It is highly unusual for a UK budget to give us an opportunity to significantly reduce our tax liabilities. The budget of the 30th October 2024 has done exactly this, and by following a few basic steps it is easy, for those of us who have lived outside the UK for more than 10 consecutive years, to benefit greatly.
Save UK Inheritance Tax if you live in Spain
By Barry Davys
This article is published on: 26th November 2024
26.11.24
Background
The UK currently has an Inheritance Tax system where the estate of the deceased is assessed based on worldwide assets if they were considered domiciled in the UK at the time of death. The term domicile and its meaning has been the important factor to consider up to now, and in the UK has a different meaning to “resident” or “residency”.
There is no need for us to go into the definition of domicile here, as the budget has changed the basis for Inheritance Tax (IHT) assessment to a “residency” test, which has also simplified the tax system.
“Residency” Basis
If you have lived outside the UK for more than 10 consecutive years, your non UK assets will not be liable to UK IHT. The rule is as follows –
From 6 April 2025, the test to determine whether non-UK assets are within the scope of IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) occurs.
(Editorial Note. Some other press and advisers are stating it is 10 years, not more than 10 years, outside the UK. This applies to a different tax in the Budget, not IHT).
To meet the rule it is necessary to have been out of the UK for more than 10 years, because of a Split Year rule for taxation that will also apply. Again, there is no need to go into detail here, suffice to know that we need to be out of the UK for more than 10 years in the last 20.
How beneficial is the change to “residency basis” of assessment?
The benefit will depend on our personal circumstances, where our assets are based and the value of our assets.
I have used a case study to illustrate –
Mr & Mrs Ingles
– More than 10 consecutive years out of the UK in the last 20 years
– Assets outside the UK include Spanish compliant bonds, bank accounts, QROPS pension and property, all jointly owned, as follows:
Spanish bank accounts €98,000
Spanish compliant bonds €290,000
House (mortgage free) €525,000
QROPS pension €178,000
Total €1,091,000
– UK assets £325,000 jointly owned
Mr and Mrs Ingles can return to the UK and if death occurs within 10 years of the return the following will apply.
– UK assets assessed for UK IHT fall within the UK nil rate band. Tax due £0
– Assets outside the UK not assessed under the residency basis €1,091,000
At the time of writing the exchange rate would give a value to the non UK assets as £865,814. The savings from not having these assets taxed in the UK would be £346,325.60. (£865,814 * 40%)
How to save UK IHT when living in Spain – top six tips
- Take professional advice
- Don’t move back to the UK until you have more than ten consecutive years out of the UK
- Keep your non UK investments outside of the UK outside if you qualify under the new residency test
- Consider moving excess UK funds to non UK investments. For example, ISAs are taxable in Spain and there is now merit in disposing in favour of non UK assets
- Pensions in the UK are liable to IHT from April 2027 and it is therefore doubly important to keep non UK pensions beyond the scope of IHT
- When drawing income or capital from your investments and pensions, take advice on the manner and order in which you do this, as it makes a difference to your IHT exposure and also how long your savings will last
And here is the icing on the cake
Complete more than 10 consecutive years outside the UK, return to the UK and be unfortunate enough to pass away in the next 10 years, and your estate will get the additional benefits (on top of being IHT exempt on non UK assets):
- If you and your spouse were both long term non resident, you will receive the spousal allowance – 100% IHT free transfer of your assets to your spouse if directed by your Will
- Each spouse receives an IHT allowance of £325,000 with only UK assets above this amount being taxed
- If you have a main residence and your total individual wealth is less than £2M you will get the main residence relief of £175,000
If you pass away outside of the UK and your beneficiaries are in the UK, they will pay no UK IHT if you have met the long term non resident criteria. This is because your non UK assets will not be taxed in the UK. As the UK government taxes your estate, not the beneficiary receiving the bequest, no IHT will be payable.
And because you live in Spain, your UK based beneficiaries will be assessed on residency and as they are outside Spain they will not have to pay Spanish IHT on non-Spanish assets.
Conclusion
The changes to UK IHT rules are hugely important for those of us living outside the UK. It may be possible to leave anything from tens of thousands pounds (or euros) to hundreds of thousands to our family and/or worthy causes.
There is a great deal of planning that can be completed to get the best outcome for you. It will depend on your personal circumstances. However, as a principle, it is better to start this planning sooner rather than later.
To start a conversation book a call with Barry Davys using his online system. This allows you to choose a time that is convenient for you for the call which can be either a phone or video call.
