Inheritance Planning & French Residency

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

09.06.20

Welcome to ‘Spectrum in Occitanie, Finance in Focus’.

The Covid-19 pandemic still dominates the news and will inevitably remain at the forefront of our thoughts for some time. Last month we focused on the financial consequences of this virus and we may well return to this subject in future editions. However, in this issue we are going to focus on the very important, and often neglected, subject of Wills and Inheritance Planning. Succession laws in France differ significantly from those in the UK and careful planning is required to mitigate French inheritance tax.

As a reminder, we are Sue Regan, Rob Hesketh, Derek Winsland and Philip Oxley. Together we form Spectrum’s team in the Occitanie.

As touched on in last month’s Newsletter, now is probably a good time to revisit the subject of inheritance planning – an integral part of any financial planning review.

Despite the importance of making sure one’s affairs are in order for the inevitability of our demise, very few people 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. With some sensible planning you could save your intended beneficiaries a great deal of stress and dramatically reduce their inheritance tax bill.

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 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 step-children and other non-related beneficiaries, the allowance is only €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 so are entitled to inherit a proportion of each of their parent’s estates. For example, if you have one child, the proportion is 50% of the deceased parent’s estate; 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.

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’ ie. 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

Protecting the survivor
There are various ways in which you can protect your spouse:

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 estate. 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.

Adopting a ‘community pot’ marriage regime or family pact
There are other tried and tested French structures available to fully protect the rights of a spouse, that don’t rely on the notaire having an understanding of the succession laws of other countries.

You could choose to have the marriage regime of ‘communauté universelle avec une clause d’attribution intégrale au conjoint survivant’. Under this marriage regime, all assets are owned within a ‘community pot’ and on the death of the first person, those community assets are transferred to the survivor without any attribution of half of the assets to the deceased’s estate.

However, adopting a ‘community pot’ marriage regime would not be suitable for families with step-children. This sort of arrangement could be subject to a legal challenge by the survivor’s step-children as they could miss out on their inheritance due to the fact that there is no blood relationship with the step-parent.

In this situation, a family pact (pacte de famille) could be the solution, whereby families agree in advance who will inherit and when. Of course, this would only really work where there is an amicable relationship between parents and children, as the children are effectively waiving all or some of their right to inherit.

There are a number of other ways in which you can arrange your affairs to protect the survivor, depending on your individual circumstances, 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 step-child. Hence, there will 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 remoter relatives or step-children.

Let’s look at a simple example of the inheritance tax position of a married couple with two children, comparing the IHT position with and without investing in assurance vie:

CLICK ON THE IMAGE TO DOWNLOAD PDF

It is clear to see from this example that by wrapping their medium to long term savings in an assurance vie, this couple have saved each child €30,500 in IHT.

Of course, the more beneficiaries nominated, for example grandchildren, siblings, etc, the greater the IHT saving overall. Beneficiaries can be changed or added to the assurance vie at any time. 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) plus the growth on the capital shared between all named beneficiaries, and the remaining capital invested is taxed in accordance with the standard IHT 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, 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 IHT for your chosen beneficiaries.

Please contact us if you would like to discuss your particular circumstances.

The Spectrum IFA Group – Occitainie
occitainie@spectrum-ifa.com

Who wants to be a millionaire?

By Victoria Lewis
This article is published on: 3rd June 2020

03.06.20

Some people are prepared to cheat in order to become a millionaire. Charles Ingram famously cheated on the UK television game show ‘Who wants to be a millionaire’ and was subsequently found guilty along with his wife and friend who coughed during the programme to indicate the correct answers.

Frank Sinatra and Celeste Holm sung ‘Who wants to be a millionaire’ in the film High Society. Frank Sinatra was certainly a multi-millionaire even though he sang that he didn’t want to be!

Incidentally, the word millionaire was apparently first used in French in 1719 to describe speculators in the Mississippi Bubble who earned millions of livres in weeks before the bubble burst.

You may already be a millionaire or you may be planning to become one in the future through hard work, inheritance or good luck. Whatever your current financial situation, it is interesting to consider the millionaire ‘secrets’ of how you can become one.

Of course, millionaires aren’t privy to knowledge and information that no one else has access to. The ‘secrets’ are simply sensible financial habits which we can all use.

Click the headings below to find out more:

[cq_vc_accordion contentcolor=”#333333″][cq_vc_accordion_item accordiontitle=”Decide what you want in the future, set a target and stick to it”]Have you calculated when and how much money you need to retire? Perhaps you want your children/grandchildren to have a university education – have you calculated how much this will cost?[/cq_vc_accordion_item][cq_vc_accordion_item accordiontitle=”Shift your focus from spending to investing”]Most millionaires take advice from investment professionals – tax advisers, lawyers, financial planners and asset managers. Don’t be afraid of them; use them.[/cq_vc_accordion_item][cq_vc_accordion_item accordiontitle=”The 24-hour rule”]If you can’t resist spending, apply this rule that many millionaires use. Even if you can afford an expensive purchase, give it a day’s time before actually making the decision. Impulsive shopping occurs from an emotional trigger and is often unnecessary. Do you want it or do you need it?[/cq_vc_accordion_item][cq_vc_accordion_item accordiontitle=”Set a budget (yes, even the rich have a budget!)”]Look at your monthly bank statement and categorise everything into the following groups:
Essentials, Personal and Savings. Generally speaking, the split should be 50%, 30% and 20%.

