Your Financial Health Check 2022

By Chris Burke
This article is published on: 5th January 2022

05.01.22

New Year Financial Planning Resolutions

First of all, a very Merry Christmas, Happy New Year & Kings Day to all of my clients and readers! Here we are about to start another year; how fast the time passes! Although we have various challenges and uncertainties on our plate currently, the latest COVID-19 variation Omicron and the ongoing Brexit transition to name a couple, I am feeling optimistic about the year ahead.

This time of year is commonly thought of as the natural time to plan ahead. Writing our New Year’s Resolutions allows us to put down in writing what we would like to accomplish over the forthcoming 12 months, and hold ourselves accountable to this. There is a four-benefit cycle of writing New Year’s Resolutions:

Motivation Increases – we will feel motivated and determined from the moment that we set our goals so that we…
Take Control – we internalise that there is nothing stopping us from achieving our goals and that we have the power to ‘make it happen’. Resulting in a…
Sense of Achievement – as we take control and achieve our goals, we will start to feel a sense of achievement, motivating us further…
Self-Esteem/Confidence – as we crush our goals, we will see our self-esteem and confidence skyrocket!

New Year Financial Planning Resolutions - Health Check

But Chris, I hear you say, I don’t know what to include in my New Year’s Resolutions! There are lots of options, whether this is improving your fitness, learning a new skill or improving your financial situation. I specialise in financial advice, so I believe that I can add the most value assisting you with the latter!

A recent Royal London study (Royal London customer research: Feeling the benefit of financial advice, 2020) found that those who take financial advice are on average £47,000 better off over 10 years than those who do not. Furthermore, the study also highlighted that having a financial adviser not only has financial benefits. It suggested that the average person that receives regular financial advice feels more confident and in control, along with experiencing a heightened sense of ‘peace of mind’.

Book a telephone call or zoom chat with Chris now

I am an advocate of the Five Key Financial Planning Principles, also known as the PIPSI. These principles are listed in order of importance, starting with ‘Protection’. If you do not have adequate cover in place, then should something happen, the rest of your plans will not happen, so it is generally agreed that protection is the most important.

P – Protection
I – Income Protection
P – Pension
S – Savings
I – Investment

Protection – do you have adequate life and critical illness cover? Are you paying a fair price for it? Do you have a will to protect your family? Is it up to date?
Income Protection – if something happened resulting in you being unable to work due to accident or illness, are you covered? Would your dependents be financially secure?
Pensions – will your pension plans allow you to retire comfortably? Do you have pensions from previous jobs that could be due for a review? If you have numerous pensions, could it be best to consolidate them to reduce the overall charges and to maximise their effectiveness?
Savings – are you saving money regularly? Are you getting the best interest rate on your savings? Are your savings protected against inflation?
Investments – do your investments match your attitude to risk? Are your current investment charges too high? Do your principles align with your investment choices? For example, are you investing in an ethical manner? Are they on track with your financial life goals?

Have you included improving your finances as a part of your New Year’s Resolutions? Don’t hesitate to get in touch with Chris to talk through your situation and receive expert, factual advice. The initial consultation is free and without any obligation.

Click here to read reviews on Chris and find out more about him and his advice.

A Financial adviser in Italy

By Gareth Horsfall
This article is published on: 2nd January 2022

02.01.22

Being an adult in the financial services business

Immediately prior to joining The Spectrum IFA Group in 2010, I was in my 30th year and wanted to take a bold new direction in life. I was working for HSBC bank in Doncaster, Northern England, at the time, and thankfully the years there were good to me.

However, some things in life seem to change the way you think, permanently. My personal experience of this was during and after my international travels (backpacking ) in 1998/99, visiting S.E. Asia, Australasia and N. America. It was an experience that just wouldn’t leave me. After having grown up in England for the first 24 years of my life, where sunshine is a rare commodity, and then spending a year and a half in sunbaked, tropical and generally sunnier climes, on my return to England I set myself a goal: within 5 years I aimed to move abroad to a sunnier/warmer country.

During those 5 years after returning I had put my time to good use. I had retrained as a fully qualified UK financial adviser, worked on the front line of a bank call centre, worked as a sales agent for an insurance company and was a successful candidate for a financial planning manager role at HSBC bank.

