Moving to, or living in Spain after Brexit – What do you need to do?

By Chris Burke
This article is published on: 20th August 2019

*UPDATED 1st January 2020

If you have been living in Spain lawfully for at least five years, you will be able to apply for indefinite permission to reside there, which is termed ‘permiso de residencia de larga duración’ simply meaning ‘long term residence permit’. Note that you cannot apply until the UK has ‘potentially’ finally left the EU.

Apart from this, there are four main conditions to be able to remain in Spain after Brexit:

No criminal record
That you have not been ejected from Spain OR from a country which Spain has a verbal agreement with
You have private health insurance
You have a net monthly income of at least €799 for a family of two, and a further €266 per month for each additional family member

However, if after Brexit you have not been in Spain for 5 years but are living there legally, there is no great need to worry. The time you have spent there will count towards the 5 years and as long as you meet the above criteria, you will then be able to apply for the ‘permiso de residencia de larga duracion’. What you might have to do though, is apply for permission for what you will be doing in Spain. For example, if a retiree, you might need to ask to be that in Spain. Or, if you wish to work (see more about this below) you will need to apply for this also. If you wish to holiday for less than 3 months at a time, then you should not need to apply to remain in Spain for this. Before Brexit, obviously none of this was required.

Working, or not working, in Spain – after Brexit
If you wish to move to Spain after Brexit, but NOT work in Spain, you will need to apply for a ‘permiso de residencia no lucrativa’ meaning essentially a ‘non profit visa’. You will also have to prove you have money to live on, such as a regular permanent income (a salary would not count for this) or through bank statements showing that a minimum balance has been maintained over at least the last year, with your name and account number.

If you are an employee of a company in Spain, then they should be taking care of your application to stay.

Moving to Spain after Brexit as self employed
If you are looking to move to Spain and work for yourself, you can apply to be self employed, or ‘Autonomo’. You will need to be able to demonstrate the following, as well as applying for permanent residence as set out above, i.e. ‘permiso de residencia de larga duración’. The commercial activity you will be doing must comply with Spanish rules and you must:

have the relevant qualifications
have sufficient funds to invest in the activity to make it viable
give the number of people you will employ, if any
have sufficient funds to support yourself, on top of the funds for the activity (see above)
Provide a business plan which makes sense to the Spanish Authorities
not be suffering from a serious illness

Retiring in Spain after Brexit
When looking to retire in Spain after Brexit, there will be several criteria to fulfil and adhere to in your application. Those are:

No illnesses that are a serious public risk (eg smallpox, SARS)
€2130 monthly income for the main earner in the family, and an additional €532 for each dependant
Proof of ability to sustain this income for one year

Note, after you have resided in Spain for 5 years, you can then apply for ‘permiso de residencia de larga duración’ as mentioned above and will only need to adhere to those criteria moving forward from that point.

The process – what happens when you are accepted?
When you have been accepted, you will be issued a visa within 1 month and you must enter Spain within 3 months for this to remain valid. If you have permission to work and you do not register with the social security office within three months of your arrival, your right to remain will lapse.

Where to apply when moving to Spain, after Brexit
To apply for permission to live in Spain, you go to your local Spanish Consulate, even if you are not living in your country of origin. The process is thus: the Spanish consulate confirms whether all the relevant documents are in order and that everything has been provided that needs to be. They, in turn, send this to a Spanish Government office who will decide if they will give you permission to move to Spain.

If your application is successful
If applying to live in Spain without working and you are successful, you can then pick up your visa within one month. If applying to work, you will then be asked to make this application, again within one month, once you have been given the ok to reside in Spain.

The visas are valid for one year, when it needs to be renewed for periods of two years moving forward. During this whole time, you need to abide by the rules mentioned above including having the required income to live/run your business. Then, after you have lived in Spain for five years you can apply for ‘permiso de residencia de larga duración’ and solely adhere to those rules, again as mentioned above.
Once you have moved to Spain legally, your rights, taxes and your families rights will be the same as any citizen of the EU. Like everyone else, having lived in Spain for 10 years, you can, if you wish, apply for Spanish residency. To do this you need to demonstrate that you have integrated into Spanish society, including speaking the language and understanding the culture.