Living essentials – allocate 50% for monthly expenses such as mortgage/rent, transport, utilities, food etc.

Personal spending – allocate 30% of your income for holidays, entertainment, shopping, hobbies – anything that makes you happy.

Savings – 20% of your earned income should go straight into an investment or savings account.

If your own allocations are different, analyse why and consider how changes could be made.[/cq_vc_accordion_item][cq_vc_accordion_item accordiontitle=”Cash over credit”]We are living in a near cashless society and credit cards are easy to come by, but this environment is not advisable for people who struggle to keep within their budget. Many millionaires prefer cash over a card for this reason.[/cq_vc_accordion_item][cq_vc_accordion_item accordiontitle=”Control”]People who are good at saving and investing are generally also good at controlling their urge to spend. Many people have completed a Dry January or a Meat Free Monday, how about trying a regular ‘no spending’ day – call it Frugal Friday![/cq_vc_accordion_item][cq_vc_accordion_item accordiontitle=”Bills first, the rest later”]Most banks offer the facility to choose the date you want your regular standing orders to be paid. Choose the day after your income/pension is paid in, so you know exactly how much is left for everything else.[/cq_vc_accordion_item][cq_vc_accordion_item accordiontitle=”Invest in something that makes you happy”]This could be a classic car, a piece of art, perhaps you have a hobby that you enjoy investing in. Happiness can also be found in the investment arena, as more and more investors are choosing ethical or socially responsible funds. These are funds that have positive social impacts or are involved in climate change solutions. You can now express your values in the financial world.[/cq_vc_accordion_item][cq_vc_accordion_item accordiontitle=”Invest in services that save you time”]Many millionaires don’t hesitate in paying for services that save their time – food deliveries and laundry services for example. The same can be said for investment research – a financial advisory firm will do that for you.[/cq_vc_accordion_item][/cq_vc_accordion]

For more detailed information on these financial habits, please contact me on
M: 06 62 50 70 21 or email Victoria.lewis@spectrum-ifa.com

There’s only two things you can be certain of in life…

By Katriona Murray-Platon
This article is published on: 2nd June 2020

In France they have an expression “En mai fait ce qui te plait” which translated means that in May you do as you please. Well clearly this year we haven’t been able to do exactly as we please but we have been allowed a bit more freedom since the end of lockdown on 11th May. I haven’t yet felt the need to take advantage of this new found liberty, but as the children returned to school under acceptable conditions at the end of last week our work/home/school routine is set to change.

May is also tax season. Whilst you can get online to do your tax return in April, I personally have always preferred to do it on 1st May and during the month of May I notice an increase in client enquiries. Even though, in my previous role as a tax adviser, I used to do several hundred tax returns for our English speaking clients, I still find myself getting nervous when I do our annual tax return. There are so many bits of information that need to be assembled and I want to make sure that I have all the income, expenses and tax reductions properly entered before I finally press send.

May is a good time to think about not only your tax but also your taxable income. When I worked in the accountancy firm, my colleagues and I didn’t have time to think about whether a client was paying TOO much tax or not. We just took the information provided and entered the figures in the boxes. When I joined Spectrum I realised that, as a financial adviser, I could take the time to sit down and do a full financial review with my clients to look into whether it made sense for them to be paying so much tax. One thing that comes to mind is UK ISAs and investment portfolios.

They are not tax efficient in France and a real headache for anyone or their tax adviser to have to work out. It took hours of entering in each dividend, interest and capital gain. You can still own a well diversified, multi asset portfolio within an assurance vie wrapper and save time and money when it comes to completing your tax return.

If you haven’t done your tax return then there is still time to do so. You can get our free tax guide HERE. In 2020, all households must do their tax returns online if they have internet access at home. If not they can submit a paper return. You have until 4th June if your live in Departments 1-19 or if you are non-resident, 8th June for Departments 20-54 and 11th June for Departments 55 to 974/976.

As regards the markets, global share prices have recovered strongly over recent weeks, with many investors encouraged by central bank interventions, including ongoing financial support and stimulus for individuals and companies. The prospect of successful vaccine development and the easing of lockdown restrictions have also fuelled optimism. Some of this investor enthusiasm, and expectations of a rapid economic recovery, may well be misplaced, but short term stock market direction is of course impossible to forecast.

There is almost certainly more economic difficulty ahead, but there will in time be a recovery (the only question is timing) and, as always, it is important to take the long term view. For now, our priority should be to ensure that our investments and pensions continue to be well managed regardless of the difficult economic circumstances.

