Will China invade Taiwan?

By Gareth Horsfall
This article is published on: 23rd December 2022

23.12.22

Well, it’s nearly that time of year again and I thought I would subject you to a last dose of Gareth’s musings before the year closes.

They say that the years pass more quickly the older you get, but I am not sure just how much quicker they can fly by based on how this one has zipped by.

I saw a great post on Facebook just the other day saying just how much we all seem to have pushed ourselves in the last year, maybe from the fear of being in a lockdown again or just making up for 2 years of lost time. Whatever, the reason, I find myself guilty of having packed a lot of activities into 2022 and Christmas has not just crept up on me but arrived like a Japanese bullet train.

Regarding my work, more than anything this year it has been marred with genuine concerns and worries about the state of the world, war/s, the impact of rising prices and general concerns about finances. I have been trying to make sense of it all myself by reading articles and books, which I would not normally have chosen. I just thought I needed to challenge some of my preconceived ideas. I found this to be a really good exercise and ,in some ways, has helped to calm me down as I can see a little bit more clearly, the ‘why’ things are happening, although I am lacking the ‘where’ (are we going from here) just like everyone else. However, understanding a little more about how we got here has helped me lean into the volatility and uncertainty with more confidence.

So, it is with this in mind that I thought I would write something nice and Christmassy for you: Why it’s unlikely that China will invade Taiwan…..at least for the foreseeable future! What more could put our minds at rest this Christmas than a rational argument as to why China is unlikely to start another war in 2023 just when we have plenty of others to contend with.

OK, it doesn’t necessarily have a festive feel to it, I understand that, but I bought a book this year written by Louis-Vincent Gave who is one part of a company called Gavekal. They provide very high level statistical, political and economic analysis to businesses and governments around the world. They are quite famous in this area and their work is exceptional. The book is entitled ‘Avoiding the Punch: Investing in uncertain times‘. In it there is a section on exactly why China is unlikely to invade Taiwan, at least for now. Since this was a concern expressed by more than just a few clients this year (presumably given our Western media tendency to constantly be baiting us into believing that it is imminent),I thought it might make a nice E-zine to finish the year and give us some hope for 2023. As they say, knowledge is power…and I would add less angst!!! :0)

It’s all about semiconductors.
Yes, the whole business of China invading Taiwan and the USA threatening to protect the island, whatever it takes, is all about semiconductors but if, like me, you are wondering exactly what we use semiconductors for, the following should give you a quick answer:

Semiconductors are an essential component of electronic devices, enabling advances in communications, computing, healthcare, military systems, transportation, clean energy, and countless other applications.

In essence, they are now used in almost everything that we ‘need’ to run our daily lives. From your phone to computer to thermostat, clocks, TV’s, machinery in factories, the MRI machine at the hospital, wind turbines etc. We can’t live without them. So, for any nation state it is important to have access to the companies, and countries, that monopolise the manufacture of them.

Control of the market in chip making has for a long time been monopolised by the USA through the tech firm Intel. But, in July 2020, the US were taken aback when Taiwan Semiconductor Manufacturing Co (TSMC) announced that they had technologically leapfrogged Intel in the business of high-end chip making.

(The USA started a trade war with China over semiconductors in 2017/18 when they placed restrictions on the export of semiconductors to Huawei, ZTE and other Chinese companies which brought those companies to their knees).

When we were friends

However, like all fairy tales, there once was a time when the USA and China sort of got along with one another. The days when Taiwan made those nice little plastic toys and bicycles that they would export into the West, and no one felt threatened. However fast forward to today and they are now arch enemies just at the time when Taiwan has now surpassed Intel to become the No 1 producer of the world’s most important commodity.

So, the real battle ground is not Taiwan itself (which interestingly, the USA recognises Taiwan is a part of China, but does not recognise China’s sovereignty over the island) but for the control and continued access to the global semiconductor market.