But now, it was about 3 months before my self-imposed 5 year deadline and I still wasn’t anywhere near meeting my objective. Then, by pure luck, by word of mouth through some family connections (sounds very Italian!) I was approached by a local UK IFA firm (also in Doncaster) to be one of their advisers and to open up their first international office in Rome.

I can tell you that I didn’t need much convincing. It would be a commission only role, which was quite frightening as there would not be a fixed regular income. However, my urge to live somewhere warmer overcame everything and I jumped at the chance.

I had never been to Italy before, didn’t speak Italian and had no idea about the culture, quality or standard of life in the country. This was never more evident that in my first month of work in July 2004.

We were expected to dress to work, as we would in the UK, i.e. suit, shirt and tie. However, as anyone who has ever been to Rome in July will know, it is no place for a UK style heavy woollen suit, shirt and tie. In addition, I had to take public transport everywhere because I didn’t have the money to take taxis.

I still remember vividly the time when I was returning from an appointment with a 1km walk to the metro station. I was sweating so much that everyone was giving me a very wide berth. I assume that they just thought I was suffering from a deadly disease. This was my introduction to life in Italy. But I was also now experiencing the sun, beaches, mountains (I started skiing for the first time), countryside and not to forget the food! (I remember saying to my now wife when I first arrived in Italy that food was just fuel for me. That attitude soon changed when she served me my first mozzarella di bufala and introduced me to her family, who mainly originate from Southern Italy).

I lived the next 5 years in a kind of expat bubble, never making an attempt to learn the language and just focusing on my work with the same company, but at the same time becoming more disillusioned with what I saw as the future of the business and their ideas.

During those first 5 years I also split with my long term partner in the UK whom I owned a home with; never an easy thing to do. But, I also met my wife (Italian, but educated in the UK), got married in Ravello on the Amalfi coast and we tried to start a family.

Unfortunately, starting a family was not as easy as we would have liked. After a few years of trying we were told that the only route would be IVF and our hearts sank! It was a heart wrenching journey, but in the end we were lucky enough to be successful after only the second attempt (further attempts never brought more children our way) and we were blessed with a baby son.

However, as is often the case with IVF children, he was premature. Our son was born a month early, severely underweight and with serious health concerns. The next few months were some of the hardest of my life, not helped by the fact that my failure to learn the language was now coming back to haunt me. During a time when your child is at the most vulnerable point in their life, you would hope that as a parent you could communicate and understand the doctors. In my case I couldn’t and had to rely on family members to translate for me. This led to me swearing that I would never be in this situation again in Italy. The following 2 years were an eternal wall of worry, but thankfully he came through. We, my wife and I, were left with some collateral damage, but my son is now healthy and a great child. I am very proud of him.

I am not sure why, but during those 2 years, I also decided to jump ship to another company, and after 1 year with a firm which was destined to failure from the start, I ended up meeting Michael Lodhi, CEO of The Spectrum IFA Group, with a view to taking on a position in either Barcelona or Amsterdam, and travelling from Italy a few times a week.

The conversation (abbreviated here), over a meal and wine, went something like this :

ML> “Gareth, tell me about your work in Italy.”

G> “There is no infrastructure for foreigners living here, unlike France and Spain, no serious tax or financial planning service, people are looking for professionals but can’t find anyone. I think there is a business here but it will take a few years to build.”

ML> “Hmmmm…it seems like you know the market here in Italy. Why don’t you open, build and manage our first move into the Italian market?”

G> “Well that’s what I was really wanting – deal!”

And so that was my start with The Spectrum IFA Group. I now had an idea of what I wanted to build and how I wanted to do it and I had the support to do it the way I knew it should be done.

During that period, and much before, the English speaking community in Italy were mainly being contacted by cold call by firms that would trip in and out of the country to pick up a client here and there, but there was no permanent and serious presence. I had done cold calling myself in the past but I hated it as an approach to prospective clients. It is called COLD calling for a reason. So I decided to take a closer look at the stats behind it. I found (not surprisingly) that the success rate from cold calls to taking on a new client was about 1%, if you were good!