In the words of Julian Chillingworth, Chief Investment Officer of Rathbones, one of Spectrum’s approved multi-asset fund managers,
“We think it’s important that investors concentrate on understanding which businesses can survive this current crisis and quickly return to generating meaningful profits and paying dividends. This is where we are concentrating our research efforts, generating ideas for our investment managers to use in portfolios as we work our way through this crisis.”

May has been a busy month with Zoom meetings with colleagues, friends and family and telephone meetings with clients and prospects. However as lockdown has now ended and my children are back at school (for at least two days a week), I will be tentatively making a few face to face meetings in June if my clients so wish whilst taking all the necessary protection measures.

If you want to speak to me about any financial matters or you know of anyone who, having moved to France, would benefit from learning more about managing finances in France, please do get in touch.

Moving to Spain & UK pension contributions

By John Hayward
This article is published on: 29th May 2020

29.05.20

I am moving to Spain and I want to make UK personal pension contributions
Is this permitted and what are the restrictions?
Will I still receive tax relief?

Providing that you are a relevant UK individual (definitions below) then you can continue pension contributions for up to 5 full tax years after the tax year you leave the UK. This means that, even if you have no UK earnings once you leave the UK, you can continue to pay up to £2,880 a year (currently), with a gross pension credit of £3,600, for 5 full tax years after leaving the UK. There are more details on how you qualify to make contributions in the text below taken from HMRC’s Pensions Tax Manual. Importantly, any contributions must be made to a plan taken out prior to leaving the UK. In other words, you cannot open a new UK pension plan having left the UK.

We have solutions for people who have left the UK but continue to work and wish to fund a retirement plan. We also help clients position their existing pension funds in the most tax efficient way, creating flexibility whilst providing access to investment experts to maximise the benefits you will receive.

Relevant UK individuals and active members*

Section 189 Finance Act 2004
An individual is a relevant UK individual for a tax year if they:

have relevant UK earnings chargeable to income tax for that tax year,
are resident in the United Kingdom at some time during that tax year,
were resident in the UK at some time during the five tax years immediately before the tax year in question and they were also resident in the UK when they joined the pension scheme, or
have for that tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003), or
is the spouse or civil partner of an individual who has for the tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003)

Relevant UK earnings are explained under Earnings that attract tax relief in the above tax manual.

Members who move overseas
An individual who is a member of a registered pension scheme and is no longer resident in the UK is a relevant UK individual for a tax year if they were resident in the UK both:

at some time during the five tax years before that year
when the individual became a member of the pension scheme

These individuals may also qualify for tax relief on contributions up to the ‘basic amount’ of £3,600.
*Source UK government

To find out if you qualify and an explanation of all your pension options, including pension transfers, SIPPs, QROPS, and income drawdown, tax treatment of pensions in Spain, and to find out how you could make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, contact me today at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

Italian banks – should we be worried?

By Gareth Horsfall
This article is published on: 27th May 2020

27.05.20

In this month’s article, I promised I would take a slightly closer look at Italian banks and at what our risks are as deposit holders in banks, which, in all probability, are going to be a risk in the near future as the Italian economy slides further into contraction and a likely deflationary spiral.

But before I go into that I thought a little update on life post-lockdown might be in order. I was hoping to have written more articles during this time, and also send more videos, but after week 3 of lockdown and a decision to do an exercise challenge online every day with some friends and colleagues, I ended up with a herniated disc, a lopsided spinal column touching the sciatic nerve and was unable to sit down for 3 weeks due to the pain (lying down and standing up only). In fact, writing this article is my first attempt at spending any length of time in front of the computer. Well, if nothing else I have learned that I am no longer a spring chicken and need to be a bit more careful about my exercise routines in the future! Other than that, nothing has really changed much for us here, apart from being able to go out more. An unexpected upside of the lockdown has been that Rome without mass tourism is an absolutely beautiful place to be at this time of year. But since schools are still online and the teachers have ramped up the lessons to 4 hours online a day, then there is little chance to do anything other than manage the daily lessons and homework routine. Thankfully only 2 weeks to go and the school season will be over. Then what we do is anyone’s guess! I will keep you posted :0)

OK, so back to some financial news. I want to take a closer look at Italian banks in this E-zine, specifically just what our risks are by holding our cash in them, whether the minimum deposit holder guarantee is really worth anything and what we might be able to do to avoid any potential near and medium terms risks.

To start this somewhat complex journey we need to first look at the subject of Italian government debt: who holds it, how quickly they would be likely to sell it if problems persist and ultimately who would be left carrying the losses.

Domestic v foreign debt holders

Firstly, let’s examine the distribution of Italian government debt between domestic and foreign holders (foreign holders tend to be less loyal and more likely to sell at the first whiff of trouble). There is a widely held belief that the majority of Italy’s public debt is domestic because Italian households hold large financial assets. You may have heard the term ‘Italians are great savers’. This is true and the approximate net wealth of Italian households is €10 trillion, of which about a half, €5 trillion, is in financial assets. This figure is about twice the amount of public debt (before the Covid crisis) and could go some way towards explaining why one might consider the public debt to be covered by the assets and cash that Italians hold in the country.