3 reasons why China are unlikely to invade Taiwan

So it might not be surprising that the USA is starting to worry about semiconductor security if Taiwan were to be unified with China, but invading Taiwan would only set China back economically and the following are the 3 main reasons why it is unlikely to happen:

1. If China were to invade Taiwan it would surely result in Taiwan’s semiconductor factories being damaged and/ or destroyed. Even if China invaded by sea, Taiwan would have time to self-sabotage the factories and keep hidden any secrets in the manufacture of this precious commodity. Since a third of China’s semiconductors are supplied by Taiwan, it would shut down China’s tech industry for which there would be no other supplier. China has placed significant importance on the development of its tech industry as part of its growth strategy and so this would be a backward step.

2. Military conflict with Taiwan would limit, if not cease, China’s ability to make these semiconductors at home. Factories that produce these highly specialised chips need an investment of close to $20 billion just to be functional and most of the machinery required to make them comes from Japan, the USA, the Netherlands and South Korea. All countries which would likely cease trading with China if it invaded Taiwan.

3. A lack of highly skilled labour. It is not for want of trying but China is, not yet, a market leader in the manufacturing of high end semiconductors. They can build the factories and buy the machinery at present, but they don’t have the skilled people who are able to operate the machines at the level that the engineers in Taiwan can. However, if they can encourage the top Taiwanese talent in this field to move to the Chinese mainland and train Chinese engineers then China might well be on its way to being a market leader a lot quicker than we might think. A war would likely see an exodus of this talent to either Japan or the US, and those that remained would be unlikely to want to go and work for an invading country. So, in short a Chinese invasion of Taiwan is very unlikely, until they have sufficiently developed their own semiconductor industry first and secured their own supply chain.

Strangely, what might speed this process along (and a potential invasion of Taiwan) is America’s continued actions to strangle China out of the semiconductor’s market. On 7th October 2022 the USA imposed new sanctions on China by restricting the supply of equipment and tools to any manufacturer of semiconductors in China. Not only, but also any US person, green card holders and foreign national of the US are prevented from going and working in a Chinese semiconductor production facility without first obtaining a licence, therefore making it virtually impossible to do so. (Strangling the ability for China to hire the talent to train their own engineers)

You might think this would slow China down, but it’s quite the opposite because as a result of these sanctions the Chinese government have now placed an even greater importance on the development of science and innovation in their economy. The US sanctions have had the adverse effect of aligning Chinese business interests with the Chinese government itself. Both are now convinced that they cannot rely on anyone but themselves and certainly must not be dependent on US (and its allies) sourced goods/materials. Hence the Chinese government and Chinese businesses are collaborating to build domestic alternatives to imported technologies.

The question of building a domestic semiconductor sector in China has moved from being a business decision to a matter of national security, and for businesses a matter of survival.

So, you might be thinking what is the time line for China becoming self-sufficient in the manufacturing and technology surrounding its own domestic market for semiconductors? The answer: around 2030 according to various sources. So, a Taiwan invasion, might be a few years off yet! All the sabre rattling between the US and China is likely to be just that for some time to come.

We can’t control people or events but we can control what we choose to think about!

The most interesting point of this from an investor point of view is that most analysts will tell you that they see some of the best economic growth, and potentially some of the better investment returns coming from Asia in the years ahead, driven by consumer demand in China. So, even with any worries you may have surrounding China and its imperial intentions, a good investment portfolio should have a reasonable allocation to China and Asia to help in the growth potential of your portfolio. This might seem to be completely contradictory to common sense given what we see in the news, but making surely you are armed with the facts in 2023 and beyond, and not just what ‘the papers say’ is going to more important then ever for the long term protection of your money.

If you would like to discuss this or any other subject relating to how the economic, social and political events in the years ahead might affect you and your personal financial plans, then you can contact me on gareth.horsfall@spectrum-ifa.com or on cell +39 333 6492356

And on that happy note..

What a year this has been. Let’s hope next Year is better..

By Jeremy Ferguson
This article is published on: 22nd December 2022

22.12.22

At the beginning of this year the World started to ‘wobble’, set off by the Invasion of Ukraine, and rising murmurs about the likelihood of increased inflation, and with that the threat of rising interest rates.

Share prices in companies around the world quickly started to fall, shortly followed by the never-ending spiral of doom and gloom in the news, creating a continuously depressing stream of information showing the Worlds financial markets were taking a downturn. This all came as a bit more of a shock because of the unprecedented period of cheap money, and constantly increasing share prices everyone had become used to over the last ten years.

