergers and acquisitions) are still in the index since 1984.
Minimise fees: Ensure you have a clear view of what you are paying. Minimising fund management and advisory costs puts more money back into your portfolio and leads to better net performance. Ensure you check and read all paperwork when making any investments, or even better, get a professional second opinion on value.
Minimise tax: With interest, dividends and capital gains tax at 28% for standard residents (note, 28% capital gains tax does still apply to Non-Habitual Residents), tax is one of the biggest eroders of investment return. So, give some thought to how you hold your portfolio and take advantage of the different tax “wrappers” available to Portuguese tax residents, but keep an eye on fees and only seek advice from qualified advisers.
The Value of Seeking Financial Advice
By Peter Brooke
This article is published on: 26th March 2024
26.03.24
My name is Peter, and I am a financial adviser!
There, I have said it, and I can own it!
The personal financial advice industry has often been regarded as a home for insurance salesmen in shiny suits or as an out-of-reach luxury for the very wealthy. It hasn’t helped with various mis-selling scandals over the years and high levels of hidden fees, but after 25 years in this industry I wanted to make the case as to why we are not all the same and show what true value can be taken from seeking professional advice.
Fortunately, our industry has changed a lot over those 25 years and transparency, communication and ‘putting the client first’ have now become the values most of us live and work by.
As a little background, I wanted to be a Vet or a Doctor when I was at school, I loved science and maths but didn’t truly focus enough on my A-Levels and was found wanting when it came to getting into Medical School. I ended up studying Molecular Genetics at Sussex University but discovered that I also didn’t want a life in a lab. As a ‘frustrated Doctor’ I ended up in Pharmaceutical Sales… great fun as a young man straight out of Uni but it became a very demoralising job and one which I discovered was really all about making money, not helping people.
I was encouraged by a family friend to look at stockbroking or financial planning as a change of track and started work in 1999 (dot com!!) at an investment advisory business in London. We introduced the UK’s first ‘advisory-discount’ services where we would provide personalised investment recommendations at discounted fees.
Ironically, it took moving to an industry that concentrates solely on money to realise that I could actually help people achieve wellbeing and peace of mind through my abilities to discuss and explain complex issues.
In 2004 I moved to France and started working with The Spectrum IFA Group, helping English speaking expatriates to create and realise their plans for living in France, I have been here ever since. I especially wanted to join a fully regulated company which gave me the independence of my own business and together we have grown to where we are today – 50 advisers operating across Europe, in France, Spain, Portugal, Italy, Luxembourg, Malta and Switzerland.
What should we, as financial advisers, aim to provide to our clients?
I believe our true value lies in helping our clients answer two main questions:
1. Am I going to be ok, financially, and if not, what do I need to do to make sure I am?
2. What have you, as my adviser, done for me?
The first question is the core of a good adviser’s skill set and business strategy – it is all about helping identify and plan for different stages of life. Correctly laying out a ‘roadmap’ for the future and asking the difficult questions; this can truly provide the peace of mind that you, as my client, are on target, and if not what do we need to change or compromise on to ensure you get there.
This roadmap then needs ongoing reviews, especially as life throws various obstacles at us along the way.
The second question is the ‘HOW’ of the first question. Historically we have valued good advice, and what we pay for it, as a percentage measurement of investment performance, which the adviser actually has minimal control over.
I believe it is more nuanced than this and can be broken down to six key areas in which we can (and should) add value and help answer that first very important question:
We help to bring order to your financial life by assisting setting budgets and cash flow targets as well as overseeing and reviewing investments, insurance, estate plans, taxes, etc.
We are a sounding board to help you follow through on your financial commitments, by identifying and prioritising goals, and then explaining, in plain english, the steps to take, and then regularly reviewing your progress towards them.
We offer insight from the outside to help you avoid emotionally driven decisions in important money matters; we are available to consult with you at key moments of decision-making, providing the necessary research to ensure you have all the information to make the best choices.
We help you anticipate life events and changes and be financially and emotionally prepared for them. We can help in creating, ahead of time, the action plan necessary to address and manage any life transitions that inevitably appear.
We explore what specific knowledge will be needed to succeed in your plans by understanding your situation and then providing the necessary resources to facilitate your decisions, and explaining the options and risks associated with each choice in a clear and simple manner.
We aim to help you achieve the best life possible but will work with you, not just for you, to make this possible. We will take the time to clearly understand your background, philosophy, needs and aspirations and will work collaboratively with you and on your behalf (with your permission, of course).
