Investing 101 for Expats Living in France

By Michael Doyle
This article is published on: 16th March 2021

16.03.21

With today’s economic environment of record low interest rates and high inflation, it’s crucial to understand your investing options. This article will clarify what you need to know about investing as an expat living in France and how we are here to help you.

First, what are your investment objectives? Do you want to preserve your wealth and continue its growth trajectory? Then we recommend reviewing tax efficient savings and investment insurance policies. These can be linked to a whole range of investment assets, from fixed interest securities and bonds, to developed or emerging market equities, specialist funds investing in soft commodities like agriculture or hard commodities like gold and silver, and lastly, alternative investments.

Which investments fit your portfolio best depends on the amount of risk you are willing to take and what kind of returns you are seeking. So, let’s break down the specifics you need to know when thinking about your portfolio.

• Fixed Interest Securities and Bonds are a form of lending that governments and companies may use as an alternative way to raise funds. When you buy a share in a company you own a small part of that company, when you buy fixed interest securities, you become a lender to the issuer. The benefits may include protection during market volatility, consistent returns and potential tax benefits. Some downsides include potentially lower returns, interest rate risk, and issues with cash access.

• Developed Market Equities are international investments in more advanced economies. The benefits include investing in a mature economy that has greater access to capital markets. Drawbacks include more expensive market valuations and potentially less upside.

• Emerging Market Equities are international investments in the world’s fastest growing economies. Some benefits include the potential for high growth and diversification. The potential downsides include exposing yourself to political, economic, and currency risk depending on which countries you choose to invest in.

• Specialist Fund Investing is ideal for investors seeking exposure to specific areas of the market without purchasing individual stocks. One popular area is natural resources, with the three major classifications of agriculture, energy, and metals. A benefit to investing in commodities is that they’re completely separate from market fluctuations so it diversifies your portfolio and offsets stock risks while providing inflation protection. However, commodities can be exposed to uncertain government policies.

• Alternative Investments are financial assets that do not fall into one of the conventional equity, income, or cash categories. Examples include: private equity, hedge funds, direct real estate, commodities, and tangible assets. Alternative investments typically don’t correlate to the stock market so they offer your portfolio diversification but can be prone to volatility.

Overall, it’s important to have a diversified and balanced investment portfolio so understanding each category is key. Keep in mind that when it comes to investing, advice is not one-size-fits-all. That’s why we are here to help personalise your investment portfolio to match your specific needs.

In today’s financial climate it is vital to understand your investing options. Many experts have a positive outlook as vaccine distribution increases and fiscal stimulus boosts economies. Intelligent investing is essential when building and maintaining wealth so consult with your Spectrum IFA financial adviser and start planning today!

Assurance Vie, an Alternative Way to Save For Your Retirement

By Michael Doyle
This article is published on: 15th March 2021

15.03.21

Many people are looking for an alternative to setting up a regulated pension for their retirement savings. Whilst there is tax relief on pension contributions in the savings phase, they are happy to give this up for more flexible and tax-effective income during retirement. In France, the most popular vehicle used for long-term savings is a contrat d’assurance vie, in which investors have the opportunity to invest regular premium savings or a temporary amount.
What Is an Assurance Vie?

An assurance vie is an insurance-based investment that can be as straightforward or as nuanced as you like. The following are the benefits of assurance vie for French residents:

While the funds remain within the assurance vie, there is usually no tax on any income or gains (i.e., the tax is deferred). However, social contributions are now withheld on an annual basis (rather than when the funds are withdrawn) for sums invested in a fonds en euros portfolio, just as they are for French bank deposits
A portion of any withdrawal is regarded as a capital withdrawal and is tax-free
An assurance vie becomes more tax-effective over time, and after eight years, the income can be offset against a tax-free allowance of (currently) € 9,200 per year for a couple submitting a joint tax return or €4,600 for an individual
You have total control of your money and may obtain monthly income payments from the insurance provider. However, withdrawals in the policy’s early years you can incur penalties, depending on the contract you select
If your circumstances or attitude toward investment risk changes, you might be able to change the funds in which you invest
For inheritance purposes, assurance vie is extremely tax-efficient

Assurance vie is the traditional form of saving for millions of French citizens. Several billions of euros are invested by French banks and insurance firms that sell their own branded products.

Additionally, a much smaller group of non-French companies have designed French-compliant policies for the expatriate market in France. These businesses are generally located in heavily regulated financial hubs like Dublin and Luxembourg.

However, before selecting such a firm, make sure that it is a product completely compatible with French law to get the same tax and inheritance benefits as the French equivalent product.

Below are some of the benefits of a foreign assurance vie policy over a French assurance vie policy:

Other currencies, such as sterling, US dollars, and Swiss Francs, may be used to save
There is a wider variety of investment options available, including access to top investment management firms and capital-guaranteed products and funds
The report is written in English, making it easier for you to comprehend the terms and conditions of the assurance vie program
The assurance vie policy is generally portable, which is beneficial when travelling within the EU (or many other countries in the world)

When it comes to EU countries, the taxes can be confusing. In these jurisdictions, the plan is often accepted for its beneficial tax performance.

