I don’t think I have ever wanted to leave a year behind me as much I did 2022. Well, maybe 2008/2009, but 2022 recorded as one of the most brutal in my career. No matter which direction there only seemed to be bad news. Thankfully we have passed into 2023.
So what does 2023 have in store?
By Gareth Horsfall
This article is published on: 1st February 2023
01.02.23
So what can expect from 2023?
Working with The Spectrum IFA Group means that I am invited each year to their annual conference where we are invited to listen to a number of fund / asset managers who can give us some insight into what has happened and also where things might be heading. This conference was a special one because it was the 20th anniversary of the The Spectrum IFA Group and so the event was held at Gleneagles in Scotland. Apart from the cold (average -2 degree), the conference went well and I managed to scribble some notes from the various speakers, my favourites being David Coombes from Rathbones Asset Managers, Rob Gordon from Dreihaus/VAM Investment funds and Rob Clarry from Evelyn Partners.
(Disclaimer: It should be noted the views expressed here are my own. The information collected has been interpreted by me and can only be taken as such. To protect the names mentioned above none of this article should be taken as advice, recommendations or an offer of solicitation from the fund/asset managers themselves or the companies they represent).
“Heads of State don’t have a clue what they are doing…yet they think they can predict the future”
This was how one asset manager (who shall remain unnamed) started his presentation. The point being that if we are basing our investment ideas and knowledge on economists, central banks or governments themselves, then it is almost certain that you are going to get it wrong.
But don’t just take my word for it, let’s looks at some investment examples that didn’t go well in 2022, and which prove the case:
1. Wind Power is the future…but is it? It produces only when the wind blows, it is significantly more costly than traditional energy sources. The amount of ecological damage to build wind turbines in terms of resources required and to install them probably far outweighs the benefits if you place it against other alternative energy sources. In addition, the blades have a lifespan of approximately 10 years then they need to be replaced and buried somewhere because they cannot be recycled. Yet, faced with all these facts and a sector heavily subsidised by government money, a Danish wind power company: Vestas, which has never turned a sizeable profit was worth more than Apple at one point.
2. Cryptocurrency: There is not a lot to say about Crypto in 2022 other than a complete investment disaster. Bitcoin lost 60% of its value in 2022. A pretty high risk asset if ever there was one. Crypto was also plagued by the collapse of FTX with literal losses ( i.e lost and likely never to be found) assets of $1-2 billion. Hackers also stole $4.3 billion of cryptocurrency in 2022, an increase of 37% from 2021. Yet, governments tell us that government backed crypto-currencies are the future. I will stick with cash, thank you very much!
3. Tesla and Elon: How the darling of the investment world, and government officials alike, has been ousted from his perch. A bit like crypto currency Tesla lost 65% of its value in 2022. You might argue that he is changing the world with his electric vehicles, yet did you know that Volkswagen made more electric vehicles in Europe in 2022 than Tesla? So, who is changing the world? His move to Twitter should also raise eyebrows. A company worth $40bn on the world’s financial markets which has yet to show a profit and one which he also says will ‘change the world’. Remain a sceptic!
4. Inflation is transitionary: Governments also said that when the inflation train left the station in 2020, that, at best, it would be, quote, ‘transitionary’. i.e it would go away once post Covid supply chains returned to normal. I never believed this and wrote about it on a few occasions in the last couple of years. Let me tell you that inflation is here to stay…and would you like some numbers on that? Well David Coombes from Rathbones hazards a guess that inflation will continue at approx 4% in the US, 3-4% in the EU and 5-6% in the UK as an average over the next 3 years. I suspect those are headline ‘government’ declared rates. My guess is that real inflation may be somewhat higher. Protecting those savings and investments has never been more important.
Did you know that inflation needs to only run at 7% per annum for 10 years for the value of your money to halve. 2022 ‘true’ inflation was more like 10-15% across Europe, so that’s 2 of those 10 years taken care of already.
So with all this doom and gloom, what actually did do well in 2022?
Answer: The old, out of favour, industries of the past: BP, Shell, Lockheed, Schlumberger, Caterpillar et al.
Yep, those very same industries which no one wants to invest in any longer. They turned the corner and became the star performers of the investment markets. In fact, anything moderately related to ethical / sustainable / ecological investment had the hardest time in 2022. It was enough to test anyone’s ethical investment values!
However, the truth of the matter is that with interest rates likely to be higher in the next 5 years than they have been in the last 5 years, and the cost of debt being significantly higher, we may just see some of the older, cash rich industries doing quite well, and seeing some of the newer debt heavy companies struggling or even going bust.
Take Netflix. (It has become my go to TV channel!). Netflix’s business model is built on continual expansion of its subscribers and content. However, it has been heavily funded by cheap debt. How might it progress in a world where the debt it needs to make a new series costs 5 times more than before? I suspect it might survive this new world it finds itself in, but could it become a takeover target from a more established and cash rich company, like Disney?
Another example of one of those new, sustainable, ethical businesses, potential disruptor / game changer was Impossible Meat. For those that are not aware they are producing plant-based meat alternatives. In 2022 they saw their share price fall 96% as consumers turned away from their product. (I tried them myself and can’t say I was too impressed!). An example of governments pushing us towards more plant-based and lab made foods, not to forget bugs. But can they accurately predict the future?