However, the figures show that Italian households only hold about €100 billion in Italian public debt (roughly 5%) because a much larger part is held by Italian financial institutions: banks, insurance companies etc. whose ultimate beneficiaries, interestingly, are Italian households! This is where our risk lies! As Italian bank account holders, the real risk is that since Italian financial institutions are so heavily invested in the Italian state, a crisis in government could create a potentially bigger crisis in the financial sector.

Other categories of debt

We should also note that public debt also comes in the form of direct loans. Italian banks also have on their books about €290 billion of loans to general government and we don’t know much about the rates charged by banks on these loans. These are mostly issued to Italian local and regional authorities.

A web of complexity

We know that Italian households don’t own a large part of the public debt (directly): it is the financial institutions that hold the lion’s share. Banks alone hold about €400 billion of Italian government debt and if we include

the loans to regional government then their total liability is in the region of €690 billion. This means Italian banks are by far the biggest source of funding for the Italian government and they lend more to the government than they do to small and medium sized businesses. That might explain the somewhat eternally sluggish entrepreneur market in Italy.

We also know banks are supposed to be safe and deposits guaranteed up to €100,000 per bank / banking group (clarification on this point below), but our deposit money is, in reality, an indirect loan to the Italian state.

Another 2 groups who hold Italian government debt are insurance companies (think Generali) who actually take a much longer term view and are less likely to sell in distressed markets, so we don’t need to worry too much about them. The other group is investment funds.

Investment funds are all those funds which you often find being offered by the banks to investors and quite often are loaded with Italian government debt. Those holdings need to be valued daily and will be much more likely to be traded quickly on the back of bad news. Between domestic and foreign investment funds, they hold approximately €750 billion of traded Italian government debt. This might sound a lot, but running into the Covid crisis it represented only about a third of all the Italian government debt in issue, and so even if subjected to frequent trading, it is less likely to have an impact on the stability of the system. Although, in the case of a government default they would be the first in line to take the losses, along with the banks!

The last major holder of the debt is perhaps the elephant in the room: Banca D’Italia.

They owned approximately €400 billion of Italian government debt pre-Covid, and probably a lot more now. However, this is essentially a ‘giro dei soldi’ and

any interest that the Banca D’Italia earns from the Treasury, it immediately pays back. This debt can pretty much be considered Italian government debt. Also, it’s worth noting that the majority of this €400 billion was acquired under the last financial crisis European Central Bank quantitative easing programme, which basically means that Italian government debt is held by the ECB and has the effect of mutualising debt across other EU states. The ECB could raise interest rates on this debt and / or create less favourable payback conditions, but given the state of the EU, economically and politically, this is very unlikely.

How could trouble start in the banking system?

It is at this point that we return to the start and I answer the question (to the best of my ability), Italian banks – should we be worried?

As we have seen, the whole financial system in Italy is pretty much tied up with the state. It’s a clear case of robbing Peter to pay Paul. In addition, the majority of Italian debt is held within the EU, so there are vested interests holding the machine together, maybe with sticking plasters and bits of twine, but it is holding and working. And let’s not be under any illusion that this is just an Italian problem. France, Greece, Spain, Germany to name a few, are in similar situations.

Covid will not ease the situation, but given that a lot of the debt being created to ease the burden across the EU, will in some way or another be spread across it, it would take a pretty big move across global financial markets against the EU or one specific EU state for something major to happen. That being said, we would never have expected Covid to occur and so never say never.

What we can do to safeguard ourselves?
We all need banks for our daily living, and as we have seen in this article, Italian banks are just another appendage of the state. So, the safety of them is essentially a bet on the reliability of the Italian government, which brings me to my most important point. The safety of your Italian bank deposits, in truth, probably relies more on the stability of Italian politics than any other factor and my opinion, for what it’s worth, is that no matter which party comes into power in Italy, things move at such a snail’s pace that it’s hard to find myself losing sleep over my banking arrangements.

Protecting myself

That being said there are some measures to try to minimise my risk. The first being the minimum deposit guarantee of €100,000 per bank / banking group. In all honesty it’s not really worth the paper it’s written on and if there was a widespread run on Italian banks then the state would have to jump in and issue more debt, (which the banks would buy even more of), or the EU would have to step in to hold together the EU project. There are no reserves set aside for a moment like this. However, that being said it does make sense to spread your money if you hold more than €100,000 in cash. The key is in the wording, in that it is €100,000 per bank / banking group. The 4 banking groups in Italy are the Intesa San Paolo group, the UniCredit group, Banca BPM and Monte Paschi di Siena. Look out for the logo of one of these groups on your banking material, or check out your bank website and look at the small print to see if it belongs to one of these groups and if you have more than €100,000 in any one bank or group then think about spreading it. Alternatively, with bank interest rates being effectively negative, consider investing cash to maintain its long term value, whilst always leaving yourself with an adequate fund for emergencies.