After the lockdowns I always maintained you couldn’t just stop the world turning without it eventually to have some sort of effect. It just took a while for it to come out in the wash – and now it has. A lot of the delay between stopping economies working, (and a noticeable effect), was the false security provided by what amounted to the printing and the subsequent handing out of money in many countries, to name but one of many factors that occurred during those crazy times.

Eventually, after the factories were closed and businesses shut, supply chain issues came to light. The backlog of empty production lines had to be dealt with. That, coupled with an imbalance between limited supply and a sudden surge in demand, rising transport costs, plus the knock-on effect of the War in Ukraine, have all resulted in inflation going through the roof.

Traditionally the central banks around the globe try and control inflation with interest rates, and at the moment they are raising them at one of the fastest rates ever seen in a bid to try and stem the current surge in inflation. The worry for next year will be whether they may slow things too much, as these things tend to have a time lag. We can only wait and see. Higher interest rates are not all bad news, as savers normally benefit from interest on their bank deposits, but this isn’t happening significantly to date. When they are being offered, my experience is that the bank will only allow relatively small amounts to be deposited in these savings accounts offering higher rates.

On top of everything already mentioned, other factors also came to a head this year – the UK started to feel a Brexit effect which has weakened overseas investor confidence and taken its toll on trade. Liz Truss’s infamous UK mini-budget caused UK Government Bonds to fall in value like crazy, and what is usually considered a safe haven for many clients and pension funds, took a drastic downturn.

Recessions normally have an effect on employment, but at the moment this looks ok. Interestingly however, if you look at the US, there are an estimated 4m people off work at the moment due to long covid, so figures there are certainly distorted.
So as you will already have gathered, 2022 really hasn’t been a great year!

Living in Spain is such a privilege for many of us. The doom and gloom out there at the moment seems so much more acceptable when you wake up to beautiful weather almost all of the time. The cost of living has risen, but in general terms Spain is still a lot cheaper to live in than the UK.

They say it’s important to count your blessings, and if the fact we live here is one of them, then I for one am looking forward to 2023.

If you fancy an overview of your finances, even if it’s just to reconfirm your plans are all well founded in light of the ever-changing world, please do not hesitate to get in touch.

Spain’s New Digital Nomad Visa

By John Lansley
This article is published on: 19th December 2022

19.12.22

We are familiar with images of people in deckchairs, equipped with a laptop and a cocktail, brilliant blue sky and sparkling sea in the background, happily working in exotic locations – but how realistic a picture is this here in Spain?

The pandemic has seen huge changes in the way many work, with WFH (working from home, or working remotely) becoming a reality for the lucky millions who were able to do so. The choice of returning to your office or continuing to work from your kitchen table may not always have been yours to make, with employers holding differing views about both supervision and the benefits of having colleagues close at hand.

Whatever the case, for some, WFH continues, perhaps only for a few days a week, but for many their employer doesn’t mind where they are located, as long as the job gets done.

Spain has now joined other countries in offering a specific working visa to those who satisfy the requirements. Since Brexit, many from the UK have seen their dream of moving to Spain shattered by the much tougher visa requirements that now apply. I have written before about the Golden and Non-Lucrative Visas, which favour the wealthy retired, but will this new route provide a real opportunity?

The Digital Nomad Visa is part of new legislation that is designed to encourage business start-ups, to try to improve Spain’s attractiveness to entrepreneurs, and which includes reduced levels of tax for individuals and businesses setting up here.

Let’s look at what we know about the requirements of the new scheme, due to commence in January 2023

Applications will be open to 3rd country nationals (non-EU countries, including the UK)
Applicants must work mainly for companies based outside Spain
Applicants’ work must be exclusively online or by telephone
Applicants must be graduates or postgraduates from a ‘prestigious recognised university or business school’ or have 3 years’ professional experience
The applicant must have been working for the same company/ies for at least a year prior to the application
The company must have approved remote working
Applicants must demonstrate they can do their job online and that they have been doing so for at least 3 months prior to applying
The visa will be initially for 1 year, and can be renewed thereafter (renewal should be applied for within 60 days before expiry) for up to 5 years in total

So, in practice, this limits access to the visa to those with good educational qualifications or previous professional experience, and who have already been working remotely.