How Does Assurance Vie Work?
Your one-time or regular investment or premiums are paid to an insurance firm, which then invests the funds with the investment managers of your choosing. These are typically unit-linked investments, such as equity or bond funds, but they may also be deposits or unique products sold by different financial institutions.

You may invest in a range of funds which the insurance provider can pool together to create a mutual bond, which is your assurance vie policy. The value of the units you keep in managed funds is likely to increase over time if you have selected your investment wisely.

As a consequence, the value of your assurance vie policy will grow accordingly. You must, however, be fully conscious of and comfortable with the level of risk you are taking. As with any unit-linked investment, your fund’s value will go up or down depending on what is happening in the investment markets. Short-term market instability, on the other hand, typically has a lower impact over time

How Do I Choose What to Invest Inside My Assurance Vie?
You may hold strong opinions on the subject or have no opinions at all. In any case, having an excellent financial planner on hand is helpful. His or her job is to help you comprehend the full definition of investment and decide your attitude toward investment risk.

Without acknowledging any risk, there is little reasonable chance of making a significant return on your savings. Even leaving your savings in a bank these days carries the risk of not receiving a ‘real’ rate of return, i.e., one that keeps up with inflation.

An adviser can show you various types of investment options, clarify how they operate, their track record, and the nature and level of risk that the investment entails. Although you make the ultimate decision, his or her support may be helpful.

Following the initial investment, there should be regular follow-up meetings to assess your investment’s success and make any appropriate adjustments. This may be because your circumstances have changed or because certain funds aren’t performing as well as anticipated, and you’d like to replace them with funds that are.

Can Capital Be Guaranteed Via a French Assurance Vie?
The willingness to invest in a fonds en euros is a common feature of the French assurance vie (though this is also available, in limited circumstances, from insurance companies outside France).

Since your money, as well as any interest and year-end bonus applied to it, is guaranteed, this unique type of fund is structured to shape a very conservative base for your overall investment.

The majority of foreign companies that supply these forms of funds also provide sterling and US dollar equivalents. Intending to increase returns, the funds invest mainly in government and corporate bonds, with some exposure to equities and assets (real estate). Your money will earn interest over the year.

The insurance firm is allowed by statute to refund the bulk of the funds to your account in the form of a year-end bonus. The remaining portion of the fund’s return is kept in the insurance company’s reserves to smooth out potential investment gains, such as in periods of weak market results. However, the rate of return on the fonds en euros is ordinarily low due to the quality of the guarantees. Still, it is generally better than the interest received on a bank deposit account with immediate access.

However, the French tax authorities consider this form of a fund to be so without risk that annual social charges are imposed on the gain, potentially lowering the return rate over time.

It is also possible to invest in structured bank deposit offerings through some foreign assurance vie policies. The investment return is related to the stock market, but the capital invested is guaranteed.

How Is an Assurance Vie Taxed?
Only the benefits portion of every amount you withdraw is taxable, and after January 1, 2018, the tax treatment differs depending on whether premiums were charged before September 27, 2017, or after that date.

Premiums paid before September 27, 2017
You may either be taxed at the set prelevement rate or file an annual income tax return, depending on your tax situation. The following is how the prelevement scale works:

Withdrawals made within the first four years are taxed at a rate of 35 percent
Withdrawals made between years four and eight are taxed at a rate of 15 percent
After eight years, withdrawals are taxed at a rate of 7.5 percent

Furthermore, social charges are imposed on the benefits portion of the amount withdrawn, at a rate of 17.2 percent. People prefer the progressive rate tax if it is lower than their marginal rate of income tax.

In France, the highest income tax rate is officially 45 percent. As a result, even though 35 percent appears to be a high rate, it is still the best choice for higher-rate taxpayers. After four years, you’ll have to reconsider which form to use. If your marginal tax rate is at least 30 percent, a prevelement rate of 15 percent is a better choice.

If you are a non-taxpayer (as more people are now since the 5.5 percent tax bracket was eliminated), you can opt to report the withdrawal on your annual income tax return.

After eight years, there is an extra income tax incentive to encourage people to save more for the long term. A single taxpayer is entitled to a €4,600 income tax credit against the benefits portion of any withdrawals made during the tax year. This is raised to €9,200 for married couples who are subject to joint taxation. There will be no income tax to pay if the benefits portion of total withdrawals made during the year does not surpass the allowances.

This might not seem like much, but it’s a valuable allowance, as shown by this example of Peter and Pam’s assurance vie policy, which they began nine years ago with a €100,000 investment. They have not taken any withdrawals, and the account is now worth €160,000. They want to buy a new car and need €15,000 to help pay for it, so they withdraw this amount. They receive a tax certification from the insurance firm when they make this withdrawal, showing how much gain is included in the amount withdrawn. The guaranteed value has risen by 60%, but the taxable benefit factor is only 37.5 percent (or €5,625) in this case. Since they have a tax-free allowance of €9,200 and they are subject to joint taxes, there is no income tax to pay.

