Have you made your ‘Folder’ ?

By Gareth Horsfall
This article is published on: 6th November 2022

06.11.22

I prefer to start an article on a positive note but unfortunately have to start with a sad event that happened recently in our lives. My wife’s grandmother died on the 8th October at the ripe old age of 94. She was very ill in the end and as it has been said many a time for people in her condition, that it was a blessing in the end. However, it is obviously a sad time for the family. I will remember her fondly. I knew her for 18 years and she was a very Southern Italian ‘Mamma’ type. Always keen for you to take more food from the table (resulting in my first few years in Italy coinciding with a 5 kg weight gain – I can’t blame it on her – my ‘golosità for good food was more to blame!). She was also a great support for my wife and I when my son was born and came to live with us for a period to help out in the house and provide much needed help at a tough time for all new parents. I also had a few run-in’s with her, but nothing serious. All in the name of a good healthy relationship. As I said, she will be sorely missed.

But as always, when a family member dies we are left with a number of bureaucratic and administrative hurdles which need to be dealt with. In Nonna’s case, there are various bank accounts, US social security and ‘succession’ issues which now have to be worked through. Hopefully it won’t be too complicated as Nonna had very little left in her name when she died.

This is not always the case and in fact my experience is that the deceased tend to leave quite a lot more bureaucratic matters than perhaps they would have wanted to, and certainly than the remaining family members would have wished for. But, we can make some preparations, in life, for the ‘inevitable’ and leave the best parting ‘gift’ possible for the remaining family members.

The following article is one which I wrote first back in April 2018 (https://spectrum-ifa.com/preparing-the-folder/) and since then I have shared it again on a few occasions. It seems appropriate to share it again with you now, especially since we are 4 years on since that date, we have all lived through Covid and faced with some interesting times ahead, so it would seem. (I have also made some updates to the original article to take account of changing technological developments). I hope you find it useful.

This type of article is never an easy one to write. 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.

The big problem is that as ‘stranieri’ we often have documents spread across multiple locations. The office, a house in another country, with family members and in that old box that no-one dares look in – papers that look like they came from the Victorian age in alot of cases. But whose job will it be to track all those down?

The purpose of this article is to outline a proven way of organizing ‘THE’ folder to minimise problems in the event of your death.

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 (typically one member of the household tends to dominate over money matters, but with the advent of shared technologies it is becoming more common to find that 2 or more family members are involved in the household finances). This includes paying bills, managing accounts and storing documents.

Is it worth the effort?
Yes, yes yes and yes. A time of loss can be stressful enough without having to try and piece together the deceased’s financial affairs. This can be a really difficult time. Don’t underestimate the kind of favour you will be doing to the executors of your estate if you have one place with all your financial and legal documents in an easy to understand format. You may not be around to hear their appreciation, but I can tell you, from experience, it will be eternal.

However, preparing ‘THE’ folder is much more than avoiding stress; if you leave behind an administrative nightmare you could delay access to inheritors’ access to funds and potentially cost a small fortune in legal fees.

According to an Independent financial adviser website in the UK (unbiased.co.uk – what is the probate process) the average time for probate to get settled is between 9 months and a year. In the USA the average time is also about a year. I also spoke to someone recently who confirmed that in their case it took over 1 year to deal with their parents’ estate.

So which is best…..physical or digital?
This comes down to personal preference, but I would always recommend both. 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.

With a digital file 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 which you and a family member have shared access to. 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 all the same information together.

For what it’s worth, I decided to do both when building mine because my wife prefers paper and so is happier with hard copies of everything. I prefer digital. I have also shared the digital folder with some trusted family members.

So what should go in ‘THE’ folder?

Birth, marriage and divorce

Personal birth certificate
Marriage licence
Divorce papers
Birth certificate / adoption papers for minor children

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 account numbers with account numbers, login details and passwords
Details of any credit cards
Details of any safety deposit boxes

(see my comments on passwords below)

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
Partnership and corporate operating/ownership agreements ( incl offshore companies)

The issue of which documents to throw away and which to keep is a common one. I always suggesting keeping everything if you are unsure
and then once a year with your financial adviser or legal professional have a clear out and keep the file tidy.