Upfront about what it costs
For me, helping people is at the centre of my personal values – being paid to do this is a welcome bonus and I have long believed that our jobs find us, not the other way round. I have always been a bit of a ‘planner’ and see ‘the big picture’ in most situations – helping people see that ‘they are going to be ok’, or explaining ‘what they need to do to get there’ is a truly pleasurable challenge for me.
Price is what you pay, Value’s what you get
I firmly believe my clients get value for money. In Europe we are not regulated to handle client money so will never send you a bill for you to pay us directly.
Spectrum is remunerated by the insurance or investment company which provide the final financial solution to you and with whom you have a direct relationship, with us ‘appointed’ as your adviser.
I believe in transparency of all costs and charges so you know exactly what you are paying and to whom. Our charges are competitive, we only use clean share classes of funds so there are no hidden or double fees.
Making the time – ‘How can I help?’
I live and work in a community of English speaking expatiates where referrals and recommendations count for a great deal. I always feel very proud and grateful when an existing client refers me to another family member or friend who might be able to benefit from the services that I offer. So thank you for trusting me with them and I look forward to helping more in the future.
Snapshot of our services
- Financial Planning & Budgeting
- Family protection
- Cash Flow Planning
- Investment Management Advice/Guidance
- Tax optimisation through tax efficient products
- Estate & Inheritance planning
- Risk Management, diversification & asset allocation
- Retirement planning
- Education cost planning
- Long term care planning
- Pension advice including transfer and consolidation
If you know someone who might need our services, feel free to get in touch and forward them this email – the link above can be used to book a 30 minute call with me directly. If I can’t help then I may be able to direct them to someone who can.
If you have any questions or would like a catch up then please use any of the below communication channels or the booking system – always drop me a quick message if you need a time slot outside of those available.
For existing clients the CashCalc secure portal is a great place to update any information, send me documents or even a direct secure message.
If you have missed any previous emails, click here to access the Archive.
Exciting times ahead
By Jeremy Ferguson
This article is published on: 26th March 2024
26.03.24
For those of you who are retirees, you will have lived through an incredible age of change and prosperity. You will remember the days of stopping the car and going to a phone box to make a call, possibly dictating a letter for a colleague to type for you, waiting for the post each morning to see if your recent job interview had been successful. Cars with no seat belts, and only the well-off flying around the world for holidays etc. On and on I could go, but you get my point, I hope.
Most of us would have started to write emails in the mid 90’s, and since then the advances in the use of the internet have increased exponentially. Mobile phones now are quite simply the most amazing multi-media tools, with what seems like the whole world obsessed with them. Maybe they aren’t a good thing for society, only time will tell.
But what I do know is the fact that you can use them to navigate anywhere, watch TV, read the newspaper, write emails, pay for your car parking online, translate between languages etc. All of this just never ceases to amaze me. Could you imagine telling someone a decade ago, this is where we would end up with mobile phones? Overall, this technology at our fingertips is incredibly useful and has changed the way we live.
The next decade is going to see an ever-increasing transformation in the use of technology, not only in our daily lives, but also in business and commerce. I am sure you have all heard of the Artificial Intelligence (AI) race that is underway at the moment.
AI technology has recently been on trial in a Scottish hospital, analysing mammogram data, and managed to spot cancer in a number of patients which had been missed (due to its tiny nature) by the consultants. This is a perfect example of how this technology can be used to improve our lives.
There are four main areas of ongoing technological advance that may be worth observing over the coming years. Companies operating in these sectors offer huge growth potential for their shareholders.
There are AI companies, such as Microsoft, Amazon and Canon; and those specialising in financial technology (Fintech), Sage being prominent in this market, as well as Ricoh; there are robotics specialists, IBM and Adobe for example; and finally, the one we are all bored of hearing about, energy storage – many of the companies in this market are new, so there are few familiar names in there, but SAP is one name some of us may recognise.
The advances we are seeing in these areas are quite incredible, and if you think about it, the technology itself helps to further increase the speed of the new developments. Businesses who embrace these technologies to maximise their efficiency will all benefit from these advances. The knock-on effect will be far reaching and ever present in everyday life.
My clients are retirees here on the Costa Del Sol, now living off pensions and investments they have accrued over the years, and one of my responsibilities is making sure they are getting the most from those investments. With the world changing so quickly, it is essential we pay attention to the management of those funds, in particular to ensure that whoever is making the investment decisions is forward looking in their approach, and importantly understands the new world evolving around us.
Please feel free to email me if you would like to discuss your existing investments and pension funds, to see whether we can help make them work as hard for you in retirement as you did in your working life to accrue them.
Portugal´s tax incentives in 2024
By Portugal team
This article is published on: 25th March 2024
25.03.24
With the ending of the 10 year tax incentivised Non-Habitual Residence scheme (NHR) as at 31st December 2023, many are now reassessing their plans to move to Portugal and existing residents are also asking how the changes affect their plans.