Premiums paid from September 27, 2017
The tax rate varies based on the contract’s duration, plus whether capital remaining in the contract as of December 31 of the year before the withdrawal was above a threshold sum for contracts longer than eight years. The threshold amount is €150,000 per person (across all assurance vie policies), measured by the amount of premiums invested minus any money already withdrawn, rather than the contract’s value. Couples taxed as a household cannot share each other’s threshold because the threshold is not cumulative between individuals. As a consequence, one spouse can meet the threshold while the other does not.

On January 1, 2018, France adopted a 30 percent flat tax,’ consisting of 12.8 percent income tax and 17.2 percent social charges. As a result, for contracts that are less than eight years old, a flat tax is levied on gains in withdrawals which are deducted automatically by the insurance provider. The flat tax replaces the pre-September 27, 2017 rate of 52.2 percent (35 percent tax plus 17.2 percent social charges) for contracts of up to four years and 32.2 percent (15 percent tax plus 17.2 percent social charges) for contracts of four to eight years.

After eight years, the tax rate is 7.5 percent. In addition, there is 17.2 percent social charges to pay. The tax free allowance of €4,600 for a single taxpayer or €9,200 for a couple is still in place after eight years. When filing their French tax return, taxpayers can also choose to pay tax at their marginal rate in the ordinary income tax brackets (rates varying from 0-45%) plus social charges. Any excess tax already charged would be refunded after processing the tax declaration made in the year after payment of the withdrawal since the insurance provider will have already deducted 12.8 percent or 7.5 percent.

However, taxpayers should be mindful that if ordinary band taxation is selected for assurance vie dividends, this will extend to all other sources of investment profits, such as interest and persons, as well as capital gains from the selling of shares.

Does Assurance Vie Have Other Advantages?
Without question, assurance vie is also a powerful tool for estate planning, both in reducing French inheritance taxes and giving you leverage over who inherits your properties after you die. This form of investment is considered outside of your estate for

When you set up this form of investment before you turn 70, each beneficiary is entitled to a tax-free deduction of €152,500 for money invested before you turn 70, with taxes limited to 20% for everything beyond that (although sums exceeding €700,000 per beneficiary are subject to a higher tax rate of 31.25 percent).

The inheritance benefits are limited for sums invested after the age of 70. There is a €30,500 tax-free exemption in this situation (plus the investment return on the total invested) for all of the people who profit from it. Any portion of the premium that reaches €30,500 is subject to regular French inheritance allowances, which differ based on the beneficiaries’ connections to the policyholder. Any gain in the scheme paid out as a death benefit is also subject to social taxes at the current rate of 17.2 percent.

Assurance vie can be a valuable tool for estate planning and providing a tax-efficient source of income for the policyholder over his or her lifetime.

HOW TO INVEST – What are Stock Options?

By Spectrum IFA
This article is published on: 11th March 2021

More and more people are accumulating new wealth through gaining stock options as part of their remuneration package. Whether you are fortunate to work for one of the 40% of start-ups that become profitable or work for a large established corporation, the potential financial gain can be life changing. Today, I want to talk to you about stock options and why you should understand what they mean to you.

WHAT ARE STOCK OPTIONS?
For any organisation you work for, you are likely to get a salary (unless you are volunteering) and, if you are lucky, stock options. Stock options make up a designated number of shares in a company and are designed to give you some measure of ownership in the organisation. They are the right, not obligation, to buy or sell a share at an agreed upon date and price (also known as the strike price). The idea being, if you own some of the company you are working for, then you are more committed to see the company grow, be profitable and stay with the company for a long time.

WHERE DO THEY COME FROM?
Stock options come from what is known as a stock option pool. These tend to be up to 20% of an organisation’s shares and these options are granted to employees and non-employees (typically investors). The initial owners start out with a certain number of shares in the company and effectively create new shares in the company by setting up a stock option pool.

HOW DOES THIS WORK?
This can be confusing, so for illustration purposes, I am going to use an example of a start-up called LIO that is today valued at 2,000,000€, has an initial share total of 5,000,000 and wants to create a stock option pool of 5% for its employees.

With the creation of a stock option pool, LIO now has 5,250,000 shares. Given that the value of the company is 2,000,000€, that means that each share is worth 0.3809€. Now, let’s say that LIO wishes to give an employee, Avery, 1% of the company’s shares as part of their remuneration package. This means that today, Avery’s 52,500 shares would be worth approximately 20,000€.

A few years into the future, LIO is bought and is valued at 20,000,000€. At this point, Avery decides to exercise his right to buy the shares. He would not have to pay the 3.809€ per share that they are now worth, but at the strike price of 0.3809€. Avery’s gain would be the difference between the two numbers multiplied by their shareholding, meaning that they would have made approximately 180,000€ thanks to the buyout.

I have oversimplified things for the sake of illustration. However, this is what happens in essence, even in large, publicly traded companies.