So, the cost of servicing debt is certainly going to reshape the investment world again, yet there is one major theme which will shape the world in years to come: SECURITY and I don’t just mean military security, but also energy and food security.
Energy Security
Energy security is being driven by the war in Ukraine and the end of the reliance on Russian cheap energy. A perfect example of how energy policy is needing to change focus is Giorgia Meloni’s recent trip to Algeria to agree access to their gas fields, and export into Europe. Algeria has the 11th largest reserves in the world and have a gas surplus. Italy is trying to line itself up as an energy hub for Europe given that gas will likely now come in from the global south rather than the north, and Italy, it would seem, is ideally placed as a central Mediterranean country and its access into the EU. The only snag, which is not much talked about, is the fact that Algeria is a Russia ally and currently buys fighter jets from Russia and supports it in the war with Ukraine, so how the Italy/Algeria agreement will work is anyone’s guess.
Military security
Military security for the EU is still going to come from NATO (i.e US led military policy). It could be argued that the Ukraine war is not in the EU’s interests, in particular Germany, but they have to kowtow to NATO/US driven policy because the EU never could agree on building an army of its own to defend itself, and hence self- determination in terms of defence policy. There is no other real option and so the EU will very likely continue to arm Ukraine and stretch out the war if that is what US policy dictates, even when negotiations to end it might be possible. The order books of most armament / defence companies will be very full for some years to come.
Food security
This was an area which provoked more discussion from the fund managers. In particular how the West will need to develop to ensure that food is still delivered to our supermarkets.
A good example of a company that is innovating in the area of food security is John Deere. The agricultural machinery and tractor marker. They have already developed a fleet of unmanned vehicles which can plant, monitor and harvest. These machines are no longer human driven one-purpose vehicles. They are machines with embedded computers, checking soil temperature and microbe levels, adding fertilizer when needed and checking weather signals, determining when to plant, when to harvest etc, and all without any human intervention in the field. The biggest customers will ultimately be the biggest producers, namely the US, Brazil and Ukraine (you may be surprised about Ukraine being in the list, but a benefit of war for large industries is that they can take advantage of disaster capitalism. Large US and International agricultural companies have been able to take advantage of new laws liberalizing the sale of agricultural land in Ukraine. Previously, Ukrainian small farmers were protected and forbidden to sell their land to large agro interests. Now, big companies are moving in to take charge of Ukrainian land. On one hand the farms will benefit from economies of scale, but the small-scale sustainable farming model will struggle to survive).
Agricultural and food production will be a big investment theme in the coming years!
So, with all these themes in mind, the broad outlook for the future and investment, according to Evelyn Partners, will be determined by 4 main Megatrends.
- SHIFTING DEMOGRAPHICS
- CHANGING WORLD ORDER
- BUMPY ENERGY TRANSITION
- TECHNOLOGICAL REVOLUTION
I won’t bore you with details in each area, but here are some points around the subjects discussed:
SHIFTING DEMOGRAPHICS. Ageing populations, more opportunity for pharmaceutical companies and drug development, more use of online doctoring and diagnosis, roll out of robots in our hospitals and clinics (robot cleaners, robot secretaries, robot surgeons, robot beds moving freely from ward to surgery room without the need for people). It’s all coming and given that 80 out of every 100 people will be over the age of 65 by 2050 in Japan, and around 60 in 100 in Europe, it is difficult to see how our world will survive without increased development and innovation in the healthcare sector.
CHANGING WORLD ORDER. The US/China decoupling will continue and accelerate. Instead of globalisation, think ‘slowbalisation’. The war in Ukraine has driven a wedge between those, already weak, alliances. Russia, Iran, China, Saudi Arabia, India, (the BRICs+) and other countries are coming together to find ways to subjugate control over their regions and wrest control away from the US, especially in the use of payment systems in USD. The US will, of course, fight its corner, just look at its policies around the semi-conductor market which you will have read in my last E-zine ( ) What investment opportunities this will throw up is anyone’s guess, but the exportation of the US model of capitalism around the world, will slow and this could throw up new investment opportunities in new companies further afield.
BUMPY ENERGY TRANSITION. We are only going one way with energy policy, and that is more towards sustainable energy production; but, if you think we will be switching off the oil taps and shutting down the coal fields overnight, as many Eco groups would wish for, you will be very disappointed. (I will place a bet that in 20 years we are still using the same amount of oil as we are today, but that’s just a personal hunch. A lot of electric cars are going to need a lot of electrical energy from somewhere). A transition will happen but technology and storage of energy will need to improve, solar and wind power will just not make up our energy needs.
In addition, a little known point about the resources required for a sustainable energy transition: China dominates!
So, whilst the US imposes sanctions on China in the access to and production of semi conductors, China could retaliate with sanctions on the west regarding access to the materials needed to transition to our green economies. Yet, China needs to import 70% of its food from abroad as it is not able to produce enough to feed its population. The US is the biggest producer of agricultural products. So, from a bumpy energy transition we revert back to point 2, The Changing World Order. It will be an interesting time ahead for global politics.