If you would like help from me then I can always be contacted on gareth.horsfall@spectrum-ifa.com

Liabilities

Mortgage details
Proof of debts owned

Details of gifts

Dates and amounts / values (potentially helpful when calculating inheritance tax liabilities

(A word of warning here! If your estate is likely to be subject to Italian succession law on your death. [This might mean that you have lived in Italy for 10 yrs + before your death, as an example], then any gifts which have not been fully notarised may still make part of your overall estate and be subject to the provisions of forced Italian succession law. i.e the donee may have to give the money back and it be distributed between the rightful heirs according to Italian law, ‘should’ the beneficiaries request the funds.

Notarising gifts would normally need to be done where the benefits outweigh the costs of the action itself.

(Bear in mind that you will need to pay the notary costs of approx 5% on the value of the gift, plus any taxes and one off fees for the gift)

Income sources

Making a list of all your sources of income, especially the ones which your family may not know about

Employer details

A copy of your most recent tax return or accounts

Monthly expenses (so they can be continued after death or accounts closed)

Utilities
Insurance
Rent / mortgage
Loans
Subscriptions / membership details

Email and social media account details

Essentials

Wills / Testaments + details of the legal firm that helped create it, if relevant
Instruction letter
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

Contact details

List of names and contacts numbers for: financial adviser, doctor, lawyer/solicitor, accountant, insurance broker etc

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.

Online passwords
The issue of passwords has become infinitely more complicated in recent years because everything we access these days requires a password and it would be a full time job to document these and then keep them updated every time that one needed changing. There are now various Password Manager applications that you can buy to securely hold all your passwords. You can find some of the best HERE. However, if you are reluctant to use technology, which let’s face it could be hacked, then you are left needing to log all those passwords the old way…..writing them down!

And finally…
Be sure to tell someone about it. There is little point going to the effort of creating such a folder if know one knows of its existence or where to find it.

If you need help with putting your folder together or are unsure where to start then you can contact me for help on
gareth.horsfall@spectrum-ifa.com
or on my cell at +39 333 649 2356

Children and taxes in France

By Katriona Murray-Platon
This article is published on: 4th November 2022

04.11.22

I am the proud mother of two wonderful boys. I love my children very much, but in addition to the joy they bring to my life, they also bring tax advantages. Admittedly the tax benefit is probably less than the overall expense of having children, but one must count one’s blessings!

Let’s take a couple earning €60,000 per annum.

The current tax brackets for 2022 are as follows:

Income	Tax rate
Up to €10,225	0%
From €10,226 to €26,070	11%
From €26,071 to €74,545	30%
From €74,56 to €160,336	41%
Over €160,336	45%

*These tranches are likely to increase by 5.4% in 2023.

If they have one child? their tax is reduced by half a tax part. Whereas alone they were in the 30% tax bracket, with one child their income is divided by 2.5 to €24,000 per person, which puts them into the 11% tax bracket. Their tax bill would be €3,788 instead of €5,844. The child has saved them €2,056 of tax. If they had a second child, and on the same income, their tax would be €3,226. The second child has therefore saved them €562 euros.

In addition to lowering your taxes, if your child is under six and goes to a child minder or nursery, 50% of these costs, up to a maximum of €2,300 per child may be deducted, so a maximum tax credit of €1,150 per child. This is a tax credit, so in our example above, the couple would pay only €926 in taxes.

After six years old and until they go to high school, as delightful as they are during this time, there are no tax advantages. From high school onwards there is a small tax reduction of €62 per child in high school, €153 per child in sixth form college and €183 per child in higher eduction (provided it is non-remunerated studies).

Download out French Tax Guide here

However when they are in their 20s and pursuing further education, this is the time to look at whether you are better to keep them in your tax household or take them out of your tax household and deduct the money you give them to pay for their studies, accommodation and food etc. I remember, when I was a tax lawyer, suggesting to a lady who had four sons, that she should remove her youngest son from her household – she looked a bit shocked! I meant of course that she should take her son out of her tax household, not kick him out of her actual household. It is quite common for children in France to remain at home during their university studies. The money given to an older child is deducted from the household income before it is subject to tax.

For an adult child to be considered part of your tax household, they must be under 21 on 1st January of the tax year (so 1st January 2022 for the tax return done in 2023), or be under 25 years old on 1st January 2022 and in higher/further eduction as at 1st January 2022 or 31st December 2022. There are also various conditions for children living with an adult relative.

