Are you self employed in Spain – What expenses can you claim?

By Chris Burke
This article is published on: 26th March 2021

I find people are not always aware of what they can and can’t claim back as expenses in Spain, mainly as there is no easy to understand list explaining this to you. Try asking your accountant and even they might not give you exactly what you need to understand, so, I will try to explain as clearly as possible. The following is what you can claim for, in all times, as long as you have a receipt with your name on and the payment details, using a card/account in your name (adding your NIE/TIE to the receipt is even better, thus providing you with a VAT invoice, or factura simplificada as its known):

Lunch – inside Spain you can spend €26.67 (How did they get to that amount?) and outside Spain €48.08. For a work trip away, you have an allowance of €53.34 for food, and outside of Spain €91.35. This does not include accommodation, which seems to be not capped (I would be careful here obviously).

For freelancers who work from home, Spain’s tax authority specifies certain partial deductions, such as supply expenses (water, electricity, gas, telephone, internet). The deduction is 30% of the expenses in proportion to the square meters of area at home you use, so for example an office. Not many people are aware this also includes for any home you own, on the mortgage interest part of the payment. So, if the space you work from home is 15% of the surface area, you can deduct that proportion. However, you must register your home address as your centre of economic activity when registering as an autónomo. As an autónomo, if you also partially use a vehicle for business, 50% of expenditures on it are deductible for income tax and VAT.

Car hire/leasing is covered, and generally a better way to go than purchasing a car in many cases.

Other things included as deductibles are charity donations (a specific amount) and varied work expenses, so paper, mobile phones and the contract, printers and their costs, client entertaining, travel expenses outside of food/beverage and work events. Usually, a good accountant will send you anything they aren’t sure about before they declare your expenses, so you can confirm what they are and you can then see if they are covered.

The following are importantly NOT covered and cannot be claimed as an expense:

Dry Cleaning
Purchasing of a car (even if solely for work)

If you are earning more than the annual Spanish minimum wage as a self-employed worker or as an autónomo, you will have to pay social security contributions. If you are eligible and don’t pay social security, you won’t get any benefits. These contributions entitle you to health care and, after you’ve paid into the scheme for 15 years, a state pension. You can pay more than the basic amount to get a higher pension or make additional contributions to be covered for accidents or sickness at work.

The current monthly cost to be an autonomo is €289, whilst for many people the first year starts at €60 per month. For months 13–18, you’re eligible for a 50% discount, and from months 18-24, a 30% reduction and after 24 months it reverts to the standard rate. There are also reductions up to 50% if you are on maternity leave. The amount will differ depending on your age (over 50 it is slightly more) and you will need to make these payments even if you don’t earn anything.

Is it better to be self employed
or run a Spanish company?

Setting up a Spanish company costs initially around €2,000 and has a monthly running cost of around €400 per individual approximately. There are also annual reporting costs and declarations, and it costs a similar amount to close a Spanish company down as to open it, so make sure you have thought this through before proceeding. In essence, if you believe your annual income will be above €80,000 then it would be worth looking into this structure. It is a lot more complicated, expensive and administrative. It might be best to run your business for a few years as an autonomo, see where you are and then look into setting up a company. It is also time consuming to close a Spanish company down.

RISK Can you avoid this in financial terms?

By Occitanie
This article is published on: 26th March 2021

26.03.21

Welcome to edition number ten 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.

It seems remarkable, to me anyway, that we are already nearly a quarter of the way through the year. We still have the same problems to deal with, namely the fallout from Brexit and the continuing scourge of the Covid 19 virus, where the UK and France seem to be on diverging paths, both in terms of infections and vaccinations. With this in mind, we decided that it might be a good idea to talk today about risk, and how we might learn to live with it.

What is Risk?
Firstly, it is important to realise that risk is everywhere, and in various forms. In a sense it is like oxygen; without it, nothing happens. Sometimes you can see it, but most of the time you cannot. One thing that Covid 19 has taught us is that the very air that we breathe and the everyday items that we touch can kill us, and that is a sobering thought. The real definition of risk is the possibility that something bad might happen, either to you or because of something that you do; or even do not do. That is what makes risk exceedingly difficult to avoid. Often, we think of risk as taking a chance or a gamble, but sometimes a decision not to do something is just as risky.