TECHNOLOGICAL REVOLUTION. We have already seen so much revolution in this space since the year of my birth 1974 but the future will accelerate things even more. From next level automation in industry and daily life, 3D and 4D printing will become more the norm (I went to a fayre in Villa Borghese in Rome last Sunday and one stall was 3D printing some items on a wooden work bench) with the launch of 5G we will become even more interconnected, more reliance will be placed on cloud computing and storage of data, next-gen quantum computers, AI and controlled devices, cryptocurrencies, wearable devices…the list goes on.
And if that is not enough to scare you then check out the company recently purchased by Microsoft called ChatGPT. This is a learning AI application which can do just about whatever you want it to do. Think of it as an Alexa x 1milllion! It can provide you with any amount of information you need, ‘write newsletters’ – you just give it a subject and in seconds it will provide you with a written text on a certain subject, do maths, solve problems, write a website for you, some students are even using it to write essays at University. The scary thing is that it learns as it goes. Anyway, you don’t have to worry about my E-zine being written by ChatGPT; I don’t even think the best learned AI could imitate my crazy style.
And more food for thought
Rob Gordon (US citizen) from Dreihaus/VAM Investment funds thinks that Trump will win the Republican nomination again. But he thinks that Jo Biden, at 81 years of age when the election comes around, will win against Trump again.
David Coombes from Rathbones Inv Managers thinks that GBP will drift back into the range of 1.25/1.30 against the Euro within the next 3 to 4 years .
Lessons learned from this conference
This might sound like a sales pitch: something I try to avoid in this E-zines as they are written for information purposes only. However, whilst listening to our various speakers I became overwhelmed at just how complicated the world is becoming from a political, technological, economic and investment perspective. We can no longer ‘pick a stock’ and expect it will do well. Thought and research needs to be behind investment decisions. It’s easy to think that we can invest ourselves, be successful and then years like 2022 come along and there is nowhere to hide: stocks and bonds prices fall together, and then the only safe space is in some highly volatile areas of the commodity sector, which you wouldn’t normally play in. We need professional help and guidance to help us navigate these choppy waters head, but when there are so many changes afoot, it throws up the best investment opportunities. The investment managers and companies we use and talk to regularly are on top of these trends and can help you, our client, to get the best from your investments. The lesson learned from this conference: you are in good hands.
As always, if you have any questions about this E-zine or have any general financial planning concerns as a resident in Italy, or someone who is thinking of moving to Italy, then don’t hesitate to get in touch on email: gareth.horsfall@spectrum-ifa.com or on cell: +39 3336492356
The financial implications of your SEF appointment
By Portugal team
This article is published on: 31st January 2023
31.01.23
Brexit pushed many British expatriates to apply for residency – Immigration and Borders Service’s desk / Serviço de Estrangeiros e Fronteiras (SEF) to be able to stay more than 90 days in every 180 within the Schengen area, but what some may not fully understand are the implications.
Triggering tax residency
When applying for residency in Portugal you are effectively declaring your intention to stay in Portugal for more than six months. Staying in Portugal for more than 183 days a year will trigger tax residency and financial reporting obligations; you cannot simply continue paying taxes in the UK.
Brits must also be mindful of the UK statutory residence test because this could inadvertently entangle you in the UK tax net if too much time is spent back in the UK, even if you are declaring yourself as a Portuguese tax resident and spending more than 183 days in Portugal. This is not something you want to be caught up in, especially if you intend to take advantage of Portugal’s Non-Habitual Residency (NHR) scheme. You want your tax residency status to be clearly in Portugal.
Tax liabilities in Portugal
Tax residents of Portugal must declare their worldwide income and gains in Portugal.
For those with assets in several countries, you might also have tax and reporting obligations in the jurisdictions where you hold your assets. For example, UK rental income always remains taxable in the UK and is also reportable and taxable in Portugal. Conversely, UK tax is not due on UK pension income (unless it is a government scheme), but it is fully reportable and taxable in Portugal.
Whether you will pay tax twice depends on the Double Taxation Treaty between the two countries, but there are usually rules in place to avoid this happening.
Make the most of it
New residents of Portugal can apply for NHR which gives generous tax breaks on foreign-sourced income and in some cases, Portuguese arising employment income, for a period of 10 years. However, the right planning and preparation is needed, and you may need to restructure your affairs to take full advantage of the scheme. Once the NHR period ends, normal Portuguese tax rates apply.
NHR certainly provides generous tax breaks but what many do not realise is that it is also a ‘window of opportunity’ where you can plan for a tax-efficient future after NHR. For example, it is much more tax advantageous to dispose of overseas property during the NHR period when gains are exempt in Portugal, rather than post-NHR when 50% of the gain is subject to scale rates of tax.
Even for those without NHR, there are compliant structures that can reduce or eliminate income and gains tax for significant long-term tax savings. Ideally, such structures are funded during the NHR phase, so it is never too early to start planning.