So if we look at the couple above and both their children are at university. In 2021 they could have deducted up to €6,042 per child from their income which would have reduced their tax to €3,021 for the two of them without the children instead of €3,226 had the children been included on their tax return. For 2022, according to the Draft Finances Bill, this deduction is increased to €6,368 per child. For the full reduction to apply, you must be able to prove that the child needs this money, that they are unable to work or, if they have a student job, that they earn less than the minimum wage. You can deduct up to this amount but you have to be able to prove the expenses if so requested. If the child still lives with you, you can deduct their accommodation and food bills, up to €3,592, without need to justify these expenses.

Once your child is removed from your tax household, this will mean that they have to do their own tax return and declare the financial help that you are giving them. However, if they are earning less than the first tax bracket (€10,225 in 2021, €10,777 in 2022) then they won’t have any tax to pay.

For any questions on Children and taxes in France or on your general financial planning in France, please do get in touch via the form below:

Is Portugal a tax haven in Europe?

By Mark Quinn
This article is published on: 3rd November 2022

03.11.22

Portugal has long attracted expatriates looking for warmer climes, good food and a relaxing pace of life; but in recent years, the wide range of entry visas and attractive tax breaks for new residents have seen Portugal’s popularity soar.

With standard tax rates ranging from 14.5% to 53%, Portugal can either be crippling or a tax haven depending on how and where you structure your wealth.

New residents
Portugal introduced the Non-Habitual Residence (NHR) scheme in 2009 and made updates in 2020. It offers new residents to the country the potential for very low (or no) tax on pensions, capital gains and certain types of income for 10 years.

The greatest draws for expatriates are the favourable taxation of pension income: 10% for post-31st March 2020 NHRs (0% for pre), 0% tax on foreign dividend income and a 20% income tax rate on earned income for those working in Portugal in jobs deemed as ‘highly valued’ by the Portuguese government.

Another opportunity is for those with investment property portfolios. NHR can exempt capital gains tax in Portugal, which under normal circumstances would otherwise be taxed at progressive rates.

Existing residents
For those without NHR, Portugal can still be a tax-efficient home depending on how you structure your income and savings sources. With the correct planning and structuring, you can legitimately create a tax-favourable position and in some cases, single-digit rates of tax, which means that Portugal can still be more favourable than most individual’s home countries.

Optimise your move
Planning at least a year before your move is best to put yourself in the most favourable position. This will allow you to take advantage of any tax opportunities in your home country and arrive in Portugal with the right structures, assets or income sources.

Caveats
The benefits of NHR do not automatically apply to all situations; planning is required to maximise tax-saving opportunities.

There are subtle nuances to the NHR scheme and international tax rules, meaning that in some cases it may not be beneficial to apply for NHR. It depends on how your income is generated and the interaction with your originating country and in some cases, we have seen this create an additional tax liability.

Another common complexity can be the interaction between taxation in Portugal and the former country. For example, what some people believe will be tax-free income may be taxable because of a nuance in the law e.g. income sources must have the ‘potential’ to be taxed in the originating country to qualify under NHR.

CLARITY WITH ADVICE
Paying zero or very low rates of tax is possible in Portugal as an NHR or standard resident, but it very much depends on each person’s circumstances. Planning (and potentially restructuring) is required.

As Chartered Financial Planners and Tax Advisers, we are in the best position to provide cross-border advice to expatriates and assist in creating compliant tax-efficient solutions.

For a complimentary initial consultation please contact Mark Quinn & Debrah Broadfield at +351 289 355 316 or mark.quinn@spectrum-ifa.com.
Alternatively, visit our financial guides page for tax updates and important information about living in and moving to Portugal.

Tax saving tips for Portugal

By Mark Quinn
This article is published on: 17th October 2022

17.10.22

Ideally, tax planning should start before you move to Portugal as this gives you the most flexibility and more planning options. However, residents can still take many steps after their move to reduce tax. Here are our 15 top tips.

Before moving to Portugal

Review your asset base, do you intend to restructure your investments for life in Portugal? Look at whether they can be surrendered tax-free or at a reduced rate in your originating country, rather than leaving it until after your move
Utilise any remaining carried forward losses and income and capital gains tax allowances prior to leaving your originating tax jurisdiction
Take your 25% tax-free pension commencement lump sum (tax free cash) if you are UK resident. This is not available following your move to Portugal and will be taxed
If you are moving from the UK and are non-UK domiciled, consider using the remittance basis to substantially reduce certain taxes before your move
If your UK-based pension savings are close to or above the UK Lifetime Allowance (LTA) of £1,073,100 you must consider LTA protection. Any amount above this is taxed at 25% or 55%, depending on how the pension is drawn down. This tax could be avoided or mitigated