Source: HMRC, UK Gov 30th October 2024
Notes
This article is for general information purposes only. Professional tax advice must be taken before undertaking planning to benefit from changes to the UK IHT system.
The content is based on our understanding of legislation at 25th November 2024
The policy paper issued by HMRC as part of the Budget becomes law when the Act of Parliament has been passed.
You can find out more about Barry Davys of The Spectrum IFA Group and his clients by clicking Barry Davys IFA
Changes to inheritance tax and pensions for expats
By Portugal team
This article is published on: 22nd November 2024
22.11.24
The UK’s latest budget announcement has ushered in significant reforms that could transform how British expats manage their pensions and inheritance tax (IHT) liabilities.
These changes, particularly impactful for long-term expatriates, redefine key aspects of domicile, residency, and asset protection. Here’s what you need to know that will affect British expats and why understanding the changes is critical.
From Domicile to Long-Term Residency: a seismic shift
Historically, the concept of “domicile” has been central to determining UK IHT obligations for British citizens. Many expats found that, despite decades abroad, they were still deemed UK domiciled, exposing their global estates to IHT.
The new rules mark a major shift, particularly impacting British expatriates who have been living overseas for extended periods, replacing the concept of domicile with new long-term residence (LTR) rules. Under these new rules, the test for liability to UK IHT will be based on residency.
Those who have lived outside of the UK for at least 10 of the last 20 years will now be classified as non-UK long-term residents. This change means their global assets (except UK based holdings such as pensions, property, investments) will be exempt from UK IHT.
Therefore, expats intending to remain out of the UK for extended periods of time should seriously consider moving assets outside of the UK.
If an individual does not meet the non-residency criteria at death, their entire estate remains subject to UK IHT and the usual rules, exemptions, and tax rates apply.
New incentives: tax breaks on return to the UK
The budget introduced two noteworthy provisions for British expats considering a return to the UK:
1. Four Years of Tax-Free Foreign Income and Gains: The Foreign Income & Gains (FIG) rules allow non-UK LTRs returning to the UK to enjoy tax-free treatment on income and gains from overseas assets for up to four years.
2. 10-Year IHT Exemption: Returning expats can benefit from a 10-year IHT exemption on non-UK assets, provided they are are still classified as non-UK LTRs at the date of death. After this 10 year period, full UK LTR status applies, reinstating IHT liability on worldwide estates.
Pensions, QROPS & QNUPS – what has changed?
Under the revised rules, expats who have previously relied on UK pensions and offshore pension schemes such as Qualifying Recognized Overseas Pension Schemes (QROPS) and Qualifying Non-UK Pension Schemes (QNUPS) to protect their wealth will no longer be sheltered from UK IHT if deemed UK LTR at death.
Moreover, those who are non-UK LTR at death, but still hold UK based pensions will still suffer UK IHT on the pension as it is a UK situ asset.
An added element is how pensions interact with the Portuguese Non-Habitual Residence (NHR) regime and how, once the scheme ends, pension are generally taxed at scale rate of income tax (up to 53% with solidarity taxes).
Therefore, Portuguese residents with or without NHR who are holding UK, QROPS and QNUPS pension holders should revisit their pension planning.
Double whammy tax – 85%
Where death of the pensioner occurs before age 75, beneficiaries receive UK and overseas pension income tax free and post age 75, the beneficiary is taxed at their marginal rates of income tax. There have been no changes to these rules.
However, with the introduction of IHT to pensions, where death occurs after age 75, beneficiaries could be hit with a “double whammy” of 40% IHT and then income tax up to 45% on any drawdown.
Expats holding pensions should therefore be aware of this potential for double taxation and consider restructuring options for their intended beneficiaries.
Other benefits for expats
Most Brits will be aware of the “7 year rule” when making gifts during their lifetime, whereby there is the potential for the gift to be brought back into the UK IHT net if death occurs within 7 years.
An interesting outcome of the budget is, where a non-UK LTR gifts a non-UK asset, the gift is immediately exempt from UK IHT. There is no 7 year waiting period. Moreover, if the donor subsequently returns to the UK this gift will remain outside of the scope of UK IHT, even if death then occurs within the 7 years or the donor becomes a UK LTR again.
Final word
The sweeping changes underscore the importance of careful financial planning for British expats.
Restructuring assets and revisiting long-term strategies are crucial steps to minimise IHT, income and capital gains tax exposure, and to optimise tax efficiency, and those who are intending to be long-term, or permanent expats should certainly revisit their affairs in light of the new changes.