Expatriates have complicated affairs: tying up loose ends in their home country, navigating the legalities and processes in Portugal, keeping track of what taxes are due where, and ongoing compliance with changing tax rules in various jurisdictions. With so many moving parts it is important that planning is not done in isolation, it is reviewed regularly and undertaken with experienced and qualified advisers.
Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6 CII) and Tax Advisers (ATT) with nearly 20 years of combined experience advising expatriates in Portugal on cross-border tax and financial issues. Find out more at spectrum-ifa.com or contact us at +351 289 355 316 or mark.quinn@spectrum-ifa.com.
Am I tax resident in Spain?
By Barry Davys
This article is published on: 24th January 2023
24.01.23
Case Study Spanish Tax Resident Couple
Husband 60, wife 60, married, with 2 children who are financially independent and living in the UK
👉 Pensions: £930k
👉 Investments £60k
👉 Cash Spain €60k
👉 House €1.25 M
👉 Wills – UK & Spain
👉 Cash UK £184k
Challenges
Build Understanding of Pension Situation
- Pensions will break UK Lifetime Allowance Rule even as Spanish Resident
- Difficulty estimating pension as coming from four different pension schemes
- When can I retire
- No overall investment strategy for pensions
- How to minimize tax on pensions
Better returns on Non Pension monies
- Bank accounts earning only 0.15% with inflation in Spain at 2%. (One of the only truly “guaranteed” returns in the financial world is that if this is you, you are loosing 1.85% pa of your spending power.)
Forward Planning including Inheritance tax
- Would Mrs X have enough to maintain property if current pensions provided only 50% pension on husband’s death?
- What would be the Spanish Inheritance tax if one partner died?
- How would this Inheritance tax be paid?
- How is inheritance tax applied in Spain and UK?
- How can the UK and Spanish inheritance tax liability be managed?
What we did
- Completed a full financial review of present financial standing
- Undertook a cash flow forecast to establish if widow’s pension was sufficient, how to pay inheritance tax on first death and how long their money will last
- Provided a Transfer Value Analysis report by our qualified pension expert – a Fellow of the Chartered Insurance Institute
- As a pension was a defined benefit pension, a secondary full report provided by a FCA regulated adviser with full UK pensions permissions in line with UK, FCA rules
- Consolidated pensions to improve tax efficiency, improve widow’s pension and manage in line with their other assets
- Built investment strategy to improve return on their investments and cash
- Clarified how inheritance tax works in Spain and UK and gave an estimate of tax due
- Built an inheritance tax strategy, including sufficient money available to pay tax in Spain on first death
- Minimised Spanish Tax paperwork and liaised with Spanish Tax adviser
- Produced Family inheritance tax strategy document so whole family knew the strategy without disclosing amounts held by the parents
- Wrote to UK HMRC for confirmation that the family home in Spain will qualify for the Main Residence Nil Rate Band
- Identified a UK inheritance Tax saving on a UK life assurance policy
- Carried out regular reviews over 6 years (so far) to update investment and inheritance tax strategies and to adapt to changes to the law
The RESULTS
✅ Clarity for clients and children on Inheritance Tax
✅ Improved return on bank accounts to 3.5% pa giving an improvement of 4,200 pa
✅ Removed pensions from UK Lifetime Allowance rules
✅ By providing documentary evidence from UK HMRC for Main Residence Nil Rate Band confirmed an inheritance tax saving of up to £140,000
✅ Improved widows pension by £7,000 pa
✅ Kept clients compliant with changing tax rules
✅ Answered the financial question “Am I going to be OK?” with a “Yes”
If you are a resident in Spain, or are planning to become a resident and would like any information on tax, pension transfers, investment planning or general financial planning you can contact me on:
barry.davys@spectrum-ifa.com or direct on 0034 645 257 525
Protecting your wealth
By Portugal team
This article is published on: 20th January 2023
20.01.23
What can you do in turbulent times?
With rising inflation, war, political instability and the energy crisis, 2022 thus far has been a perfect storm and markets have responded. What action do you need to take to protect your wealth?
Review your position
The single most important thing you must do is act and not bury your head in the sand. Whether you have recently made changes or have never taken any action, you should be taking a look at:
- Structures: Are they correct for you in Portugal or are you still holding on to investments you made whilst resident elsewhere? Are you taking advantage of all the tax reliefs? Unnecessary taxation is extremely damaging to family wealth
- Cost: Check what you are paying as this is an eroder of wealth; especially when markets take a downturn. Are they convoluted and hidden in lots of paperwork? Are they competitive? Are you receiving a competent level of service for the fees you pay?
- Risk: Do you know how much you are taking? Are you being compensated for it or can you achieve the same return elsewhere without taking as much risk? A robust investment portfolio is a diversified one that is risk rated to your appetite for risk and capacity for loss
- Holdings: Are they suitable for you and your goals? Are they liquid or are they at risk of being suspended? You do not want to need money only to find you are ‘locked in’, have penalties or your investment has been frozen
- Performance: Are your investments performing well in comparison to the market? Poor performance can be a result of many factors, such as relying on past performance, excessive charges, manager performance, inaction, market movements or taxation, to name a few
Work with experts
Taking sound advice comes with a cost but could save you a lot of money in the long run. Whether that be in income, capital gains or inheritance tax, improved investment returns or preservation in the downturns. It will also provide you and your family peace of mind.