It wasn’t long after when someone challenged me about how I was going to build the business in Italy if I wasn’t going to cold call. I turned the question around and asked: if cold calling brings, let’s say, a 5% success rate and you focus on this as your main way to contact clients, what exactly do you do with the other 95% who refuse the call? I explained that this was where I would be focusing my energies, and I did.

I estimate it took me 2-3 years of holding conferences around Italy, meet-ups with anyone of interest, writing numerous articles for magazines and websites and continuing my own E-zine newsletter, doing drop in financial planning clinics, speaking with numerous commercialisti and lawyers and spending hours in the car covering 100,000s km. All the time making the commitment that unless I was doing a 2 or 3 day event then I would return home to my wife and son at the end of every day, no matter what time I got home.

I didn’t think much about it at the time, but when I look back, I realise just how much I achieved in a short space of time and boy oh boy I learned some lessons in the meantime. I often say to people who contact me with a view to moving to Italy, “you don’t need to worry about making loads of mistakes because I have made them all for you, and paid the price already. If you follow the necessary steps I have laid out, your chances of running into trouble with the tax authorities are very small indeed”. I paid dearly for not taking the right advice in my first years of incorporation in Italy, and not understanding clearly what professionals had told me.

But, after the personal and work struggles of those years, things started to get easier. My name was now being passed on to friends and family members, my online content was, and still is, being discovered and my commitment to staying away from cold calling and building a strong online presence started reaping rewards. I had finally built the foundations of the business that I had always wanted.

The following years are much like anyone else’s, I imagine, as we advance through our 30s and into our 40s. The aches after the gym visits take a little longer to go away and the now infrequent evenings out on the wine take days of detox to recover from. But the life lessons, places I have seen, people I have met, knowledge of my business and life experiences seem to, in a beautiful way, replace all those things that you can no longer do. It feels like there is a natural cycle of renewal and replacement taking place.

My life is now more Italian than I ever would have imagined. After years of making no effort to learn the language, the birth of my son and the experience with the doctors gave me the impetus to ‘get my finger out’ (as we say in Yorkshire) and learn it. Whilst I am far from fluent I can live a comfortable and enjoyable life in Italy now, and learning the language made a huge difference with building relationships and friendships.

And it goes without saying that I no longer consider ‘food as fuel’. After finding out that my wife is a terrible cook, I took on the role of cook in the house. I learnt from my Italian family and found out that I am not as bad as I had thought.

Finally, one more point is worthy of note here: the UK’s decision to leave the EU. This created a bit of an existential crisis for me. It brought into question where my heart now belonged. I had never intended to, nor ever would turn my back on the country of my birth, but the subsequent years of campaigning to protect UK citizens’ rights in Italy and the UK’s hard-line stance on exit convinced me to apply for Italian citizenship. It was awarded in 2019. I am glad I have it.

Every time I look at my passport I realise just how much I am now connected to this ‘Bel Paese’, my business and my clients who are as fortunate to also live this amazing life as I am.

Do I need a financial adviser?

By Jozef Spiteri
This article is published on: 30th December 2021

30.12.21

What exactly does a financial adviser do?

Do you have a good idea of what a financial adviser does? Some people think we are accountants, others think we are regular bankers or even stockbrokers. Well, I can start by saying that we are none of the above and here I will briefly outline what we actually do.

A financial adviser is quite simply a professional guide and planner for your finances. We take a broad view of your personal and financial circumstances, looking at your current position together with immediate and longer-term needs and goals. During an initial consultation, we try to get to know you, to understand your priorities and plans.

Once we have a clear idea of your intentions, we then move on to examine your existing finances, including assets, liabilities, income, expenditure and how much money should be held in reserve for unforeseen expenses. Protection planning will also be addressed – do you have sufficient life insurance to protect your family and is your income safeguarded against serious injury or illness?

We then consider how much should be set aside for long-term investment and retirement, whilst exploring the most suitable solutions for your circumstances. As part of this exercise we complete a questionnaire which helps determine your investment objectives and attitude to risk, allowing us to propose an appropriate investment strategy. This might focus on capital growth, wealth preservation, generating a regular income, or a combination of all three.

The final step is implementing the financial plan by completing application paperwork and arranging transfer of funds to the institution(s) responsible for managing your investments.
Beyond this initial advice we arrange regular updates and review meetings, providing ongoing service to ensure that our original recommendations are always aligned with, or where appropriate adapted to, changes in your circumstances.