Existing NHRs unaffected
Individuals with NHR status will not be affected and will continue to enjoy the benefits under the scheme until the 10-year period ends. But these individuals should taking advantage of the unique opportunity and tax plan for the future, even if Portugal is not a permanent move there are opportunities to wash out capital gains or draw lump sums at potentially lower rates than other countries.
Transitional NHR rules
NHR is still open to individuals who qualify under the transitional rules and applications are open until the end of 2024. The criteria are:
1. On 31st December you meet the conditions to qualify as a Portuguese tax resident, or
2. You become Portuguese resident by 31st December 2024 and have either:
- work contract or agreement dated prior to 31st December 2023, the duties under which are carried out in Portugal
- property lease signed prior to 10th October 2023
- promissory contract for Portuguese property signed before 10th October 2023
- enrollment of a dependant in education in Portugal by to 10th October 2023
- residence visa or permit valid up until 31st December 2023
- initiation of the process for visa or residence before 31st December 2023
If you are eligible but are not sure whether to push forward with the application, the benefits are very attractive. The main benefits being:
- 0% tax on certain types of foreign source income and capital gains
- 10% tax on foreign pension income
- Lower rates of employment and self employment tax on “high value activities”
NHR 2.0 – the new regime
Although qualifying for the new tax regime is more difficult than the old NHR, the major benefit is that for 10 years there is 0% tax on all foreign source income and gains. The only exceptions to this are income from backlisted jurisdictions or pension income.
The new regime is open from 1st January 2024 and the main qualifying criteria are:
- Not tax resident in Portugal in the previous 5 years
- Must become a tax resident in Portugal
- Not have benefited from the NHR regime
- Exercising a qualifying role/activity in Portugal. These are aimed primarily, but not exclusively, in the fields of scientific research and higher education
Expats & the standard regime
If you cannot qualify for either of the two tax schemes, Portugal can still be a financially attractive place to live – there is no wealth tax, inheritance tax or tax on transfer of capital into or out of the country.
Standard rates of income and capital gains tax can be comparable or better than the UK, depending on each person’s situation. It is also possible to establish investment and pension structures as a Portuguese tax resident to benefit from lower rates of tax.
Irrespective of which position you are in, planning is required to put yourself in the best position and it is never too late to start planning. Speak to several suitably qualified professionals, compare fees, and do not be afraid to get a second opinion or a sense check.
Buying you dream home in France
By Amanda Johnson
This article is published on: 20th March 2024
20.03.24
LIVE WEBINAR
TUESDAY 26TH MARCH
7pm – 8pm
We have a highly experienced team of panelists who will discuss all things to do with buying in and relocating to France.
I have worked with many of the panelists for a number of years and their knowledge and experience is valuable to me and my clients; so if you are looking at buying and/or relocating to France then please join us for this live webinar
Our experienced panelists are here to discuss all nature of topics to do with buying and relocating to France:
Karen Tait – Webinar host
Amanda Johnson – Wealth & tax expert from The Spectrum IF Group
Joanna Leggett – French Property Expert from Leggett
Jonathan Watson – Currency Expert from Lumon
Paulette Booth – Banking and insurance expert from AXA
Tracy Leonetti – Visa & paperwork expert from LBS
Sharon Revol – Mortgage expert from Cafpi
L’intelligence artificielle (IA)
By Cedric Privat
This article is published on: 16th March 2024
16.03.24
Opportunité ou menace?
L’arrivée récente d’applications dites “génératives” comme ChatGPT a révélé, à la fois, la maturité de la technologie IA qui lui permet de se déployer dans le secteur grand public, et aussi une propension du public à l’intégrer dans ses usages, y compris dans la création.
Elle est déjà utilisée dans de nombreux domaines, tels que la santé, la finance, la logistique et la production. Néanmoins les bouleversements induits par l’IA sont encore peu visibles.
L’intelligence artificielle suscite à la fois la crainte qu’elle ne remplace massivement des travailleurs humains mais aussi l’espoir d’amélioration des conditions de travail, voire de création de nouveaux métiers. Il est important de prendre conscience des opportunités et des menaces potentielles de l’IA afin de pouvoir l’utiliser de manière responsable et éthique.
Opportunités de l’IA
L’IA offre de nombreuses opportunités pour améliorer nos vies :
• Résoudre des problèmes complexes : l’IA est déjà utilisée pour développer de nouveaux médicaments, pour diagnostiquer des maladies et pour créer des systèmes de défense contre les cyberattaques.