What don’t we know?

There will be a minimum income requirement, as yet unknown, but likely to be similar to the €2,316pm currently applying for a Non-Lucrative Visa
Spanish medical insurance might also be required, to ensure the applicant is not a burden on the Spanish healthcare system

However, those lucky enough to qualify will have to be aware that they will in all likelihood become Spanish tax residents, with potential consequences for their employers, tax deductions and national insurance contributions.

But the new digital nomad visa could be a path for you to take if you are keen to move to sunnier climes, experience international work possibilities – carrying only your professional expertise and your laptop, you could be opening the door on a new life!

Moving to Spain is more complicated than ever before, but this new opportunity may help you do so. Obtaining professional help with visas, tax planning, buying a home and investment possibilities is essential, and my colleagues and I will be happy to help, and introduce you to trusted professional partners where appropriate.

Guide to Inheritance Tax in Catalonia

By Barry Davys
This article is published on: 16th December 2022

16.12.22

So, we have now managed to control the amount of wealth tax due (Wealth Tax in Catalunya). However, when we receive an inheritance or leave something to our family, we are taxed again. Inheritance tax or ‘impuestos de successiones’ feels even worse than Wealth Tax. At this point we have now paid savings tax, income tax AND wealth tax. Now there is IHT on top! Like Wealth Tax, though, it is possible to manage your liability.

Inheritance Tax in Catalunya – How it works
Perhaps the most important aspect is that tax is charged to the recipient of a bequest or property physically located in Spain. For UK nationals living in Catalunya, this is a surprise, as in the UK it is on the estate of the person who has passed away.

Tax is due on the value of the bequest but the rate of tax is dependent on your relationship with the person who has passed away. A spouse, child, sister, uncle or non-related all have different methods of calculating the tax due. Once the tax has been calculated, there may be discounts to be applied to reduce the amount. Indeed, it takes at least four different steps when working out the tax due to end up with the final figure. Fortunately, help is at hand in calculating the amount.

It is also very important to understand that the tax return has to be submitted within 6 months of the death and the tax has to be paid by the same day. A common situation we see is where a person is due to inherit a share of a property but the property has not been sold within 6 months. The forms still have to be submitted to the Hacienda and tax paid based on an estimated value. Failure to do so results in a fine and interest.

How to Manage Your IHT
There are numerous strategies, but for British people, careful planning is required. In the UK it is the estate of the person who has passed away that is taxed, but in Catalunya it is the recipient; so we have two different systems with two sets of rules. Care is needed to ensure that planning in one system does not increase the liability in the other. Fortunately our qualifications and experience in the UK and in Catalunya mean we understand this issue.

Another issue specific to British people living in Catalunya is that they do not plan for RECEIVING a bequest. When asked to assist with planning for inheritance tax it is nearly always from a view of “what can I leave to my children?”. Yet before then people often receive bequests from their parents and family which triggers a tax charge. Planning for receiving a bequest can be as important as planning for leaving a bequest.

Certain assets are exempt from Inheritance Tax. Careful choice of where investments are kept can also help. Finally, dovetailing UK and Catalan Inheritance planning can also make a difference.

If you would like to discuss how to manage your Wealth Tax liability, please email me at barry.davys@spectrum-ifa.com, call me on 00 34 645 257 525, or use the contact form below.

Planning for Non-Habitual Residency in Portugal

By Mark Quinn
This article is published on: 16th December 2022

16.12.22

Portugal has long since been a popular expat destination, but the Non-Habitual Residence (NHR) scheme has been instrumental in attracting new residents seeking a favourable tax regime.

NHR is a preferential tax status granted to new residents and lasts 10 years. However, the benefits of NHR are not automatic and you must plan to make the scheme work for your specific situation.

Pre-arrival planning
The ideal situation is to start looking at your finances before you move. This way you can identify any tax planning opportunities available in your home country that would otherwise not be available in Portugal and utilise any tax breaks and annual allowances.

