Back at the races in Monza

By Jeremy Ferguson
This article is published on: 19th July 2021

19.07.21

Proudly sponsored by The Spectrum IFA Group

I was proud to finally make my Racing debut this year, carrying the Spectrum colours on the Ligier LMP4 I was racing at Monza in Italy in the European Ligier series.

We received a drive through penalty in the first half of the race when running up front, and I managed to battle back from 9th to an eventual podium place in 3rd.

Attached are a few pictures from the event, and for anyone who wants to watch the TV coverage, click here for the full race on video:

Moving to Italy and the average cost of living

By Gareth Horsfall
This article is published on: 12th July 2021

12.07.21

You have made your tax calculations for life in Italy, but have you included everything?

In this video Gareth talks about the costs of living in Italy and how it varies depending on where in Italy you want to live.

He also explains that whilst it is almost impossible to calculate until you are living here, it has the same effect as a tax reduction and should be taken into account when making your decision about life in Il bel paese.

If you are interested in moving to Italy or perhaps already live here,
but need to discuss some financial areas of concern,
please use the form below to contact me.

Are you moving to Italy?

By Andrew Lawford
This article is published on: 16th June 2021

16.06.21

I hope you are enjoying the summer weather and the return to comparative normality – long may it last!

I wanted to let you know about a new podcast episode that has just been released. It is entitled “Brexit (and more…)”, so will be of particular interest to UK nationals residing or considering taking residency in Italy, but it also explores quite a few topics that will be more generally applicable.

As it’s quite a long episode, I thought it would be helpful to give you an index of topics covered and the approximate minute markers so that you can easily locate the sections that are of interest to you.

1:28 – Working with a UK financial adviser as an Italian resident
8:55 – Equivalency in financial services between UK and EU
12:57 – Taxation of EU-domiciled managed funds vs UK-domiciled managed funds post-Brexit for Italian residents
15:50 – Tax declarations in Italy for directly-held foreign financial investments
18:15 – The €51,645.69 question – holding foreign currencies as an Italian resident
21:38 – ISAs – what they mean in Italy
23:42 – Quadro RW – why you need to declare the mere existence of your foreign assets (as well the income that derives from them). Common Reporting Standards and why you should assume that information is being exchanged automatically with the Italian tax authorities
25:20 – The taxation of UK real estate as an Italian resident (rental income and wealth tax (from 28:20))
33:00 – Thinking about real estate investments once you move to Italy
35:15 – Capital gains tax on foreign property (with particular comment on the situation for UK property owners who are non-resident in the UK)
38:15 – Tax-efficient investment wrappers – what they can do and how they need to be set up. Some comment on inheritance taxes in Italy
43:44 – The 7% pensioners’ tax regime
50:10 – Italy vs Italia – and why you should persevere if you want to move here

Available on:
Apple Podcasts
Spotify
Stitcher
Google Podcasts

Click on the above links to listen

Tax Reporting in Italy

By Gareth Horsfall
This article is published on: 4th June 2021

04.06.21

Excuses that will not fly with the Agenzia delle Entrate

You wouldn’t believe it, but I started venturing out last week. I actually visited some clients and spent time with people, in the flesh, who exist outside my social bubble! It really was quite a bizarre experience because the first thing that hit me was that apart from the fist bumping and/ or deliberate distancing, that the relationship had not changed one iota. It was business as usual, which I found odd at first because after everything we have been going through I assumed that maybe that things would have changed a bit. I am now totally convinced that it will be business as usual once this phase passes!

So I am going to let life take steps to getting back to normal and move onto important financial matters. This article is entitled ‘Excuses that will not fly’ because since tax reporting time is upon us again, I thought I would look at the most common excuses that I have heard over the years when it comes to reporting taxes correctly…and I have heard a few! I also want to cover the Common Reporting Standard again, what it is and why it is very important that you get the tax reporting right every time.

Excuses, excuses
I have to be honest and say that I have heard probably every excuse possible for not having made tax declarations in Italy, and whilst in many cases I do actually feel quite sorry for the person, because it is a genuine mistake mainly due to lack of knowledge, excuses will not fly with the Agenzia delle Entrate (AdE), no matter what your intentions were.

So here are the top excuses that the Agenzia delle Entrate do not care about.

1. I didn’t know I had to.
This has to be at No 1 because it is the most common one I have heard over the years. Needless to say the AdE has no interest in whether you knew you had to do something or not. It is your responsibility to get informed, and failure to take the right advice or do the right thing means you are liable for all back taxes if they catch up with you.

2. I am not a tax resident.
I have written about this many times in the past. If you are registered as resident in Italy, i.e. you have registered at the comune and are registered at the Anagrafe, then you are more than likely, in the eyes of the AdE, going to be considered fiscally tax resident as well. Just because you live in another country for more than 183 days per calendar year and your main work and/or family interest are outside Italy, it does not matter to the tax authorities. You have registered to say you are resident and therefore they can legitimately come after you for taxes.