• Améliorer l’efficacité : l’IA peut être utilisée pour automatiser des tâches répétitives ou laborieuses, libérant ainsi les humains pour se concentrer sur des tâches plus créatives et intellectuellement stimulantes.
• Créer de nouvelles opportunités économiques et sociales : Par exemple, développer de nouveaux produits et services, créer de nouveaux emplois et améliorer l’éducation.
Le Forum économique mondial estime d’ailleurs que, d’ici 2025, même si l’IA devrait remplacer quelques 85 millions d’emplois, elle en permettrait la création de 97 millions.
Notons que 60 % des emplois d’aujourd’hui n’existaient pas en 1940.
Menaces de l’IA
Selon une étude récente de l’Organisation Internationale du Travail (OIT), ce sont les emplois basés sur des compétences cognitives de base, tels que les emplois de bureau ou l’analyse de données, qui sont les plus exposés à l’arrivée de l’IA.
• Le chômage : l’IA est utilisée pour automatiser des tâches qui sont actuellement effectuées par des humains, comme la conduite de véhicules, la fabrication de produits et la prestation de services. La création d’emploi en parallèle est-elle assurée?
• L’inégalité : l’IA pourrait accroître les inégalités sociales, les personnes ayant accès à l’IA et aux compétences nécessaires pour l’utiliser étant limitées.
• Les risques éthiques : tels que la responsabilité des décisions prises par des systèmes d’IA, la protection de la vie privée et la prévention des discriminations.
• Puissance des GAFAM (géants du Web) : avec le rôle central qu’occupera l’IA dans de nombreux secteurs d’activité à l’avenir, les acteurs majeurs (Google, Amazon, IBM…) pourraient devenir incontournables et définir eux-mêmes les règles du jeu.
Compte tenu de la puissance de l’outil et de sa rapidité de développement, les pouvoirs publics se sont emparés de la question, notamment pour étudier les impacts dans les secteurs structurels (emploi, éducation, justice, sécurité, santé publique…).
Le rapport du Conseil d’État rédigé en 2022 plaide pour le développement de l’IA dans les services publics sous réserve du respect de sept príncipes :
• la primauté humaine ;
• la performance ;
• l’équité et la non-discrimination ;
• la transparence ;
• la sûreté (cybersécurité) ;
• la soutenabilité environnementale ;
• l’autonomie stratégique.
Le Parlement européen s’est prononcé le 14 juin 2023 en faveur du projet européen de régulation de l’intelligence artificielle.
Un équilibre semble donc possible entre l’adoption de l’IA pour améliorer l’efficacité et la productivité ainsi que la préservation des emplois. Le cadre devra néanmoins être structuré et des programmes de promotion, de formation, d’adaptation et de reconversion seront indispensables.
Le marché mondial de l’IA, qui a été évalué à 136,55 milliards USD en 2022, devrait connaître une croissance annuelle de 37,3 % entre 2023 et 2030. Les promesses de cette 4e révolution industrielle sont donc vertigineuses et les opportunités d’investissement sont nombreuses.
N’hésitez pas à nous contacter afin d’obtenir les réponses d’un professionnel aux questions que vous vous posez.
Sources: cabinet d’étude McKinsey, francenum.gouv.fr, Organisation Internationale du Travail
Memories are made of this
By David Hattersley
This article is published on: 12th March 2024
12.03.24
Thank you Deano, glass of wine in one hand and that mellow voice. Don’t worry this older, hopefully wiser Financial Adviser is a bit like that glass of wine, it mellows. Without a doubt, there have been immense changes in both my industry and life.
I started in the industry in 1987,at a time of rapid change. Privatisation, deregulation, right to buy, the “Big Bang” in the City, personal pensions, PEP’s, ISA’s, etc.
Changes in other fields occurred eg. traditional Optical Practices were challenged by a retail outlet offering a greater range of inexpensive glasses. It is now a global brand company. If you can’t read this, you should have gone to ……… !!! Many non Ophthalmic opticians came to own their own franchises and prospered. I dealt with quite a few.
Technology was advancing rapidly. Remember the 1st so called mobile phones? Massive batteries- if you tried to take it on board a plane as hand baggage today a budget airline would say too heavy, and charge you for hold luggage.
My 1st lap Toshiba laptop was used to provide illustrations. The games, awesome! Ping pong and zapping those little creatures coming down from the top. Microsoft was starting to lift off. Search engines were becoming available – eg “Ask Jeeves”.