Can I avoid Risk?
Yes, it is certainly possible to avoid some risks, but sometimes this has unintended consequences. If you do not eat, you cannot get food poisoning, but if you cut out that risk altogether, the end result is not positive. When it comes down to it, you have to accept risk. The real trick is calculating those risks and evaluating the likelihood of something bad happening. In investment terms, if you do not invest (and take some level of risk), you eventually run out of money. Unless of course you have a never ending and regular source of income – wouldn’t that be nice?

What is Financial Risk?
Basically, the danger of losing some or all of your money. And it comes in all shapes and sizes. There is a bewildering array of types of risk that analysts use to make them sound clever. There are however some really big ones that you need to look out for, and here are what I consider to be the most important. Have a think about how you would rate them in order of importance.

Specific and Market Risk
Here we have in fact two slightly different risks. Specific Risk is the danger of investing in one individual share, fund, or bond. If you limit yourself in this way, you put yourself at far greater risk of loss. All your eggs are in one basket. Market Risk is the danger of losing money even if you have spread out your investments more widely. Whole sectors can suddenly dip and turn against you.

Institutional Risk
You may have the best investment portfolio in the world, but what if your chosen investment company goes bust due to mismanagement, or maybe a rogue trader? Think Equitable Life, or Nick Leeson at Barings Bank.

Foreign Exchange Risk
One day we may have just one global currency. Then we will be able to forget the pitfalls of F/X risk. Until then we need to be very wary, especially we UK expatriate residents in the eurozone. In just twenty-one years the exchange rate between the pound and the euro has fluctuated between 1.75 and 1.02. That is a massive trading range. Big enough to put a huge dent in even the best investment performance. Worse still, it was not a linear move. It keeps on going up and down.

Inflation Risk
Remember 23% inflation rates in 1975? I do. Great for reducing the value of debt very quickly, but equally adept at destroying the value of savings and investments.

With all these dangers lurking at every corner, you may well be considering the mattress as a suitable home for your money. Forget it. Inflation risk will kill you, even if your house doesn’t burn down, taking the mattress and your savings with it.

The plain fact is that we all need to accept some level of risk. There is a risk/reward ratio; there is no gain without some degree of risk. The more risk you take, the more chance you have of seeing exceptional returns, but there is also more chance bad things can happen to your investment. The trick is to evaluate your true appetite for risk, and that is not as easy as it sounds. Left to his or her own devices, a single investor will tend to overestimate an appetite for risk and end up with a more aggressive portfolio than he or she feels comfortable with when a market ‘realignment’, sometimes referred to as a crash, happens a few months or years later.

The truth is that we need someone to hold our hand and lead us through this risk minefield. If we try to navigate the minefield ourselves, we are likely to lose a financial limb or two, or even worse. There are various levels of help available to us

The most effective, in theory anyway, is the DFM, the Discretionary Fund Manager. He (or she) will sit down with you at the outset and ask you lots of clever questions which are designed to reveal your real appetite for risk (not just what you thought it was). You then pay a fee of around 1% of your portfolio each year for the DFM to invest your money for you and produce as good a return as possible without exceeding your risk pain threshold.

If you decide that you cannot afford a DFM, or maybe you have not got quite enough money for a DFM to offer his services to you, the next best thing is MAP, which stands for Multi-Asset Portfolios. They are offered by insurance companies or investment services providers. These funds are specifically designed to offer you investments that are graded for risk and ensure that your investments are spread out over many markets and sectors, thereby reducing your ‘specific’ risk. Both DFM and MAP investments can be held in what are known as ‘open architecture’ bonds within assurance vie policies in France.

Many of you will also be acquainted with the ‘closed architecture’ assurance vie offered by Prudential International. This assurance vie effectively combines the dual role of the DFM and MAP. Their PruFund range of funds is administered by Pru’s own in-house team of fund managers, and each fund is invested in a wide range of markets and sectors.

In essence then, my message is this; do not take on risk without knowing exactly what you are doing, but do not avoid investments. If you do not know exactly what you are doing, get a professional to do it for you. They are acutely aware of all kinds of risk, and how to use it proportionately. Your friendly local International Financial Adviser (that’s us by the way) is there to act as a conduit to guide you into safer investment waters.