This is a short summary of our advice process. Quite straightforward, right?

We believe in building long-term client relationships and have been doing so since our business was established in 2003. An initial meeting with a Spectrum adviser is free of charge and without obligation. Please get in touch to learn more about what we do and how we can help you.

Tax efficient savings in Portugal

By Mark Quinn
This article is published on: 22nd December 2021

22.12.21

If you have arrived in Portugal from the UK there is a hope, or perhaps expectation, that there will be savings options similar to an ISA and other tax efficient investments.

Portugal does not have an ISA system but there is a similar investment, sometimes referred to as the “tax efficient, Portuguese compliant bond”. It is tax free whilst invested and has a very beneficial low taxation basis, especially if you require income from your investment.

The two big advantages with this structure are that there is no limit to the amount you can invest and it is portable to most other countries if you decided to move in the future.

There are many investment and currency options, so it is a simple and effective way of building a Portuguese compliant tax efficient savings structure to meet your personal objectives and needs.

Even if you have moved to Portugal to just take advantage of NHR (Non Habitual Residence status), and wish to return to your home country in the future, these structures can provide an incredible planning opportunity.

For example, if you return to the UK and the appropriate restructuring advice was to surrender the investment, the tax due on surrender would be proportional to the amount of time you have been in the UK. So, if you were non-UK resident for the whole period of ownership, then no tax is payable. If you were non-UK resident for 8 out of 10 years of ownership, the tax will only be calculated on the 2 year period of UK residence meaning you would benefit from an 80% tax saving!

For more information on the tax efficient, Portuguese compliant bonds, please contact us.

Interest rates and Inflation

By Jozef Spiteri
This article is published on: 19th December 2021

19.12.21

Taking simple steps to increase and protect your wealth

Interest rates and inflation, both terms we are familiar with, whilst not always appreciating how closely the two are connected, or that both affect our immediate and longer term financial security.

When we hear about interest rates, we might think of the bank. This is correct, but let’s clearly define what the term interest rate means. For savers (as opposed to borrowers) an interest rate can be seen as a percentage-based payment which the bank (or indeed any other savings institution) pays us for holding our cash. This means that when we put our money in a bank account, the bank compensates us financially for having placed our funds with the bank. Simple, right? Inflation can be a slightly more difficult concept to understand, but it is something we experience daily. Inflation refers to the general increase in prices of goods and services over time. This happens for a number of reasons, which won’t be examined here. The important point to understand is that inflation, whether gradual or accelerating, means prices are going up.

How then are interest rates and inflation linked? Well, the connection is quite straightforward. As mentioned, the bank is paying its savings customers an interest rate, so let’s consider the actual value of that interest rate. Most likely the rate you have been receiving over recent years has been no higher than 0.5% per annum. But inflation has been averaging around 2% per annum and has increased substantially over the past year or so. What does this mean? Assuming interest at 0.5% and inflation at 2%, the money in your bank account is losing 1.5% of its value every year (2% – 0.5% = 1.5%). This means that by keeping funds idle in a bank account you are actually destroying the real value of your money. The longer the cash is left there, the more value it loses.

Now that you’ve read the above, you may be asking yourself if there is a way to avoid destroying the real value of your money. That is where companies such as Spectrum can help. After reviewing your circumstances and going through a risk profiling exercise, your Spectrum adviser can help you build a suitable portfolio of diversified assets with the aim of getting your money working harder. A typical ‘balanced-risk’ portfolio, for example, has achieved annualised returns of 4% to 6% over the medium to long term. Of course past performance is no guarantee of future returns but with sensible planning it is entirely possible to overcome the negative effects of inflation – indeed, investment success and achieving positive real returns generally rely on such planning.

An initial meeting with a Spectrum adviser is free of charge and without obligation. This means we can assess your circumstances and answer your questions. It is up to you to decide whether to take things further. We would be more than happy to meet you for a chat so we can show you how we can be of service.

Moving to Portugal | Visa Options

By Mark Quinn
This article is published on: 19th December 2021

19.12.21

Non-EU citizens, including the British post-Brexit, who wish to permanently settle in Portugal, must apply for a visa for the right to stay. EU citizens on the other hand have the right to freedom of movement and therefore have an automatic right to stay, so do not need to apply for a visa.