Papers were full of financial news and even ”the Sun” had a page. No br…ts on that page! There was “Spitting Image” with a fair portrayal of some sectors of the press. A former CEO of a major financial services company told me that he ignored the “daily’s”, and only read the weekly addition of the FT on Saturday. The devils in the detail, so a “fad” can be created by misinformation & lack of due diligence. An example of a “fad” was the Dotcom crash, with “mates in the pub” telling their friends how much they had made. Basic fundamentals were not considered, greed came to the fore. I advised my clients not to purchase these assets, was ignored by one client and sadly he lost money. I experienced other so called opportunities where my advice was ignored and money was lost.
It wasn’t only with individuals where mistakes were made. Less regulated mortgage lending along with Lawson’s last budget in 1998 stopped additional mortgage tax relief to each single unmarried couple. House prices continued to rise in what was already a bubble, but slowed in 1989 and began falling. Then ERM. That crash lead to negative equity and a recession,& the demise of the Major government.
Then Blair was in charge. Cool Britannia, the fall of the Soviet Union, continuing Globalisation, 9/11, and subsequent wars. The banking crisis of 2007, resulted in chaos. Relaxation of regulations, greed, lack of understanding, due diligence and negligence were major contributory factors.
Quantitative Easing was introduced 2008 -2012 leading to a reduction in interest rates. It did not prevent recessions in many parts of the world, but gradually economies began to recover.
The last 4-5 years have been challenging, Covid, war in Ukraine, Gaza, slowdown of growth in China, politics dividing countries, Brexit, looming recession in some countries. It may seem that its never ending but these things are cyclical. It doesn’t matter where the recession is, there is always someone that benefits from it. Warren Buffets quote “When everybody’s being greedy, be fearful, when everybody’s being fearful be greedy”! Apply that to the many of examples I’ve already mentioned this quote certainly rings true.
What I do is simple, nothing has changed the process. Better regulation makes it more complex and detailed, but is that a bad thing? I don’t think so. My role is to understand clients objectives, and help them navigate the complexities. Levels of risk/reward need to be considered. Annual reviews continue the process taking into account any potential changes. Dealing with an ageing population needs compassion, understanding and patience.
Looking back, nothing really changes in my chosen field, life does not follow a straight line and is often unpredictable. Investment should always be based on the long term, short term knee jerk reactions should be avoided. I still love what I do after all these years, it’s in my blood, so please feel free to contact me to arrange a no obligation meeting over coffee.
Interest Rates – what next?
By Philip Oxley
This article is published on: 11th March 2024
11.03.24
What has happened, why, and what next.
Writing this at the beginning of 2024, interest rates around much of the developed world are higher than we have known for many years, in fact for decades.
This is the first part of this article on the subject, where I will look back at events over the past couple of years and what we can expect to happen next. The second part of the article will focus on what this all means in relation to the world of savings and investments, particularly when interest rates are higher than we have seen for decades.
Overview
Without delving too deeply into the world of macroeconomics, I think it is helpful to provide a brief overview of what has happened over the past couple of years in relation to inflation and interest rates and why. I will then look forward to what can we expect to take place over the next 6-12 months.
a) Interest rates – what has happened and why?
Central Bank Rate
In the UK, the Bank of England base interest rate is 5.25%. In the US, the Federal Reserve increased rates at a speed rarely seen before and rates are currently 5.5%. Finally in the Eurozone, the European Central Bank (ECB) rate, which is applicable in France, is 4.5%.
Outside of these areas, rates have increased in many other countries around the world (Japan is the notable exception, for now). In China rates are currently 3.45%, in India 6.5%, Russia 16% and Türkiye 45%.
Why have interest rates increased?
In a word, inflation. UK’s inflation rate peaked last year at 11.1% and you need to go back to the 1980’s to find a time when inflation reached higher levels. In France, inflation peaked at 6.3% last year and in the US at 9.1%, and again these rates were last reached in both countries back in the 1980s.
Who is responsible for controlling inflation?
It is the primary mandate of both the Bank of England’s Monetary Policy Committee (MPC) in the UK and the Eurozone’s ECB’s monetary policy to maintain price stability. For the MPC it is to “set monetary policy to achieve the Government’s target of keeping inflation at 2%” and the ECB it is “by aiming for 2% inflation over the medium term”. The equivalent body in the US is the Federal Reserve and interestingly, they have a dual mandate, which is to “achieve maximum employment and keep prices stable.”
I do not think it is too controversial to state that all three have failed to some extent in their primary objective over the past 18 months. Although in the US, employment levels have remained impressively high, so we should give the US Federal Reserve some credit for that.
How do you reduce inflation?
There are various tools and theories in relation to the control of inflation, including controlling the money supply (from where the phrase “monetarism”, commonly used during Mrs Thatcher’s time in power comes), Quantitative Tightening (QT) which is essentially rolling back and reversing years of Quantitative Easing (QE) that the central banks employed both after the Global Financial Crisis in 2008/9 and again during the Covid pandemic to boost economies. However, the primary tool used by all central banks is interest rates.
