Buying Property in Italy

By Andrew Lawford
This article is published on: 15th October 2020

15.10.20

If you’re reading this, you may well already own a property in Italy – in which case, you’ll know the ropes already.

But for anyone wanting to get serious about hunting for property in Italy, my latest podcast should be of interest. We cover not only the ins and outs of property transactions, but also look at how best to approach the task of finding your Italian home.

As usual, we conduct interviews with experts who offer their unique perspectives to help you to disentangle an otherwise confusing (and potentially insidious) process.

Available on
iTunes
Spotify
Google Podcasts
Stitcher

Please click on the above links to listen

Should I transfer my UK Pensions if I’m living in France?

By Philip Oxley
This article is published on: 12th October 2020

12.10.20

I live in France but have pensions in the UK. Should I transfer them to a QROPS, an International SIPP or just leave them where they are?

For British Nationals living in France, perhaps the primary decision to be made in relation to long term financial planning is whether or not to take any action with regards to any pension scheme/s they have in the UK.
To deal at the outset with one question I have seen asked, and increasingly so since the Brexit decision, it is important to state that it is not necessary to move your pension if you move to France. Even after Brexit, you will still have access to your pension funds. Concern that you will lose access to your pension fund is not a good reason to move it!

However, there can be good reasons to consider moving your pension once you have relocated to France. This decision should be made only on the basis of a proper analysis having been conducted on your existing schemes.

As a French resident, the primary options in relation to your pension scheme/s are as follows:
i) Leave them where they are
ii) Move them into a QROPS
iii) Move them into an International SIPP
iv) A combination of the above

Click on the sections below to find out more:

Leave the existing UK Pensions Schemes in their current arrangement

Following a professional review, sometimes our recommendation is to leave your pensions schemes in their existing arrangement in the UK. Reasons for doing this include the following:

you plan to move back to the UK at some point in the near future
your pension scheme/s are relatively small in value (e.g. less than £100,000)
you have a cautious stance in relation to investments, your pension scheme is a Defined Benefit scheme (sometimes known as a Final Salary scheme) and this is your only or primary source of income once you retire

One key drawback to this approach is that you will forever receive your pension in GBP, therefore always be subject to exchange rate risk and currency exchange costs. You only have to speak to someone who already receives their pension in GBP (or even read some of the posts on Facebook on this issue) to see that British Nationals have really felt exchange rate pain in recent years, only receiving €1.10 currently for each £ when once it was closer to €1.40. In addition, there is the time spent researching and using currency exchanges to try to obtain the best rate.

For example, drawing a pension of £10,000 per year and converting to Euro would have yielded approximately the following amounts over the past 15 years:

€15,000 in January 2007
€10,500 in December 2008
€14,250 in July 2015 and
€11,000 currently

These fluctuations are not helpful in your later years when you need to plan your financial affairs and seek a degree of certainty in relation to your income.

A Qualifying Recognised Overseas Pension Scheme (QROPS)

A QROPS has been the go-to product for many expats over the years. To be classified as a QROPS the scheme must meet certain requirements, as defined by Her Majesty’s Revenue & Customs (HMRC). Amongst the key benefits are the following:

The option to consolidate multiple pensions into one administratively simple but diversified portfolio. Consolidating pension pots into a single structure is a more convenient way of tracking your pension growth and provides a far simpler structure when you start to draw your pension
The currency of the pension can be chosen, not just at outset, but a change in currency can be made whilst holding the pension. Therefore, if you move your pension into a QROPS in GBP initially, if a point arises in the future when the pound significantly increases in value, part of the fund or the entire fund can be moved into Euro
A QROPS is a pension which is held outside of the UK; therefore, it provides some protection against future legislative changes that might take place impacting pensions based in the UK. Chancellors of the Exchequer have for many years now seen pensions as an easy target for raising tax revenue
Moving pensions funds into a QROPS is an action that is known as a Benefit Crystallisation Event (BCE) and your pension will be tested against the UK Lifetime Allowance (LTA) at the time of transfer. Should your pension subsequently grow in value in a QROPS beyond the LTA (currently £1,073,000) there will be no further test or tax to pay. Currently, pensions in excess of the LTA can be taxed at up to 55% in the UK, depending on the type of withdrawal (lump sum or drawdown). Although in some cases, you may be able to enhance the LTA limit with different forms of pension protection
Tax planning opportunities for your nominated beneficiaries on the event of your death. Currently, if you are over 75 when you die (most of us hope this will be the case) then a tax liability exists for your beneficiaries in relation to UK based pensions. This liability could be greatly reduced and often no tax is payable if certain conditions are met

One disadvantage of some QROPS is the level of fees. Because of the structure of a QROPS requiring an offshore investment platform, EU based trustee (typically Malta-based) and sometimes a Discretionary Fund Manager (DFM), costs can in some cases become prohibitive. However, regardless of pension value, there is scope to control both initial and ongoing charges. With proper planning, cost should not be an obstacle to establishing a QROPS.

An International Self-Invested Personal Pension (SIPP)

A SIPP has some of the advantages of a QROPS in relation to currency flexibility and consolidation, but because it remains a pension structure domiciled in the UK, the tax advantages in relation to the LTA and Death Benefits for heirs do not apply. Also, it remains exposed to any legislative changes made by the UK Government in future budgets.

However, if you plan to move back to the UK or prefer to keep your pension based in the UK, then this is an option that may be suitable.

A combination of the above

What I mean by this, is that if you have a good, well-funded Defined Benefit (final salary) scheme and also one or more Defined Contribution (money purchase) pensions schemes, you have the option to move one or more into another structure (e.g. QROPS or International SIPP) and leave some of the schemes in place. For example, you may want to keep the security of a guaranteed pension that a Defined Benefit scheme provides but move your other DC pension schemes into a QROPS or SIPP and secure the benefits that ensue from these structures.

Other considerations

In deciding whether to go ahead and transfer your existing pensions into a different structure, typically the bar should be set at a higher level for a Defined Benefit (final salary) scheme. This type of pension provides a guaranteed income for life, offers some protection from inflation and the risk of funding your retirement does not rest with you (i.e. you are protected from the ups and downs of the stock market).