There are several visa options available in Portugal and the most common are the Golden Visa and the D7 visa.

Both visas allow access to the Schengen area, ultimate permanent residence or Portuguese citizenship, and a gateway into the Non Habitual Residence (NHR) tax scheme.

The key difference between the two programs comes down to one of cost versus flexibility. The D7 visa is clearly a lower cost route to Portuguese residency, both in terms of the fees and that there is no investment requirement as for the Golden Visa. However, the D7 route does have substantially longer minimum stay requirements.

Tax dimension
Whilst both visa options grant you legal residency in Portugal, one key difference with the D7 is that it automatically triggers tax residence status in Portugal. This may in fact be a positive thing for many people, given the existence of the NHR program which can result in substantial tax savings.

Whichever route you chose, please ensure you are implementing planning both before your move and after you have established Portuguese tax residency, and put in place planning now that will still be effective after the end of the NHR period.

We can analyse your situation and help decide whether tax residency and NHR status in Portugal is obtainable and will benefit you.

With Care You Prosper

By Jozef Spiteri
This article is published on: 16th December 2021

16.12.21

For many, the benefits of financial planning might seem to not go beyond financial stability. Some might think that investing some savings will only result in a more secure financial future, however a recent study carried out by HSBC has shown that financial planning can actually provide additional benefits. They found that people who make use of the services offered by financial advisers tend to benefit from a better mental wellbeing.

Receiving guidance from financial professionals to meet long term goals seems to take a great weight off investors. This is because having to make such plans on their own can often be overwhelming and in the end, not particularly successful. A good adviser is well aware of the importance of a long-term relationship with clients and will have frequent contact. The ability to interact often will help consumers iron out any doubts that come up as time goes by, increasing trust between the adviser and client.

The study carried out by HSBC Life UK found that out of 3000 UK adults, 72% of those who review their financial position at least once a year benefit from average or above average mental health whilst more than 50% of those who don’t do this tend to suffer from below average mental health. Similar numbers were observed for people holding a retirement plan as opposed to others who did not.

This is something we experience first-hand at Spectrum. Clients are at ease knowing that we are there whenever they have a query. They also like to know if they are on track for financial security, particularly when they look ahead into retirement. We can use sophisticated cashflow forecasting tools to clearly illustrate their cashflow well into old age. This is very popular because most clients tend to get lost when they are just seeing numbers in front of their eyes.

Ensuring that our clients have peace of mind is of utmost importance to Spectrum advisers and that is why ongoing service is a key priority. Clients see the value of our active, ongoing service and support; good financial planning extends beyond just the original advice given.

If you would like to discuss the steps you need to take to have a more stable financial situation going forward, feel free to reach out to us. There is no obligation to proceed with anything when meeting us for an initial discussion. We just hope that we can be of service to you.

How do I know if I am Portuguese tax resident?

By Mark Quinn
This article is published on: 8th December 2021

08.12.21

A lot of confusion occurs in this area – people often mistakenly believe they have to be in Portugal for at least 183 days to be considered tax resident here, but that is not strictly the case.

The rules state that you are Portuguese tax resident if:

you spend more than 183 days in Portugal in any 12-month period (these days do not have to be consecutive)
if your habitual/permanent residence is in Portugal i.e. your ‘home’ (there is no minimum day count for this criterion)

Generally a tax payer is Portuguese resident from the ‘first day’ or day of arrival.

If you move to Portugal mid-way through the year, Portugal allows for ‘split-year’ tax treatment. This means that you will only be liable to tax in Portugal from the time you become resident there i.e. the date you permanently move to Portugal up to 31st December. The same principle applies for those who choose to permanently leave Portugal.

This can provide advantageous tax and financial planning opportunities and that is why it is best to seek advice and start planning early. We have separate guides on visas in Portugal and residency that explain the process of becoming resident in more detail.

If you move to Portugal mid-way through the year, Portugal allows for ‘split-year’ tax treatment. This means that you will only be liable to tax in Portugal from the time you are resident there i.e. the date you move permanently move to Portugal up to 31st December. The same principle applies for those who choose to permanently leave Portugal.