WHAT DO I DO IF I HAVE BOUGHT SHARES?
The technical term is vested. So, if you have done this and hold shares, then you may be liable to tax on those shares and we will see if we can work towards a solution for you. If you live in Belgium or Luxembourg, we can definitely help.

This article is intended for general guidance only and is based on our understanding of Belgian tax law. It does not constitute advice or a recommendation from The Spectrum IFA Group.

Cryptocurrency Taxes in Spain

By Chris Burke
This article is published on: 10th March 2021

10.03.21

As new investment types become more popular, people generally get in touch with me about them. That is certainly the case with cryptocurrencies such as Bitcoin, and that now large investment firms are starting to invest (Blackrock for example), more people feel comfortable in also investing, or researching whether they should.

Many years ago, due to the technology (or lack of) available, it usually took some time, even a decade or so, for new companies and investments to become well known, sustainable or very successful. Now, with the exponential growth of technology, automation and social media, companies can go from almost zero to mega over a period of months or years. As you may have seen recently in the news with the commodity silver and the company GameStop, technology has become so powerful that groups of people communicating on social media can even ‘manipulate’ investment prices themselves, whether this be a good or bad thing. However, this also creates careful considerations when contemplating investing in these hyped assets.

You need to be very aware that these relatively young and very popular assets show an incredible amount of volatility, and therefore risk. This in itself is not a problem, just as long as you understand it. Investing in anything like this, and I would put cryptocurrency and Tesla or the like into that bracket, as fantastically as they can go up, they can also come down. So the golden rule to consider is, do not invest any monies you are not prepared to lose. Imagine you are walking in to a casino and have a figure in mind that you are going to gamble with; after it is gone you are prepared to walk away without it. That amount can be whatever you like, but you have to understand you can make an amazing profit if things go your way, or, you could lose almost all of it. As long as you are aware and accept this, then you are comfortable to invest in it.

I meet more and more people who have invested in these areas and then require help in taking their sometimes life changing gain to having it managed at a much lower risk level, consolidating and securing that gain. They have made their money, there is no need to keep the risk level that high, cash some if not all ‘out’ and use your ‘winnings’ to permanently change your life. For example, if you went to the casino and won a life changing amount of money, say €250,000, would you return the following week and carrying on gambling it? At what point would you ‘cash in your chips’ and take the reward? The probability still stays at 50/50 each day whether you win or lose, so, until you have ‘cashed in’ your chips, your high-risk level is still there. By de-risking, you are guaranteeing some of that gain and reducing your exposure.

What about taxes on cryptocurrency?
In October last year, the Spanish government brought in greater controls for this kind of investment. In real terms, this means if you buy, sell, transfer, exchange or use to buy something with it they want to know. However, there is only a taxable event when you dispose of this type of investment.

In terms of the tax to pay, this would come under savings tax in Spain (or capital gains tax as it is also known). These rates are currently:

• From 0 to €6000 you pay 19% in tax
• From €6001 to €50000 you pay 21% in tax
• From €50001 to €200,000 you pay 23% in tax
• From €200,001 + you pay 26% in tax

This is only on the gain/profit you have made, not the amount you sell.

Key considerations to take into account
Cryptocurrency is also applicable under wealth tax in Spain, should the region you are tax resident in be applicable to this.

If your cryptocurrency investment should incur a loss, these can be offset against any gains you have over the next 4 years, so that is something important to bear in mind.

Buying using cryptocurrency
If you sell cryptocurrency and buy another investment type having made a profit, then this would be taxed as a gain at the above rates. If you use Bitcoin to make purchases for products or services, then 21% IVA (VAT) tax would also be applicable.

If you do not make the relevant declarations or pay the necessary taxes, large penalties and fines will apply, so you must make sure you not only do this, but perform it correctly.

If you would like help in looking into investing in Bitcoin or other cryptocurrencies, would like help declaring these correctly, or would like to take your already gained profit as tax efficiently as possible and have it managed professionally, don’t hesitate to get in touch.

Time not timing – investing for the long term

By Michael Doyle
This article is published on: 8th March 2021

08.03.21

We often get asked the question, “When is the best time to invest my money?” Our answer is never based around when you should invest, but rather how long you can invest for.

• No one can predict the top or bottom of any market.
• The market has always exceeded its previous high when it has recovered.

So the question is not when you should invest your money in the market, but how long can you stay in the market to achieve your financial goals? Or to put it more simply, time is more important than timing.

During periods of stockmarket volatility, investors often become uncertain and lose sight of their initial long-term investment view. They often find themselves postponing a new investment, or even selling their current holdings with a view to re-invest when the markets stabilise.

What often happens in times of trouble, however, is that investors sell at a lower price than that which they bought at.

A study by Dalbar in Boston USA, highlighted a key area for private investor’s underperformance:

• According to Dalbar, from 1985 to 2004 the average personal investor achieved an annualised return of just 3.7% while the S&P500 returned 11.9% and inflation averaged 3%

A further study showed that playing the waiting game could cost you dearly. Investors who remained fully invested in the UK market over the period March 2003 until March 2008 would have received returns in excess of 60%. However, those investors who tried to time the markets would have had their returns cut to 40% if they missed out on the best 10 days of the market and those who missed out on the best 40 days would have seen returns of 4%!