However, these schemes do lack flexibility and by exchanging the guaranteed annual income from retirement age, you receive instead a cash lump sum (and transfer values have seldom been higher than now) which you can invest and spend how you like with access from age 55 and the ability to pass the full amount onto your beneficiaries (tax-free if you die under the age of 75 and also the potential to be tax-free over the age of 75 if your pension is a QROPS).

Most Defined Benefit schemes only pay half of your pre-commutated pension to your spouse should you die, and usually a minimal amount or nothing to your children if you no longer have a spouse at the time of your death or your spouse who was a beneficiary of your pension subsequently dies. A QROPS for example allows much greater flexibility in relation to the selection of a beneficiary, allowing the funds to pass to any named beneficiary. Also Defined Benefit schemes are not entirely risk free – many are underfunded and some may be unable to meet their obligations (although the Pension Protection Fund exists to provide 90% of the guaranteed income if the scheme becomes insolvent before you reach retirement age, although there are maximum limits of compensation, i.e. £37,315 at age 65. The full amount would be paid if the scheme became insolvent if you were over the scheme retirement age).

There are two primary types of
employment pension schemes in the UK

a) Defined Benefit (or Final Salary)

• Provides guaranteed pension as a proportion of final salary based on i) salary ii) years of service iii) accrual rate (e.g. 1/60th of final salary for each full year of service)
• Payable from Age 65 (if taken earlier penalties apply for each year taken before 65)
• The pension is reduced when taking a lump sum

b) Defined Contribution (or Money Purchase)

• Pension benefits depend on the size of the fund
• Significant flexibility in relation to when to take the pension (currently from Age 55), how much to take and structure used to take the pension (annuity, capped and flexi-access drawdown, UFPLS, Scheme etc.)
• The pension fund size will depend on how and where it has been invested and the performance of those funds

Summary

This is a complex area and it is difficult to cover all relevant details within the parameters of this article. There are other considerations I have not addressed here, and this piece should be considered a high-level overview of some of the factors to consider. Perhaps the best advice I can give is the following:

Do not just do nothing and leave the pensions where they are because it’s the easiest thing to do
Do not assume the best option is to move your pension/s offshore into a QROPS just because you live in France and the UK has left the EU
Act now to have your pension schemes carefully reviewed. Engage with a properly regulated financial adviser and have an analysis conducted as to your options. Only then can you make a well-informed decision about what is best for you and your long-term financial security

A final point to consider is that there is currently a 25% tax applied to pension transfers into a QROPS for British Nationals living outside the EEA. After 31 December 2020, it is possible that this tax will also apply to those living in the EEA (as the UK will no longer be an EU country and the transition period will have expired). This has not yet been confirmed by the UK government but the opportunity to consider a QROPS as a financial planning option may not exist beyond the end of this year. If this is an option you want to explore, I recommend you do this without delay.

Are you au fait with Exchange Rates?

By Occitanie
This article is published on: 9th October 2020

09.10.20

Welcome to the sixth edition of our newsletter ‘Spectrum in Occitanie, Finance in Focus’.

The Covid-19 pandemic is still dominating our thoughts and lives and will probably continue to do so for some time yet. Life must go on though, and we need to make sure that we are looking after our finances, as well as ourselves and our loved ones. Today we are going to take a slightly deeper than usual look at something that we might take for granted – exchange rates.

As a reminder, we are Rob Hesketh, Philip Oxley, Sue Regan and Derek Winsland. Together we form Spectrum’s team in the Occitanie, formerly of course the Languedoc Roussillon and Midi Pyrenees.

What is an exchange rate?
Ok, let’s start with the easy questions. It will get tougher as we go on. Obviously, the exchange rate is the rate at which one currency can be exchanged for another. Currently the rate at which holders of sterling can buy euros is 1.1100. Or is it 1.1000? or maybe 1.0925? It might even be less than 1 if you buy it at the wrong place. Then again, 0.9010 might be a very good rate. How can that possibly be right? How can 0.9010 be better than 1.1000? The answer lies in the fact that there are always two versions of every exchange rate.

We Brits tend to take the view that sterling is more important to us than any other currency, so we always want to know how much of any given currency we can get for £1. The rest of the world however are prone to taking a different view, so if you ask a French bank for the rate to convert sterling to euros you will get a rate that reflects how many pounds you can get for one euro. Confused? I do not blame you. To keep things simple, I recommend that when you see a rate expressed in that way, all you need to do is divide it into one. Thus 1/.9010 = 1.1099

Why so many different rates?
Well, obviously the rate can keep on changing every minute. The law of supply and demand applies here, but there are also many different rates at the same time. That is because volume plays a huge part. An exchange rate is a compromise between two parties, one of whom wants to sell, and the other to buy. Basically, if you are an international bank dealing in hundreds of millions of pounds per deal, you are going to get a very good rate; in fact, the best there is. Players (to many it is in fact a game) can either make a price or request a price. If the latter, they will never say to the market ‘I want to buy euros’. They will always ask for a two-way price, the idea being that the bank being asked for the rate does not know which side of the deal the other bank wants. The spread between the two prices may be a little as 3 basis points. That’s the fourth decimal point to you and me, so the rate quoted might be 1.1000 to 1.1003. The quoting bank sells euros at 1.1000 and buys them at 1.1003. Those three basis points represent the market spread, or profit margin on the deal. Still with me? If you are it will come as no surprise that the profit margin gets wider and wider as the amount you are dealing in gets smaller and smaller. At exactly the same time as a big bank is dealing at 1.1000, you might find that the rate you get for your €500 will be more like 1.0700, and if you go to a kiosk at an airport and ask for €500 cash for your weekend away in Paris, you might well get less than 1:1, so you would end up spending more than £500.

Why should I be wary of exchange rates?

Quite simply because if you do not give them due care and attention, they can cost you a lot of money.