After moving to Portugal

Apply for Non-Habitual Residence (NHR). In the vast majority of cases it is beneficial but please seek personalised advice to confirm how this will affect your position
If you are NHR, restructure your income sources and assets to take advantage of the tax breaks
Holding investments directly can give rise to unnecessary capital gains and income tax. Using a wrapper such as a pension scheme, company or life assurance bond, could substantially mitigate tax
Conventional planning dictates that you should maximise the value left in pension schemes given they are free of UK Inheritance Tax but the NHR regime turns this conventional wisdom upside down as you have a 10-year window to extract pension funds at a very low tax rate of 10%, after which tax can rise to over 50%. Advice must be sought before deciding to do this and must be tailored to your family situation
Do things in the correct order. For example, if you have losses on certain investments realising these first could allow you to offset these against future gains but if you realise the gain first you cannot do the opposite
Targeted withdrawal strategies. Funding your lifestyle from certain sources rather than others can save substantial amounts of tax. These may need to be switched over time e.g. when the NHR period ends
The UK Non-resident Capital Gains Tax rules. If you are selling UK property as a Portuguese resident, only gains made from 6th April 2015 are taxable in the UK with no further tax to pay in Portugal if you have NHR
If you are selling your home in Portugal capital gains tax is due on 50% of the gain at scale rates. There is main residence relief if you use 100% of the proceeds to buy a new home, but a new relief was introduced which allows certain individuals to invest the proceeds in a pension or investment instead, allowing you to release capital and provide a future income
You can submit joint tax returns as a couple (you do not have to be married) in Portugal so you can take advantage of your partner’s unused tax bands
Take advantage of the Portuguese personal deductions. By using your fiscal number when making certain purchases you can reduce your annual IRS tax bill e.g. €250 per taxpayer for general family expenses, €1,000 on health expenses etc

Transferring your pension to a QROP

By David Hattersley
This article is published on: 17th October 2022

17.10.22

A sense of deja-vu is now apparent as the UK is experiencing a similar situation compared to the 70’s. Drawing comparisons especially for those that lived through that era would be unhelpful. However a minor point worth considering were the restrictions on the flow of capital out of the UK. For those lucky enough to travel abroad then a limit of £25.00 cash per person was the restricted limit under the Exchange Control Act 1947. My wife still has her old passport with form PP/A dated 14.02.73. One of her clients of 100 years still remembers how difficult it was to bring money into Spain to buy a plot of land.

For those that already are living in Europe or plan to in the very near future under the golden visa rules, I am not suggesting a wholesale restriction of capital movement . A difference though between the 70’s and now is the growth in personal wealth, with the primary asset being property. The 2nd biggest asset and perhaps underrated was the growth of money purchase pensions after Mrs Thatcher came to power and for those in their 50’s & 60’s this could be quite considerable. The opportunity to “ distance work “ may have an impact on younger professionals and for those relocating here.

The current government is under extreme pressure, especially the need to raise tax revenue to balance the books, along with the alleged reports of threats to tear up all agreements with Europe.One politically “safe option” and unlikely to cause uproar and outrage by the general public would be to curtail or even stop transfers to a QROP for those lucky to live or move to Europe.

Why would the government do this ? The payment of a pension held in the UK could be taxed at source as are the current Civil Service Pensions, thereby retaining the long-term tax revenue stream. It would mean filing tax returns both in the UK & Spain. The pension commencement lump sum could also come under review. There certainly wouldn’t be a public outcry for those “ lucky” enough to have sizeable pension pots.

The UK Budget Bill normally has to be debated and passed into law which takes about 3 months. In 2015 negative amendments were made to the QROPs rules that took effect immediately on the day after the budget and was quietly “slipped in”. A case of “ the devils always in the detail”! After all the principle of if one can get away with it once, why not try to repeat a similar process again?

There are many advantages in transferring to a QROPs and at The Spectrum IFA Group we offer and recommend a thorough assessment and report of your individual situation by our qualified specialist at no cost to you. An additional benefit is the long-term service provided as UK based advisers can no longer provide this for residents in Spain and the individual can retain control via a local adviser. A transfer to a QROP doesn’t only apply to UK nationals but any European worker that has built up a “pension pot”. I have been heavily involved in the pensions market since 1987 and have a wealth of experience in this field so if you have any concerns or interest please contact me to arrange a no-obligation initial meeting.

e.mail : david.hattersley@spectrum-ifa.com

Telephone or Whats App : 0034 711 051 938

What is a QNUPS, do I need one?