How do you take advice safely?
- History of the business: How long have they been established and what is their ethos? Where are they regulated? Are they part of a larger company but with a different name? Dig deeper, look for reviews and check your individual adviser’s history
- Impartiality: Are they impartial or do they only work exclusively with certain providers and fund managers? A variant of this is they have their own branded funds/investments that they are incentivised to put you into to get more commission
- Qualified: Does your adviser have the expertise to guide you on the complexity of cross-border pensions and investments? Do they understand the implications of selling a product to you in Portugal and your originating country? Check what qualifications they have and whether are they relevant
- Charging terms: Ask for an explicit breakdown of costs, including retrocession fees/commissions. Is your adviser willing to give you this in writing in a simple-to-understand format? Are the fees competitive?
- Service: Will you have an ongoing relationship with your adviser or will you be passed to someone else once a sale has been made? Will they provide a quality service for the ongoing fees you will be paying?
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.
Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6) and Tax Advisers specialising in cross-border advice for expatriates. Contact us at: +351 289 355 316 or mark.quinn@spectrum-ifa.com/debrah.broadfield@spectrum-ifa.com
More Spanish residents to pay wealth tax
By John Hayward
This article is published on: 19th January 2023
19.01.23
Valencia reduces allowance with more people having to pay
the Impuesto Sobre el Patrimonio
Further to my article from last week, and after consultation with our accountant associates, it appears that the main residence wealth tax allowance of up to €300,000 only applies after 3 years of living in the property (habitual residence). This has been questioned but, as is often the case in Spain, getting a response from the tax office can be tricky.
The tax office words that are relevant in terms of getting around this 3-year rule are “circumstances that necessarily require the change of housing”. Moving to Spain to retire or for a change of lifestyle would not generally tick that box. If there are justifiable health reasons or similar then that appears to be acceptable in terms of applying the allowance.
To emphasise the habitual residence aspect, from JC & A Abogados in Marbella: “Please note that you must live effectively and consecutively in the property for more than 3 years, so you cannot rent the house out even for one day. In addition, you have to impute a benefit in kind for the Spanish property during the same 3 years period.”
In the words of JC & A, “The 3 year period starts counting from the purchase date as long as the dwelling is inhabited effectively and permanently within 12 months as from the purchase date.”
“…..a taxpayer who bought his main home but could not live in it because it was not suitable and had to have some works that exceeded 12 months; the conclusion is that the 3-year period starts counting from the date he moved in and not the purchase date.”
Adding salt to this potential tax wound, whilst it is not treated as your main residence (even though you live there permanently), you have to pay tax on its value as if you were a non-resident.
This all seems rather inequitable but is the law as things stand.
If you would like to discuss managing your money in these volatile and uncertain times, please do not hesitate to contact.
Visit John Hayward of The Spectrum IFA Group or complete the form below.
Can I keep my UK bank account and ISA?
By Spectrum IFA
This article is published on: 17th January 2023
17.01.23
Each person should seek individual advice when it comes to financial planning but here, we touch on some commonly held UK assets and the main points that you should be aware of.
Bank accounts
Post-Brexit many UK banks have ceased services to non-UK residents forcing clients to seek out Sterling-based accounts elsewhere. The Channel Islands and Isle of Man are popular alternatives to the UK when it comes to banking, but these are considered ‘blacklisted jurisdictions’ by Portugal and interest is punitively taxed at 35%, rather than the usual 28% or 0% under NHR (Non-Habitual Residence).
ISAs
ISAs do not retain the same tax exemptions when held by Portuguese residents and are treated in the same manner as standard investment portfolios. For NHRs, generally, interest and dividends are tax-exempt and realised gains are taxed at 28%, but if your ISA holds funds, based on the strict reading of the tax law, returns are classed as ‘other income’ and taxed at 28%. For non-NHRs, interest, dividends and gains are taxed at 28%.
Whether you retain or restructure your UK ISA will depend on your longer-term plans.
If your move to Portugal is short-term, or if you are not certain that it will be your long-term home, then there is a case for retaining your ISAs. Although you cannot add to them whilst non-UK resident you can continue to hold them, and once you return to the UK they resume their tax efficiency.
If you believe your move to Portugal is long-term (as a rule of thumb, 5 years or more) then restructuring and starting an investment vehicle that is suitable for residency in Portugal would make sense for greater tax efficiency, amongst other reasons.
A planning point you should consider is to ‘rebase’ your ISA prior to leaving the UK to ‘wash out’ any taxable gains accrued to the point of your departure. This way, if you decided to restructure, encash, or withdraw from the ISA as a Portuguese tax resident later, the capital gains tax liability should be much lower.
Investments with UK-based Advisers
Brexit brought an end to the passporting rights that allowed UK-based advisers to advise clients across the EU and vice versa. This means that many advisory firms may not have the right permissions to continue providing advice to clients living overseas. This can be worrying for those who have worked alongside their trusted adviser for many years and understandably, many UK advisers do not want to lose their clients. But good financial planning and structures for UK residents are unlikely to be effective for those living outside of the UK.