I was recently contacted by someone who said that she had been registered as resident in Italy since 2007, when she bought a house, but the home had only ever been used as a holiday home (she was informed by the estate agent that if she registered as resident then she would only have to pay 2% VAT on the purchase rather than 9%). However, the registration meant that she was also fiscally tax resident. The tax authorities have recently contacted her to ask for all back taxes in the last 5 years on her worldwide incomes, assets and gains.

The only way to resolve this now is to put a case forward to demonstrate than she was UK tax resident and falls under the double taxation treaty. That will likely mean lawyers and accountants needing to get involved and an extensive negotiation with the AdE and the UK tax authorities. In addition, they can legitimately ask for all the taxes to be paid whilst the situation is resolved.

One simple rule to remember is that if you want to simply own a holiday home and have no intention of becoming a fiscal tax resident in Italy then do NOT, under any circumstances, register as resident at your comune!

**A small note here, just to say that because of Brexit a number of Brits asked me about taking residency, pre 31 December 2020 as a way of getting around the travel restrictions imposed by the EU for non-EU citizens: 90 days in 180 day travel in the Schengen area. The answer is very simply that it is not possible unless you want to be on the radar for taxes as well. It is an all or nothing situation!**

3. I am covered by the double taxation treaty (DTA) between my country and Italy, and therefore considered non-resident.
This is one that I also hear often and stems from a misunderstanding of the DTA. The tie-breaker clause in the DTA states that where two states cannot agree on the residence of an individual then a number of criteria will be applied to determine the residency of the said person.

This might seem cut and dried, but if you register as resident in Italy but maintain your family/work/social and business interests in another country it DOES NOT mean that you automatically fall under your home country rule. In reality Italy, as any other country, could ask you to pay your taxes for your time registered as resident. You would be expected to pay and then deal with the respective tax authorities to reach a ruling as to exactly where your actual residence lay in those years. The important part to note is that, if asked, you would be expected to pay your outstanding taxes and then claim them back! Better to plan your residency carefully before a permanent move or a simple house purchase.

4. My commercialista told me not to declare it.
This is another well-worn example of getting informed before you decide a course of action. The simple rule with the commercialista is that whatever they ‘advise’ must be written down either in an email or on headed paper and signed. The excuse that they told you not to do it, which you later find out not to be correct, will not pass AdE inspection. In addition, if it isn’t written down then you have no come back against the commercialista if they have advised you incorrectly. All commercilisati have to hold professional insurance in the case of them giving bad advise, but no evidence, no claim!

Commercialisti are in general good at what they do, but you may find that your local firm is more knowledgeable about running a local agriturismo business than how to advise ‘stranieri’ with their overseas tax declaration. I now speak and intermediate with my clients’ commercialisti to ensure a) they know what products they are dealing with and b) how they should be declared. Most commercialisti are willing and want to learn and very frequently tell me something I was not aware of either.

One quick rule: If your commercialista tells you that you don’t have to declare something then go and find another one. Everything needs to be declared in Italy!

5. I pay tax already on my house in the country where it is located. Why I should pay the Italians as well?
I can’t recount how many times I have heard this one and whilst I understand the feelings around paying taxes in one state and then having to declare them again in Italy, these are the rules. Property is a fixed asset, and by fixed I mean physically fixed to the ground (unless it’s a caravan!) and therefore you must, by law, declare the asset and income from it in the country where it is located, first. Once you have been through that process you then need to declare it in Italy in the same way. If there is a double taxation treaty between Italy and the country in which the property is located, and it covers property specifically, then you should be able to claim a tax credit for any tax paid. You will therefore end up only paying tax in Italy at Italian rates.

I often hear people tell me that their commercialista has said that they cannot deduct expenses in Italy. This is correct. If your property is located in the UK, for example, then you cannot deduct any UK generated expenses ‘directly’ in your Italian tax return. However, this misses the point that they can still be deducted. You can and should still apply allowable expenses in the UK (in this example). In Italy, you report the UK income generated after UK allowable expenses.

6. I don’t want to declare that for tax in Italy, it was a gift.
This is one I don’t hear so often but it comes up every now and again. You may have received a gift from someone or received an inheritance as part of the distribution from an estate and obviously taxes may need to have been paid in the state where the estate is administered. Once you receive the money then it needs to be declared in Italy in whatever form you choose to hold it, annually. The gift/inheritance will not be taxed again as Italy respects the fact that taxes have already been paid on the gift/inheritance. Therefore, not declaring the monies you receive doesn’t make any sense and would be merely seen as a deliberate attempt to hide money from the tax authorities.

7. My ‘stranieri’ friends have been living in Italy for years and none of them pay tax in Italy.
These excuses are not in any particular order because if they were then this one would be nearer the top of the list. It’s a common one and makes me sigh with despair every time I hear it. It is also my favourite!