By Mark Quinn
This article is published on: 10th October 2022

10.10.22

Qualifying Non-UK Pension Scheme (QNUPS) was introduced by HMRC in 2010. In simple terms, it is a type of international pension that must adhere to certain HMRC rules to be recognised by HMRC. A QNUPS should not be confused with a QROPS (Qualifying Recognised Overseas Pension Scheme). This week, we will discuss the basics of QNUPS for Portuguese tax residents.

When might you need one?
Investors that have diverse investment needs may benefit as they can hold a wider range of assets than a traditional pension or QROPS. For example, it is particularly beneficial for holding residential UK property or for more adventurous investments such as a collection of fine wine or racehorses. But for the average investor looking to save towards or draw income for their retirement, this is unlikely to be a benefit worth paying for, there are alternative structures that could be more suitable.

Contributions paid to a QNUPS do not benefit from tax relief which is a disadvantage for savers who have qualifying contributions. However, the contributions to a QNUPS do not count towards the UK Annual Allowance, so can be a great way to save pension benefits in excess of £40,000 p.a. (2022/2023).

Are there really advantages?
The UK Inheritance Tax (IHT) advantage is not a reason to establish a QNUPS, and if set up for these purposes, HMRC may view this as tax avoidance and there could be severe tax consequences and we have seen penalties of up to 200% for failed schemes. It must be set up for genuine retirement purposes e.g. the individual could not contribute to a regulated pension.

Tax-free roll-up within the structure: this is also a benefit of UK-based pensions and other non-pension savings structures available in Portugal. A transfer to QNUPS is not required to achieve this.

Income tax benefits: all foreign retirement income will benefit under Non-Habitual Residence (NHR). Post NHR, depending on how the pension was funded, income can be taxed at scale rates of income tax, as an annuity or as a long-term savings vehicle. You do not need a QNUPS to access such benefits and it is worth noting here that there are non-pension-based investments that offer significant tax advantages, irrespective of NHR status.

Death benefits: in Portugal, only Portuguese-based assets are subject to Stamp Duty on death if the recipient is a non-directline ascendant or descendant. So, this tax can be avoided (if assets are passing to non-immediate family) by keeping any pension or investment structure outside of Portugal. You do not need a QNUPS to access this.

Currency options: Most EU-based savings and pension schemes can offer flexible currency investment and income options.

Cost: consolidation of assets can bring about cost savings, but a QNUPS requires a ‘platform’ or savings vehicle within it to hold investments. This adds an extra layer of cost to a client think carefully if the additional cost is worth the benefits of a QNUPS.

Income provision: you must take benefits from a QNUPS during your lifetime, you cannot leave the whole fund untouched as a tax-free legacy to your beneficiaries. This must be considered post-NHR when pension income can be aggressively taxed.

Political and legislation risk: QNUPS are based on UK legislation and in order to benefit from the UK IHT advantages must continue to do so, so are still at the mercy of the UK’s political and legislative regime.

Conclusion
QNUPS are a beneficial structure if used in the right circumstances however if miss sold, they can be expensive and unnecessary, as well as have a negative tax impact on death.

If you have or are considering a QNUPS and wish to discuss the cost and suitability for your circumstances, please contact us.

Moving to Spain and Wealth Tax

By Charles Hutchinson
This article is published on: 6th October 2022

06.10.22

I was flying back home from London at the weekend and I was sitting beside a fellow Brit who seemed very pleasant. We got chatting and it turned out he is a keen golfer, lover of warm climes and owns a holiday home in Southern Spain. His wife is a keen gardener. We exchanged pleasantries and he felt frustrated he could not move himself and his wife permanently to Spain. I asked why not? He replied the tax situation in Spain is horrendous from every angle and they have something called Wealth Tax which is unheard of in many countries, including the UK. As a wealthy man, this put it out of the question. He said he had missed the boat regarding a Residencia (TIE) and found queuing for miles at Malaga airport with all the other Brits on returning to the UK from Spain was really unacceptable.