Do not be afraid to ask for advice. It also happens to be free.

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

Spanish CGT on UK Principal Residences

By John Lansley
This article is published on: 25th March 2021

25.03.21

New residents in Spain wanting to sell their home in the UK, face a small but perhaps very costly change due to Brexit. John Lansley explains.

Like the UK, Spain has a favourable tax regime concerning your home – your principal residence. Here, any gain arising on selling your home can escape tax as long as you use the sale proceeds to purchase a new main residence. If you sell a property for €500,000 and then reinvest €250,000 in a new home, releasing monies for other purposes or simply downsizing, then only half of the gain attracts this exemption and the other half faces a tax liability.

Those over the age of 65 who sell their home enjoy full exemption, whether or not the proceeds are used to buy a replacement.

One little-known feature is that the rules apply to a property anywhere in the EU or EEA, which has been your only or main residence. Therefore, if you move to Spain from another EU/EEA country, selling your old home and using the proceeds to buy a new one in Spain will enjoy exemption, as described above.

However, while this exemption previously applied to those moving to Spain from the UK, Brexit has meant that the UK is in neither the EU nor the EEA, and therefore the sale of your home in the UK, when you have become tax resident in Spain, will expose the full amount of the gain to Spanish Capital Gains Tax.

So, even if you want to use the proceeds, in full or in part, to purchase a new home in Spain, doing so after your arrival will result in a potentially very large Spanish tax bill, which could reduce quite substantially the amount you have available.

What are the Capital Gains Tax rates in Spain?

Up to €6,000 19%
€6,001 – €50,000 21%
€50,001 – €200,000 23%
Over €200,000 26%

If, for example, you are selling a UK property for the equivalent of €500,000, which you bought for the equivalent of €200,000, doing so now you are resident in Spain would produce a tax bill of €70,880, whereas selling before the end of 2020 (and of course reinvesting the proceeds in a new home in Spain) would have meant a zero tax bill.

What is the answer?
The best course will probably be to sell your UK home before arriving in Spain, but check that it does indeed qualify for the full principal residence exemption in the UK first. Selling UK property is usually more predictable than property in other countries, but it shows very clearly that timing can be extremely important. Any delay in exchanging contracts (the operative date) until after you arrive in Spain could prove very expensive.

The desire to tie together the sale of one home with the purchase of a replacement is something we’re used to doing in the UK, but in this case it would appear more sensible to sell your UK property, rent temporarily in either the UK or Spain, and only then purchase your new home in Spain.

Residence in Spain
Since Brexit, moving to Spain has become much more difficult. Working here, or coming here to retire, necessitates much more than it used to, and Spain’s Golden and Non-Lucrative Visa schemes will have to be utilised. The Golden Visa requires the purchase of property valued at more than €500,000, so any unexpected Spanish Capital Gains Tax bills might threaten your ability to do this.

Similarly, the Non-Lucrative Visa requires you to demonstrate your ability to support yourself. If your capital is severely depleted due to an unwanted tax bill, that might prove more difficult.

As always, it pays to seek professional advice, and we will be happy to help you make sense of these rules and apply them to your own circumstances.

HOW TO INVEST – Stocks – They Don’t Have to be Taxing

By Spectrum IFA
This article is published on: 24th March 2021

24.03.21

In my previous article, I described what stock options are and how they can be utilised by both companies and individuals to create wealth. Now, I will look at some of the tax liabilities that you may be subject to and how you may be able to mitigate them when you decide to take up your option to purchase the stock. I will be focussing on the Belgian market, but we are also able to help if you are based in other countries, so do not hesitate to contact us with a specific enquiry.

HOW DO I ENSURE I AM NOT TAXED ON MY STOCK OPTIONS?
Short answer? You cannot. If the option is quoted on a stock exchange, the amount to be taxed is calculated on the basis of its closing price on the day immediately prior to the offer date. If the option is not quoted, then the amount to be taxed is 18% of the underlying share multiplied by the number of option rights held. As with all tax due in Belgium, these need to be reported to the tax authority.