From a UK context, for example, ISAs are tax-free in the UK but if you wait to surrender until after establishing residency in Portugal you will incur 28% tax on any gain (even with NHR).

NHR period planning
During NHR it is important to maximise the tax opportunities available, particularly the flat 10% rate on pension income and nil rate tax on foreign-sourced capital gains and income. It is also the opportune time to start thinking about how to structure your finances for when NHR comes to an end.

View our guides to living in Portugal

Post-NHR planning
At this point, you become subject to the standard rates of Portugal tax and the effectiveness of your position will be determined by the planning you previous implemented, particularly during the NHR stage.

Whilst the prospect of paying up to 48% on income (excluding solidarity taxes) and 28% on all capital gains is unpleasant, it is possible to rearrange your finances over time to reduce this tax burden.

Lastly, there are some subtle rules to the NHR scheme and international tax meaning that in some cases applying for NHR can put you in a worse tax position. Likewise, those with pre-April 2020 NHR and enjoying 0% tax on pension income will be subject to slightly different restrictions when drawing down their pensions to maintain this status.

As such, we recommend you always seek advice from appropriately qualified individuals with effective cross-border experience.

With over 30 years of combined experience in the industry and over 15 in Portugal, we are best placed to provide expert, impartial and personalised advice to expatriates. Please contact us if you wish to discuss your position.

Tax and property in Portugal

By Mark Quinn
This article is published on: 14th December 2022

14.12.22

I’m often asked for my opinion on property as an investment, either in Portugal or elsewhere and I must admit it doesn’t tick many boxes as an investment.

For example, it is generally subject to income tax, capital gains tax and succession tax, as well as ongoing local rates. It cannot be converted into cash quickly or easily (illiquid) and it is expensive and time-consuming to maintain. It also comes with administrative issues such as unruly tenants, rental void periods and due to its static nature, it is difficult to plan around.

Having said this, property continues to be a popular investment choice as it is easy to understand and you can touch it, giving investors a sense of security and reduced risk. Additionally, we probably all know a few ‘property millionaires’. So, what are the planning angles and how can you ‘get out’ and enjoy your spoils tax efficiently?

Capital gains tax (CGT)
Portuguese residents are subject to capital gains tax (CGT) on their worldwide property gains, unless the property was purchased before 1st January 1989, in which case CGT does not apply.

For Non-Habitual Residents (NHR) selling Portuguese property and non-NHRs CGT is due on 50% of the gain and is added to your other income in that tax year and taxed at scale rates.

In addition to this, if the property is located overseas, tax may also be due in the country the property is located. However, if there is a double taxation agreement between the two countries e.g. Portugal and the UK, you should not pay tax twice on the same gain.

Portuguese property
NHR status does not have an impact on the taxation of Portuguese property. The tax treatment is the same for NHR and normal residents, but despite the potential for eye-watering levels of tax, there are some reliefs available if the property you are selling is your home – it does not apply to rental property sold in Portugal. The two reliefs mentioned can be used in isolation or conjunction.

View our guides to living in Portugal

Main residence relief: You can mitigate all – or a portion of – the CGT by reinvesting the proceeds into another property in the EU or EEA. Any amount not reinvested is taxed.

Reinvestment into a qualifying pension or long-term savings structure: This is a relatively recent relief and is particularly advantageous for those wishing to downsize (and therefore will not fully reinvest the sale proceeds), or for those moving back to the UK or elsewhere outside of the EU/EEA.

There are strict criteria for qualification and we can advise on this area but most notably, you or your spouse must be retired or above 65 and the gain must be reinvested in a qualifying structure.

Non-Habitual Residence (NHR)
NHR gives those selling foreign property an advantage as gains are exempt from CGT in Portugal.

But what about the tax due in the country the property is located? Let’s look at UK property as an example.

The UK only applies CGT to gains accumulated since 6th April 2015 and you will also have your annual CGT allowance to deduct of £12,300 per person. Additional reliefs may also apply, further reducing any gains, but this will depend on whether the property sold was your home or investment property.