This can provide advantageous tax and financial planning opportunities and that is why it is best to seek advice and start planning early.

Download the Guide to Tax in Portugal here

Inflation in Italy

By Gareth Horsfall
This article is published on: 8th December 2021

08.12.21

I don’t think this E-zine can go by without writing about inflation and the impact that Covid has had on the rising cost of goods and services. I don’t know about you but I am starting to see prices rise in Rome, particularly around food. I was shocked to find pears in the supermarket at €5.49kg the other day. Also, when I travelled to the UK at the end of October car hire prices were through the roof, partly fuelled by Brexit I imagine, but crazily expensive. I was also talking to a friend who owns a company making the sun curtains that you see on balconies and terraces in Italian cities. She was telling me that their raw material prices had risen 30% in the last few months. Lastly, there is the impetus of all these housing bonuses at the moment which means that both tradespeople and building materials are in short supply, and when things are in short supply, prices only go one way!

In the US there has been a lot of rhetoric about a ‘transitionary inflation’ which will pass once the world’s supply chain gets back to normal after Covid, when goods and to some degree services as well will start to circulate as they did pre-pandemic. But, I think it is plain for all to see that this is now going to be a bit longer than we first suspected. Even if Omicron turns out to be a much weaker variant and have very little impact on our health, government intervention in trying to stem the infection rate could mean that further travel restrictions are on the cards.

This all has the effect of making it more difficult for raw materials to find their way to factories, production of goods themselves (nothing gets made when people are at home), distribution, administration, shipping etc. The list goes on.

When you bring everything together it means that supply side issues are likely to remain for some time and that has had an effect already.   I was talking to someone at Prudential International last week and they were telling me that their indicators were showing a 6% inflation rate in the UK and 4% in Europe. The general rate in the USA likely to be much higher, into double digits.

This has a serious effect on our savings and for any eagle eyed observer, you may have noticed that your government (Italy or otherwise), even faced with these inflation figures have not started to raise their central bank rates yet. Why?

The answer is very simple. Inflation erodes savings but it also erodes debt and since 2008, what have most governments around the world been creating copious amounts of? ….you got it, debt! So, if they can hold interest rates low for as long as possible, whilst getting a 6% annualised reduction in their debt, then that is good for them. But it is horrendous for savers and people on fixed incomes!  

I always give the example of a table that is worth €1000 today. At a 6% annual inflation rate it will cost €1060 next year. If my savings have been squandering away in a bank account at 0.5% interest, then my €1000 is now worth only €1005. My money is no longer worth what it was last year and my ability to purchase the same amount of goods and services has diminished considerably. Imagine if that were not a table but a prescription drug?

Inflation is a serious issue for many people and there is a simple way to calculate the compounding effect of this over time: The Rule of 72. Simply divide 72 by the rate of inflation and you will find out how many years it will take to halve the value of your savings. At 6%, your €1000 will be worth €500 in just 12 years. Frightening given how quickly inflation can take off and difficult it can be to bring it under control.

Don’t get caught out! Where you can, invest for the long term. I understand it comes with risks, but the long term risk of not having enough money to pay for a retirement, schooling for children, or even healthcare expenses is significantly more problematic.

And on that happy note, I am going to leave you for this E-zine. I am sure that you are all now starting to think about your 2022 tax return and how you can use those €s worth of tax savings! But, before you do that, run out and order your turkey before the prices rise too high.

As always, if you would like to speak to me about any of these issues you can contact me on gareth.horsfall@spectrum-ifa.com or message/phone me on my cell +39 3336492356.

Income Tax Brackets Italy 2022

By Gareth Horsfall
This article is published on: 7th December 2021

07.12.21

Well, it’s the moment that we have all been waiting for. The announcement was made on the 25th November. The new income tax bracket bands (IRPEF) from 2022. Unfortunately, I have to report that they really are not going to make a big difference to most people, but some savings might be available.