If you would like to discuss your position in detail, please contact us for a confidential and complimentary meeting.
The Spectrum IFA Group Title Sponsor of The Nations Cup at Royal Malta Golf Club
By Craig Welsh
This article is published on: 12th November 2024
12.11.24
Some big news coming from our Malta office.
The Spectrum IFA Group, thanks to the efforts of our branch manager, Craig Welsh, will be the main sponsor of the Nations Cup.
The Nations Cup will be organised by the Royal Malta Golf Club, teeing off in December 2024. This will be a 3 matchday competition between teams representing Malta, GB & Ireland, Scandinavia and Nordics, and The Rest of the World.
This year’s innagural event will feature Spectrum IFA Group as the title sponsor, bringing a new level of excitement and international flair to the club. Known for delivering tailored financial planning services to expatriates across Europe, The Spectrum IFA Group is a fitting partner for an event that celebrates global connections and international sportsmanship.
The Nations Cup is set to become a highlight in the RMGC golf calendar, featuring teams from Malta, Great Britain and Ireland, Scandinavia and the Nordics, and a collective team from “The Rest” regions. This competition will foster camaraderie and regional pride as these diverse teams vie for victory.
We feel that Spectrum IFA Group is a fitting partner for an event that celebrates global connections and international sportsmanship. We look forward to the camaraderie and regional pride, as these diverse teams vie for victory on Malta’s greens!
We are looking forward to a successful event.
Succession and Domicile Planning in Portugal
By Portugal team
This article is published on: 4th November 2024
04.11.24
Are you interested in learning more about Succession and Domicile Planning? Join us at our free to attend educational workshop on 7th November, where our speakers will be discussing the 2024 tax landscape, retirement planning options, investment solutions and tax strategies for expatriates living in Portugal.
The workshop will cover:
- Portuguese and UK inheritance taxes: thresholds, rules and allowances
- Succession laws: UK rules, Portugal and forced heirship, Wills and Brussels IV
- IHT mitigation strategies and planning ideas
- Gifting: thresholds, rule and avoiding IHT clawback
- QNUPS: does it really shelter UK IHT in practice
- How to protect family wealth, your beneficiaries and bloodline planning
- How to control family wealth during your lifetime and after your demise
- Open Q&A throughout
Succession and Domicile Planning Workshop
7th November 2024
Date: 7th November
Time: 10am-1pm
Venue: Wyndham Grand Algarve
Quinta do Lago, Av. André Jordan 39, 8135-024 Almancil
Pension Planning and Income Generation Workshop
27th November 2024
Date: 27th November
Time: 10am-1pm
Venue: Wyndham Grand Algarve
Quinta do Lago, Av. André Jordan 39, 8135-024 Almancil
The workshop will cover:
- How different types of pensions are taxed in Portugal
- Where tax should be paid on different types of pension income
- Double taxation and how to avoid it
- Drawdown options and the tax implications
- UK pension changes: LTA abolition, impact on taxation
- Tax planning opportunities: Pre-April 2025 planning window
- QROPS & QNUPS: Do you really need one or should you keep your UK pensions?
- How to pass on your pensions and the implications for your beneficiaries
- Open Q&A throughout
Update on UK pensions when living in Spain
By Barry Davys
This article is published on: 4th November 2024
04.11.24
During the Brexit negotiations, many of us Brits living abroad were concerned about our fate following March 2019. Thankfully, Britain and the EU reached a solid agreement about the rumoured ‘freezing’ of the state pension after Brexit, and the result is very positive indeed – state pensions will continue to increase for those of us living in the EU.
To read the full article please click here www.telegraph.co.uk/pensions-retirement/news/britain-eu-reach-agreement-expats-state-pension-brexit/
Further to the post above about the UK State pension. Here is how helpful this agreement to increase pensions has been. All figures per week
- 2017 – £159.55
- 2018 – £164.35
- 2019 – £168.60
- 2020 – £175.20
- 2021 – £179.60
- 2022 – £185.15
- 2023 – £203.85
- 2024 – £221.20
- 2025 – Budget announcement £230.30 (has to be confirmed by Parliament)
At a time that is convenient for you
Nice-Cannes Marathon 2024
By Peter Brooke
This article is published on: 2nd November 2024
02.11.24
Run with Purpose: Peter Brooke and The Spectrum IFA Group Take on the Nice-Cannes Marathon 2024!
On November 3rd, Peter Brooke from The Spectrum IFA Group will proudly run with The Run for Hope Team in the Nice-Cannes Relay Marathon. For years, Peter and Spectrum have embraced this challenge, raising awareness and funds for a cause that deeply resonates with them.