The chances are that your friends are not doing what they should be doing and it is only a matter of time before they get picked up by the tax authorities. I know there are plenty of people who are living in Italy, and have been for many years, without having made any declaration to the Italian state. I don’t think I need to say that this is 100% illegal and is advice that should not be followed!

For EU nationals, taking the risk of hiding under the EU Freedom of movement directive seems to be an option that some are happy to take. They remain resident in their home country but live in Italy all year round. Admittedly, I think they would be hard to find, but then they are not registered in the Italian system, are unable to buy a car or claim on the state for medical or other benefits.

Those people who are registered as resident, but also failing to declare themselves as fiscally tax resident in Italy are in a much more precarious situation and given the recent example, (as highlighted above in excuse No 2), then it is not a position that I would want to be putting myself into.

For non-EU nationals, then it is cut and dried. If you obtain a Permesso di Soggiorno to remain in Italy for over 6 months a year, then you are fiscally tax resident. If you fail to declare your taxes in Italy, and are subsequently contacted by the Agenzia delle Entrate, then you can’t say that you weren’t warned.

I think that finishes the list of excuses. Clearly it is not a definitive list. I am sure there are more but these are the most frequent that I hear. I hope that they provide you with some direction if you are wondering about what or how to declare in Italy. I have a very simple mantra which I stick to which may also help you:

IF IN DOUBT DECLARE THE ACCOUNT!

The Common Reporting Standard

In this next part I want to go over some old ground, but which will put what I have written above into context and show why getting your declaration right in Italy is becoming more and more important.

I remember well, during the spring back in 2014/15 when I was contacted by a large number of people who had recently been contacted by the Agenzia delle Entrate (AdE) for unreported assets in their Italian tax return, or in a high number of cases, failure to even submit an Italian tax return for income/assets that they held overseas.

This is now happening again but with more rigour!

This is all coming about because of The Common Reporting Standard and Automatic Exchange of Information (AEOI).

These are international agreements that were developed by the 34 member states of the Organization for Economic Cooperation and Development (of which Italy was one) via its permanent “Global Tax Forum”. AEOI was designed to help combat cross-border tax evasion by individuals who were not reporting and paying applicable taxes on assets held through non-domestic financial institutions, whether these assets are held in the name of the individual or through certain offshore entities such as companies, trusts, foundations, partnerships and similar. It is primarily focused on individuals and “passive” income (i.e. dividends, interest, capital gains, etc.). It came into force in 2017 but information was backdated to the 1st January 2016.

How does Italy know if I have assets abroad?
Have you been contacted in the last few years to provide your TIN. (Tax Identification Number) to your overseas bank and/or financial institution? I have, on numerous occasions! If you a resident in Italy this number is your codice fiscale in the UK it would be your National Insurance number and in the US, your social security number, to name a few.

It is now a legal requirement to provide your TIN number on any financial contracts that you adhere to, be it banks accounts, investment portfolios, insurance policies, or other financial instruments. I have a small investment account with Hargreaves Lansdown in the UK and was recently contacted by them to update my codice fiscale. Through an error in their systems they had failed to pick up on the fact that I had given it some years ago, but they were refusing to allow me access to my account if I did not provide it again. It got resolved, but it shows you how seriously this is now being taken when financial institutions will block access to your accounts if you don’t provide them with the information needed to share information with the correct tax authorities.

What information will they share about me?
Under the Common Reporting Standard the financial information reported includes the name, address and tax identification number (where applicable) of the asset owner; the balance/value, interest and dividend payments and gross proceeds from the sale of financial assets. The financial institutions that need to report include banks, custodians, financial institutions, investment entities such as investment funds, certain insurance companies, trusts and foundations.

The tax authority will receive much more information than ever before and even simple bank account balances showing money coming in and out can raise red flags and the AdE can choose to investigate where the source of the money came from.

Is this new?
Exchange of financial information across Europe has been going on for a long time now and can be traced back to the introduction of the European Savings Tax Directive 2005. The Common Reporting Standard is an enhancement of this.

I remember that in 2012 when I was contacted by a number of UK rental property owners who had been legitimately declaring their UK property income in the UK for tax purposes. However, as residents in Italy they had not declared anything because they didn’t know they had to. A clear exchange of information took place and the Guardia di Finanza did a significant number of visits to these people to fine them.

***This is also happening again this year! We are seeing the AdE issuing letters for unreported income going back as far as 2015/2016***

***The Covid crisis has sharpened the eyes of the tax authorities as they are now searching desperately for more tax revenue lost through the pandemic. We have seen AdE activity rise since the start of the year and even seemingly small mistakes on tax returns or undeclared assets are being investigated***

Low hanging fruit!
Remember that with the kind of information that the tax authorities are receiving from one another, we really are the lowest hanging fruit to pick from. Easy pickings! So, my advice is always the same. The past cannot be corrected but you can change your future. Hiding and hoping the problem will go away is not an option. The only solution is to get your financial situation ‘in regola’.