The indisputable fact is that whilst most of us arrive in France (or any other new home abroad for that matter) declaring that wild horses wouldn’t drag us back to the UK, or if they did we’d be in a box, the fact is that many of us end up back where we came from. We might hate the idea, but the facts are there. That means that there are four general phases that we will go through where exchange rates are going to have great bearing on our lives. Firstly the initial move phase, where we need to have enough euros to move here and buy property; secondly the sustenance phase, where we need to invest lump sums or exchange regular income such as pensions based in sterling; thirdly dealing with possible influxes of capital through inheritance or UK property sales, and fourthly the reversal of all of the above if we decide to go back.

What is exchange rate risk?

Best think of this as ‘‘damned if you do and damned if you don’t’’. If I do a currency deal, would I be better off waiting for a better rate?

If I don’t do it now, will it be worse when I have to do it?

Often, the answer is yes to both questions.

The aim should always be to eliminate exchange rate risk, but it is a lot harder to do that than it seems. Yes, if you sell your property in the UK and move to France, you are going to need to convert a sizeable part of the proceeds into euro to buy a property here, but what if there is a good chunk of money left over? What if you were fortunate enough to get £800k for your des-res in Surrey, and managed to find the ideal pied-a-terre in the Aude for €300k? That leaves you with a decision to make about the £530k or so that you have left. Is the answer that you are going to live in euroland so your money should be in euro? – Yes. Is the answer that eventually you may want to go back to the UK so your reserves should stay in sterling? – Yes. Is the answer that the current exchange rate is terrible, and you should at least wait and see what happens? – Yes. So, which ‘Yes’ is the right one? You can have the same conversation about your pension funds if you are looking to consolidate them outside of UK jurisdiction (and political meddling). You can also have that same conversation when or if you decide to sell a second property that is currently let out, or Mum’s house which she left to you.

What is the answer?
Quite simply, the answer is planning; serious discussion with your partner/family about what the future will bring, and where it will be, and then serious discussion with your financial adviser (that’s us by the way) about how to manage the resulting risk. The inescapable fact is that no-one can accurately forecast exchange rate movements. In much the same way that financial/economic projections by experts are notoriously unreliable, so too are those made by F/X forecasters, but do you really want to convert all your assets into euro at 1.10 only to find that in fifteen years’ time you want to relocate to the UK and the rate is 1.50? In case you don’t have a calculator handy, that would result in an f/x loss of over £140k in the above scenario. What you really need is someone to help you decide where your future requirements will lie, not what the exchange rate will be when it happens.

Even funding a house purchase needs planning. In France it can take months before you can finally pay for and move into your new home. The exchange rate can move a long way in that time, and strangely, it usually moves against you! There is a way to eliminate that risk though, and it is called a Forward Contract. If you have a set date for your final payment, your financial adviser may well suggest that you speak to a good Foreign Exchange company who will be able to fix a rate for you, valid for that date, so that you know exactly how much your villa in the sun is going to cost you in sterling terms. These are legal contracts though, and you will have to accept that rate even if the market goes up. What you are doing is buying peace of mind against it going down, which could make your purchase uncomfortably more expensive.

Another product that may be useful to you is the Limit Order. If for example you decided to buy land abroad, and have a property built on it, you might well find yourself needing to make stage payments to your builder. If the rate goes up during this process you will be happy, but if it goes down markedly…?? You can place an order for a set period with your F/X company to buy a set amount at a chosen higher or lower rate. So, you might decide that you want to buy your euro at 1.25 if it gets there, but also if it starts going down, you don’t want to get a rate any lower than 1.05. This is basically a ‘take profit’ and ‘stop loss’ strategy combined, but you can just do one side of it if you choose to.

Part of our service to you is to monitor these companies and make a suitable introduction to you.

Our responsibilities don’t end there though…

We will discuss with you the choices you have regarding the investment of any left-over lump sums. Those discussions should leave you in no doubt that cash left uninvested is a loss-leader. Leaving your surplus cash invested in the UK in non-French tax compliant instruments such as ISAs is not the answer.

In France, the clear leader in terms of tax efficiency for capital gains, income and succession taxes is Assurance Vie, but you can make all those mistakes listed above by investing in the wrong policy. Flexibility is the key, along with portability.

What if we could offer you an Assurance Vie
that could start life in sterling?

Then change into Euro if the exchange rate moved up, and back again if it went down.

What if you could invest in both sterling and euro in the same policy?

And what if that policy could simply change into an ordinary investment bond if you went back to the UK, fully compliant with UK tax law?

Strangely enough…

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

Taxe Foncière – Do you qualify for exemption?

By Katriona Murray-Platon
This article is published on: 8th October 2020

08.10.20

Although it hasn’t felt like it, because we have had such gloriously warm and sunny September, autumn is officially here! October is a special month in my household because it’s my son’s birthday and also Halloween which my very French husband has officially and fully adopted as his favourite annual event (the children rather like it too)! However I feel that two topics that must be covered this month are taxe foncière which needs to be paid by 15th October and of course banks.

Taxe foncière is a tax paid by property owners on the 1st January of each tax year. Note that it is paid by the owner not the occupant and applies to both buildings (houses or apartments) and land (agricultural or constructible).

If you sell your property or land, the tax liability for that year is apportioned to each party, by the notary, according to the timing of the sale.

You may qualify for an exemption if:

the property is a new construction used as a main residence (the exemption is for 2 years)
you are in receipt of disability allowance
you are in receipt of old age allowance
you are over 75 (depending on level of income)

The tax office may also allow an exemption for unoccupied property which is habitable and normally rented, provided that:

it is unintentionally unoccupied
it is unoccupied for at least 3 months
part or all of the building is unoccupied

However, as the tax reduction is not automatically granted, you have to apply for it and demonstrate that you qualify (with reference to the specific points above).

For more details on the taxe foncière please read the rest of my article on our website HERE.

As I’m sure you will have heard some people have received letters from their banks informing them that some services will not be continued for those resident in the EU. Not all banks are going to discontinue their services but customers of Barclaycard in particular have been told that this service will no longer be available to them.