WHAT WILL I BE TAXED AFTER I DECIDE TO TAKE UP MY OPTION?
At the time of writing, the Belgian rate of tax on stocks, shares and equities is 30% on the dividend income received; this tax is known as Withholding Tax. Companies that are established in Belgium are obligated to withhold this tax from investment income received.

If the dividends received into a Belgian bank account are coming from a foreign company, then the bank is obligated to apply the withholding tax. In addition, a withholding tax set at the rate set by the country the dividends are coming from must also be applied. This can be reduced if Belgium has a double taxation treaty with said country.

Let’s look at a quick example. A popular country of origin for stocks, shares or equities is the US. The US can charge a withholding tax of 30% on top of the Belgian withholding tax. Belgium retains a double taxation treaty with the US. This subsequently reduces the US withholding tax by up to half, whilst the Belgian withholding tax remains. On top of this, on January 1, 2018 the Belgian government introduced a withholding tax exemption threshold of up to €800 on dividends to encourage people to invest.

HOW DO I HOLD MY VESTED STOCK IN A TAX EFFICIENT MANNER?
I wrote an article on Branch 23, an investment bond solution available in Belgium for investors who wish to invest in a tax compliant way and also plan for inheritance and estate tax planning. Your stock, shares and equities can be held within this solution and you would not be liable to withholding tax on your investments for as long as you hold the bond. You will pay 2% Insurance Premium Tax when you initially invest and that covers your taxation liability (including Withholding Tax and Social Insurance Contribution that can add up to 59.58%) for however long you hold the bond.

To understand more how I can help you manage your stocks and shares/equities that you have accumulated in a more tax efficient manner, please contact me at emeka.ajogbe@spectrum-ifa.com or +32 494 90 71 72.

Should I leave money in the bank?

By Michael Doyle
This article is published on: 22nd March 2021

22.03.21

For citizens living in France, assurance vie is known to be one of the safest ways to invest money and organise your inheritance. It is an insurance instrument that serves as a tax-efficient investment vehicle containing one or more underlying investments.

Why It’s Considered Better Than the Bank?
In November 2020, the Banque de France told us that the average interest rate on bank deposits is 0.46%, unchanged since August 2020.

Any gain on your deposit would be subject (in general) to a 30% charge between tax and social charges, leaving a return on investment of just 0.32%.

Couple that with the fact that inflation in France in 2020 was 0.46% (www.statista.com) and you are effectively losing money by leaving it in your bank account.

A well-managed cautious portfolio held within an assurance vie returned about 4% in 2020.

Benefits of Inheritance
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%).

Why Should You Invest in Assurance Vie?
Investments held within an assurance vie grow income tax and capital gains tax free, so you have a gross roll up of any gains within the investment.

Tax and social charges are paid only on withdrawal, however as part of the return is capital much of these gains are offset.

Advantages for Foreigners
If you are a foreign national living in France, assurance vie should be a key investment, particularly if you expect to live there for the long term. As a British expatriate living in France, you have a host of international assurance vie policies at your disposal, most of which are Brexit-proof. Not only are these policies consistent with the European Union rules, but they also operate across borders in the United Kingdom, meaning you can take them with you if you change your home again or go back to the UK.

Moving to France from the UK: Figuring Out Where You’re a Tax Resident

By Michael Doyle
This article is published on: 18th March 2021

18.03.21

Is the dream of waking up every day to a breakfast of freshly-baked bagels as you look at the Eiffel Tower from your Paris balcony beckoning you? Okay, this might not be exactly what life for the average French resident is like, but living in France often holds appeal for those on the other side of the channel.

Just make sure that the new rules and regulations brought in after the United Kingdom’s exit from the European Union don’t catch you out when you move and pay tax somewhere new.

In this series of articles, we’ll be covering a range of tax issues, starting with how to know where you’re a tax resident.

Being a tax resident in France

To be considered a tax resident in France, it must be your “main home.” If this doesn’t apply to you, there are four other conditions that determine whether you can be classed as a tax resident:

If you spend more than 183 days of the tax year there (which is the same as the calendar year)
If you spend more time in France than elsewhere in the world
If a substantial portion of your assets are in France
If your principal business activities are based in France

Being a tax resident in the United Kingdom
The same basic principles apply for determining whether you’re classed as a tax resident in the United Kingdom. Your eligibility depends on where you fall in the Statutory Residence Test, which involves three parts: the automatic overseas test, automatic residence test, and sufficient ties test.