This applies across other major markets as the table below shows:

MARKET	INDEX	FULLY INVESTED	MISSING BEST 10 DAYS	MISSING BEST 40 DAYS
UK	FTS All Share	63.4%	40.0%	3.9%
US	S&P 500	56.4%	11.6%	-39.2%
GLOBAL	MSCI World	63.7%	21.6%	-26.2%

Sources: JP Morgan Asset Management/Bloomberg/Datastream

What we do know is that historically the markets have always recovered, as the table below shows.

EVENT	DATE	RESPONSE	AFTER 4 MONTHS
Pearl Harbour*	December 1941	-6.5%	-9.6%
Korean War	June 1950	-12%	+19.2%
JFK Assassination	November 1963	-2.9%	+15.1%
Arab Oil embargo	October 1973	-17.9%	+7.2%
USSR in Afghanistan	December 1979	-2.2%	+6.8%
1987 Financial Panic	October 1987	-34.2%	+15%
Gulf War	December 1990	-4.3%	+18.7%
ERM Currency Crisis	September 1992	-6%	+9.2%
Far East Contagion	October 1997	-12.4%	+25%
Russia Devalues Rouble / Long Term Capital Management Crisis	August 1998	-11.3%	+33.7%
World Trade Centre	September 2001	Dow -14.3% Nasdaq -11.6%	+5.9% +22.5%

*(The markets rose 8% during the year following Pearl Harbour)

Essentially what we can conclude is that most investors do not buy and hold for extended periods of time. Thus getting in and out of the market at the wrong times or switching funds with a view to chasing the top performers, unfortunately at a time when these ‘top performers’ have reached their peak.

Almost without exception, successful investment strategies rely on discipline, patience and taking a long-term view. Successful investors typically neither react to short market events, nor try to pre-empt short term market direction.

For advice on an investment solution aligned with your personal objectives and risk profile, feel free to contact me for an initial discussion.

Is your money safe under the mattress?

By Katriona Murray-Platon
This article is published on: 5th March 2021

05.03.21

March is my favourite month of the year, not least because I celebrate my birthday during this month and this year will be the end of my 4th decade. Traditionally it has always been a busy month because it is a great time for events and starting new projects. This month my colleagues and I will be attending another virtual property fair hosted by Your Overseas Home. The event we did last year was very good and lots of people were able to see our presentations and then chat to our advisers from the comfort and safety of their own homes.

By October 2021 I will have lived in France for 18 years continuously, but I first arrived for my Erasmus year in September 2001 making it 20 years since I started living in France. As you may know I am married to a Frenchman and I have adopted much of the French culture and way of life. But my husband and I have very different views in our attitude to risk and finances. My husband came from a farming background where money was hidden under the mattress, you only bought when you had the money and you insured everything that could be insured. My husband will take a 10 year extended guarantee on a toaster! I came from a background where it was common to use credit cards to fund Christmas and holidays and I went to university with a student loan.

The idea that money is safe under the mattress or in the bank is no longer true. In France the traditional popular savings accounts such as the Livret A and LDD now only have an interest rate of 0.5%. The other misled belief that French assurance vie policy holders have is that Euro Funds are a good investment and a safe investment. Whilst it is true that Euro Funds are still one of the least risky investments after the traditional bank savings accounts, their performance continues to drop year after year. The average growth rate of the Euro Funds in 2020 is 1.2% which, once you deduct social charges (17.2%) and take into consideration inflation (0.5%), the net gain is only 0.5%. One of my own French assurance vie policies, which is 69% Euro Funds, has made an average of 1.6% over the seven years since it was created. The problem with French assurance vies is that they are not bespoke; they come with certain formulas, some that you can contribute to monthly, some that you cannot, and depending on your choice you cannot go lower than the prescribed amount in Euro Funds, no matter what your risk profile.

When I compare this with the range of product providers we can offer our clients and the choice of funds, the difference is astounding. Thank goodness that as English speakers we have access to better investment possibilities from as little as £20,000/€25,000. The average performance of my clients’ portfolios is around 3% after charges, with no social charges taken at source, and they have a lot of choice and flexibility regarding which funds they want and how much of that fund they want their investment to be in. They also have access to English speaking product providers, English speaking fund managers and their own English speaking financial adviser who is supported by the knowledge and experience of all of the Spectrum advisers.

I am fully integrated into French society and believe in adhering to many things about French society, but when it comes to finances there are differences between us that we cannot ignore so it is not in our best interest to invest in French financial products.

The outlook this March is thankfully much better than last March. There is more good news for Prudential policy holders. At the end of February Prudential announced no changes to the Expected Growth Rate and upward Unit Price Adjustments in the PruFund Growth Sterling, PruFund Growth Euro and PruFund Cautious Euro funds.