If you find yourself in this situation or you are concerned about having a UK sterling account when you move to France and after 31st December 2020, please do get in touch. Spectrum has worked with Standard Bank for many years and they provide an excellent service to expats living in the EU.

Some key points to note are that:

They do not charge to receive funds into the bank
UK Sterling to Sterling transfers are done by BACS so there is no charge
Clients can set direct debit transactions up from their debit card at no charge
Standing orders can also be set up on the account and again there is no charge for Sterling to Sterling in the UK

As with any financial decision it is always best to get advice and recommendations from a certified, regulated financial adviser. So if you want to know more about Standard Bank please do get in touch or if you know anyone who is worried about their UK banks after Brexit, feel free to pass on my details.

Fun fact of the month:
In France a popular savings account, in addition to the very popular Livret A account is the LDD or Livret de Development Durable. This savings account actually began in 1983 and was called a CODEVI which stands for an account for industrial development, it allowed clients to put away short term savings which the bank used to lend to the French industries to ensure funding and modernisation. At the time the interest rate was 7.5%!!! In 2007 this account changed its name to become the LDD and it now only makes 0.5% interest. Since 1st October 2020 those with these accounts can request that part of their savings be used to benefit social economy and solidarity organisations.

Finally, if you haven’t seen the article that I wrote last month on the Spectrum website about Assurance Vies in France, you can find it on my page HERE.

Wishing you all a wonderful October!

New registration procedure for residents (TIE)

By Chris Webb
This article is published on: 6th October 2020

06.10.20

Well, summer is well and truly over. After a scorching few months, which at times was unbearable, we´re now being treated to what I always tell the kids is good old English weather. The heavens opened, the sky turned a miserable shade of grey and the temperature dropped from the mid 30´s to around 16 degrees in the space of 48 hours.

We had a little respite and it warmed up a bit, but as I´m writing this the rain is steadily falling again.

So far 2020 has been a strange year. We started off with Brexit at the forefront of our minds, but that quickly turned into a Covid 19 panic. Summer seemed more relaxed and it appeared we were through the worst but now Madrid is heading back into a type of lockdown, although not as severe as in March.

So what´s new? Well, the latest shock news to hit the front pages is the threat of UK banks closing down accounts for EU residents. On top of that there is the new registration procedure for residents (TIE) which came into force in July.

Do you have a bank account in the UK but live in Spain?

By now, I am sure you have all seen the headline news saying that a number of UK banks are writing to their clients living in the EU to close down their UK banks accounts.

The news is true, we have had clients that have already received notification, but this change affects different banks and different EU countries. You probably already know that the blame for this decision lies purely with Brexit!

Looking at the information available it seems that Spain may get off lightly with this as it doesn’t get a mention, but only time will tell whether we face the same issue.

Brexit has put these banks in a difficult position, leaving them to calculate the cost and inconvenience of managing EU resident clients. Once Britain is out of the EU marketplace, the banks will be forced to adhere to individual regulations which differ from country to country. If they want to continue to service clients in any EU state, they will need the relevant licences to do so. But if it is not viable for them to arrange this, it will lead to account closures.

This is going to cause all manner of problems for those that still rely on a UK bank account. It could be for rental income to be received, bills to be paid or just a spending account for when you visit family and friends. If you are affected by these closures there are no other UK options available to you, as you can´t open a new bank account if you´re not a resident there.

They may offer you an international bank account, but that is yet to be determined. If you find yourself in this position then get in touch; The Spectrum IFA Group have a great working relationship with Standard Bank who offer an international account in multiple currencies, which may be the ideal solution to your predicament.

There is a great article on Money Saving Expert that also has a useful graphic detailing the latest info from a number of banks. Click on this link to see more:
www.moneysavingexpert.com/news/2020/09/thousands-of-british-expats-face-uk-account-closures/

The second “new thing” for us is the registration procedure for a residence card in Spain. We are all used to the green A4 or credit card sized document, but now we have the new TIE for British national’s post Brexit. We are being advised that making the change is optional and the green cards remain valid, but in my opinion it is only a matter of time before it becomes mandatory.

You can apply for the new TIE by following these three links:
EX23 – TIE Application Form
http://extranjeros.mitramiss.gob.es/es/ModelosSolicitudes/Mod_solicitudes2/index.html

Modelo 790-12 – Payment Form
https://sede.policia.gob.es/Tasa790_012/

Cita Previa
https://sede.administracionespublicas.gob.es/icpplus/index.html

I have already been through the process of changing to the TIE and I am happy to say it was the easiest piece of Spanish administration I have ever dealt with in nearly 8 years. If you want further information, I have a great article I can send on which was put together by CAB Spain and explains the exchange process as well as applying as a new resident.

How is my UK Pension taxed in Italy?

By Gareth Horsfall
This article is published on: 2nd October 2020

02.10.20

There is nothing like a cold snap to focus the mind and it certainly arrived with a bang this year. In Rome we lost about 20 degrees of temperature in a week. However, I have to confess that I am rather glad that the autumn months are now upon us because the prolonged hot temperatures play havoc with trying to be productive.

In this article, as you will see, there are a number of shorter topics, but ones which I think are relevant for our lives in Italy. During the summer I have been scanning the financial papers and the ‘norme e tributi’ pages of Sole 24 Ore to see what might affect our lives in the future. Fortunately, the Italian government seemed to give us a break this year and I didn’t find much of significant interest. However, a number of other matters have arisen in the last few weeks

UK pensions and tax when living in Italy

Let’s start with one of the more interesting matters that arose during the summer. I was contacted by a client who was enquiring about taking money out of her QROPS pension (a QROPS is a UK pension that has been moved away from the UK but still operates like a UK pension – useful when living abroad!).