For example, if you bought an investment property in joint names in 1992 for £100,000 and it was sold today at £1m, ordinarily tax would be due on the £900k gain. But selling this as a non-UK resident, you only pay tax on the gain since April 2015 Using the straight-line method, the gain is £212,000 from which you can deduct your annual CGT allowance, leaving a taxable gain of £199,700. Assuming you had no UK income in that tax year, the tax due to HMRC would be £52,146 which is an effective rate of 5.7%.

Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6) and Tax Advisers specialising in cross-border advice for expatriates.

Don’t get caught paying 53% capital gains tax in 2023

By Mark Quinn
This article is published on: 12th December 2022

12.12.22

The saying goes that there are only two certainties in life: death and taxes. One you cannot control but the other you can through advice and careful planning.

Short-term CGT: approved for 2023
From 1st January 2023 any gain arising from the disposal or transfer of shares/securities held for less than 365 days will be taxed at progressive rates of income tax i.e. 48% plus 2.5%/5% solidarity tax, if your total taxable income (including the gain) is more than €75,009.

Shares/securities held for more than 365 days, or where your total taxable income including the gain is below €75,009, will remain taxable at 28%.

This is important if you or your investment adviser is trading, rebalancing or switching regularly.

Changes to taxation of crypto: budget proposal
Portugal has been touted as a crypto investor’s dream with 0% tax on gains. Although not yet agreed, investors should be aware of the potential changes to the taxation of crypto assets which if agreed, will come into effect in 2023.

Firstly, NFTs could be deemed crypto assets under the new definition. Secondly, it is not just simply selling crypto/NFTs that will trigger a charge – other triggers include purchasing goods and services with crypto or trading for a different type of crypto.

Gains arising on the disposal of crypto will be taxed if held for less than 365 days at 28%. This will apply even if the crypto was purchased before the rules (potentially) come into force on 1st January 2023.

Issuing, mining or validating crypto transactions would be deemed a business activity and taxed as such i.e. 15% of the income taxable at progressive rates without deductions for expenses (if the business did not generate more than €200,000 gross in the previous year). If the business generated more than €200,000 in the previous year, net income is taxable at progressive tax rates (48% plus 2.5%/5% solidarity tax). If trading via a company, 21% plus surtaxes may apply.

Solution: wrap it up!
Investing within a tax-favoured structure could shield you from short-term CGT. This means that your investment decisions will not be constrained by the tax implications, and you can benefit from compounding/tax-free roll-up of income and gains.

Become your own tax planner
For those relocating to Portugal, it is an opportune time to tax plan. There is no ‘step-up’ in Portugal, and gains are taxable from the date of the original purchase. You can create your own step-up by rebasing your assets before you leave your home country i.e. sell and repurchase your funds/shares. This will also allow you to utilise any CGT reliefs/allowances that would otherwise not be available in Portugal or be taxed at a much lower rate than 28% depending on your originating country’s CGT tax rules.

Contact us for a free impartial discussion if you would like to understand more.
With over 30 years of combined experience in the industry and over 15 in Portugal, Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6) and Tax Advisers specialising in cross-border advice for expatriates.

Financial myth busting for expats in Portugal

By Mark Quinn
This article is published on: 7th December 2022

07.12.22

In my conversations with clients, I come across several issues that create confusion. In this article we will dispel some key common myths.

Myth 1 – “I’ve left the UK so I won’t pay UK taxes”
The UK has a particularly complicated and adhesive tax system that clings on to former residents after they have left if they have not effectively severed their ties. So, even though you have left the UK, you could still be liable to tax in the UK on income, capital gains and on death (inheritance tax).

Additionally, certain types of income may remain taxable in the UK even after you have left and established residency elsewhere. This means that you may have to continue to complete an annual tax return for HMRC as well as make your annual declaration in Portugal.

Myth 2 – “I can come and go as I choose”
In order to maintain your residency in Portugal, or elsewhere, there are day limitations that you will have to adhere to. For example, in order to remain outside of the UK tax net after leaving, you have to cap the time you spend back in the UK. This may be as little as 16 days or as much as 182 days.

If you are in Portugal on a visa, such as the D7 or Golden Visa, you will have minimum stay requirements in Portugal to maintain this status.