For other funds and the markets in general the outlook is equally positive. “The combination of vaccine roll-out, substantial fiscal stimulus, and elevated consumer savings should drive a sharp recovery in economic and earnings growth,” said Ryan Hammond, a Goldman Sachs strategist, in a report this week.

Whilst mask-wearing and social distancing will still be necessary for some time to come, a lot of our friends and family members have been vaccinated, therefore reducing the risk to the most vulnerable. With the coming good weather, meetings and get togethers will be able to take place out of doors. As always, if clients are happy to arrange a face to face meeting, I look forward to seeing them for outside meetings in their lovely gardens. If however you prefer video meetings or phone calls that is also possible.

Wishing you all a bright, sunny and floral month of March!

Your Expat Guide to Pension Planning

By Michael Doyle
This article is published on: 4th March 2021

04.03.21

Are you planning on retiring in France or Luxembourg but have a pension in the UK?

Look no further than this article as we guide you through your options. Pensions are a pinnacle part of your retirement plan but can be a complex topic for British expatriates with rules frequently changing, so always consult with your financial adviser when deciding which plan best suits your needs.

First off, you can leave your pension as is in your existing UK pension scheme if you want. However, with the Brexit decision, you should check with your UK financial adviser and make sure they can still support you. If you want to move your funds to an international pension plan, then your best options may be opening a QROPS or SIPP account.

QROPS (Qualified Recognized Overseas Pension Scheme) allows foreign nationals who have worked in Britain to transfer their UK pensions overseas.

Expatriates can avoid various restrictions imposed by the UK when taking retirement benefits
HMRC allows individuals to access 100% their pension fund after the age of 55. However, it may not be advisable to do so as it can result in higher taxes on withdrawals. It is potentially better to draw the funds periodically in a more tax-efficient manner
There’s no compulsory annuity purchase
Reduction in currency risk because QROPS allows you to invest and take benefits in a currency of your choice
QROPS gives you more freedom to select a portfolio suited to your needs because it offers a more extensive range of investment options

SIPP (International Self-Invested Personal Pension) enables someone access to greater investment choices because it is a personal pension plan based on making your own decisions. However, the pension structure is based in the UK so it’s subject to any legislative changes made by the UK government.

Benefits include, but are not limited to:

An international SIPP can provide a regular or variable income
No obligation to purchase an annuity
They provide greater flexibility regarding investments, tax benefits, and currency choices
Ideal way to consolidate various personal pensions, which reduces administrative complications
If you plan on moving back to the UK this option may be most suitable for you

You can also try a combination between both UK and international pension plans. The main objective is to arrange your retirement in a manner where you can access your finances when you want, where you want, and in the currency of your choice. Overall, there are many things to consider when choosing your pension plan, so be sure to do your research and understand your different options before making any decisions.

It is in your best interest to act now when planning your pension scheme, so touch base with your financial adviser today to discuss your options.

Beyond Brexit… What comes next ?

By Occitanie
This article is published on: 4th March 2021

Welcome to the ninth edition of our newsletter ‘Spectrum in Occitanie, Finance in Focus’, brought to you by your Occitanie team of advisers Derek Winsland, Philip Oxley and Sue Regan, with Rob Hesketh now consulting from the UK.

In this our first newsletter of the year, it is appropriate we say a fervent goodbye to 2020 and look forward to what we all hope will be a better and much kinder year. Although we are heartily sick of hearing the B-word, we can’t let the passing of the UK’s exit from the European Union pass without addressing the question “where do we stand now?” We also invite our investment partners to give their views on the markets for the coming year.

Post Brexit Situation
As far as financial services are concerned, it is (at this stage) a no-deal Brexit. Financial services in the UK employs 1.1 million people, yet so far more time has been spent negotiating fishing rights than financial markets access between Europe and the UK. This financial services relationship between the two sides will be discussed and negotiated over the coming months. What does this currently mean for us expats? We have already seen:

Banks threatening to close down bank accounts, because they struggle to find solutions for the ongoing servicing of non-UK resident account holders.
Financial institutions no longer being allowed to ‘passport’ their services into Europe – UK based investment managers, and Independent Financial Advisers (IFAs) being just two examples of this. To continue to offer services, each must now open European offices and apply to be regulated through the relevant EU regulatory system
We’ve seen the application of duties to goods imported from the UK from online shopping, a totally new concept for most of us
The need to apply for a French Driving Licence

These are but a few of the bureaucratic changes brought about by Britain’s exit from the EU.

We have covered some of these Brexit consequences in previous editions of our newsletter, but there is perhaps a more serious implication for those who hold UK investment bonds.

Why are UK Investment Bonds a problem?
Prior to Brexit, as investment bonds issued in an EU country, UK bonds were treated in the same way as assurance vie policies, with only the gain element of the investment subject to income tax and social charges. How quickly your local tax office recognises that this situation has now changed will vary, but in time it is inevitable that questions will start to be asked regarding those withdrawals that you are taking to support your lifestyle.