Whilst you can continue your relationship with your UK adviser and pay their fees, without the right permissions they cannot service your accounts e.g. provide investment advice for portfolio rebalancing/fund switches, and more importantly, you might not have proper recourse if anything were to go wrong. This could not only affect your investment performance, but you will end up paying for advice that you cannot (legally) take advantage of.
Lastly, there are practical implications. Does your UK adviser understand the rules in your new country of residence? We have seen many individuals miss out on substantial tax-saving opportunities because UK advisers were not aware of the local tax rules in Portugal or the implications of the planning in place.
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 in Portugal – Webinar
By Mark Quinn
This article is published on: 13th January 2023
13.01.23
WEBINAR
International tax issues affecting
residents in Portugal
Please join us for our quarterly client update and 2023 outlook video call on Thursday 26th January at 11am.
After registering, you will receive a confirmation email
containing information about joining the webinar.
I will be updating you on international tax issues affecting residents in Portugal, and those looking to relocate here.
I will also be joined by two specialists to give their thoughts on investment and currency markets:
Christopher Saunders
New Horizon Co-founder and Chartered Wealth Manager
Chris co-founded New Horizon in 2008 and has focussed on developing services to IFAs, accountants and other intermediaries and works with many leading IFA groups and accountancy networks in the UK and overseas.
Steve Eakins
Currency specialist, Lumon
Steve has been working in the international payments market for nearly 15 years. Over that time he has helped clients through the market around ash clouds, hung governments, wars in Europe, Brexit and Trump.
Finance in France – what’s new in 2023?
By Sue Regan
This article is published on: 12th January 2023
12.01.23
Firstly, I would like to wish you all a very happy, healthy and peaceful 2023!
As we are starting a new (tax) year I thought it would be helpful to update you on some changes that may affect you in 2023, both tax related and more generally.
Unsurprisingly, the main purpose of ‘la Loi de Finance’ (Finance Act) for 2023, published on 31st December 2022, is to help protect households and businesses from inflation.
Personal Tax Changes in 2023 for revenue received in 2022
In order to contain the effects of inflation on the level of household taxation, the Finance Act for 2023 has increased the tax brackets of the progressive ‘barème’ scale, applicable to income received in 2022, by 5.4%. That’s almost four times higher than last year. There are no changes to the rates of tax.
Increase in income tax brackets
The progressive barème scale for income received in 2022 is as follows:
| Income threshold for single person household | Tax rates |
| Up to 10,777 € | 0% |
| From 10,078€ to 27,478 € | 11% |
| From 27,479 € to 78,570 € | 30% |
| From 78,571 € to 168,994 € | 41% |
| over 168,994 € | 45% |
As France pools allowances for households of more than one person, the threshold for tax-free income received in 2022 by a household of two will be in the region of 29,000€.
Social charges
There have been no changes made to the rates of social charges for 2023 and they remain as follows:
| Employment income | 9.7% |
| Pension income | 9.1% |
| Investment income | 17.2% |
The special lower rates also remain in place as follows:
Pensions
The rate of social charges on pension income is reduced to 7.4% for those households where taxable income is less than around 2,000€ per month (or 3,000€ per month for a couple). Holders of the EU S1 certificate, and those who are not affiliated to the French health care system, are exempt from social charges on pension income, regardless of the amount received.
Investment income
As above, for holders of the EU S1 certificate, and/or those covered under the health care system of another EU/EEA country, social charges are reduced from 17.2% to 7.5% for investment and property income.
Taxe d’Habitation
Good news for homeowners and renters living in France! The phasing out of taxe d’habitation which began a few years ago will come to an end in 2023, with this property related tax being scrapped for all principal homes in France. This also includes the abolition of the TV licence (contribution a l’audiovisuel public).
However, second-home owners and owners of vacant properties are still liable to pay taxe d’habitation on these properties.
Wealth tax on real estate – Impôt sur la Fortune Immobilière (IFI)
The current threshold of 1,300,000€ will remain in place for 2023 with no changes to the scale rates of wealth tax.
Assurance Vie
There are no changes to the taxation of assurance vie policies or their inheritance planning benefits. Thus, these popular investment ‘wrappers’ remain a very attractive vehicle for both personal taxation and inheritance planning.
So, what else is there to know…………
Energy prices are going up
With inflation in France at its highest in decades and global energy prices having sky-rocketed in 2022, 2023 is set to start with a series of price hikes. Firstly, the 4% cap on energy tariffs went up on 1st January, meaning a potential increase of up 15% on gas and electricity bills. In practice, this means that average household bills are likely to go up by around 20€ a month.
Petrol subsidies come to an end
Petrol prices increase from January, with the government’s fuel rebate ending on December 31st. However, a fuel grant of 100€ is available for low-income workers who rely on their car for work. Full details can be found in this link to the government website Indemnité carburant de 100 € : comment ça marche ? | impots.gouv.fr
Increase in the minimum wage
France’s minimum wage (or SMIC) has gone up 1.8%, putting the gross monthly wage at 1,709.28€ or 1,353€ net. Importantly, this figure is used as the basis for calculating the sufficient funds needed for a French visa, so we can expect the required minimum income to go up accordingly.