If you would like to receive further important updates on living in or moving to Spain, as an English speaker, sign up to Chris’s Newsletter here:

How to invest -The Importance of Diversification

By Spectrum IFA
This article is published on: 19th August 2019

There’s an old adage “Don’t put all your eggs in one basket”. I think about this every time I speak to a client about their portfolio. Often people wish to put their money into something familiar, like property. I remember in the early days of my career, I sat down with a property developer who had everything he had in his property portfolio of over a dozen properties, and all of his properties were in the same area of London. When I suggested that he needed to diversify because he was over exposed to the property market, he said that he had; that all the properties were not on the same road. When I checked the property addresses later, I realised that he was right, they weren’t. However, they were within ten minutes of each other!

This client had embarked upon a risky investment strategy as he was familiar with the asset class. Whilst he was having success with the returns, a sharp decline in the property market, particularly in the London area (which is what happened not too long after we spoke), would mean he would run into major financial difficulties. Enter, diversification.

Diversification is an investment strategy that reduces the risk that an investor is exposed to by allocating their funds into different financial instruments, industries, geographical areas and other categories. It aims to maximise returns by investing in different areas that would each react differently to the same occurrence.

Although it does not guarantee against investment loss, diversification is an important part of reaching long financial goals whilst minimising risk.

WHY SHOULD YOU DIVERSIFY
Let’s say, for example, that you are invested entirely in pharmaceuticals. It is announced one day that there will be a heavy levy against the pricing of drugs, which affects the costs that pharmaceuticals can spend on research and development. This would negatively affect the pharmaceutical industry, prices would fall and there would be a noticeable drop in the value of your portfolio.

However, suppose you have some of your portfolio invested in, say, technology. Strong performance in this industry, such as developments in cloud storage, could see the performance counteract the negative effects of the pharmaceutical industry on your portfolio. Even this small amount of diversification could protect the performance of your portfolio and ensure that all your eggs are not in one basket.

It therefore stands to reason that you would want to diversify as much as is feasible, while respecting your risk profile; across different industries, across different companies, across different asset classes. This will greatly reduce your portfolio’s sensitivity to market swings.

LOCATION, LOCATION, LOCATION
It pays to go global. As you can see in the table below, having funds spread across different locations can give you access to the best performing asset classes each and every year. One asset class can be the best one year, but is not necessarily top again the following year.

Diversification also means ensuring that your overall portfolio has exposure to various different investment styles. Some shares, known as growth shares, are held by investors as their value is expected to grow significantly over the long term. Others, known as value shares, are held because they are regarded as cheaper than the inherent worth of the companies which they represent. Value shares and growth shares can react differently in different economic environments.

Whilst it is possible in theory, in practice having a perfect balance between assets, sectors, markets and companies to suit an investment objective or risk profile is extremely difficult. However, the diversification qualities of collective investments schemes, along with the option of investing into multi asset funds can present the investor with a sound, individually tailored diversification solution.

At Spectrum, we favour the multi-asset approach to investing for our clients. These investment vehicles allow our clients access to multiple funds, asset classes and locations through a single fund that is managed and monitored by dedicated specialists and experts on the investor’s behalf. This type of fund can increase the potential for diversification and reduce the level of risk.

For more information on how understanding diversification can help you grow your wealth, please contact me either by email emeka.ajogbe@spectrum-ifa.com or phone: +32 494 90 71 72.

Tips on Moving to Spain before Brexit

By Chris Burke
This article is published on: 24th July 2019

24.07.19

*UPDATED 1st January 2020

With the UK likely to leave the EU in 2019, many people are making the move and leaving the UK whilst it is arguably still easier to do so than it will be after Brexit. But what are the key things you need to do in order to be organised from a personal financial advice point of view? Here I have listed my ‘Top Tips on moving to Spain’, the main areas I point people in when making the move, or having just arrived in Spain. This could save you a lot of time, money and headaches, and is only a small example of the way I help clients living here in Spain.