We had over an hour more together on the flight and he was my captive audience. So I proceeded to give him the lowdown on the whole tax situation:

1. Wealth Tax (suspended). From last week, there is no more Wealth Tax for residents and non residents of Andalucia where my companion’s house is located. What or where is Andalucia? Andalucia is a semi autonomous region (one of 17 in Spain) which stretches from the Portuguese border in the West to beyond Almeria in the East and up to Cordoba in the North and is bordered to the South by the beautiful Mediterranean Sea. Its capital is the stunning Seville. Wealth Tax was calculated on the total value of your assets on a varying sliding scale according to the amount. At the upper level it was 2.76% on €10.696m and above. Previously as a resident, you had to pay wealth tax on ALL your worldwide assets. As a non resident, it was only on your Spanish assets.
As a result of the suspension, it is expected that many previously resident expatriates will return from those countries with attractive tax regimes to Andalucia as residents and many first time residents will apply to become permanent residents.

Additionally, the case (tax wise) for coming to live here, these other taxes are just SO friendly:

2. Spanish Succession Tax (IHT) (suspended). This was effectively abolished on 1st January 2018 by granting a 100% allowance on the first €1m and thereafter 99% allowance. Assets sheltered in foreign entities (banks, insurance companies, etc.) which are being inherited by foreign residents (e.g. children living outside of Spain) are also exempt from this IHT.

3. Capital Gains Tax (adjusted). Payable at the same rates by everyone except on the sale of your main residence in Andalucia where it is exempt if you are over age 65.

4. Income Tax (decrease). A decrease by at least 4% p.a. has been announced. On investment income derived from approved EU based Spanish Compliant Investment Bonds, this attracts very low income (savings) tax. We are talking about a drop from a standard income tax upper level rate of around 46% down to a level of between 9% and 11% average over a 20 year period, depending on the amount of income taken.

5. Water consumption tax (suspended). This is planned to be abolished from 2023. So my companion with the big garden and pool was pleased.

6. Residencias. If you hold a TIE (Tarjeta Individual Extranjero), you can stay in Spain up to 6 months, if you are a non taxpayer in Spain. As a taxpayer in Spain, you can stay for an unlimited period. One of the benefits is that in both cases you can join the queue for Nationals and EU citizens with your British passport and TIE – no more queuing! You can also roam the EU Schengen area at will and stay as long as you like (the latter if your TIE is a “Permanente”) within the residency rules of those countries.

Although the application window for TIEs for Brits has closed, you can still apply for a Golden Visa (investor’s visa), come and go as you please but become a tax resident of Spain if you stay more than 183 days. Or you can apply for a non lucrative Visa which allows you to stay as long as you want but you cannot be employed and you have to become a tax resident.

7. Tax residency. What exactly does it mean? Simply put, if you spend more than 183 days in 12 months in Spain, then you must file for tax residency. If your “centre of vital interests” is in Spain (wife or partner here, children in school here, etc.), then you would be judged to be fiscally resident.

At the end of my lengthy discourse, he asked what exactly would this mean for him? So on the back of an inflight magazine, I jotted down some information from him and gave him an approximate potential tax position and the savings he would now have, in addition to some existing ones of which he was not aware.

His total assets in the UK and Spain, including homes, bank accounts, premium bonds, managed investment portfolio and a classic car totalled some €5,526,000. On this as a Spanish resident he would previously have to pay some €98,000 in Wealth Tax. Now it would be zero.

On his pension and investment income of some €166,000, they would pay some €61,000 Spanish Income Tax. But by moving his investment portfolio into a tax efficient Spanish Compliant Bond (based outside of Spain), they could increase the investment part of their income to around a yield of approximately 5% p.a. while lowering their tax bill by some €10,000 p.a. (from €13,900 on their investment income to €3,900).

Of course, he would have to pay Capital Gains Tax on the move from his UK portfolio to the Spanish bond. This would probably be minimal while the markets are currently down. In any event their investment manager had “bed and breakfasted” * their portfolio two years earlier, thus further reducing the potential gain.

And there would be no Inheritance Tax payable by their three children, even if they decided to move to Spain also.

The best part to him seemed to be that his wife could water their garden for as long as she liked!

There was a noticeable spring in his step when my companion left the aircraft in Malaga. I had one too as I felt I had probably gained a new client.

* Bed and Breakfast. This is where you take advantage of the annual UK CGT allowance by selling some or all of your holdings and then buying them back, both just before the end of the tax year. This prevents a large Capital Gain build up over the long term.

Somewhere in this article there must be such good news that you want to know more. Why don’t we discuss it over a coffee? And of course, I don’t mind what they say about Italian coffee, I think the coffee in Spain is the best there is anywhere in the world! It’s the way they make it and serve it. Rather like how we look after our clients.