Increase in motorway tolls
French motorway tolls are set to go up from 1st February with an average 4.75% increase.
Expected increase to savings interest rates
The interest rate on the popular tax-free savings accounts, the Livret A and the Livret de Développement et Solidaire (LDDS), is re-assessed every six months and it is expected that the rate will be increased to at least 3% per annum on both accounts with effect from 1st February.
France is going paperless
You will have probably already noticed that some stores are asking if you want a receipt or not, and more and more shops are offering the option for an emailed receipt. From April, this more eco-friendly practice will become standard practice at all shops. Thus, if you still require a printed receipt, you will have to specifically ask for one.
Cold call relief
Some better news if, like me, you are constantly being harrassed by cold callers – new regulations from next March mean that commercial phone calls can no longer be made on weekends, evenings after 20h00, or lunchtime from 13h00 to 14h00.
Review your finances
The last few years have been somewhat different to say the least. A global pandemic swiftly followed by war in Europe, both of which we haven’t experienced for generations. These highly unusual events have proved very challenging for many including governments, health workers and investors. The start of a new year is always a good time to review your finances. I am here to help and I would be very happy to sit down with you for a review to ensure that your financial plan is on track to achieve your longer term objectives. Please contact me at sue.regan@spectrum-ifa.com or call me on 06 89 20 32 47.
Have you prepared ‘THE’ Folder?
By Sue Regan
This article is published on: 9th January 2023
09.01.23
I like to read articles written by my Spectrum colleagues, especially those working in France, but also those by colleagues working in other European countries as I find it interesting to read what the hot topics are in their areas and how they compare to France. I came across a very interesting one recently entitled ‘THE Folder’, written by my colleague, Gareth Horsfall, who lives and works in Italy.
The article is of universal interest and although the subject matter could be viewed as having rather depressing undertones, it includes some really useful tips on keeping our affairs in good order, not only for ourselves but, more importantly, to help those close to us who may be tasked with taking over at a time when we may not be around to/or capable of doing it ourselves. Under ‘normal’ circumstances this would be a stressful and difficult time for family but potentially far more difficult for anyone trying to deal with the affairs of someone who lives/lived in a different county, with little or no knowledge of that country’s legal or financial system and unable to speak the language.
I like to think of myself as being fairly well organised when it comes to keeping my ‘filing’ in order. I say ‘my filing’ because my husband sees finance and admin as my department (not surprising given my occupation) and he is more than happy to leave everything to me. Like many of you, I am sure, I have a drawer with lots of itemised dividers separating out all our important documents, statements, bills, birth & marriage certificates, etc so that I can lay my hands on everything very quickly, and I have a spreadsheet of our various bank accounts, investments and pension arrangements, etc so that I can keep track of everything.
For a while now, I have been mindful of the need to provide relatives with details of our affairs, especially as we live in France, which only further complicates matters for them if left to take over. However, on reading Gareth’s article, I realised that there is so much more I should do to make things as easy as possible for them if the unthinkable were to happen. So, I have made a start on putting together ‘Our Folder’ based on the very comprehensive list in Gareth’s article, which I have used below to share with you in the hope that it will be a useful guide for those of you who may need it.
So what is ‘THE’ folder?
It is a single file (digital or physical – preferably both) where you keep all of your important personal and financial information together. It allows easy access to these documents in the event that you’re no longer around to help. It is really important to have it in place especially where one family member takes the lead with the family finances.
It seems like a lot of work – is it worth the effort?
Yes, absolutely! A time of loss can be stressful enough without having to try and piece together the deceased’s financial affairs. Don’t underestimate the benefit this will provide to the executors of your estate if you have one place with all your financial and legal documents in an easy to understand format. I know from experience it will be very much appreciated – my dear Dad was a stickler for record keeping and had put together his version of his and Mum’s ‘Folder’ which made it much easier for my Mum, my sisters and I to sort things out after he passed.
However, preparing ‘THE’ folder is more than avoiding stress – if you leave behind an administrative nightmare you could delay the accessing of funds by inheritors and the potential for racking up sizeable legal fees.
So which is best…..physical or digital?
This comes down to personal preference, but I would recommend both, if possible. Whether you choose to have a digital folder with all these documents in or not, you should at the very least have your documents scanned in case of fire or theft, and quite often companies will now accept scanned copies of documents instead of hard copies, if they can be certified or electronically signed.
A digital file can be password protected and you can give access to a trusted individual who can access it in the event of your death. (Remember they will also get access during your life, so ensure they are a ‘trusted’ individual). A Google file, for example, can be updated over time and to which you and a family member have shared access. This file can then be stored on your main computer, in the cloud or on an external hard drive. You can use a physical folder to keep hard copies of all the same information together.
I will do both when building ours, as I still like to have paper copies, and I will share the digital folder with family members.
So what should go in ‘THE’ folder?