What will I pay?
How you declare your money and how much you will pay to regularise your situation is a question that can only be answered by a commercialista, but it does make sense to have a look at your whole financial situation beforehand to see what damage limitation you can do by planning efficiently as a tax resident in Italy.

“Never look back unless you are planning to go that way”

French Tax declarations in June – Trusts & Wealth Tax

By Katriona Murray-Platon
This article is published on: 1st June 2021

01.06.21

Oh what a month of May! So despite the old adage of being able to do as we please, the weather clearly didn’t get the memo! May has been a whirlwind of enquiries and questions on taxes with lots of people requesting the Spectrum Tax Guide. Hopefully, by now most of you have filed your tax returns, but those living in department numbers 55 to 976 as at 1st January, still have a few more days, until 8th June to file theirs. Also, if you have appointed an accountant to do your tax return, they have a special extended deadline until the end of June to file all remaining returns.

If you had a go at your own tax return, but would prefer to hand it over to a professional either for future returns or to check that what you filed this year was correct, it would be best to try to contact them after the end of June. If you think you made a mistake on your tax return, you have until the end of the year to correct it. You will soon know if there is something not quite right with what you have declared when you receive your statement at the end of August/beginning of September. At that point, if you are quick you can submit an amended return before the payment deadline; otherwise you may have to pay the tax payable on the original statement whilst awaiting the amended return to be processed and a new tax statement to be issued, with any tax reductions if applicable.

This month, my family and I set off for our first mini-break since the lockdown in March last year. I have to say we were a bit nervous venturing out of our house, preparing the suitcases and worrying that we hadn’t forgotten anything. We stayed in the lovely village of Coux-et-Bigaroque, about 45 minutes east of Bergerac. In spite of the weather we were able to take the children to the Perigord Aquarium, the Caves of Grand Roc and the Chateau of Milande, formerly owned by the singer and entertainer Josephine Baker. Whilst I love visiting this chateau and the birds of prey show in the grounds, it always makes me feel a bit sad. It is an example of how someone with such talent and a kind heart didn’t have the right advisers to help her make the best financial decisions.

In June there is another tax deadline that still needs to be considered:

Which is that all Trust declarations need to be declared by 15th June. I wrote an article many years ago which you can find HERE

There have been no significant changes to the treatment of trusts since the law of wealth tax was amended to include only immovable property. A trust can be recognised in France and perfectly valid in France provided that it doesn’t go against public policy (ordre public) and in particular the rights of heirs under French law. Income from a trust is subject to income tax depending on the nature of the income (rent from an apartment or capital income) and can be subject to tax credits under a double tax convention. Trusts (excluding charity trusts and pension trusts) must be declared in France if any of the settlor, trustee or beneficiary are French residents or if the trust contains an asset situated in France on 1st January. According to a press release by the Ministry of Finance on 5 July 2016, 16,000 entities had been identified and notified as trusts to the French administration.

Another change this year is that the Wealth Tax declaration which normally had to be submitted by middle of June if you have assets over a value of €1,3million, this year has to be submitted at the same time as your tax returns by way of a tax form called 2042-IFI. Those of you resident in departments numbered 55 and above still have until 8th June to submit. If you French tax residents who came to live in France, after having spent 5 years abroad, you are not taxable on your non-French assets until 5 years after you became resident. Non-residents also have to declare if their French assets are over €1.3million.

Finally, 30th June 2021 is the deadline for Brits who were resident in France before 31st December 2020 to apply for their residency permit under the Withdrawal Agreement. If you haven’t already done so or know of someone who hasn’t, and they were resident before 31st December 2020, please do try and encourage them to go to the following website:

https://brexit.gouv.fr/sites/brexit/accueil/vous-etes-britannique-en.html

New Spanish tax rules for UK ISAs and investment funds

By John Hayward
This article is published on: 28th May 2021

28.05.21

Brexit increases tax woes for UK nationals living in Spain

Slowly but surely, the impact of the United Kingdom’s exit from the European Union is taking shape. For those UK nationals living in Spain, this could mean higher, and possibly new, taxes. As I wrote last week in my Wealth Tax in Spain article, the Spanish government and regional governments are in desperate need of revenue to cover pensions and the consequences of Covid-19. One source of this revenue will be through applying taxes to people from the UK who hold investments that do not qualify for special treatment in Spain.

At The Spectrum IFA Group, trading as Baskerville Advisers S.L. in Spain, we encourage those who wish to invest to make more from their money in the bank, or those already invested, to use a “wrapper” that is tax compliant in Spain. The main benefit of this is that any tax on gains is deferred until the account holder receives benefits in the form of a withdrawal. There are also other tax advantages that Spanish compliant investments have over those that do not qualify for special tax treatment in Spain.

Part of the “compliant” nature of the products that we recommend is that the companies used to hold the investments report the values, and hence gains, to the Spanish tax authorities. They are also responsible for deducting tax from any withdrawals.

Other important factors to make an investment Spanish compliant are that the distributor (the company offering their products in Spain) must be officially registered with the Spanish authorities and that the funds invested in are based in the EU*.