How do interest rates reduce inflation?
Higher interest rates suck money out of the economy, dampening spending, and loans. For consumers, mortgages, loans, and credit cards cost more, leaving less money to spend, resulting in lowering demand and inhibiting price rises. In addition, people are encouraged not to spend but to save, as it becomes easier to obtain a return on savings. Again, this adds to the reduction in consumer spending and businesses need to respond by either cutting prices or reducing the level of increases thus facilitating lower inflation.
Usually, a period of increasing interest rates is followed by increasing unemployment as businesses struggling under higher costs and lower sales must find ways to cut costs (and for many businesses, labour costs are a sizeable proportion of their cost base). This increase in unemployment can have a dampening effect on wage increases (people are prepared to accept a job offer at a lower rate than hitherto before), again all feeding into a deflationary cycle. I say usually, because employment levels have remained impressively robust in the US, UK, and the Eurozone.
b) Interest rates – what next.
Current interest rates
It is always a foolhardy exercise to try and predict events in the financial markets, but there are enough signals now, that some events appear to be inevitable (although I am keeping my fingers crossed that I do not regret writing this!)
In the US, the last interest rate increase by the Federal Reserve was in July 2023, in the UK the last increase of interest rates, to 5.25%, was in August 2023 and the ECB’s last rate increase was last September. Those rates have remained at that level ever since.
Last year market analysts starting using phrases like “higher for longer” and that rates would follow the profile of Table Mountain (a flat-topped mountain in South Africa if you are not familiar with it) in their assessment of what would happen to interest rates in the future. Another way of saying that once rates hit their peak, they would stay at that level for some time – and this has proven to be true.
What next for interest rates
Market analysts are strongly predicting that 2024 will be a year when interest rates start to decline. The only aspect of this prediction that seems uncertain is when the cuts will begin. The consensus is from Spring/early Summer with the ECB and/or Federal Reserve perhaps being the first to start the cycle of rate cutting.
Why in this important?
All the central banks are treading a fine line – trying to balance on one hand, calibrating interest rates to ensure the elimination of high inflation and bring levels back to around 2% sustainably. On the other hand, if they keep rates high for too long, they risk pushing their economies into recession. It is too late for the Central Bank of England, as the UK is already technically in recession (two successive quarters of negative GDP growth), as is Japan. The Eurozone is also perilously close to recession, but it is currently believed that the US is likely to avoid recession.
It is also important because high interest rates impact businesses as well as consumers and typically the financial markets have responded positively to the start of a rate cutting cycle which among other items, will be discussed in the second part of this article.
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Financial update Italy 2024
By Gareth Horsfall
This article is published on: 9th March 2024
09.03.24
Hello again and welcome to my latest article (which was supposed to be released in February but has now ridden over into March 2024).
My delay was caused by some new found success recently as a star of YouTube (the use of the term ‘star of You Tube’ might be stretching it a bit, but I will leave it for now).
You may have seen the interview I did (you can see it again HERE) for Real Expats in Italy channel .
It has taken my name a little bit farther and wider that it had been previously and created a surge in new enquiries and queries, which I am very grateful for. It’s always nice to be introduced to new people and learn more about how people are living in Italy. The more I understand the more I can hopefully pass back to you through this E-zine. Anyway, hence why the E-zine is a bit later than usual.
There were a few things I wanted to report in this E-zine, non more so than the € 2000 flat fee charge for access to the Italian healthcare system for non-EU citizens resident in Italy (this doesn’t include students or those who are working and paying ‘contributi’ or those of you who have the S1 approval for reciprocal healthcare). You may remember from a previous E-zine ‘BIG ITALIAN TAX NEWS‘ from October 2023, that I had reported on the fact that this law was going to come into place on January 1st 2024. Well it did!
The interesting thing is that the financial impact is very different for varying groups of people. For example, I was speaking with a lady from New York recently and when I explained that she would have to pay the annual charge of €2000 to access healthcare (excluding doctors visits and prescriptions), her response was “well, I am paying $2000 already……each month!, so that would be a huge win for me”! Clearly when put into context of what people have to pay in the US for healthcare it seems a bargain.