The Run for Hope team, is a partnership between Mimosa and Cancer Support Group 06, brings together a community of runners from beginners to experts, inspiring teamwork and fun to raise funds for cancer support by running in the Nice-Cannes Relay Marathon. Participants enjoy comprehensive training, support and a festive after-party, all contributing to a great cause, the support of cancer patients on the French Riviera.
As experts in financial planning for English speaking expatriates living in Europe, The Spectrum IFA Group provides comprehensive and personalised financial advice, and planning. Peter, who has been with Spectrum for 20 years on the French Riviera understands the complex financial and tax issues his clients face and he and Spectrum are dedicated to helping you navigate these challenges.
By participating in the relay marathon, Peter and Spectrum demonstrate their commitment to the broader community on the Côte d’Azur. Supporting The Run for Hope Team allows them to blend their professional expertise with their passion for making a difference. Cheer on Peter and the whole Mimosa team as they run for hope, showcasing the same dedication they bring to managing your finances.
Together, we can achieve great things—both on the marathon route and in your financial journey!
The Spectrum IFA Group: Running for Hope, Running for You!
Off The Rails
By Michael Doyle
This article is published on: 1st November 2024
01.11.24
I was travelling back to Brittany by train from Luxembourg on Friday 26 July. A day that may have been remembered for it being the opening ceremony of the Olympics in Paris. I expected some disruption due to the sheer number of people visiting Paris, but I’d no idea what would happen next.
If you don’t know by now the rail network was attacked by vandals who set fire to the fibre optics on the tracks and in doing so put almost 800,000 train services “off the rails”.
What I was impressed by was the network’s response. They had police at most if not all stations affected, they increased the labour rate and what could have been a disaster was handled swiftly and efficiently, with trains back running within two days.
As financial planners, we sometimes have to deal with unforeseen and disruptive events. What happened on the rail network was totally unexpected. As a financial planner, I’ve had to guide my clients through the following over recent years:
- The Brexit referendum and stock-market response that followed
- Donald Trump’s election as US president
- Covid (when stock-markets all but shut down)
- The Russian invasion of Ukraine
- Trump losing to Biden
The main thing my clients were happy with was that I provided reliable guidance on investment repercussions and how to address the events.
This was through either:
- Reviewing and validating their existing investment strategies
- Rebalancing portfolios to ensure still aligned with agreed investment objectives
- Discussing tactical opportunities in response to market conditions
- Proposing suitable investment funds or asset managers
- Reassessing their attitude to risk
So if you had a nervous time with your own financial planning during those uncertain times, or indeed at any time, give me a call and we can work together to ensure you remain “on track” to achieve your financial goals.
The relationship with a financial adviser
By Victoria Lewis
This article is published on: 31st October 2024
31.10.24
The majority of individuals that receive professional financial advice across the UK have remained with the same adviser throughout, a new study by St. James’s Place (SJP) reveals, highlighting the power of longstanding advice relationships. Just under 12,000 UK adults were surveyed this year and the results show financial advice and guidance can benefit immensely.
More than 62% have never switched their financial adviser, rising to nearly 75% for those aged 35 and over.
The study also found that the typical relationship with a financial adviser or advice firm lasts around 7 years, but this increases to over a decade for those aged 55 and over – with nearly 31% of this generation having been with their adviser for 16 years or more.
Trust, understanding and financial satisfaction are the main reasons for never switching financial adviser:
• Trusting their adviser
• Being happy with the advice and financial returns their adviser has delivered
• Their adviser understanding their financial situation
• Having a good relationship with their adviser which has been built over several years
• Their adviser understanding their long-term goals and helping to deliver them
• Their adviser looking after both them and their family
• Their adviser having helped them through big life stages/ moments
SJP said: “Financial advice is about much more than numbers on a page or graphs on a screen.
It’s about building deep, meaningful relationships, and as our research shows these can last many years and span generations.
Whether you’re navigating the early stages of wealth creation, planning for retirement, or managing an unexpected life change, having a trusted adviser by your side can make all the difference.
These were the main reasons cited for working with a financial adviser on an ongoing basis:
• Putting the foundations in place for a stronger financial future
• Helping them to save more money for retirement
• Ensuring they have adequate protection in place if they need it
• Getting on the property ladder
• Navigating difficult periods like divorce or bereavement
• Pass on money to their children or loved ones
• Better manage the cost of raising children
• To provide more financial support to elderly family members
Andy Payne continues: “These goals, moments and milestones may be common to many throughout their lives, but the specific circumstances will always be unique. Having support from an expert financial adviser, with not just the technical expertise but the empathy to deploy it sensitively and with their clients’ needs in mind, can be the difference between a hope dashed and a dream realised.”