Why should that bother me?
As a non-EU qualifying bond, your local tax office could, as a worst-case scenario, treat the whole of any withdrawal as taxable income unless the split between capital and gain can be proved. It is more likely, however, that withdrawals from UK bonds will still only be taxable on the gain element, but the taxpayer will no longer benefit from the favourable tax treatment that the assurance vie enjoys, such as the annual tax-free allowance of €4,600 (€9,200 for a couple) after 8 years and the preferential 7.5% rate of income tax. We urge all our readers to assess their current savings and investments, to ensure that they are all France tax compliant. We can help you with those assessments.

What can we expect from investment markets this year?
We have invited one of our investment partners to give us their Investment Outlook for 2021. These are the views of Tilney Smith & Williamson that we would like to share with you.

A review of a tumultuous 2020
The investment landscape in 2020 has been dominated by the COVID-19 virus, lockdowns and unprecedented policy easing by Central Banks and governments around the globe. The US election and UK-EU negotiations provided further risks to markets. The pandemic led to a global economic shock that established new multi-generational records. For instance, UK GDP fell by over 11% in 2020, the biggest decline since the Great Frost of 1709 (1).

In financial markets (2), the MSCI All Country World equity index fell 32% in total return terms (including dividends) once COVID-19 new cases spread outside China, while government bonds outperformed as investors became more risk averse. The low point came on the 23 March prompting the Fed to say that it was prepared to buy US corporate bonds as part of a new round of quantitative easing (e.g., asset purchases). Global equities then went on to rally 63% from the trough, supported by – at various points – fiscal and monetary stimulus, economic recovery and hopes of a successful vaccine rollout, to close out the year up 15%.

The main winners of 2020 were ‘growth’ equities and direct COVID beneficiaries such as Big Tech, following widespread adoption of e-commerce and working from home practices. Long-term government bonds benefited from central bank asset purchases. In turn, gold gained from concerns about the debasement of the fiat currency system from money printing: the US created 21% more dollars in 2020 than existed previously. Despite the virus originating in Wuhan, China was one of the quickest economies to re-open and MSCI China equities rose 28%. China’s economy benefitted from lockdowns in the West, since services were restricted, but buying goods was not. China even managed to boost its share of global merchandise exports, driven by stimulus in the West creating demand. The biggest losing sectors were energy (-32%), real estate (-9%) and banks (-11%), with the COVID-exposed UK and Eurozone the laggards in geographical terms.

Reasons to be optimistic in 2021

We maintain an optimistic outlook for equities for several reasons. First, the rollout of vaccines and a gradual opening up of economies from lockdowns should encourage households to run down savings rates to sustain consumption.

Second, we expect a synchronised broad-based global economic recovery that supports company earnings. The IMF forecasts that a record 79% of nearly 200 economies will experience growth higher than 3% (3) this year. Not only would this recover much of the lost output last year, but it adds support to consensus global Earnings per Share growth of 28% expected in 2021.

Third, central bank liquidity is still projected to remain highly accommodative. The ECB topped up its pandemic emergency purchase program by €500bn in December to €1,850bn and extended the horizon of net bond purchases to the end of March 2022 (4). In a major policy change in September, the Fed made clear that it intended to “run hot” with regards to maintaining easy monetary policy in order to achieve above 2% inflation (5). Morgan Stanley forecasts that the combined balance sheet of G4 central bank assets will rise by $3.4trn by the end of 2021(6).

The UK and Brexit
Despite the widespread recovery in global risk assets, all UK equity indices were laggards, handicapped by the ongoing Brexit uncertainties and a compositional skew towards value orientated economically sensitive businesses. Should current assumptions over a vaccine inspired economic rebound prove correct, it seems probable that this skew, allied to the removal of Brexit trade uncertainties, could give rise to some relative recovery in UK equity valuations. However, with the longer term balance sheet impact of the Covid lockdowns still to be fully understood, remaining focused on the fundamental quality of the businesses selected, even in an ostensibly cheap market remains paramount.

Risks to the outlook
In terms of the risks, we continue to monitor: i) a sudden removal of accommodative policy, perhaps if inflation returns at a pace that exceeds central bankers’ expectations, ii) fears of another COVID-19 surge, or a disappointment in the effectiveness in vaccines/a mutation to a more virulent virus, iii) social unrest in the politically polarised United States, and iv) extended valuations in some sectors triggering a broader market rout.

As a reminder to our readers, Spectrum is a registered French company, regulated in France. We are not passported in from the UK, so for us it’s business as usual.

For those of you who still have investments in the UK, whether they be stocks and shares ISAs, investment bonds, pension funds or other investment portfolios, now would be a good time to review these and discuss with your provider as to whether they will be able to continue advising you in a post-Brexit world. Even if your UK provider will be able to continue advising you, they may not be familiar with the French taxation framework and the investments you hold may not be tax efficient in France. We can advise you on investment products that are suitable and tax-efficient for living in France and provide you with ongoing advice to ensure that your financial plan remains on track as your situation and attitude to risk change over time.