The category which seem to have been caught out are the UK citizens resident in Italy pre-Brexit and who were accessing the healthcare system based on income criteria. (See the income calculation on the Ministero della Salute website link below). This still applies for EU citizens moving to Italy and wanting to buy into the healthcare system.
https://www.salute.gov.it/imgs/C_17_pagineAree_2522_listaFile_itemName_0_file.pdf
I was contacted by 2 people in late January to tell me that their local health offices were now asking for the full € 2000 pa. payment to renew their Tessera Sanitaria. They were not recognising the fact that they were UK citizens covered by the UK / EU withdrawal agreement. To be fair to the Italian authorities nothing was mentioned in the text stating that there would be an exclusion clause for UK citizens resident pre-Brexit, so it’s no surprise they were asked for the full amount. I asked some people I know who are still involved in the campaign to protect UK citizens rights post-Brexit and they could only tell me that the issue had been lodged with the UK Embassy, but that they had not heard anything back. I am not sure if that situation has changed but it may just be one of those cases where we just have to learn to live with it.
On the subject of healthcare in Italy I saw an article in Sole 24 Ore just this week saying that 5 Italian hospitals were in the Top 100 in the (Western) world, according to NewsWeek. The highest ranking being Gemelli hospital in Rome at place No 35. I know everyone has varying experiences of the healthcare service, but most people I talk to especially from the UK and USA say that the healthcare is much better than in their home country. So hat’s off to Italy for providing such a good health service and one which we all rely on. If you are interested just click for the article (in Italian): Sole24Ore
IVAFE: Imposta sulle attività finanziarie all’estero
Increase in wealth tax 2024
In my Oct 2023 E-zine I also pointed out that the wealth tax on assets was going to increase from 0.2% to 0.4% pa if your assets were being managed or held in a privileged tax jurisdiction. The list being as follows:
Alderney; Andorra; Anguilla; Antigua e Barbuda; Dutch Antilles; Aruba; Bahama; Bahrein; Barbados; Belize; Bermuda; Brunei; Costa Rica; Dominican Republic; United Arab Emirates, Ecuador; Philippines; Gibraltar; Gibuti; Grenada; Guernsey; Hong Kong; Isle of Man; Cayman Islands; Cook Islands; Marshall Islands ; Isole Vergini Britanniche; Jersey; Libano; Liberia; Liechtenstein; Macao; Malaysia; Maldive; Maurizio; Monserrat; Nauru; Niue; Oman; Panama; Polinesia Francese; Monaco; Sark; Seychelles; Singapore; Saint Kitts e Nevis; Saint Lucia; Saint Vincent e Grenadine; Taiwan; Tonga; Turks e Caicos; Tuvalu; Uruguay; Vanuatu; Samoa.
I mention this because a few people have contacted me recently who have had, or are having, an ‘expat’ professional career often working in places like Hong Kong or the United Arab Emirates and have accumulated assets in those jurisdictions; mainly investment portfolios and savings. In addition, it is not unusual for someone working overseas to invest/save in an offshore territory like Jersey or the Isle of Man as a way of retaining assets in a more familiar jurisdiction whilst living abroad. However, a subsequent move to Italy would mean that you would end up paying double the amount of wealth tax, and not only. In addition, Italy penalises some assets which are not held within the European regulatory framework so you could end up getting a double whammy tax bill when it could quite easily be avoided by re-structuring assets in a more tax efficient manner for Italian life.
The US person’s double tax trap
As a US person moving to Italy to live, you can’t escape your own level of tax complication. The main one being that the US penalises you for owning some non US-domiciled assets but Italy does almost the same for investing in non-EU harmonised assets. Caught between a rock and a hard place! Again, a restructuring event might be the best way forward.
UK Self Invested Personal Pensions
For anyone (UK citizen or any other national) who has contributed to a UK SIPP (Self Invested Personal pension) we now have a little more clarity on the tax treatment of the pension account. On 11th January, the Agenzia delle Entrate published an Interpello (opinion on a tax question submitted to them) specifically on the subject of this type of account. You can read the document HERE (interestingly, US retirement accounts (IRA’s) are pretty much the same legal structure as a UK SIPP and so it would make sense that the same logic is applied to them in Italy, as well).
The document pretty much confirms what I have known and been advising clients and commercialisti for some time. The first thing being that the Italian ‘previdenza complementare’ tax regime cannot be applied to these accounts, but equally neither should the wealth tax be applied to this kind of retirement accounts.
If you have any kind of UK personal pension account then I would suggest you take a look at the section RW on your Italian tax return and see if the wealth tax has been applied. The tax will be shown in the box No 15, and it should not be there! If you find this is the case you need to speak with your commercialista. Instead the box No 20 should appear with an ‘X’, in it which applies the ‘monitoraggio’ status, but not taxed. Also, do not assume that because wealth tax is not applied that it does not have to be reported…it does. It’s just that it is monitored as an asset rather than taxed on the fund each year. You will normally be subjected to tax when you make a withdrawal from the account. If you are unsure what to look at, then you can always contact me and I can take a look for you.