Click here to book a call

We meet many people who have UK based investments such as Individual Savings Accounts (ISAs). Others invest in funds using platforms (Online investment facilities) or insurance bonds through UK based companies. Up until 31st December 2020, although gains on these investments may not have been reported to Spain annually by Spanish tax residents, they seem to have been largely ignored by accountants and gestors when completing the annual tax return in Spain. This is possibly due to the fact that the UK was part of the EU and at least part of the compliance stipulations were being satisfied. That is, the funds used were in the EU.

People think that completing the asset declaration using the Modelo 720 is some kind of tax return. It is not. Of course, it gives the Spanish tax office a snapshot of wealth, which in turn could possibly lead to wealth tax being charged, but it is not specifically designed to give the detail of the annual gains, or losses, that occurred in a particular tax year.

The picture has changed dramatically due to Brexit. If you hold investment funds in the UK, these will be some of your responsibilities moving forward:

You will have to report any gains each year
You have to itemise each element of the investment so that if, for example, you hold 20 different funds, you must detail each one
In addition, if your portfolio is made up of income paying funds, any dividends/coupons have to be itemised. Even cash within a portfolio has to be shown separately
You need to know exactly when you bought each fund

There is a lot more to consider but, as you can imagine, this is going to be a nightmare situation for many, especially for those who have bought, sold, and then bought funds again over the years.

We can simplify all of this.
For those who have yet to become Spanish tax resident, we can organise your investments so that you never have to experience this incredibly difficult situation. For those who are already tax resident in Spain, we can switch your non-compliant, and potentially painful, investments to compliant ones. If you wish, you can select the same types of fund that you currently hold but in a Spanish tax compliant manner. This is extremely important because it means that, if you move back to the UK without having withdrawn any money from the investment, you will have escaped Spanish taxation on gains made whilst resident in Spain. Added to that, through investment structures that we can guide you to, if you return to the UK, any gains made whilst you lived in Spain, are ignored for UK tax purposes (I will write more on this in another article).

If you would like to legally avoid annual Spanish taxation on your investments, as well as the headaches and additional accountancy costs, you need to act now. The problem is not going to go away unless you leave Spain, which might be an extreme measure. It might be that your investments are in poor shape or that your UK adviser can simply no longer deal with you since Brexit. There is a host of other ways that I might be able to help you so contact me today for a free and no obligation discussion.

*Source: JC&A Abogados

Click here to book a call

Inheritance Planning and French Residency

By Occitanie
This article is published on: 18th May 2021

18.05.21

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

As a very important part of any financial planning review, we thought we would re-visit the subject of inheritance planning in this newsletter for the benefit of newcomers and as a reminder for those of you who are already settled in this fabulously diverse and beautiful region of France.

Despite the importance of making sure one’s affairs are in order for the inevitability of one’s demise, very few actively seek advice in this area and, as a result, are unaware of the potential difficulties ahead for their families and heirs, not to mention potential tax bills which can be quite substantial for certain classes of beneficiary.

The basic rule is, if you are resident in France, you are considered also to be domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend upon the relationship to your beneficiaries.

Fortunately, there is no inheritance tax between spouses, PACSed or civil partners, and the allowance between a parent and a child is reasonably generous, currently €100,000 per child, per parent. For anything left to other beneficiaries, the allowances are considerably less. In particular, for stepchildren and non-related beneficiaries, the allowance is a measly €1,594 and the tax rate on anything above that is an eye-watering 60%!

There are strict rules on succession and children are considered to be ‘protected heirs’ and, as such, are entitled to inherit a proportion of each of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, then three-quarters of your estate must be divided equally between them.

You are free to pass on the rest of your estate (the disposable part) to whoever you wish through a French will and, in the absence of making a will, if you have a surviving spouse he/she would be entitled to 25% of your estate.

You may also be considered domiciled in your ‘home’ country and if so, this could cause some confusion, since your home country may also have the right to charge succession taxes on your death. However, France has a number of Double Taxation Treaties (DTT) with other countries covering inheritance. In such a case, the DTT will set out the rules that apply (basically, which country has the right to tax what assets).

For example, the 1963 DTT between France and the UK specifies that the deceased’s total estate will be devolved and taxed in accordance with the person’s place of residence at the time of death, with the exception of any property assets that are sited in the other country. By the way, the UK–France Treaty is not affected by Brexit.

Therefore, for a UK national who is resident in France, who has retained a property in the UK (and does not own any other property outside of France), the situation would be that:

any French property, plus his/her total financial assets, would be taxed in accordance with French law; and
the UK property would be taxed in accordance with UK law, although in theory, the French notaire can take this asset into account when considering the fair distribution of all other assets to any protected heirs (i.e. children).

If a DTT covering inheritance does not exist between France and the other country with which the French resident person has an interest, this could result in double taxation if the ‘home’ country also has the right to tax the person’s estate.