Other banking options to look out for are the online bank offerings. I hear many people tell me that they opened up a bank account in Italy when they arrived, either by going along to their local branch and speaking with someone there, or a real estate agent helped them to do it. Most of these accounts are really basic bank accounts with very high charges and if you are a resident, and have an account like this, then consider looking at the online banks in Italy. I am a fan of Fineco bank, with whom I bank with myself. They have excellent terms and conditions and low charges. There are others as well such as Che Banca. Just make sure it is a separate ‘banking group’ to your main bank!

Other than this there is not much more we can do to protect ourselves from a banking crisis in Italy. A banking crisis will evolve from a political crisis and we should see that slow train coming from some way off. I will keep you posted. So no need to lose sleep about it, and concentrate more on getting back to our ‘bella vita’ in ‘il bel paese’.

The Spectrum IFA Group and Blackden Financial join forces

By Spectrum IFA
This article is published on: 26th May 2020

26.05.20

One of Europe’s leading expatriate advisory companies today announced the acquisition of a 50% shareholding in Geneva based financial planners Blackden Financial, the transaction having been concluded on Friday following discussions which began last year.

The move forms part of Spectrum’s ongoing strategic growth in Europe and expands its existing Swiss operation based in Lausanne. Blackden’s name, office and personnel will be retained.

Spectrum, established in 2003, specialises in financial planning for English speaking expatriates across Europe, operating from twelve regional offices in France, Spain, Switzerland, Italy, Belgium and Luxembourg. Blackden (also founded in 2003) operates exclusively in Switzerland from its central Geneva premises, providing investment, pension and savings solutions to a predominantly high net worth expatriate client base.

Spectrum Director, Chris Tagg, commented “Having observed Blackden Financial’s success over many years, we recognise the team’s disciplined advice process, high professional standards and commitment to long term client service. We are pleased to be investing in a company, and in people, knowing that the essential features of good business practice are already in place. We look forward to continuing the growth of our expatriate financial planning services across Switzerland.”

“The stake in Blackden allows Spectrum to further develop its Swiss based expatriate investment and tax planning capabilities, whilst giving Blackden access to locally compliant solutions in some of Spectrum’s EU markets including France, Italy and Spain.”

Chris Marriott, founder and CEO of Blackden, added “Having specialised in advising Swiss based expats for the last 17 years, we are delighted to complete this deal, which complements and strengthens our presence locally, and look forward to Spectrum’s involvement in the next phase of our business development.”

Michael Lodhi, Spectrum’s Chief Executive Officer and co-founder said “I have known Chris Marriott for more than 15 years, we were instrumental in the creation of The Federation of European Independent Financial Advisers (FEIFA) and I am delighted that we can now work together on a commercial basis.”

Investing After a Stock Market Crash

By Chris Burke
This article is published on: 25th May 2020

25.05.20

The question on any investor’s lips at the moment is, ‘Will the stock markets crash again in the near future, say in the next 6 months?’ The main reason for this question is, even if the world starts to get back to normal after this pandemic, when furloughing and all the other methods that have helped people economically are finished, soon we shall see the realisation of the following:

Profound job losses and companies going out of business
Some entire sectors (e.g. aviation) taking years to recover, some even never recovering
Company results being published for the 2nd quarter of 2020, when they have been effectively shut the whole time. How will the markets react?
Unemployment at an all-time high
People losing their homes, unable to obtain mortgages

What’s really unclear here is, and this is the BIGGEST question, has all of this already been priced in to the stock markets? That is to say, have all these considerations and more been valued and taken into account by people buying and selling stocks?

50% of the reason why stock markets go up or down has nothing to do with the actual value of those stocks; it’s the perception of the people buying and selling that influences it. If people are optimistic and there is some bad news, the markets might not be affected by this. However, if people are worried/pessimistic and there is some small bad news, this could be ‘the straw that breaks the camel’s back’ sending the markets tumbling. So, what is the best approach to take when investing after a stock market crash?

The answer to this question depends on your risk/reward profile. If you are a more aggressive investor, then using all your allocated investment money in one go would probably be your choice. However, this equates for less than 20% of us; the most common approach

of people investing their money is balanced.

Most people understand that not being invested means you could miss out if the markets shoot up, but also, if they crash lower you would lose out. However, if you believe yourself to be aligned with the following criteria, then there is a strategy you can follow which statistically should give you more safety, with a lower chance of your money being negatively impacted at the beginning:

You are prepared for your money to be invested for the medium to long term (5 years plus)
You do not want access to this money for at least 5 years
You understand there could be some volatility during this period
You want your money to grow above inflation and actually increase in its value
You are a balanced investor, meaning you are prepared to invest with the knowledge that the value of your money will go down, as well as up

After every stock market crash, analysts try to label what kind of a recovery it is. Is it a ‘U’ shaped recovery, meaning a sharp drop, period of downturn and then a sharp upward recovery? Or is it a ‘W’, where there is a crash, then a recovery, then another crash followed again by a recovery? The truth is, each stock market crash is different; no two are the same. Each day it’s 50/50 whether the markets will be up or down. Therefore, taking this reasoning into focus, and wanting to limit any losses and maximise any gains, let’s look at this as if it’s a business opportunity.