How to build income from your investments

By Barry Davys
This article is published on: 5th October 2022

05.10.22

How do you pay for your Mistress?

An old Chinese proverb advises “Only pay for your mistress from your income, never from your capital” It is not known if it was a wise woman or a wise man who came up with the proverb but it was a person who certainly knew about money.

I admit as a young man, before I heard of the proverb, I got this wrong. I bought a second hand Porsche 911 SC. It was fun, fast and purred fantastically. I had the money to buy the car, especially with the part exchange of my old car.

As a young RAF officer what I did not have was the income to service it. Simple repairs such as when the indicator glass broke stretched my income and I really struggled with the cost of the insurance.

The indicator glass, for example, went in a semi circle around the wing. It cost me £68 for a new glass because of that bend in the glass. I still remember the price some 41 years later as back then £68 was much more significant than it is today.

For those of us living here in Catalonia our mistress tends to come in the form of, for example,

A boat with mooring costs, winter storage etc
A car for touring on the continent. Often falls into the category of a big name brand of car or a vintage car with associated costs
The temptation to eat and drink out every night, every other other night etc
Swimming pool with maintenance
A bigger house with associated costs including security systems, insurance, watering of the garden etc

In nearly all cases when you hear couples talking about the purchase, you will hear the question “Can we afford it?”. The thought process to answer that question is do we have enough money in the bank to buy it. If the answer is yes, the item is bought. It is much less usual to hear “can we meet the ongoing costs?”.

Interestingly, even when we have accumulated significant wealth this proverb still stays true. With more capital we buy bigger things; house, super yacht, more expensive cars etc. and end up with bigger expenses.

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How to build income from your investments

We need to ensure that we have sufficient net income to meet the running costs of the purchase. If we do we can

Enjoy our purchase without worry
Not damage our financial position by having to spend capital to pay for running costs
Still have capital left for our surviving spouse and/or our family
Not suffer from buyer’s regret

How do we get sufficient income to pay for our mistress? We use our existing wealth to build up an income that pays out regularly. Preferably in a tax efficient manner where possible.

Nowadays investing in the latest tech company or perhaps even a crypto currency is deemed to be the way to make money by some people. It may build your capital. However, neither generates much income and in some cases, no income.

If you would like to discuss how to build income from your investments so you can enjoy your purchases without worrying about the ongoing costs please feel welcome to get in touch, in the first instance, by email at barry.davys@spectrum-ifa.com

I cannot guarantee to help you meet all your running costs but as I am passionate about financial planning I anticipate I can improve your situation.

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Le Tour de Finance arrives in western France

By Spectrum IFA
This article is published on: 4th October 2022

04.10.22

What is Le Tour de Finance?

Interested in finding out how to make the most of your money as an Expatriate?

Do you have questions about Assurance Vie, tax efficient investing, pensions (including QROPS), investment markets, estate planning etc?

Why not visit a local event, bring some friends and make it a great day out.

Le Tour de Finance is the financial forum for expats which will help you with a range of different financial products and services. Just as Le Tour de France takes a route throughout the regions of France, so too does Le Tour de Finance, but we also visit Italy, Spain, Switzerland and Portugal. We want to reach expats where you live so that you can seek advice particular to your local area. Tax advice, pensions / QROPS, mortgages, healthcare, schools, succession planning, business advice and making the most of your assets are just some of the subjects that expats need to know more about.

Le Tour de Finance is the ideal opportunity to find answers to the most pressing questions facing people living as expatriates in Europe.

The forum will bring together key players who assist expats settling or already living in these countries. It will also be an ideal opportunity to socialise by enjoying a free Buffet lunch and meeting people in similar circumstances in your neighbourhood.

Join our events in October

19th October 2022
Chateau Sauge

CLICK HERE TO REGISTER

20th October 2022
Royal Fontevraud Abbey

CLICK HERE TO REGISTER

As an expat, do you make the most of your finances?
Join us, and our panel of guest speakers, for informed guidance on expatriate financial planning opportunities, commentary on investment markets and to meet like-minded people in your local area. The event starts at 10.00am with a welcome coffee, followed by brief presentations from international experts on a range of topics that could affect you now, or in the future. The morning ends with a complimentary buffet lunch and a chance to meet the experts and hopefully make some new friends.