Hence, when people become French resident, there are usually two issues:

how to protect the survivor; and
how to mitigate the potential French inheritance taxes for other beneficiaries

European Succession Regulation No. 650/2012
Many of you will no doubt have heard about the EU Succession Regulations that came into effect in 2015 whereby the default situation is that it is the law of your place of habitual residence that applies to your estates. However, you can elect for the inheritance law of your country of nationality to apply to your estate by specifying this in a French will. This is effectively one way of getting around the issue of protected heirs for some expats living in France.

There are a number of other ways in which you can arrange your affairs to protect the survivor, depending on your individual circumstances, such as a change to your marriage regime (yes, France matrimonial law provides for couples to select a particular type of contract under which their assets will be devolved on divorce or death) and we would always recommend that you discuss succession planning in detail with a notaire experienced in these matters.

Mitigation of Inheritance Tax
On whichever planning you decide, it is important to remember that the French inheritance tax rules will still apply. So, even though you have the freedom to decide who inherits your estate, this will not reduce the potential inheritance tax liability on your beneficiaries, which, as mentioned above, could potentially be very high for a stepchild. Hence, there may still be a need to shelter financial assets from French inheritance taxes.

By far and away the most popular vehicle in France for sheltering your hard-earned savings from inheritance tax is the assurance vie. The assurance vie is considered to be outside of your estate for tax purposes and comes with its own inheritance allowances, in addition to the standard aIllowance for other assets. If you invest in an assurance vie before the age of 70 you can name as many beneficiaires as you like, regardless of whether they are family or not, and each beneficiary can inherit up to €152,500, tax-free. The rate of tax on the next €700,000 is limited to 20% – potentially making a huge saving for distant relatives or stepchildren.

The more beneficiaries nominated (e.g. grandchildren, siblings, etc) the greater the potential inheritance tax saving, depending on the value of the policy at the time of death. Beneficiaries can be changed or added at any time during the life of the assurance vie. Remember also, that beneficiary nominations are not restricted to family members, so, whoever you nominate gets the same allowance.

The inheritance allowance on premiums paid to assurance vie after age 70 are less attractive, at €30,500 of the premium (capital investment) paid plus the growth on the capital shared between all named beneficiaries, and the remaining capital invested is taxed in accordance with the standard inheritance tax bands. Nevertheless, an assurance vie is still a worthwhile investment after the age of 70 as, in addition to the inheritance tax benefits, assurance vie offers personal tax efficiencies to the investor such as gross roll-up of income and gains whilst funds remain in the policy and an annual income tax allowance of €4,600 for an individual, or €9,200 for a couple, after 8 years.

So, in order to ensure that your inheritance wishes are carried out some planning may be required and there are investment opportunities to mitigate the inheritance tax for your chosen beneficiaries. Please contact us if you would like to discuss your particular circumstances.

Inheriting From a Non-French Resident
The tax position of a French resident beneficiary inheriting from the estate of a non-French resident is worthy of a more detailed explanation.

The good news for UK nationals is that, due to the aforementioned DTT on inheritance between France and the UK and providing the deceased did not have any assets situated in France at the time of death, then there is no French inheritance tax payable if you are resident in France.

Where there is no specific tax treaty on inheritance in place between France and the country of residence of the deceased, then the obligation to pay French inheritance tax is determined by how long you have been fiscally domiciled in France at the time of death. You are considered domiciled fiscally in France if you are resident in France and have been for at least six years out of the last ten years preceding the death. If you fall within scope for inheritance tax then the allowance and tax rate will be in accordance with your relationship to the deceased.

If you have received an inheritance, then you may well need some advice on what to do with it and how best to shelter it from both personal taxes for you and inheritance taxes for your beneficiaries. We can help you with that.

Pension Funds and Inheritance Tax
Death benefits from bona fide pension schemes are excluded from your estate for inheritance purposes and are therefore not subject to French inheritance tax. Generally speaking, it is possible to leave your pension fund to the beneficiary of your choice, although some defined benefit (final salary) schemes will only pay death benefits to certain beneficiaries.

It is important to bear in mind that if you are considering encashing your whole pension pot under ‘Pensions Freedom’, once the funds are removed from the pension wrapper, they will be included in your estate for inheritance purposes. You could subsequently shelter these funds in an assurance vie but we strongly recommend you seek our advice before fully cashing in your pension funds as there may be any number of reasons why this would not be in your best interests.

Wealth Tax in Spain

By John Hayward
This article is published on: 10th May 2021

10.05.21

The UK tends to rely on income and inheritance taxes to generate revenue, but countries such as Spain and France, also apply wealth tax (Impuesto sobre el patrimonio). This is an asset tax and can be on cash, real estate, pension funds, shares, investment bonds, ISAs, and even cars. Portugal also has a wealth tax but this relates solely to immoveable property.

Spain eliminated wealth tax in 2008 but then “temporarily” reintroduced it in 2011 and it has been here ever since.