I have always advised my clients that any withdrawals from a UK personal pension are taxed at income tax rates in Italy, but over the last few years I have come across a number of clients whose commercialista has been declaring the pension as a ‘previdenza complementare’. This is the Italian equivalent of a UK personal pension. The main reason for choosing this route seemed to be a preferential flat tax rate of 15%. My argument has always been that the 2 structures have fundamentally different characteristics and therefore a UK personal pension should be considered an irrevocable trust, hence withdrawals are subject to income tax. In fact as far back as June 2018 I wrote the following in an article:

In a lot of cases I was informed that the commercialista had contacted the local Agenzia delle Entrate and they had confirmed that this is correct. So, who was I to challenge it? However, I still believed that it was incorrect. Of course, no-one challenged it because it also meant the difference between being paying a 15% flat tax rate on that income or progressive income tax rates starting from 23%.

However, during the summer the client I referred to above contacted her commercialista, who did not accept this definition, but in fact presented an ‘interpello’ issued by the Agenzia delle Entrate (an interpello is basically an ‘opinion’ from the Agenzia delle Entrate on a specific case that is presented to them) from May 2020 regarding a UK personal pension holder.

In the interpello (which you can find HERE – the interesting part starts on page 7) it indicates that a UK personal pension should not be considered a ‘previdenza complementare’, but should actually be subject to progressive tax rates in Italy. This is quite an eye-opener because if this is the case, then it flies against the information gained from various commercialisti.

I should add here that the interpello is merely an indicative judgment in this particular case and is by no means a definitive decision for everyone holding a UK personal pension and resident in Italy. However, the fact that the AdE has gone to the trouble to write this gives us a pretty good idea into their thinking, should they choose to follow it up.

What to do?
So what should you do if your commercialista has advised you to declare your UK personal pension as a ‘previdenza complementare’ and you are now benefitting from the 15% flat tax rate? I would take the interpello to them and ask their opinion based on the new evidence. Or you may choose to do nothing. Whatever your choice or the advice from the commercialista, we are now a little more enlightened into the thoughts of the Agenzia delle Entrate on this topic.

Brexit
It is worth noting here that Brexit is almost upon us and whatever your opinion as to how the UK will exit, a messy unfriendly exit may bring a few matters to light. In particular, the interpello also states that pension funds which ‘could’ be deemed to qualify are those which conduct business cross border and meet the pension rules of both EU states in which they are operating. I don’t know of a UK personal pension provider that does this anyway, but the mere fact that the UK is in the EU may gloss over some of these finer points. But then, what will happen once the UK leaves the EU?

Which leads nicely on to the next problem that Brits are now facing in Italy.

Bank account closures for UK citizens living in the EU

By now, I am sure you have read the headlines saying that a number of UK banks are contacting or have contacted their customers living in the EU to close down their UK banks accounts, potentially leaving them without a UK account. To date the main culprits are the Lloyds banking group, which includes Halifax and the Royal Bank of Scotland, Coutts and Barclays.

I am afraid to say that the rumours are true and I know of a number of people who have been contacted already.

The culprit, of course, is Brexit…

These banks have now had to weigh up the benefits of retaining bank account holders in the EU post Brexit, because once they out of the EU market place they will be forced to adhere to individual EU jurisdictional regulations, as well as UK regulations, if they want to continue to service clients in any EU state. Clearly, for a bank which has no intention of developing business in Italy (in our case), nor does it have a sufficiently large client base in Italy already, then they are going to need to look to close down activities in those jurisdictions to ensure they do not fall foul of the regulators.

It is interesting that, in contrast, HSBC Bank has not decided to pull from its EU markets because it has sufficient activities which take place throughout the EU. I have also heard that Nationwide is also not pulling any activities just yet.

For many clients this is going to be a very tough time, as you could lose a bank account in the UK when you may still have bills being paid, or you simply use it when you are in the UK. To make matters worse, because you are no longer a resident in the UK, you can no longer request an account from another UK banking group.

Many of the groups will also offer their international bank account services, of which the majority are based in the Isle of Man. This is not a good idea because the Isle of Man is not in the UK, but is a UK dependant territory and is deemed a fiscal paradise. It is currently on the grey list of ‘could do better’ in global fiscal transparency with the EU. It is anyone’s guess what will happen after the UK leaves the EU, but it is certainly not beyond imagination that the EU will look to impose punitive tax measures for anyone holding accounts in UK offshore jurisdictions. Let’s not forget that it only came off the black list in 2015!

So, without any other options perhaps one of the better solutions is to look at an Italian bank which can provide a GBP account. I have used Fineco for years, and recommend it to many clients. They offer a EUR current account linked to a GBP and USD account and transfers of cash between accounts are made at spot rate, with no fee. It might be a solution, but will be no consolation for losing your UK bank account. Once again, another downside of Brexit for those of us that have chosen to live in the EU.

Why you should never leave more than €100,000 (or currency equivalent) in your bank account

Still on the subject of banking, does the sound of a bad bank sound appealing to you? A bank that is so bad that it can take all the bad from all the other banks and just keep it there and away from us all. It sounds like a great idea in theory.

On the 25th September the EU had a consultation round table event with a number of European bank leaders, asset management groups and government officials to discuss the possibility of creating a European-wide ‘bad bank’ which would take all that bad debt (debt which cannot be paid back for one reason or another) and which is currently sat on the balance sheets of a lot of European banks, particularly Italian ones and other Southern European states. The idea being that this bad debt could be whisked away from the banks, freeing them up from the worry of having to manage this debt and giving them the liberty to start lending once again, supposedly to individuals and businesses which pose a better credit risk and would be more reliable at paying the debt back.

So far so good. I would not argue at this point. It seems like a good idea to help stimulate economies especially after the COVID-19 crisis.

But morally, should we accept this?

This is the argument put forward by a number of EU functionaries who argue that the banks are, once again, getting another bail out at the cost of the taxpayer. You and I.

To remedy this, the ‘Bank recovery and resolution directive’ (BRRD) has proposed that certain parties should also have to meet some of that cost as well as the EU/taxpayer. Those parties have been identified as the shareholders of the bank, holders of the banks bonds and lastly, the one that should interest us all: deposit holders with more than €100,000 or currency equivalent held in any banking group. Does this mean that the EU, to fund the COVID-19 crisis, could make a cash grab on deposit holders with more than €100,000 or currency equivalent in their accounts? At this point it is only a proposal, but I shall be watching this space carefully.