Please do not forget that, although we may be restricted on where we can travel at present, we are here and have the technology to undertake your regular reviews and financial health checks remotely. If you would like a review of your situation, please do not hesitate to get in touch with your Spectrum adviser or via the contact link below.

Occitanie@spectrum-ifa.com

We would love to hear from you with any comments and/or questions, as well as suggestions as to future topics for our newsletter. Please feel free to pass this on to any friends or contacts who you think might find it interesting.

UK pensions and investments after BREXIT

By Andrea Glover
This article is published on: 25th February 2021

25.02.21

After several years of uncertainty, the UK has now fully left the EU and whilst many of us understand exactly what that mean in terms of French residency requirements, the impact on the financial services world is only just starting to unfold.

We asked Andrea Glover, International Financial Adviser at The Spectrum IFA Group, for her thoughts on the matter and to provide guidance to those of you who are affected.

Andrea explained “Brexit ended automatic ‘passporting’ rights for UK financial services in the EU. So, if you either live in France or are looking to move to France, it is important to check that, if you have a UK financial adviser and/or UK insurer, that they can still support you.”

Andrea commented “For those of you living in France, contact your UK financial adviser if they have not already been in touch and ask if they are still able to provide financial advice to you as a French resident. Also, ask your UK insurer if they have put in place measures to ensure that your policy or pension can continue to be serviced. Your insurer or financial adviser should always act in your best interests. It is also important to note that in the case of a dispute with your insurer or financial adviser that you might not be able to refer the problem to an ombudsman or court in France.”

Andrea continued “My advice would always be to seek advice about the rules, from a French tax perspective, for any pensions and investments held in the UK and check that anyone offering you advice, or financial services, is authorised to do so in France. Further, a suitably qualified financial adviser who is based in France will undoubtedly have first-hand experience of living in France and therefore have greater empathy with their clients.”

Andrea went onto say “Giving advice on UK held investments and pensions is only one component of comprehensive financial planning. A qualified financial adviser will also be able to provide guidance on matters such as Inheritance Tax planning in France and look at alternative tax efficient investment vehicles such as an Assurance Vie.”

For those of you looking to move to France Andrea explained further “Moving to France as a UK citizen is obviously more onerous than previously in terms of residency. I believe this places even greater importance on seeking suitable financial advice before any firm plans to move are finalised.”

From her own experience, Andrea commented “We are receiving a number of enquiries from people looking to move to France, which is firstly encouraging but secondly it means that we can really help clients structure their financial affairs efficiently before they move. We quite often work in partnership with international tax lawyers to assist clients who, for example, have a business in the UK but want to run it from France. Having a clear and defined plan, after seeking advice from the suitable experts, prior to any move to France, is undoubtedly beneficial and avoids any nasty surprises further down the line.”

*This article first appeared in The Local Buzz

Fund managers, ethics, green issues and sustainability

By David Hattersley
This article is published on: 18th February 2021

18.02.21

The impact of both Brexit and the Covid 19 pandemic have given us all time to reflect on the world we live in. As consumers in the developed world, we are perhaps more aware of the impact we make on our planet. The words “Sustainable” and “Ethical” spring to mind.

So where does one stand on ethics and sustainability? As individuals, it’s very easy to say “we are Green”, but then travel 70km to stock up on our favourite brands of frozen convenience meals. Most of us, due to “lockdown”, now spend more time cooking and preparing our meals at home.

How far are major companies prepared to change too? Coca Cola has announced plans to make a paper bottle and already has a prototype that can be recycled, which was developed in the Brussels R&D centre. But, whilst that is a very applaudable, one company has gone even further.

I have to admit that there is an affection for them as I worked in one of their divisions for two years prior to a career change to Financial Services. One of the biggest global consumer companies which operates in 190 countries is Unilever. “Love or loathe it” to paraphrase Marmite, they have taken what some may consider a risky strategy. Not only do they try to ensure that the raw materials that go to make their products are as green as possible, they have taken what may be considered a leap of faith. Sustainability and ethics are not only about “green principals”. They are insisting that every part of its global chain of suppliers provide a “living wage”, and in some cases double that, by 2030. These include smallholder farmers as well major direct suppliers numbering in total 60,000. As the CEO, Alan Jope, said in a statement on the 21st Jan 2021, “The two biggest threats that the world currently faces are climate change and social inequality.”

As part of a developed area of the world we should all make a choice. Do we support the ethics of a company that is looking to redistribute wealth and act in an ethical, sustainable way, or do we just look at price rather than value? Have the events of the last year been our wake up call? Morally, rather than just looking at saving tax, or short term political gain and expediency, we should consider what the real legacy is that we leave our children and grandchildren on this planet that we share.

The same questions will be applied by our fund managers, in particular those that focus on ethics, green issues and sustainability. Are they the best choices for the future? I believe so. These specialists have far greater resources than I could ever have to research this “new world” we are entering, and are better equipped to look at the longer term than I am. I would be happy to provide a portfolio of these specialist funds to anyone who is interested, so feel to contact me on any of the points raised.