If you were opening up a new business, and needed to borrow money to finance it, would you either:

Borrow all the money you needed in one go and spend it
Borrow some of the money you needed, review periodically and then borrow more as and when necessary
Borrow some of the money you needed, review periodically and have instant access to more when necessary

Whilst Option 1 could work for you, that money needs to have interest repaid on it, and if the business didn’t go well, that’s more money lost.

Option 2, as long as you don’t have any cash flow issues, could also work well, meaning you are repaying less money and only borrowing what you need as and when. If anything happened to the business you were not putting everything in.

Option 3 gives you the same as option 2, as well as having access to a cash injection instantly should the time arise.

These options are all a matter of opinion, but in relation to investing, there is no future knowledge of what the stock markets will do. What we do know for certain about investing is this:

Historically, inflation has doubled approximately every 24 years
Unless your money is keeping up with inflation, in real terms you are reducing the value of your money

There is hardly any interest being paid by bank accounts
One day you will stop working, and the only income you will have is what you have built up

Therefore, taking into account these main known points, it’s clear that money needs to be managed effectively but in a risk averse way as possible. To be able to minimise risk, and to try and gain on any stock market rises and minimise any falls, the safest short-term approach would be to ‘drip feed’ your investments. However, to make sure you don’t miss out on any upswings in the market, you need to have your investment money aligned in the following way:

Example – Investment value €250,000:
Starting with €50,000, add to this €20,000 per month moving forward until one of the following occurs:

You have invested all your money
There is a large enough stock market downturn

In this second scenario, you would then decide to add much more of your uninvested money immediately; depending on how much is left and the scale of the market drop.

By using this approach, if markets took a sudden upward turn your money is already partially invested to take advantage of any gains moving forward. However, and more importantly, if the stock markets took a sudden dive, you are limiting losses and are in a position where you can take advantage of lower prices.

As I stated above, no one knows exactly what will happen or when after a stock market crash, but by investing in tranches to make your money grow, this will give you some protection against a stock market crash in the near future, and even the ability to even take advantage of it.

Two last points I would add, and those are, even if stock markets crash again, after a recent previous crash, there is more likely of a quicker bounce back. And secondly, money invested over time is the safest way to achieve long term growth of your money and create that income for when that day finally comes when you are no longer working.

My job is to help people plan their finances, managing their money in as painless and risk-averse approach as possible, at all times having their best interests as our common goal. Don’t hesitate to contact me on the details below if you would like to discuss any of the points in this article or arrange a meeting with me.

State Pension Benefits

By John Lansley
This article is published on: 22nd May 2020

22.05.20

If you have moved from one country to another, while it may be comparatively easy to obtain tax advice in order to help you plan your finances, it can be very difficult to find out how your State Retirement Pension will be affected, and this has become more uncertain as a result of Brexit. This article aims to shed some light on the issue

This article aims to shed some light on the issue.

I retired in the UK and moved abroad
Let’s start with something easy – if you have already retired and moved to Spain, France or another EU country, the chances are your only State Pension will be from the UK. With Brexit in mind, as long as you were legally resident in your new home country by the end of 2020, nothing will change, and you will be entitled to the annual pension uplift indefinitely.

Coupled to this is your entitlement to healthcare, in that you will have a form S1 from the UK, which ensures you benefit from full care on an ongoing basis, and which in effect will be paid for by the UK Government.

If you have already left the UK but have not yet reached formal retirement age, as long as you were ‘legal’ in your adopted home before the end of 2020, you will receive the UK State Pension at retirement age and qualify for annual increases. You will also be entitled to a form S1.

Note that, if you have not regularised your situation in your adopted home by the end of 2020, the situation is uncertain, to say the least. You will be entitled to claim the UK State Pension when you reach retirement age, but the uplifts are only due for 3 years and, most importantly, form S1 will not be available.

I left the UK 5 years ago at the age of 55 and have been self-employed in Spain for the last 5 years
Have you been making voluntary contributions to the UK scheme? Are you making contributions in Spain? If you haven’t already done so, obtain a pension forecast from HMRC – use the gov.uk website, sign up for the Government Gateway access service, and check your National Insurance Contribution records, as well as your UK tax records. You’ll have to apply to contribute, using form CF83 attached to the booklet NI38, Social Security Abroad.

You will then be told what pension you can expect at your retirement age, and you can also see how many incomplete contribution years you have. It is generally good advice to continue to make voluntary contributions after leaving the UK (currently £795.60pa), but if you are currently self-employed, you will only have to pay at the Class 2 rate, which is £158.60pa for the current year.