Based on this news, there is probably no better time to look at your financial plans closely, especially if you are holding high levels of cash in any banks around Europe.

NS&I slashes rates!

You might be someone who has been investing in NS&I products in the UK as a diversifier to your other holdings, or maybe just someone who likes to ‘play it safe’ with your money.

National Savings and Investments, NS&I, are backed by the UK government and due to the COVID-19 crisis, the government has now moved to slash rates on all national savings products to the point where you have to ask yourself, ‘are they worth it?’

The rate on the Direct Saver account has been slashed from 1% interest per annum to just 0.15%. Income Bonds, which have for a long time been considered a best buy, have been slashed from 1% interest rate to just 0.01% pa.

Not only that, but the average interest rate on Premium Bonds (with the chance to win the big prize) will fall from 1.4% to just 1% and the amount of prizes issued will be reduced significantly.

If that is not enough, the Bank of England is also toying with the idea of introducing a negative base interest rate. If they apply that to the NS&I products, then you will be effectively paying the government to hold them.

Time to consider alternatives to protect your capital?

Cashback for cashless transactions

Italy has been desperately trying to find ways for the people to start using digital forms of payment instead of cash so that the economy can become more fiscally transparent and they can raise more tax revenue.

By the end of November we will have confirmation on the new push to drive people towards using digital methods of payments in Italy, even for small transactions, such a buying coffee at the bar. The Italian government has come up with an idea to incentivise the drive to digital forms of payment.

Firstly, from next year the maximum spend on contactless forms of payment will rise from €30 to €50.

In addition, they have dreamt up another seemingly difficult to navigate proposal for a refund of expenses paid by card payments. I will have a go at deciphering it here:

1. You will get a 10% reimbursement on expenses paid up to a maximum spend of €3000 per annum (hence a tax refund of max €300 pa).

2. But, to achieve this you must make a minimum of 50 transactions every 6 months (100 every year) and the €3000 is in fact split into a spend of a maximum of €1500 every 6 months. The idea being that you can’t just go and spend on something costing €1500 every 6 months or a series of high value items to reach the limit.

To receive the refund you will need to register on the app and enter your codice fiscale, and your debit/credit card details.

3. Not only are they offering cash back on transactions but they are discussing a ‘super cashback’ prize of €3000 for the first 100,000 people who reach the maximum number of digital transactions in a year, within the limits provided above.

Certainly food for thought. Watch out for confirmation of these offers sometime before the end of November and then start registering to get your cashback. In theory it should be easy, but based on previous experience of Italian government initiatives I fear it may turn out to be more complicated than first glance.

I hoped you have enjoyed this ‘return to normality’ article. I will be sending out more information in the coming weeks and months to keep you up to speed with the goings on in the financial world and how that might impact our lives in Italy.

If any information from this article has interested you and you would like to get in contact, you can reach me on gareth.horsfall@spectrum-ifa.com or on cell phone 333 649 2356 by call, sms or whatsapp.

Comment prendre sa retraite à 50 ans?

By Cedric Privat
This article is published on: 30th September 2020

30.09.20

Qui n’a pas rêvé un jour de pouvoir arrêter de travailler avant l’âge légal de la retraite? 50, 40, 30 ans? Et si ce rêve était réalisable?

La question peut faire sourire, surtout si vous résidez comme moi en Espagne à Barcelone, avec un prix de l’immobilier exorbitant et des salaires souvent moins élevés qu’en France.
Pourtant, de plus en plus de personnes y arrivent, alors pourquoi pas vous?

Le Frugalisme :
Le mouvement FIRE (Financial Independance, Retire Early), né aux Etats-Unis dans les années 2000, défend le principe de vivre simplement et de faire fructifier son argent pour pouvoir vivre de ses rentes.
Il s’inscrit dans un mouvement économiste du Frugalisme “Qui se nourrit de peu, qui vit d’une manière simple.” (Larousse)
Pourquoi ne pas s’en inspirer?

Comment?
• Économiser : s’acquitter de toute dette (surtout celle de votre bien immobilier), réduire son train de vie, éliminer les frais superflus, supprimer certains loisirs, épargner davantage dès le 1er du mois.
• Définir un budget : il sera indispensable de bien calculer vos besoins mensuels afin de définir votre patrimoine retraite et ainsi fixer votre objectif.
• Investir : en plus de votre résidence principale vous devrez investir judicieusement l’argent épargné dans des placements financiers, des actions ou de l’immobilier.

Les frugalistes suivent une « règle d’or » dite des 4% : disposer d’un patrimoine au moins 25 fois supérieurs au montant de ses dépenses annuelles. Si elles s’élèvent à 2.000 euros par mois, il faudra par exemple un patrimoine de 600.000 euros, permettant de vivre des 4% de rendement généré.

Quand commencer?
Bien évidemment, le plus tôt possible. Une retraite anticipée deviendra vite un rêve oublié si on débute trop tard, mais tout dépendra également de votre implication à la cause.
Les nouvelles générations se soucient de plus en plus tôt de leur retraite et pour cause; les prévisions des pensions publiques de retraite sont à la baisse et l’âge légal de départ à la retraite ne fait qu’augmenter.
Le frugalisme demandera une forte réduction de vos dépenses, il est souvent accompagné par une conscience écologique afin de se tourner vers un mode de vie décent et responsable.
Nos sociétés capitalistes amènent de plus en plus les individus à se poser des questions sur le rapport qu’ils ont à l’argent et au travail.