Confirming Non UK Resident Status with the HMRC
Potential Tax Rebate
National Insurance Contributions Whilst Abroad
Checking Your National Insurance Contributions
Becoming Tax Resident in Spain
Existing Investment Organisation
Inheritance
Healthcare
Life Insurance
Wills
Property
Private Pensions
Banking
Why Move to Spain Before Brexit

Please click on each link below to find out more regarding that area of expertise:

Confirming Non UK Resident Status with the HMRC
Tell the HMRC that you will no longer be a UK resident by filling in form P85, informing your local council and the UK state pensions department. This is important for the following reasons:

Potential Tax Rebate

In many cases you could receive a tax rebate, depending on which part of the tax year you leave in. Tax is taken from your wages and worked out on what you are paid each month, starting with the first month. Therefore, if your final UK salary payment is in September having been earning £4,000 per month, for example, that means the following months until the end of the tax year, in March, you won’t be paid anything. Therefore, because the HMRC would have been taxing you on the basis of completing that financial year, the tax you owe could well be reduced and in many cases a rebate will be applicable.

National Insurance Contributions Whilst Abroad

You can apply for Non Resident relief when living abroad, meaning that you can pay National Insurance contributions in the UK at half the cost, so around £11 per month (which mathematically is worth doing, considering life expectancy in Europe of 84). You can also backdate these up to 6 years if you have been out of the UK that long and haven’t been paying.
www.gov.uk/national-insurance-if-you-go-abroad

Checking Your National Insurance Contributions

You can see how many years National Insurance contributions you have by entering your number on the link below:
www.gov.uk/check-national-insurance-record

Becoming Tax Resident in Spain

It is important that when you move to Spain you choose the right tax regime to be part of. For example, if you are working for a Spanish entity, you may be able to apply for The Beckham Law, which means all worldwide income will be taxed for 5 complete tax years at least, at a flat rate of 24% (as opposed the normal rate of up to 46%).

Or, if you live in Spain, work for a Spanish company and spend up to two weeks of the month outside of Spain on business, you may be able to deduct tax for every day you are away proportionally. So, that could mean up to half the tax payable.
IMPORTANT – Some of these tax regimes only give you a limited time to apply for them. For example, within 6 months of paying tax here you have to apply for the Beckham Law.

It may also be of benefit to set up a Spanish company instead of becoming self employed, the main rule of thumb here being if your income is likely to be consistently over €60,000 per annum.

Existing Investment Organisation

Any investments you have when you become tax resident in Spain (that is, spending more than 6 months a year in Spain and having your economic centre of interests there being the deciding factors) will be reportable in Spain and might not be as tax efficient as they should be. For example, many asset classes such as ISAs or stock/share/fund investments (unless structured in a certain way) are declarable each year and tax is payable on any gains, whether you take any of that money or not. In some cases, you can have your assets organised so this is not the case, and the tax can potentially be reduced when you do withdraw any money.

Inheritance

In Spain, rules on giving away your assets are very strict and you are limited in what you can give away per year without incurring any tax. This is an area that is worth considering and organising before you leave the UK. In the UK there is usually no inheritance tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’. There’s also no inheritance tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they live in the UK permanently. However, other people you gift to will be charged inheritance tax if you give away more than £325,000 in the 7 years before your death. See the sliding scale below:

In Spain, gift tax depends on the age of the person and their relationship to you. In many circumstances you receive a €100,000 exemption, following which a sliding scale up to 20% is applied in tax. Spouses can claim up to 99% relief. It is imperative to look at this before you move.

Years between gift and death	Tax paid
less than 3	40%
3 to 4	32%
4 to 5	24%
5 to 6	16%
6 to 7	8%
7 or more	0%

Healthcare

When you first arrive in Spain, registering at your local health centre should be a priority in case of illness. The requirements can change, but at present the following should be sufficient for you to acquire an individual health card (Tarjeta Sanitaria). This will enable you to register with a doctor, visit a health drop in centre (in Barcelona a Capsalut) and purchase prescription drugs:

NIE (tax number/residence certificate)
Rental contract of your apartment
Social Security number
Empadronamiento (document from the town hall confirming where you live)

Life Insurance

Insurance in Spain, in general, can be much more expensive than in the UK, and life insurance is an example of that. Many insurance companies will allow you to carry on with the life insurance you have in the UK, but you must get this confirmed in writing by them. To give you an example, I have seen an insurance cover in the UK at £22 per month, costing over €100 euro per month in Spain, and the cost is not fixed for life like it generally is in the UK.