You’ll receive details of how to make up the shortfall, by bank transfer or cheque for past years, and by direct debit for the future if you wish to see payments taken automatically. Importantly, you can also call to obtain advice concerning whether it would be worthwhile doing this, and how additional payments will increase your pension entitlement – it might take a while to get through, especially due to the current Coronavirus lockdown, as it appears they are only dealing with those on the point of retiring, but you should find the staff helpful when you do.

Also, make sure you understand what your Spanish contributions entitle you to and try to obtain a projection of your future pension in Spain. This might prove difficult at present, with offices closed or providing limited services.

Having worked in the UK, Italy and now in Spain, I want to claim my State Pension
The first thing to understand is that you should retire formally in the country you are currently living in, unless you haven’t made any pension

contributions there – in which case you apply to the last country in which you contributed.

So, in this case, you approach the Spanish authorities and will have to provide details of all your employment and self-employment history. Spain will then check with each country concerned (the EU-wide scheme ensures this is possible – work history outside the EU means you may have to apply individually to those countries) and will calculate your entitlement. (But bear in mind that Brexit may have had an impact on this in practice, even though the scheme should not be affected – very much ‘work in progress’).

They will do this by adding together the contribution years of each country and then applying this to their own pension rules. This means that, even if you don’t have the minimum number of years’ contributions in one country, the chances are that the contribution years in other countries will ensure you get a pro rata pension. Don’t forget, official retirement age can vary in different countries, and some state pensions are more generous than others.

Each country will then pay their share directly to you, and if you have continued paying into the UK system it’s likely you’ll end up with a much higher pension than might otherwise have been the case.

How is healthcare affected? Any other issues?
The good news is that receiving your pension locally will mean that your access to the local healthcare system comes with it – no need for a form S1. So, any attempts by the UK to remove themselves from the S1 scheme will not affect you.

Note that, although the UK state pension is paid regardless of your other income, the state pension in Spain is not, in that if you wish to continue to work, Spain will not pay anything to you.

Other financial planning tips?
Despite the UK government’s attempts to water down the ability to ‘export’ your UK private pensions using the QROPS arrangements, this is still possible – but perhaps won’t be for much longer. So, obtain advice about whether such a move would be beneficial, as soon as possible.

Any savings or capital you have should be invested tax-efficiently and with the aim of protecting it against both inflation and exchange rate fluctuations. Stock markets can fluctuate too, sometimes dramatically as we have seen, so be careful you understand the amount of risk your investments are exposed to, and seek help from a suitably qualified professional who will be able to help you over the long term.

Tax increases in Spain

By Barry Davys
This article is published on: 16th May 2020

16.05.20

This is an article for those of us who live in Spain but will apply in every developed country around the world.

The Covid-19 pandemic has led to a worldwide lockdown, including here in Spain. The economy has been shut down with the likes of Seat in Barcelona stopping production and Barcelona tourist numbers collapsing. We all know this because we are all a living part of the lockdown.

In response to what looks like the worst economic crisis in the 300 years of modern data collection, governments and central banks around the world have provided some $7 trillion dollars of stimulus packages to economies and workers. It is the fastest and biggest reaction EVER to an economic crisis. Well done, the central banks! It genuinely is helping to make sure that as we slowly exit lockdown, individuals and companies will be in a little better condition to start up again.

Would I have it any other way? No! However, the question we now need to answer comes from Angela Merkel when asked to provide a European bailout in the 2009 crisis; “But where will the money come from?” A valid question. And even more so for the crisis that has come from the coronavirus pandemic.

The money will come, in part, from higher taxation. In the UK today, a menu of proposed increases in taxation has been leaked. In Spain, a loophole in wealth tax legislation that allowed some unit linked insurance savings plans to be exempt from wealth tax has been closed. What is significant is that these changes are coming now, before we are even clear of the lockdown and virus.

The changes to taxation in Spain are likely to include savings tax, inheritance tax and wealth tax in particular. Changes were already being discussed and the economic fallout from the pandemic provides the reason to bring forward these changes. Specifically, the EU has told us to harmonise inheritance tax across Autonomous Communities as there are big differences in the amount of tax to be paid.

In the draft budget for 2020, there is a proposal to change savings tax. At present, we have three bands of tax. The top rate for gains and investment income over €50,000 is 23%. A new band will be introduced for gains and investment income over €160,000 of 27%. We should expect this change to happen soon as it is already in the budget which is going before Parliament for approval. The first case I have seen where this will apply would lead to an additional €48,000 in tax. It is pertinent to bear in mind that these tax rates can apply to the gain on some property sales.

In addition to the wealth tax change described above, we understand that others may now be considered.