Myth 3 – “I’ve left the UK, so I won’t be subject to UK Inheritance Tax (IHT)”
Unlike income tax and capital gains tax which is generally based on your location, liability to UK IHT is determined by your domicile. For most people, this means they will continue to pay UK IHT even if they no longer live in the UK.

There are steps you can take to mitigate a portion, or all, UK IHT but individual advice should be sought as it is a highly complex area. Any challenge by HMRC will be once you have passed so it requires specialist advice during your lifetime.

Myth 4 – “Non-Habitual Residence (NHR) means I’m not resident”
NHR is the 10-year tax incentivised scheme for new residents to Portugal. The name causes understandable confusion as it implies that you are not a resident of Portugal.

What NHR actually means is that you have not been tax resident in Portugal in the last 5 years, and in order to apply for NHR you must first be legally resident in Portugal.

This has created issues where people have not applied for NHR due to this misunderstanding, or worse, have been actively discouraged from applying for it even though in 99% of cases it is a financial ‘no brainer’.

Download our financial guides to living in Portugal

Myth 5 – “NHR means I’ll pay 0%”
Whilst the NHR scheme is certainly very attractive and can result in low or nil tax rates, planning is required to achieve the best position and it does not happen automatically.

Myth 6 – “I report my income in the UK so I don’t have to declare in Portugal”
Many I speak to believe they can choose to report their income and gains in the place that results in the best financial position or where they ‘have always paid tax’, rather than where they should be paying tax.

As a resident of Portugal you should declare your worldwide income and gains, and pay the necessary tax, in Portugal.

Seek clear guidance
It is possible to achieve an extremely positive financial and tax position as a resident of Portugal, but you must ensure you have a clear understanding of the cross-border issues at play, particularly residency rules and taxation of income and gains to take full financial advantage. Speak to us for an initial consultation.

Download our financial guides to living in Portugal

Financial update in France

By Katriona Murray-Platon
This article is published on: 6th December 2022

06.12.22

The fuel allowance, tax returns & retirement planning

So here it is, Merry Christmas! I hope that you are having fun or planning to do so. There is much to organise before the end of the year, so before you get too wrapped up (excuse the pun) in Christmas preparations, I wanted to fill you in on some bits of news/financial points for the end of the year.

Given the increase in energy bills, the French government shall grant two one-off fuel allowances to help people pay their energy bills. Around 12 million homes will receive a one-off energy cheque. If you are eligible for the fuel allowance you should receive this €200 cheque automatically,. If your taxable income (revenu fiscal de référence par unité de consommation (RFR/UC)) is greater or equal to €10 800 € and less than €17 400, you will receive a cheque for €100. This cheque will be sent automatically from the end of December, you do not have to do anything to get it.

For the homes using “fioul domestique” : If you have already received the energy cheque for 2022 and you have used it to pay for your heating from a “fioul domestique” supplier you will automatically receive another cheque for €200 from November 2022

If you haven’t received this yet or you want to check whether you are available there is a website here https://chequefioul.asp-public.fr/ and through this you could receive a cheque for between €100 and €200 depending on your situation. If you haven’t received any cheques and you can’t make a request on this website you can contact them via this website: https://chequeenergie.gouv.fr

For those of you thinking of replacing your heating system with something more energy efficient, since the 29th October, the lower income households could receive €5000 of state aids (instead of €4000) and other households could get up to €4000 instead of €2500.

The annual social security ceiling (plafond annual de la Securité social) which is used to calculate various retirement contributions and the maximum allowed amount of benefits and French pensions has increased to €43,992. A monthly maximum of €3,666 will apply from 2023. This is the first time that this has increased in three years!

Please note that you have until 14th December to correct your 2021 tax return on your personal account on the impots.gouv.fr website. After this date you will have to correct it using a paper return.

The 15th December is the last day to pay the taxe d’habitation for second home owners in France. You have 5 extra days if you pay online or by direct debit.

If you are self-employed in France and earn over €5000 per annum, you will have to pay CFE. This is a local tax and is based on the rental value of the space you use for your business. If you don’t rent premises for your business, you have to pay the minimum CFE and this will be calculated on your annual turnover. It all depends on the rate applied by your local authority. The CFE must be paid by 15th December. You can also spread the payments out over the year.