Wills

Foreign residents of Spain are not permitted to give away more than the freely disposed part of their estate (one-third) as the rest is reserved for the ‘obligatory heirs’. If an international or Spanish will is made stipulating that the laws of a person’s home nationality apply, however, no aspects of Spanish inheritance law will apply to either Spanish or worldwide assets. In layman’s terms, if you are British, you can choose UK law and therefore leave your assets as you see fit without having to adhere to Spain’s rules.

If your estate is dealt with under Spanish inheritance law, ‘forced heirship’ rules apply (known as the ‘Law of Obligatory Heirs’ in Spain). This means there are restrictions on how you distribute your estate, as a certain percentage needs to be set aside for certain relatives.

The Law of Obligatory Heirs states that if the deceased was married at the time of death, the spouse keeps 50 percent of all jointly owned property. The remaining 50 percent is put towards the estate. The estate is divided into three equal portions:

One-third is divided between surviving children in equal shares
One-third is reserved for surviving children but can be distributed equally or unequally according to instructions in a will. The surviving spouse retains a ‘life interest’ (usufruct) in this part of the estate and the children do not inherit until the spouse dies
One-third can be disposed of freely in a will
If there are no children, then surviving parents are entitled to one-third if there is a surviving spouse, or 50 percent if not

Property

This is currently a very popular asset to buy in Spain. Key points to be aware of compared to the UK are the extra taxes/costs (approx 13% costs on top of the purchase price of a property in Barcelona) and that the market is not as regulated as the UK, which means that there are estate agents out there that are just interested in their commission. You MUST make sure you purchase a property with a Cedula (certificate that the building has passed health and safety required by Spanish law) and certificado de habitabilidad (this means the property meets the minimum standard for living in), otherwise, you might not get a mortgage and also it will be difficult to sell later as it is not a legal place to live.

If you have never lived in the place you are moving to, I strongly suggest renting an apartment for a period of time, maybe even a couple in different Barrios/areas. That way you will get a feel of what works for you. In many cases, renting actually works out cheaper than buying somewhere, even taking into account the recent rental price increases.

Private Pensions

There are sometimes tax implications on moving your pension outside of the UK, which many people have done for the resulting benefits. In the last couple of years, 25% taxes have been implemented depending on where you move your UK pension to. There are opinions that this charge could apply to the EU, should Brexit go ahead. If you are planning to move abroad, either before or after Brexit, looking into this possibility will give you the options and knowledge to assess and make an informed decision.

Banking

Banks in Spain can be very ‘charge’ friendly and don’t always fully explain how your account works. Usually when you arrive banks will give you a ‘Non resident’ account, incurring extra costs and charges. However, you can quickly open up a ‘Resident’ bank account with no everyday running costs, such as bank transfers or costs for withdrawing money from their own ATMs. To qualify for a ‘Residents’ bank account and bypass potential costs you need to transfer in €600-€700 per month.

Why Move to Spain Before Brexit?

There will be certain criteria to meet to be able to move to Spain after Brexit, in particular if you are self employed or own your own business. This is expected to include a year’s cash flow in the bank, private medical insurance, proof that your business is viable and if retiring, a minimum income of around €2,200. I have a much more in depth article you can read if you wish to know more about this.

If you have questions relating to these points, or anything similar, don’t hesitate to get in touch.

I Thought Retiring Would Be So Much Simpler Than It Is!

By Jeremy Ferguson
This article is published on: 12th July 2019

12.07.19

When he announced his remarkable UK pension reforms in 2014, the then Chancellor George Osbourne said:
“People who have worked hard and saved hard all of their lives, and done the right thing, should be trusted with their own finances”.

And that’s precisely what people now do. People are using their pension freedoms practically, paying off debts, moving into part time work, and topping up income using flexible drawdown. Some have simply retired, while others may continue working and wait before they start drawing down their pension. The need to purchase an annuity to provide an income for life is no longer there, so although there are increased freedoms, how has it affected those retiring?