Planning actions

Help is at hand. There are planning actions that can be taken to minimise the tax issues. Here is a three point plan to minimise the effect of these changes:

1. Savings Tax. Move investments into Spanish tax efficient investments. These are available and you do not have to move your investment to Spain to qualify. They are available in Sterling as well as Euros and USD. If you would like confirmation on which of your current investments are tax efficient in Spain, I am happy to review them with you.

2. Inheritance Tax. This requires very careful consideration before making decisions to manage inheritance tax. Making sure you can maintain your lifestyle is an important part of this planning, especially for the survivor in the event of one half of a couple passing away. Once these criteria have been met, planning is feasible. A recent case of planning has saved £87,719 in UK inheritance tax for a couple living here in Spain. For nearly all of us from the UK, our estate at death will be assessed for UK inheritance tax.

3. Wealth Tax. Sometimes, the planning for wealth tax is simple. In other cases, not so simple. Care is needed and it is worthwhile asking for a review.

We have had our cake in the form of stimulus to protect the economy. We will shortly find we will have indigestion from eating the cake in the form of higher taxes. Fortunately, we still have a few indigestion tablets available to relieve our pain.

If you wish to discuss tax on your savings, inheritance tax or wealth tax please feel welcome to call. If this helps, you can match your availability for a call with mine online here.

Atypical expat family living in Spain

By Charles Hutchinson
This article is published on: 15th May 2020

15.05.20

Once upon a time there lived a British family in Southern Spain. I say British but in fact the wife had dual nationality, being both American and British. In fact they are still here.

They have 3 children, one adult son from her previous marriage living in the Middle East, their second son in boarding school in England and the youngest, their daughter, with them in Spain. His last position had been as an eminent surgeon in a well known teaching hospital in London. She had been a very successful realtor (estate agent) on the East coast of the USA. They had met through mutual friends when he was at medical conference in Boston. She brought with her to the marriage a respectably sized share portfolio which she had accumulated over the years.

They have a large five bedroom house in leafy suburbia in Surrey, UK. They have owned it since the arrival of their first child, several years after marrying. He sold his flat in central London a couple of years after their wedding and commuted to work every day from Dorking. Summer after summer brought nothing but rain and unpredictable weather. They finally decided to throw in the towel and move, lock, stock and barrel to Andalucia where they purchased a lovely house with gorgeous views over the Mediterranean. There in their retirement they play golf and have grown a circle of good friends, enjoying the lifestyle they had dreamt of in the UK. They rent out their Surrey home to visiting foreign film crews and have it managed by a competent agent.

They have a fair sized investment portfolio with a UK stockbroker who has underperformed their peers over the previous decade, which he learnt from talking to fellow golfers in the 19th hole at the club. He has become keen to change his broker and the portfolio, but is very concerned about the potential Capital Gains Tax.

Relations with their eldest son have become increasingly strained due to his stepfather’s disapproval of her son’s lifestyle in Dubai. It has reached a point whereby he has changed his English Will to exclude him from his half of the joint estate. The parents do not have Spanish Wills.

Also growing is the worry about their house in the UK with rising maintenance costs and property taxes. The decision has been made to sell it. In any event, over the years they have owned it they are sitting on a very fine profit. But it seems that they can no longer label it as their prime home. After all, they have been resident in Spain for some considerable years.

Brexit arrived rather suddenly and they have become aware of their potential position as non EU citizens after the final deadline in December 2020.

While they have appointed a UK estate agent to handle the sale of their UK home, Covid-19 has arrived on the global scene. They watch with horror as their portfolios tumble in value. Before the arrival of the virus, they had a sale agreed and their lawyer has taken a large deposit on exchange of contracts. Now the property market is falling away.

Several of their acquaintances both in the UK and in Spain have contracted the virus and they are getting nervous of their own position, their children’s and what to do if they catch it. He is over 65 and becoming more vulnerable as time passes.

This couple faces several significant problems:

She has a US share and bond portfolio which is fully exposed to US taxes
He wants to sell out their UK portfolio and change holdings. It still shows a considerable gain
They want to sell their UK home which is still showing a considerable gain
They have no Spanish Wills which would cause problems in the event of first death, not least if the eldest son invoked Spanish Succession Law, to inherit his share
Although resident in Spain from several angles, they are not actually tax resident here but still tax resident in the UK
Apart from tax considerations, their residence status would become questionable in December 2020 (if the Brexit negotiations deadline is realised)
They need to complete the sale of their UK home as soon as possible before the market falls much further and their buyer pulls out (despite the hefty deposit he has made)

You might think this is just a story, but with only a few changes this was the reality of two of my longest held clients. Not all of the above may apply to you, but I’m sure certain elements of this brief bio resonate with many of you. The important thing to remember is that every element of this situation has a solution. As advisers here in Spain, we are expats too, and over the past years we have come across all (and more) of these situations. And we have always delivered a solution.

Do you relate to, or are you faced, with any of these issues? Do you know someone who does? They all have a solution. Why not call me for a chat over a coffee? If we are still in lockdown, we can talk about it on the telephone, all in the strictest confidence, of course.