Tax declaration time is rapidly approaching, commercialisti are starting to be run off their feet and mistakes can be made so if you are invested in a UK personal pension plan (individual or corporate), a SIPP, or a QROP’s, then check your tax return for accuracy and ensure that you are not paying tax that you shouldn’t be paying!
The Business Lunch Rome
On a final note for this E-zine, I wanted to let you know that I will hosting another Rome Business Lunch on April 12th 2024 at Ristorante Amedeo (nr Termini).
On previous lunches we have had people from all walks of life, not just business people. Also some retirees or people running many different activities. Most found it incredibly interesting and useful to connect with people who they may not have otherwise come into contact with in the Englsih speaking community. It’s a great way to speak with people who are providing services in a non-pushy, informal manner.
I give everyone a chance to speak and introduce themselves.. If you run a business you can explain to the group what you do, and if you are along to listen to others and gather information you can just explain why you are in Italy and tell us a story about your life. I have found it to be a great way to connect with others, for many reasons, and not just business people exclusively. The €25 a head menu is shown below for your information. So, I hope you can join us. All you need do is to contact silvia.loi@spectrum-ifa.com and let her know that you would like to be added to the list. (You need to book no later than Tuesday 9th April)
In my next article I will be looking at the subject of the expenses that you can detract from your taxes in Italy, such as medical expenses. So stay tuned for the next edition!
If you have any questions about any of these issues and how they apply to you and your financial situation, or if you think that you might be paying more than need to, then do get in touch and I will be happy to see if I can help you with your plans.
I can be contacted on email: gareth.horsfall@spectrum-ifa.com or on cell: +39 333 6492356
Financial update France March 2024
By Katriona Murray-Platon
This article is published on: 6th March 2024
06.03.24
For me it always feels like January is such a long month, February passes in a blink of an eye and all of a sudden it’s March and there is so much excitement and activity. I had a few days off at the end of February to spend time with my boys, rest and recuperate and catch up on some reading.
One of the things I like to read is the Le Particulier magazine and this month they had a very interesting special limited edition on how and where to invest in 2024. There was a lot of information in this special edition which I found fascinating but also a lot that confirmed many things I had been advising for a while.
One key point is that whilst having savings accounts such as the Livret A, the LDDS and (if you are eligible) the LEP are great places to keep your money in the short to medium term, by which we mean in the next 5 years, these accounts should only be used as emergency funds or money destined for a particular project that you intend to carry out soon. This is why on the Spectrum Confidential Review document we ask our clients which bank accounts they have, what the interest rate is on them and what is the purpose of this money. If there isn’t a reason to have these savings and you can’t foresee a reason for using the funds within the next five years, then it is important to think about investing some of it as, no matter what the rate currently offered, such rates will not protect your money from inflation over the long term.
I’m often asked about how to save money for children. If you have a child aged between 12 and 25 years of age you can open a Livret Jeune in addition to them having a Livret A. Your children who are included in your tax return cannot have a LDDS as these are only for tax payers. However the Livret Jeune can have a maximum capital of €1600 and whilst the interest rate is not fixed by the Banque de France, banks are required to set an interest rate which is at least the equivalent of the Livret A but may also play the competition and offer more.
In the longer term it is important to invest and the preferred way of doing that in France is by using an assurance vie. According to a statistic in this special edition of the Le Particulier magazine, over a period of 20 years the Livret A account had only made 40% compared to a CAC 40, with dividends reinvested, managed fund with a 3% management fee, over the same period made 289%.
March is a month where things start to happen. I read recently that mortgage rates have begun to fall in France. Although the ECB decided on 25th January to keep the key three interest rates unchanged, there is a strong expectation that mortgage rates will continue to fall this year possibly reaching 3.5% this summer and as low as 3% by the end of the year. This will be much welcome news for those looking to sell property in France.
From 1st April you won’t need to fiddle around to try and put the little green insurance certificate square on your windshield. If you are stopped by the police during a routine insurance check they will be able to tell whether you are up to date with your insurance by checking your license plate with their database.
For those invested with the Pru, there was good news this month as on Monday 26th February 2024 the Prudential Assurance Company (PAC) board reviewed the Prufund Expected Growth Rates (EGR) as part of the quarterly review process and once again there were no unit price adjustments. The expected growth rates remained the same for the PruFund GBP Growth and Cautious funds, whereas for the PruFund Growth Euro fund the Expected Growth rate was lowered slightly to 6.6% (previously 6.9% in November) and the PruFund Cautious Euro to 5.7% (previously 6.2% in November).
Although the tax season in France doesn’t begin until April, I know that lots of you will be thinking about preparing your tax returns. If you have any questions on your taxes or any other financial matters please do get in touch.