Qui peut appliquer cette méthode ?
Bien évidemment, toute retraite anticipée sera plus facilement accessible aux classes moyennes et supérieures. Pour beaucoup, il est déjà suffisamment compliqué de mettre un peu d’argent de côté.
Une recherche Google rapide vous permettra de lire les expériences de nombreux “jeunes retraités” à travers le globe.
Les méthodes divergent, mais la discipline est de rigueur. Certains retournent vivre chez leurs parents quelques années et économisent 70 % de leur salaire, d’autres travaillent pendant 10 ou 15 ans à un rythme à la limite du soutenable, certains vont compter des années chaque centime possible et enfin les plus privilégiés qui reçoivent un salaire confortable vont tout simplement faire plus attention, s’organiser et investir malin.

Cette méthode vous intéresse mais vous vous posez des questions ?

N’hésitez pas à prendre conseil auprès de professionnels à votre écoute.

Le groupe Spectrum à Barcelone vous propose d’effectuer un audit sans frais ni engagement afin de mieux vous organiser dans la préparation de votre retraite, anticipée ou non.

Nous vous aiderons ensuite à comparer et choisir le placement financier le mieux adapté à votre situation et préférence.

Which Assurance Vie is best?

By Katriona Murray-Platon
This article is published on: 7th September 2020

In answer to the question of where do you put your money for maximum tax efficiency, an assurance vie is certainly the best place to put it. The French have continued to favour this investment over the years. According to the French Insurance Federation (FFA), in 2019 the premiums paid into assurance vies increased by 3.5% in 2018, to a total of €144.6 billion. I subscribe to a French financial magazine and every year they do an article on the best assurance vies in the market. This gives me an interesting insight into which products are recommended for the typical French investor.

What is interesting to note is that it is very rare for bank assurance vies to appear in this list. Banks have several assurance vie products under different names with different offers and it can be hard for the consumer to understand and compare performance and costs. Every member of my household, including my children, has an assurance vie, because even after social charges on the part in Euro funds, they are more likely to outperform any cash savings accounts. For example, the Livret A (the preferred savings account of the French) and the LDDS now only pay 0.5% interest per year and any other savings account offered by banks only generally offer between 0.2-0.3% interest which is not exempt from tax and social charges.

The French tend to favour investments in Eurofunds, believing them to be a safe option. Whilst this may be true if the investment horizon is less than three years, in the longer term inflation has a negative effect. The days of glory of the Eurofunds was around 2013-2014 when rates reached 2.5%. In 2019 the average rate on Eurofunds was 1.5% compared with 1.8% (net of fees) in 2018. However when compared with inflation, which was 1.8% in 2018 and 1.1% in 2019, there wasn’t much ‘real’ growth. Social charges are taken at source on such investments which further impacts performance. If your investment horizon is over three years and closer to between five and eight years then you should be investing at least partly in equities to produce a positive return above inflation. If it’s security you are looking for, the more diversified your assets, both in terms of asset classes and geographical location, the better your portfolio will be to weather market fluctuations.

The advantage with bank assurance vies is that you can start with smaller amounts to invest and build up with regular monthly amounts. However as a financial adviser with a high level of French, even I find it difficult to understand what exactly is in these assurance vies and where the underlying investments are held. Usually you are given the option of eurofunds and euro equities. It is rarely possible to hold assets in a different currency. We work with assurance vie providers who can allow you to hold assets in sterling and dollars as well as euros, which would allow you to leave this money to beneficiaries living in the UK or the US and avoid transferring the money into euros at today’s exchange rate. If you wanted to invest in euros but are holding sterling, over time it can be switched into euro funds at the appropriate time and with advice from your financial adviser.

It is not easy to change assurance vies. The French government changed the rules at the beginning of last year allowing people to change contracts but only with the same insurer. However this depends on whether the insurer will allow you to change contracts and whether they have anything better to offer.

If you are in your 40s, 50s or 60s and your investment horizon is longer than eight years, and if you find that your assurance vie is not performing as it should, or you no longer get the proper advice/service from your financial adviser/assurance vie provider, you could consider encashing the policy and finding a better investment. Professional guidance from an authorised financial adviser is essential to determine whether this this option is appropriate for your circumstances.

If however you are over 70 and set up the assurance vie before 70, or you set up the assurance vie over eight years ago and are benefitting from the income tax abatements of €4600 per person (€9200) per couple, it may not be in your interest to change assurance vie providers. There are still many benefits of setting up a small assurance vie after 70 to benefit from other abatements, but that will depend on your situation and you should discuss options with your financial adviser.

I would always advise speaking to a financial adviser before going into any investment whether French or foreign. You need to be aware of the past performance of the investment (although this is no promise of future returns), the reputation of the investment company and the costs and how this may affect investment performance. For more information about assurance vies in general please see our guide but if you are considering this type of investment please do contact your local financial adviser.

There is more to (investment) life than the FTSE100

By John Hayward
This article is published on: 2nd September 2020

02.09.20

Dependence on the UK stockmarket has damaged wealth

In the last 5 months, life has not been easy. We have all had to change our lifestyles to one extent or another and we don´t know exactly what lengths we will need to go to in order to remain safe. Hopefully the worst has passed and we can get back to thinking about our future in a positive way and not have to constantly worry about coronavirus.

Aside from the pain of having to wear a mask, in the last 5 months I have had concerns about work, I have learned new words and phrases linked to coronavirus, and I have obtained a new Spanish residence card. Certain things have not changed during this time. People read the same newspapers, watch the same television programmes, express their disdain for Donald Trump, and base their investment decisions on the performance of the FTSE100.

New investment trends

Whilst certain business sectors have suffered over the last few months, others have prospered and have a positive outlook. Technology has come to the fore, both in terms of purchasing goods and communication.

Investments and the FTSE100

Aside from the investment vehicle and the tax structure your investments and pension funds are held within, it is important that the investments themselves are well managed. Some people have held off investing through fear of coronavirus. There are also those who had previously delayed investment decisions until Brexit had been sorted out. The consequence of this has been that they have missed out on growth over the last 5 years, even with the downturn in March/April, as well as suffering from the real loss through inflation if they have left their cash in the bank.