Essentials
- Wills / Testaments + details of the Notaire or legal firm that helped create it, if relevant
- Instruction letter/bequests
- Trust documents
- Burial / Cremation wishes
- A copy of a living will, should you have ‘end of life’ instructions that you want medical professionals to be aware of should you be unable to communicate these due to severe illness or disability
- Copy passports and driving licences (in case originals go missing)
Birth, marriage and divorce
- Personal birth certificate(s)
- Deed Poll documents
- Marriage certificate
- Divorce papers
- Birth certificates / adoption papers for minor children
- Livre de Famille (if you have French nationality)
Life insurance and retirement
- Life insurance policy documents, including beneficiary nomination forms
- Details of any employer death in service benefits
- Personal pension documents (including any beneficiary nomination forms)
- Occupational / Final Salary pension details
- Annuity documents
- Details of any entitlements to state pensions
Bank accounts
- List of bank accounts with account numbers, contact details, login details and passwords
- Details of any credit cards
- Details of any safety deposit boxes
Assets
- Property, land and cemetery deeds
- Timeshare ownership
- Proof of loans made
- Vehicle ownership documents
- Stock certificates, brokerage accounts, investment platform details and online investment account details
- Details of holding of premium bonds, government bonds and investment bonds (including assurance vie policies)
- Partnership and corporate operating/ownership agreements ( including offshore companies)
Liabilities
- Mortgage details
- Proof of debts owned
- Details of gifts (whether notarised or not)
- Dates and amounts / values (potentially helpful when calculating inheritance tax liabilities)
Income sources, tax and social security
- Making a list of all your sources of income, especially the ones which your family may not know about
- Employer details
- Social security affiliation (CPAM, URSSAF)
- A copy of your most recent tax return or accounts
Monthly expenses (so they can be continued after death or accounts closed)
- Utilities
- Insurances – car, house, medical/Mutuelle, travel
- Rent / mortgage
- Loans
- Subscriptions / membership details / TV supplier
Email and social media account details
Contact details
- List of names and contacts numbers for: financial adviser, doctor, lawyer/solicitor/notaire, accountant, insurance broker etc
- A trusted Handholder or Professional Translator who could translate documents and would be willing to attend meetings with family members who do not speak French
How often should ‘THE’ folder be reviewed?
Firstly, it is sensible to note the date that it was last reviewed so that anyone using it has an idea of how up-to-date the details are. Going forward, reviewing the file on an annual basis should be sufficient.
And finally…
We’re coming into winter now – what better time to make a start? Ensuring that your papers are in order in the event of your sudden death is incredibly important when living in another country. It will provide you with peace of mind that your loved ones will not have too much difficulty in administering your estate and your family will be eternally thankful that you did it for them. Once it’s done be sure to tell someone about it. There is little point going to the effort of creating such a folder if no-one knows of its existence or where to find it!
If you need help with putting your folder together, are unsure where to start or would simply like a review of your financial situation please feel free to contact me below.
Tax credits in France
By Katriona Murray-Platon
This article is published on: 9th January 2023
09.01.23
Happy New Year! I wish you all a very happy, healthy and prosperous year in 2023! I hope you all had a nice Christmas. We made it to Disneyland in spite of the train strikes in France and then onto the UK for our first British Christmas since 2018! It was good festive fun!
As from 15th January 2023, the tax office will pay you a 60% advance on some tax credits and tax reductions. These include the tax credits/reductions for charitable donations, home help costs and childcare costs. This will be 60% of the amount declared in 2022.
In my last Ezine, I mentioned the fuel allowance. Now, since 22 December 2022, there is an allowance of between 50 and 200 euros for those using logs or pellets to heat their homes. This is for people with less than 2260 euros income per month for a single person or 4750 euros for a couple with 2 children. You will need to request this payment by going to this website https://chequeenergie.gouv.fr/beneficiaire/eligibilite.
Since 1st January, receipts and bank card receipts will only be printed if you specifically request them. Also, from 1st January, companies (Entreprises individuels and SCIs) can do their own formalities online on formalites.entreprises.gouv.fr
No need to throw out your equipment when it breaks down. From 15 December 2022, it is even cheaper to repair your household appliances. There is a now a government allowance of between 10 and 45 euros off the price of repair depending on the type of appliance which works out to be around 20% of the repair costs. This only applies to appliances that are no longer covered by their warranty. For more details and to find an approved repair company go to: https://www.ecosystem.eco
Finally, in Spectrum news, from 16th to 20th January I shall be joining my colleagues for our annual conferences at the Gleneagles hotel in Scotland. As you know my name is Scottish and my father and his family are from Scotland, so I am very much looking forwards to going there and celebrating Spectrum’s 20th anniversary!
After five full years in the business I am beginning to get a sense of how variable each year can be. We have had three very strange years from covid and lockdown, to coming out of lockdown and getting vaccinations and then last year the war in Ukraine and inflation. Some analysts suggest that inflation may subside in 2023 but stop short of actually predicting this. Nobody has a crystal ball but I know what I do have that’s important which is my family, my friends and my clients. I’ve got you and you’ve got me, so whatever 2023 holds, I know that we can see it through together!
All the best for 2023.