Finally, if you are still actively working in France and are likely to do so for the next 10 or 15 years or more, and you pay tax at least in the 30% tax bracket, it may be worth opening a PER. If you already have a PER, and you have some money to invest in it, make sure you do this by the end of the tax year, ie 31st December 2022. If you are in the 30% tax bracket, 30% of the amount you invest in the PER can be deducted from your tax (41% if you are in this tax bracket) up to a maximum amount of 10% of your net taxable income from the previous year and up to a maximum amount of €32,419 in 2022.

2022 has been a brilliant year for me, my best so far, and I have been so happy to welcome lots of new clients.

I want to thank all of you for your time and attention to these newsletters and your kind comments. I especially want to thank all my clients for entrusting me to set up their investments. As always if you have any questions on the above or any other matters please do get in touch.

I shall be away from 18th to 28th December, first to Disneyland Paris and then to the UK for a good ol’ British Christmas with my family. I will be checking emails and can do phone calls if necessary.

I wish you all a very Happy Holiday season and look forwards to speaking to you next year!

Regards
Katey Murray
Partner
The Spectrum IFA Group
Mob: 06 81 61 78 44
Tel: 09 53 28 88 22

Investment hurdles

By Mark Quinn
This article is published on: 5th December 2022

05.12.22

The corrosive effect of inflation and fees

Here we look at two key hurdles to investment performance, and ultimately your lifestyle, and some ways to tackle these issues.

Inflation
This is a topical issue as we all experience the pinch of rising energy, food, and other prices, with inflation in the UK and US recently hitting 7% and 8% respectively.

It is important to monitor and understand as it tells you how much return you need to maintain your current standard of living. So, what can you do to try and beat inflation?

Moving out of cash is critical as you are losing money in real terms. There is no one solution but building a diversified risk-rated portfolio gives you a greater chance of growing your money in excess of inflation over the medium to longer term.

Shares/equities – as companies and earnings can adjust upwards, shares tend to keep up with inflation better over time than other investments. However, careful selection here is important as you want to select companies that are able to pass on cost increases to consumers
Index-linked bonds – these are fixed-income investments and their return is linked to inflation rates
Commodities – you can benefit from the causes of price increases by investing in companies that are involved in the production of raw materials, such as oil and metals
Gold – can act as a hedge against inflation and also tends to act differently to the above investment types which means it provides diversification, particularly when geopolitical risks come to the fore

These investments do come with different types of risk so you should seek advice on how to minimise and balance these types of risks. It is also important to monitor and measure risks in relation to the returns you achieve.

Fees and expenses
Another factor often overlooked is fees. These may seem small but over time they can have profound long-term effects. You do not just lose the amount of the fees you pay, but you also lose all the growth that you might have received, compounded over years.

For example, assume you have a €1m portfolio paying 6% p.a. If you had no fees to pay, after 25 years, you would have. €4.3m. If you paid 2% p.a. in costs, you would have €2.6m.

Now going further, if you could reduce your overall charge from 2% to 1% p.a., you would have approx. €3.5m. This seemingly small 1% saving is really €793,215 in real terms over 25 years! And this is being paid to someone else, not you.

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What can you do to control costs?
All investments have cost so you cannot avoid them, but you can manage them at all levels.

Structure fees e.g. a pension or an investment. These are charged by the company providing the structure
Underlying investment fund fees. These are charged by the company that manages the funds within the structure. These are paid out prior to the returns being paid to you, so you do not usually see these, so they can be easy to forget and review
Advice fees. These are paid to your financial professional whose job is to recommend and advise you. Usually, a single set-up fee and an ongoing fee are charged. The effect of the latter is very important as this can have the most significant effect as seen in the above example

I would strongly recommend that you seek clarity on each applicable fee and benchmark these against alternative solutions to get yourself the best deal.

As with most things, as time goes on, innovation usually reduces prices. Review your structures regularly and shop around for independent advice, and lastly, remember that a higher price does not mean higher quality.

Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6) and Tax Advisers specialising in cross-border advice for expatriates.