Register for this free event or for further information, by sending an email with your full contact details to: seminars@ltdf.eu, register online on www.ltdf.eu or call 06 73 27 25 43.

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Can I keep my UK pension as a Portuguese resident?

By Mark Quinn
This article is published on: 26th September 2022

26.09.22

I’m asked the above question by many clients, and the short answer is – yes. Whether it is the best thing to do however is something that should be looked into on a case-by-case basis with a qualified pension specialist.
Here, we will look at the general tax position of UK personal pensions, Self-Invested Personal Pensions (SIPP), defined benefit schemes and qualifying recognised overseas pension schemes (QROPS) for Portuguese tax residents and the restructuring options available.

Income tax
For Portuguese tax residents, the income tax position of having a UK pension scheme and a QROPS is the same. During NHR, pension income will be taxed at 10% or 0%, depending on your NHR status. Post-NHR, generally the income will be subject to scale rates of tax.

From a UK perspective, generally, UK pension income will not be taxable in the UK and you can request to have it paid out to you in Portugal gross. This will avoid the onerous process of claiming back tax at source from HMRC. I say generally because if you have a UK-based government scheme e.g. civil service, military or certain NHS schemes, the UK retains the taxing right and the income will always remain taxable in the UK.

All pension income, irrespective of which country has the taxing right, must be declared in Portugal if you are a resident there. You will receive a tax credit for any tax paid to HMRC, so you will not have to pay tax twice on the same income.

There is no UK taxation on overseas pensions held by Portuguese tax residents as there is no UK dimension to consider.

Inheritance tax
The death tax position between having a UK-based pension and a QROPS is also the same i.e. both will be outside of your estate for UK Inheritance Tax purposes.

From a Portuguese perspective, as long as the scheme is not Portuguese based, it will not attract Stamp Duty (10%) on death.

What are the options?
Your options will depend on the type of pension you have, the scheme rules and whether you have already taken income or not, but generally, your options will be:

Keep your UK pension as it is
Transfer to alternative UK personal pension or SIPP
Move to a QROPS (Qualifying Recognised Overseas Pension Scheme)

Choosing to do nothing can be just as detrimental to your pension value as being misadvised, particularly in the long term. You should conduct regular reviews (at least annually) and address aspects such as your risk profile, capacity for loss, income requirements, rebalancing or switching underlying investments, and changes to your objectives and family circumstances.

Why would you consider a transfer QROPS?
QROPS is something that is pushed on expatriates by many offshore advisers as this is how fees are generated, and although the advice itself may not be ‘bad’, it might not be the ‘most appropriate’. So, if you are considering transferring to a QROPS we recommend that you get several opinions and ensure you only take advice from appropriately qualified advisers and reputable firms.

QROPS tends to be more expensive than UK based pension schemes because of the international dimension. For some individuals, a QROPS is the right thing but for others it is an unnecessary expense.

Some instances where a transfer to a QROPS could be beneficial are:

To reduce currency risk: a UK pension scheme will inevitably be denominated in Sterling, and this will involve regular currency conversions to meet spending needs in Euros. If the Sterling/Euro rate is low then your purchasing power diminishes. This leads some to look at overseas pensions which can be denominated in Euros or a mixture of most major currencies.

If you are in excess, or close to, the UK Lifetime Allowance (LTA): for 2022 the UK LTA is £1,073,100. The trend over the last couple of decades has seen the LTA continually reduce.

Once you exceed the LTA, the excess is taxed at either 25% or 55% depending on how the income is taken. You cannot avoid this tax, as even if you do not access your pension, you will be tested against the LTA at age 75. Likewise, if you do access your pension before age 75, your benefits will be tested again at age 75 effectively taxing any growth since you first accessed your pension benefits.

The UK LTA cap does not apply to overseas schemes, so a transfer out can be beneficial for those close to, or over the LTA.

Qualified professional advice
You have worked your whole life to fund your retirement savings, and many are reliant on this to provide an income into old age or to provide a legacy to loved ones. Ensure you speak to the right people to protect your wealth. Spectrum has in-house pension specialists and can offer a complimentary and impartial analysis of your pension schemes.

We are Chartered Financial Planners (CII, UK) and Tax Advisers (ATT, UK) with a wealth of experience in both the UK and Portugal providing cross-border advice. You can contact us through the form below or by phone on +351 289 355 316 or by email at mark.quinn@spectrum-ifa.com / debrah.broadfield@spectrum-ifa.com.