Each autonomous region sets their own allowances and rates after initial direction by central government. The Spanish State’s allowance is €700,000 plus up to €300,000 for one’s main residence. This is per taxpayer. It is important to note here that a property only becomes a main residence after 3 years of continuous habitation. There are a number of exceptions to this rule.

The State’s rates of wealth tax are as follows:

Lower Band Limit (€)	Upper Band Limit (€)	Tax rate (%)
Nil	167,129	0.2
167,129	334,253	0.3
334,253	668,500	0.5
668,500	1,337,000	0.9
1,337,000	2,673,999	1.3
2,673,999	5,347,998	1.7
5,347,998	10,695,996	2.1
Over	10,695,996	2.5

Wealth tax in Valencia has changed over the years. In 2019, it was announced that the tax-free allowance was being reduced to €600,000. With effect from 2021, the allowance is being reduced further to €500,000. This means that more and more people will become subject to wealth tax.

In addition to the reduction in allowances for 2021, Valencia has higher wealth tax rates than the State’s own rate, as follows:

Lower Band Limit (€)	Upper Band Limit (€)	Tax rate (%)
Nil	167,129	0.25
167,129	334,253	0.37
334,253	668,500	0.62
668,500	1,337,000	1.12
1,337,000	2,673,999	1.62
2,673,999	5,347,998	2.12
5,347,998	10,695,996	2.62
Over	10,695,996	3.50

Example:
If a couple have assets totalling €2.5 million, including a main residence worth €600,000, the individual annual wealth tax bill based on the State allowance and rates could be around €600. Using the Valencia allowance and rates, the tax bill could be almost €1,800. To clarify, this is per person and payable each year.

Depending on one’s income, and if one is a resident in Spain, the amount due can be reduced. The wealth tax due cannot exceed 60% of one’s taxable base (e.g., annual pension income, savings, etc.) when adding the wealth tax to personal income tax liabilities with a minimum payment of 20% of the wealth tax due. It is important to make certain that all of one’s assets are eligible for this rule.

Spanish Tax Guide Download

Tax in France – what needs to be declared

By Katriona Murray-Platon
This article is published on: 6th May 2021

06.05.21

No-one needs reminding that 2020 was a year like no other. Our lives were changed in many ways and this had an effect on our finances. Luckily there were many government schemes and initiatives to help people overcome the financial difficulties suffered in lockdown and because of the health restrictions. However now that 2021 tax season is upon us, what now needs to be declared?

Salaried workers bonus is tax exempt
Last year some salaried workers may have received a consumer bonus which is exempt from tax up to €1000 (or €2000 if there is an interest agreement/“accord d’intéressement”) Public workers and health workers also received a bonus which is exempt up to €1500.

Overtime hours are usually exempt up to €5000 per year, however the exemption threshold has been increased to €7500 for those hours carried out between the beginning of lockdown (16th March 2020) and the last day of the emergency health state set at 10th July 2020. This applies to salaried workers in the public and private sector as well as those under special regimes. All exempt overtime must still be declared on the tax form and will be included in the tax income reference rate for the tax household.

The Ministry for Economy and Public Accounts has announced that the payments paid by companies to their employees to cover the costs of working from home are exempt from tax up to €2.50 per day worked at home and up to €50 per month for 20 days and €550 per year.

Salaried workers who choose to deduct their actual costs rather than applying the flat 10% abatement on their salaries, can still choose this options without supplying supporting documents however these deductions may not be so beneficial depending on your level of salary. As always it is best looking at both options and seeing which works best for you.

Charitable gifts in 2020
Although things were hard for many people last year, it was also a year, more than ever to help those less fortunate. Gifts given in 2020 to humanitarian organisations and victims of domestic violence result

in a tax credit of 75% of the amounts donated up to a maximum threshold of donations of €1000. Over this threshold and for donations given to other organisations (including political parties), the rules haven’t changed, the tax reduction is 66% for such donations and he maximum threshold is 20% of the taxable income. The excess can be carried over over the next 5 years and results in a tax reduction under the same conditions.

Independent workers
Companies and individual tradespeople benefitted a lot from the government help last year. Fortunately the financial help granted by the solidarity fund to companies most affected by the health crisis, the exceptional financial help to independents (CPSTI RCI COVID 19) and those paid by the additional pension schemes of independent professionals and lawyers (CNAVPL and CNBF) are all exempt from income tax. The other help from public or private entities are taxable if there is no specific legal provision that exempting them otherwise.

Auto-entrepreneurs and micro-entrepreneurs who were exempt from paying part of their social charges must include in their tax declaration the turnover figure that was not declared to URSSAF because of this exemption.

Home help tax credit – changes to the conditions
The home help services normally give rise to a tax credit of 50% of the amount paid out. These expenses are deductible up to €12,000 (plus €1500 per dependent and person over 65 years, up to a maximum of €15,000). However in 2020, during lockdown some of these services had to be temporarily suspended or even cancelled, or in certain circumstances could be carried out online.