People are now realising that managing your pension pot when you retire is not all that straightforward.
A recent study showed that 45% of those aged 50 to 75 are worried that their pension pot will simply not last their retirement. Before the reforms, you took you tax free lump sum, and then an income, which was often guaranteed for life for both you and your partner.

So, in view of all these choices, and with the world ever changing, what has it all meant?
Amazingly, close to 40% of upcoming retirees are still unsure when and how to access their ‘pot’, while many retirees who have accessed their tax free lump sum have paid off some kind of debt or mortgage, and 28% of non retirees who are going to take their lump sum, plan to spend it.

What are people doing with their lump sums when they reach retirement?

What is surprising is how many people simply put the money in a bank account or invest in something else. This is probably being invested with a view to producing additional income going forward.

I think many people’s pension pots are simply not looking like they will produce enough income for the lifestyle they want to lead, or had become accustomed to. Retiring to Spain, the better weather and longer days in winter typically mean people do so much more than they thought they would. Enjoying life that little bit more, however, normally correlates to greater spending!

What are people doing about the fact so much of their wealth is tied up in property when they get to retirement?
With property making up over half of self employed people’s wealth for those aged 50 to 75, this now tends to be another means that people are looking to use to help substitute their income going forward. Interestingly, their employed peers tend to have less of their wealth in property (37%) and more in their pensions (48%), with the rest of their wealth (15%) in various investments. I think this shows a marked difference between how people who ran their own businesses and people who worked for a company differ in their attitude to risk, with the employee typically being more cautious, having ‘tucked away’ more for retirement.

Equity release is much used area to top things up in the UK, but is not available here in Spain and is fraught with downsides, especially if inheritance for your children is something that concerns you.

Many people are downsizing, so for those who sell up and move to Spain, this is a great opportunity to do just that.

On average 30% of people’s retirement income is starting to come from downsizing at retirement.

It is becoming more and more important that people plan carefully when reaching retirement, particularly if that involves moving to Spain where different taxation issues also need to be considered.

On this point, many people are unaware that you can get your pension paid gross from the UK when you become tax resident here ( i.e. there is no tax deducted at source). This is done by getting an NT code (Not Taxable) and letting your pension provider know. This will mean your life will be simpler when filing your Spanish tax returns, and in some cases people are even able to reclaim any overpaid taxes here for up to 4 years.

What else are people doing in retirement?
There is an ever growing army of ‘Silver Entrepreneurs’, with retirees regularly consulting for their old employers, starting up new businesses, or simply getting back into part time work. The reasons vary, but again, it just shows how much the retirement model is changing.

I know I will inherit some money by the time I retire, so this will help.

Although this is often the case, those of us receiving inheritance nowadays has dropped from 29% to just 19%. This is almost certainly an effect of people living longer and using their property to support the increased financial strain of retirement, effectively leaving less behind.

So what does all of this mean?
Retiring nowadays and managing your finances is becoming a much more involved area. In the past you took your lump sum, looked at the income you would get, adjusted your lifestyle accordingly, and typically assumed you would leave your house to the children.

Nowadays, doctors seem to keep us going for an eternity, things are getting ever more expensive, interest rates are nothing, and the list goes on. Attention and careful planning are needed more than ever to keep an eye on how things are going financially, keeping that balance between sensible expenditure and maximising what you can leave behind to your loved ones.

Tips when hitting retirement :

1. Make sure you have a clear understanding of your outgoings. Assume they will go up every year just simply as a result of inflation. Consider increased care costs as you get older.
2. Have you forgotten a ‘small’ pension you may have had when you worked somewhere many moons ago? Look into it, I’ve had many clients who have been pleasantly surprised.
3. Make sure your UK state pension is fully funded ( you can go online and check that at www.gov.uk /check-state-pension).
4. Consider the need to take a lump sum or not. Is a higher income level going to be better?
5. What other investments do you have? Can they be used to produce additional income?
6. Are you paying too much tax on your pensions when you take them here in Spain?
7. Have you discussed inheritance with your heirs?