If you have already have a financial adviser but doubt if they are the right person for you, perhaps it’s time for a change?
Or perhaps have you been struggling to navigate your financial planning on your own?
I have worked with Spectrum as an International Financial Adviser for over 21 years and still look after my clients who worked with me from the very beginning. I advise the children of my clients now and even other family members too.
The synergy I have with my clients is because we understand each other – our relationship is based on trust and confidence and I know it’s an enjoyable experience because they recommend me to their family and friends. That’s the greatest endorsement I could wish for.
ECB Rate Cuts
By Spectrum IFA
This article is published on: 30th October 2024
30.10.24
June, September, and now October. The European Central Bank (ECB) has lowered the interest rate by 25 basis points, marking its third rate cut in 2024 and the second consecutive reduction—a sequence not seen in 13 years (see graph).
Inflation is now at 1.7%, its lowest level since April 2021 and below the 2% target.
The ECB’s last meeting of the year will be on December 12th . Monetary analysts predict four more rate cuts by mid-2025, to be followed by a period of stability. According to the ECB’s survey, marginal rate adjustments could occur in 2026, especially in the first half, which would bring rates to around 2% for that year.
As a result, the Euribor has declined. In October, the monthly Euribor rate stood at 2.711%, a decrease of 0.225 points from the previous month’s 2.936%. Starting 2024 at 3.609%, the Euribor has accumulated a total drop of 0.898 points over the year, as illustrated in the accompanying table and graphs.
As a result, we are starting to see a reaction from the banks. With inflation now at a low and the Euribor experiencing steady declines, further cuts are expected into 2025. This trend has prompted a cautious response from banks, which are gradually reducing interest rates. As the ECB signals possible marginal adjustments by 2026, the Eurozone may enter a phase of rate stability, providing a potentially favourable environment for both borrowers and lenders.
Should you have any inquiries regarding the content of this article, or any other questions relating to mortgages in Spain, please do not hesitate to reach out to us for further information.
Patricia Nadal
spain@spectrum-mortgages.com
Searching for a financial planner
By Michael Doyle
This article is published on: 29th October 2024
29.10.24
It can be a daunting experience!
I started my life in financial planning in Glasgow, Scotland, back in 1998. I moved to Luxembourg in 2008 and began to cover both Luxembourg and Brittany (France) from 2019. I’m not sure where the years have gone, but I am grateful to have worked with some fantastic clients during that time from the likes of KPMG, Champs, The ISL (Luxembourg), UBS, St George’s School, Greenfield Recruitment and the list goes on and on.
I understand that initially my clients sometimes feel nervous when they come to see me as they are probably about to make one of the biggest financial decisions of their lives. I try to put myself in their position to try to fully understand what they need. To help my clients I’ll ask such questions as:
- I understand that you will be looking to work with me or someone like me. Let’s say that we start working together and we’re 12 months ahead of now. What three things did I do that made you happy you employed my services?
- Tell me three things I must always do and three things I should never do.
- What is your golden ticket? By that I mean, when we get to the end of the investment term, what is the goal we are saving for and what does that look like to you?
- If you have used a financial planner in the past what was the best thing about them and what was the worst thing about them?
After I gather all of the hard facts – the basics from name, address, money coming in and money going out, cash and investment holdings, to your immediate and longer-term planning priorities, plus your investment knowledge and attitude to risk – we call an end to the first meeting, and I start researching and preparing a suitable recommendation. This written proposal is carried out at no cost and entirely without obligation.
Why do I not charge for my reports? Simply because I want my clients and prospective clients to see how I work before they commit to using my services. Note that in our initial meeting I also explain fully how I am remunerated and the extent of my service offering, from introductory engagement through to long term reviews and support.
My report is then presented and explained, to allow clients do their homework and cross reference what I am saying with their own research. Then we have a second meeting when I will answer any remaining questions.
At this point the clients are invited to take some time to think over the recommendation and come back to me with any final questions they may have. Only at this point will we move to the final step in the advice process, which is completion of outstanding paperwork to implement the plan and set the investment in place. From here, my commitment to ongoing client service and support is open-ended. My aim in all of this is to grow and protect my clients’ wealth as tax efficiently as possibly whilst developing long-term and productive relationships.