These first two tests are pretty simple and involve a few components assessing how many days you spend in and out of the country. However, the sufficient ties test is a little more complex, with various conditions that can be classed as your ties:

How much you’ve worked in the UK
Having family in the UK
Available accommodation in the UK
Spending more than 90 days in the UK over the last two years
Spending more time in the UK than anywhere else

These aspects all have their own complicated definitions, so it’s best to consult a specialist for more specific advice.

Where are you a resident?
Thanks to the Double Tax Treaty between the UK and France, it’s only possible to be a tax resident of one country at any given point. Plus, in addition to both countries’ criteria, the Tax Treaty has its own “tie-breaker” rules.

Relying on your own interpretation of the criteria or your predictions for where you’ll spend the most time in the future is riskier than you might think. Unexpected circumstances like illness can alter your plans, and you may misinterpret the rules or definitions set by authorities.

As you can see, although figuring out where you’re a tax resident sounds simple, it can be complicated if you’re frequently moving between and conducting business in both countries. To protect your finances and your peace of mind, it’s best to arrange an appointment with a professional.

Spain’s Golden and Non-Lucrative Visas

By John Lansley
This article is published on: 17th March 2021

17.03.21

Prior to Brexit, British residents had the freedom to live, work and travel anywhere in the EU, subject to local requirements, but those wishing to move to an EU country since 31.12.20 face a number of hurdles. Fortunately, there are two schemes that make a move to Spain much easier than would otherwise be the case, which is good news for those who have held long-cherished hopes of a retirement in sunnier climes!

Both schemes have similar basic requirements:

• You must not be a citizen of an EU or EEA state, or of Switzerland, and must be over 18 years of age
• You cannot have a criminal record (past 5 years)
• You must have health insurance, either via a state scheme or from a Spanish insurer
• You must not have entered or stayed in Spain illegally

Golden Visa
Coming from the UK, you will of course not be a citizen of an EU state, but you would need to comply with the other points above and certain others, depending on your situation. The most important aspect is that you must purchase a property in Spain for at least €500,000, without using a mortgage or other loan, and that you can demonstrate you can support yourselves financially. No specific amounts are quoted, but clearly you must be able to prove that the cost of running a property of this value plus general living expenses can be met, the figures mentioned below being a useful guideline.

There are alternatives – rather than investing €500,000 in property, investments of €1million in a Spanish bank deposit or in a Spanish company, or €2million in Spanish bonds, will also qualify you for a Golden Visa.

What are the benefits?
1. The Visa will apply to the main applicant and his/her spouse, plus minor children. Adult children or dependent parents can accompany them, but full details will need to be provided.
2. It allows the holder to work in Spain, subject to meeting local requirements.
3. The Visa holder does not need to reside in Spain or spend a certain amount of time here in order to renew it.
4. The Visa provides a residency permit for one year initially, and can then be renewed for a further two years and then 5 years. After 5 years, you can apply for permanent residency and, after 10 years, Spanish citizenship (if you have actually resided in Spain during that time).
5. The Visa allows travel within the Schengen area for 90 days out of any 180 (the same as the current restrictions for those resident in Spain).
6. The property can be sold once permanent residency is obtained.

Non-Lucrative Visa
Again, if you are coming to Spain from the UK, or any other non-EU country, you will satisfy the first general requirement above, but you will also need to meet the other requirements. However, the non-lucrative visa is aimed at those who do not need to work and as such will appeal specifically to those who are retired but who have sufficient income, because you are not allowed to work. It’s also known as a retirement visa for this reason, but it is also possible to undertake work as long as it is for clients based outside Spain.

In addition to the above qualifications, it is necessary to demonstrate income of at least €2,151.36 pm for the main applicant and an additional €537.84 pm for each additional family member. This can be in the form of pensions or investment income, but if in the form of dividends from a company it may be necessary to provide confirmation that no work is performed for the company concerned.

The visa needs to be applied for at the Spanish Consulate in the country of residence of the applicant, and only when the visa is granted can the applicant move to Spain.