If you employed someone carry out a service in your home, you may have benefitted from the partial compensation for the hours that your employee was unable to carry out during lockdown. These compensated hours cannot benefit from the normal tax credit and if you nonetheless paid your employee their salary even though they couldn’t actually work, this cannot be used for the tax credit (it is classified as a solidarity donation).

Exceptionally, some services, which in principle took place in the home, but were in fact carried out remotely because of the health crisis, still give rise to the tax credit under the same conditions as other home help services. These include online additional schooling support lessons and individual lessons (gym, music etc) given to adults or children. The Ministry of Economy and Finance has specified that these services “must have involved a minimum amount of effective interaction, implying a physical presence of the person supplying the service at one end of the screen/telephone line and the be specifically given to the person paying for the service at home”. This therefore does not include online group lessons or watching pre-recorded videos online. This derogation applies throughout the time that people were not allowed to go out either because of lockdown or curfew.

Professional landlords who waived rent
If you are a professional landlord and you waived the rent of your tenants for a commercial or professional premises rented to a company that was difficulty because of the Covid crisis, you can still deduct your expenses (ownership expenses and mortgage interest). You also can carry forward your rental loss, up to €10,700, on your overall income. The additional loss – and the part of the deficit arising from the mortgage interest – will be carried forward and deducted from your income over the following 10 years.

There is also a specific tax credit if you definitively waived rent for November 2020 only (not any of the other months in 2020). The tenant company must have employed at least 5000 employees and have been closed to the public (even if they were able to do click and collect) or to have carried out its business in one of the sectors of business that were eligible for the solidarity fund as listed in Decree no 202-371 of 30.03.2020 (hotels, travel industry for example).

Furthermore the tenant company must not have been in financial difficulty on 31st December 2019 or have been under court ordered administration proceedings as at 1st March 2020. The tax credit is equal to half of the unpaid rent if the company employed less than 250 employees. If the number of employees was between 250 and 5000, the 50% is calculated on the two thirds of the rent. If the tenant company is managed by an ascendent, descendant or member of your tax household, you must justify the cash flow problems in order to deduct your expenses and get the tax credit.

Voluntary retirement contributions
You can deduct from your total income the sums paid into a retirement scheme such as PER, PERP or Préfon up to the normal deduction limits. If you have opened a PER for your child (whether a minor or of age but still within your tax household) you can deduct the payments even if they payments were paid by your own parents (the child’s grandparents) Children have their own deduction amounts even though it is not necessarily stated on the tax return.

Download your French tax guide here

Are you a French tax resident who owns a house in the UK?

By Andrea Glover
This article is published on: 4th May 2021

04.05.21

UK Property Matters

I thought I would write this month about the topic I am asked most frequently about at the moment by clients and prospective clients, which is the subject of owning property in the UK as a French tax resident.

There are many reasons for deciding to keep properties in the UK when moving to France. Whether it be a ‘bolt hole’ to go back to for those that frequently return to the UK for family or work, or as an investment to generate rental income to supplement retirement.

There are several potential French and UK tax consequences to consider, when owning property in the UK, which I will cover in general terms by each specific tax area.

Wealth Tax

Wealth tax in France is called Impôt sur la Fortune Immobilière (IFI). The assets that are taxable under IFI are all worldwide real estate and investments in real estate which includes, amongst others, the main home as well as second homes. Business property assets are exempted subject to certain conditions.

The tax is triggered by eligible net property wealth of more than €1.3 million. For UK expatriates living in France, foreign assets are exempt from wealth tax for the first 5 years.

Capital Gains Tax (CGT)

As a French tax resident selling property in the UK, you are liable to CGT both in the UK and in France.

Since 2015, the UK has applied CGT on the sale of property of former residents noting that private residence relief, if applicable, is available for the final 9 months of ownership. It is only the gain from April 2015 that is taxable and the normal tax free allowance (currently £12,570) also applies.

French CGT and social charges are applicable in France on the sale of a UK property and are based on duration of ownership. Some exemptions do apply, for example when the property was the principal residence in the previous 12 months, although certain conditions apply.

Under the UK/France double tax treaty, UK expatriates can receive a credit in France for any UK CGT paid on the sale of the UK property, but they cannot offset any UK CGT paid against a social charge payment.

UK Property Rental Income

Rental income from a UK property, when resident in France, still requires the completion of a UK tax return.

As a result of the UK/France double tax treaty, income tax and social charges are not payable in France. However, it is important to note that this income is still declarable in France and is taken into account when establishing the tax bands applicable for all other declarable income.

Inheritance Tax on a Property Held in the UK

The subject of French inheritance tax is a complex subject that could justify an article in its own right, but in general terms, under the UK/French Double Tax Treaty on inheritance tax, the UK property would fall under UK inheritance rules and applicable taxes.

In summary, owning property in the UK has potential tax consequences in both the UK and France and as with all such matters, I would recommend that you seek the advice of a suitable expert in all circumstances.

Download the 2021 French Tax Guide