I know I mentioned in one of my previous E-zines that there was also talk of a possible allowance being introduced as well, but this area is still being debated. The talk is that an allowance will not be forthcoming for everyone, but that they will merely extend or enlarge the current no-tax area. This is not the same as an allowance which everyone would receive regardless of their income; instead it is offered to those with lower incomes, in different classifications. At present the no-tax areas apply as follows:

For employed workers: €8145pa
Pensioners: €8130pa (this increases for the over 75s to €9000pa)
Self employed workers: €4800pa

** You would not be taxed at all if you were earning / receiving income equating to those figures exactly. However, the more that your total income increases over these figures, the more of the no-tax area that you lose. Hence distinguishing this from a tax allowance. It is more like a means-tested benefit ***

Remember that Italy also has its highly complex system of detractions and deductions which can help to reduce your overall tax bill further. This, with the changes made in the income tax rates, will also be under review, but I suspect it will still remain in some shape or form for the future. The complication here is always knowing what you are eligible to deduct and how. To keep on top of the current system of deductions and detractions, you almost need to make it a full time job, from tax deductions for installing a water filtration system in the house, to veterinary bills and expenses. Anyway, more on that as and when I know more myself.

For now, let’s concentrate on the fact that income tax rates have now been reviewed and subsequently will change for 2022.

Entrepreneurial progress?
I think that back in 2019, maybe earlier, I wrote an E-zine bemoaning the fact that Italy’s tax system was cutting off the opportunity for entrepreneurs and small business owners to go to the next level and start to create the next generation of SMEs (small to medium sized businesses), purely because of its taxation and ‘contributi’ system. My bug bear was that as soon as your income went over €28000 then Italy imposed a taxation of 38% on income earned, until total income exceeded €55000, when the tax rate increased again. This, in addition to the high level of social security contributions, was the equivalent of asking someone to run a marathon but chopping them off at the knees before they started, and as the marathon progressed (if they could even make it that far) then would start to chop more of the leg off as they progressed. Hence, why would you even start?

(I am exaggerating a little because for some years now there has been a tax regime for self employed people earning up to €65000pa where they can pay just 15% income tax per annum, but without the opportunity to offset any business expenses. Most small business people I know are on this regime, which is great, but what if you can, or want to, earn more than €65000pa and take your business to the next level?)

These were always the bigger questions. Well, thankfully, Sig. Draghi has used the cloak of Covid (or more likely the cloak of a serious amount of funding from the EU) to do something about this and has made changes to the income tax rates. However, let’s have a look at the current system of taxation before we look at the new.   IRPEF as things currently stand is charged as follows:

€0 – €15,000	23%
€15001 – €28000	27%
€28001 – €55000	38%
€55001 – €75000	41%
€75000+	43%

The biggest leap here being the move from 27% to 38% after €28000pa   In the shake up, we now go from 5 bands to 4 and the bands have been widened as follows:

€0 – €15000	remains at 23%
€15001 – €28000	will now go from 27% to 25%
€28000 – €55000	will fall from 38% to 35%

And the biggest change here is that from €55000 pa the rate will pass straight to 43%

What can be learnt from this?
I think the lesson from this change is very simple. One which I think fits into current world thinking. The individual earning more (in this case €55000pa) is now going to pay more tax and those on lower than €55000pa incomes, in Italy, are going to be incentivised to spend more with lower taxes. It’s not a stupid strategy in all honestly because people with less income will naturally spend the extra cash that is available to them. Those with higher incomes will normally siphon off surplus income into reserves (investments/pensions etc).
So, all in all Italy is doing what a lot of countries already do. And we are told that this is just ‘stage 1’ of the reformed income tax regime (essentially to get something over the line before the end of 2021), but more reforms are pending from 2022 onwards. As my classic phrase goes ‘I wait to be amazed!’.

  Summary
That all being said, for a lot of people it will mean some tax savings, especially those with income between €15000 and €55000. The full saving in these tax brackets will be €1070pa. Not to be sniffed at as the cost of utilities and food has increased substantially in the last year. For anyone else, you are not really going to see much change at all, and I suspect the system of detractions and deductions will continue for now to help anyone reduce their income tax liabilities even further. In Italy, it would seem, things happen piece meal and over a longish period of time. No one politician or political party really has the political clout to push such sweeping reforms as might be needed and get them put into place, even Mario Draghi. However, the ability to push through smaller reforms which make a big difference over time seems to be more the status quo. As usual, we bumble along and react to things as they happen and continue to enjoy the life that Italy affords us.

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