What are the benefits?
1. As above, the visa can be applied for the main applicant and spouse, plus minor children and dependent children over the age of 18.
2. The visa provides an initial one year residence permit, followed by the ability to renew for a further 2 years, then another 2 years, and after that for a further 5 years. After 5 years, permanent residency can be applied for.
3. The ability to travel within the Schengen area, as above.
4. Even though you are unable to work in Spain, you are permitted to work remotely with clients located outside Spain.

Other Issues
Remember that being able to live in Spain, and spending most of the year there, will mean you will be fully exposed to Spanish taxes. Also, coming from a non-EU country will almost certainly mean your investments and perhaps some sources of income may no longer be suitable. For these reasons, it is essential to take professional advice well in advance of a move to Spain in order that any rearrangements can be considered.

I’m moving to Spain – When should I take financial advice?

By David Hattersley
This article is published on: 17th March 2021

Brexit removed the previous rules pertaining to “Freedom of movement, goods and services within the EU”. Those who now wish to move to Spain from the UK, making it their home as retirees or working here, newer and tougher rules apply.

Distance working has added a new dynamic, in particular for those in the technology sector who see that this is as an opportunity to work and live in a nicer environment. Speaking to a qualified financial adviser who is regulated here,in Spain is sometimes an afterthought . However, talking to an adviser before you embark on the journey can help avoid some of the issues which expatriates can find themselves encountering. Financial planning is complex, whichever new country one moves to, so a brief summary can help prepare for the future “devil in the detail” elements. Forewarned is forearmed and helps avoid basic pitfalls.

It makes sense to “disinvest” all UK held assets prior to becoming Spanish Tax resident. Timing and deferral is the key to planning a strategy. Note that due to Brexit, UK advisers are no longer allowed to offer continuity of advice Spain for those that become tax resident in Spain.

There are a number of rules regarding Spanish tax residence, which are briefly detailed below. You will be deemed tax resident in Spain in any one of the following cases:

1. Number days in Spain not to exceed 183 days and may include time spent in any EU member country,
2. Centre of Economic interest i.e. source of earnings is in Spain,
3. Spouse and minor children living in Spain.

With regards to your assets, without going into too much detail, the following will apply.

UK property: Disposal once tax resident will be subject to Spanish capital gains tax, even if it was one’s primary UK residence. If retained it will be subject to reporting on Modello 720, a record listing overseas assets. A 20% increase in value will mean a new Modello 720 report. Income derived from letting the property will be subject to Spanish “investment” tax.

UK Pensions: A Pension Comencement Lump Sum is tax free in the UK, it is liable to tax in Spain. So if nearing 55 wait till you take it and then become Spanish Tax resident.

ISAs: An ISA offers tax free growth or income in the UK. They are not tax free in Spain, but there is a Spanish equivalent.

Unit Trust, Shares, Investment & Insurance Bonds, NSI bonds etc: There are some tax breaks in UK but none in Spain.

Inheritance Tax: The UK rules apply to the residual estate whereas Spain applies it to the beneficiary. There is a strong possibility of being taxed twice as estate rules & beneficiary rules are not covered by double taxation agreements.Based on “domicile” there is a different law for bequests & inheritance in Spain. Also, unlike the UK, it has a the variety of laws for each autonomous area,affecting in particular the potential impact of Spanish succession tax. It makes sense to deal with a regulated adviser who is based in or near to an autonomous area you will be living in e.g. Madrid ,Andalucia, Murcia, Valencia.

Having a “ partner “ relationship as opposed to being married, brings its financial own risks in Spain, and arrangements must be considered.

Spanish Property: Some people come to Spain with plans of using their new Spanish property to retire to now or eventually. If it is the latter, the property maybe used to produce rental income either via summer rentals or long term rentals, but in this case there will be tax considerations.

Investing an hour of two of your time before you make the move to Spain can provide peace of mind and financial comfort when planning your new adventure. I can provide “Your guide to tax in Spain” that goes into greater detail. Whether you want to send the guide or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.

A Spanish regulated adviser can ensure you are financially prepared for your move, in terms of any investments, savings and taxes which can become due on both income and windfalls you may be expecting after your move.

Please note, we are not accountants or lawyers, but we do work hand in hand with these professionals, and can be the “first port of call”.

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.