Most UK nationals refer to the FTSE100 to find out what is happening with stockmarkets. This is mainly due to it being the one we, as followers of British financial news, are most familiar with. The FTSE100 has been lagging behind global stockmarkets in the last few months. However, the FTSE100, the index of the top 100 companies in the UK, only represents a small percentage of global stockmarkets. Almost 40% of the 100 are banks/financial, oil/energy and consumer staples which include retailers. All of these sectors have been hit by coronavirus. It is overweight in certain sectors and, although they are all big companies, their recent losses are reflected in the movement of the index. Banks especially have had a rough time. Therefore, it is far from being a stockmarket index which represents all global markets and sectors. I appreciate that it is an indicator, but it shouldn´t be used as a decision maker.

You will see from the chart below that by referring to, or even relying upon, the performance of the FTSE100 in order to make investment decisions could have been a mistake. It compares the FTSE100 with the US S&P500 and Nasdaq, and Japan´s Nikkei. The chart runs from the start of 2020. The FTSE100 is D, the blue line.

Not only has it been important to be aware of global stockmarket performance, but there are other sectors and assets to invest in. For example, gold, that was not immune to the panic in March, has shown itself to be in demand as a safe haven.

Well managed investment portfolios

I am pleased to say that all my invested clients are better off now than they were at the end of March. The most pleasing thing is that not only did they suffer relatively low falls in March but now many have made a complete recovery. We do not push people towards FTSE100 tracker funds. They may be cheaper but that is because there is little or no management. As is often the case, cheapest is not the best.

Conclusion

Active investment management has proven itself to be the best approach, certainly in problematic times. We recommend investment managers who are able to access global shares and other assets. They can buy and sell on a daily basis and not commit you to funds that can become restricted or illiquid. Many of my clients have been pleasantly surprised by the “bounce” of their investment value since March. The FTSE100 has struggled and it has been assumed that this is the case generally. They are also surprised how the United States stockmarkets, with all of the Trump and election issues, have done so well. At times there seems little or no correlation between day to day life and stockmarket performance. In fact, history has taught us that when there is panic and depression, stockmarkets tend to do well.

Over the next few weeks I shall be publishing more articles, so stay tuned:
• The expense of using your bank for insurances
• Life insurance for general living expenses and Spanish inheritance tax
• Currency exchange – your ‘free’ facility could be costing you thousands
• Applying for the new TIE – not compulsory for some but could be beneficial

With investments, there are plans that I can recommend that are clear to understand and tax efficient, and I explain the full details before you commit. The Spectrum IFA Group is not tied to any one company and I can offer you independent, impartial advice and guidance.

Contact me today to find out how I can help you make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

Living in Spain after BREXIT

By Chris Burke
This article is published on: 27th August 2020

27.08.20

After the results from the UK’s General Election, it seems we are closer to Brexit than ever before, so are you prepared for it living in Spain?

Documentation to remain in Spain

There are many rumours among non-Spanish people of what you need to do to stay in Spain should Brexit happen. The response from the Council recently has been, should you hold a NIE and an Empadronamiento, you are proving you are resident in Spain, so for now these should suffice. However, if Brexit does go ahead, Spain could draw a ‘Stay in Spain’ line in the sand which would then need adhering to. In the worst case scenario, a renewable 90-day tourist visa would give you time to adhere to whatever the new rules are. Spain has said publicly it will reciprocate what the UK does, and the UK knows there are far more British people living in Spain than the other way around in the UK.

UK Private and Corporate Pensions

The current HMRC rules state that if you take advantage of moving your UK pension abroad it must be to either where you are resident OR in the EU (due to the UK being in the EU). If this is not the case, you would have to pay 25% tax on the pension amount. Therefore, it is very likely that as the UK would be leaving the EU, these rules would not be met and the 25% tax charge would start to apply to pension movements outside of the UK. This could be the last chance to evaluate whether it’s better for you to move your pension or not and take advantage of the potential benefits, including being outside of UK law and taxes.

National Insurance Contributions

If you were to start receiving your State pension now, you would approach the Spanish authorities and they would contact the UK for their part of the contribution, taking both into account. Before the UK joined the EU, you would contact each country individually and receive what they were due to pay you. If this becomes the case again, for many British people the UK part of their State pension would potentially be more important, as it is likely to be the bulk of what you receive. We don’t know how Spain will act with regard to state pension benefits to foreigners; therefore it would make sense to manage the UK element well if this is your largest subscription.

I recommend two things here; firstly check what you have in the UK so you know where you are. You can do that here:

https://www.gov.uk/check-national-insurance-record

You can contact the HMRC about contributing overseas voluntary contributions at a greatly discounted rate, from £11 a month: you can even buy ‘years’ to catch up:

https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions

I have mentioned this in Newsletters before, but it really is a great thing to do, both mathematically and for peace of mind. Many people I meet living away from the UK have ‘broken’ years of contributions which is leaving themselves open to problems in retirement.

TIP: If you have an NI number, you do not necessarily have to be British to do this.

Investments/stocks/shares/savings

Time apportionment relief

Statistically, in 75% of British expat couples living abroad, at least one of them will return to live in the UK. It remains to be seen whether this changes if the UK leaves the EU, however, you can easily save yourself some serious tax if you have this in your plan of eventualities.

You can, in effect, give yourself 5% tax relief for every year you spend outside the UK by positioning your investments/savings correctly. Then, upon your return, you can take this tax relief when you are ready, such as in the following example:

Mr and Mrs Brown invested £200,000 ten years ago when they were living in Spain.
After this time, it is now worth £300,000
They returned to the UK and have been resident there for the last year (365 days)

They decide, after being back in the UK for 1 year (365 days) to cash in the investment, taking advantage of ‘Time Apportionment Relief’ which will be calculated the following way:

£100,000 (total gain)
multiplied by the number of days in the UK (365)
divided by total number of days the investments have been running i.e. 10 years (3650 days)

Resulting in a £10,000 chargeable gain (that is what you declare, not the tax you pay).

There are other potential tax savings as well, but they depend on other circumstances. If you have your savings/investments set up the right way you can take advantage of this.

If you have any questions or would like to book a financial review, don’t hesitate to get in touch.