If you have found this article useful, and would like to be kept up to date with relevant information here in Spain, then please subscribe to my ezine here

Hot investments: It’s time to get creative

By Chris Burke
This article is published on: 18th June 2019

18.06.19

Investing needs savvy, like a game of chess. It’s best to make carefully thought through moves so that it’s not left to chance. The most crucial part of investing is being in the know.

As a financial advisor, this is something I research and stay on top of so that I can best inform clients. And I only recommend what investments I would feel confident investing in myself. That is very important for clients to know.

When it comes to the stock market, it’s about knowledge and catching the wave at the best time. Right now in the world of investment it’s prime time for investing in some promising and exciting creative industries, namely the e-sports /online gaming industry and AI (Artificial Intelligence).

As we all know, the internet, Amazon and Netflix have totally changed the entertainment industry. We are no longer controlled by which shows are on television or in the cinemas, as we now have the luxury of watching whatever we want whenever we want. But perhaps the most massive surprise in the past year has been the overwhelming popularity of esports – which is simply fans watching professional video gamers compete online. Ever heard of Twitch? Well, there are more people logging on to watch pros gamers competing on streaming sites like Twitch than there are watching CNN or NBC.

Last autumn, a shocking 57 million people tuned in to watch a professional video-gaming (esports) match. It was triple the audience of the actual 2018 NBA finals. As a result of this success, the biggest companies including Coca-Cola and T-Mobile have spent hundreds of millions to sponsor these matches.

So, as e-sports and gaming continue to conquer all, which types of companies might be good to get in on? The top gaming companies you might want to consider investing with are Nintendo, Valve Corporation, Rockstar Games, Electronic Arts, Sony Computer Entertainment, Ubisoft or Sega Games Co. Ltd.

And behind every great game is the hardware required to make it fanstastic. NVDA might not be a name you’ve heard, but literally all video games require ultra-high-performance chips and NVDA chips are the crème de la crème, used by over 85% of professional gamers.

(Forbes, 2018)

The ever-growing world of AI (Artificial Intelligence) has been booming and helping companies solve and manage many previous b2b and b2c issues and right now France is aiming to be one of the forerunners in the industry. Last year President Macron announced his government was investing €1.8 billion over 4 year period. A few of the top French AI start-ups are insurance fraud detection companies like Shift Technology; the AI voice assistance platform, Snips, which manufacturers can utilise for their products and Saagie, the online protection platform to store and guard our precious data for banks and insurance companies.

So, there are some exciting and creative opportunities for investment out there but as a financial advisor, when it comes to investment portfolios research and timing are crucial, as is ensuring clients are in a financial position where they able to play the market without the fear of losing their life’s savings.

Before considering any investments, I always start by advising clients to ensure they have sufficient funds they can access quickly and easily and then discuss what length of time they would like to invest other sums for, as it’s my first priority to nurture and protect their financial future. I would not recommend any client to invest in something that I would not invest in myself, but each client is well-informed in the knowledge that if they have the money to try their hand at investing, it is of course a risk. But it’s a risk that can be rewarding and a real learning experience as well.

Understanding How Risk Affects Your Portfolio

By Spectrum IFA
This article is published on: 11th June 2019

11.06.19

A crucial step to achieving long term financial security is recognising the importance of (and the relationship between) investment risk and return. In practice, this means implementing an investment strategy which matches your personal objectives and risk profile.

When I am speaking to clients about investing for the first time, they generally fall into two categories:

The Risk Averse
The Not So Risk Averse

Normally, within the first two to three years, one category changes their mind and changes to the other. Can you guess which one?

If you replied the risk averse becoming the not so risk averse, you would be right. This usually stems from clients becoming more comfortable with the idea of investing and the fact that taking risk can, when understood and applied properly, have a staggeringly positive effect on your portfolio.

There are many different reasons as to why people invest and no two people will have exactly the same objectives. Risk is a necessary and constant feature of investing – share prices fall, economic and political conditions fluctuate and companies can become insolvent. Therefore, understanding your risk profile is an important consideration before you actually invest.

Your risk profile is the relationship between your investment objective, risk tolerance and capacity for loss. As a result, you should be aware of your ability and willingness to accept risk and what level of risk might be required to meet your investment goals.

Investment profiles broadly fall into one of the following three categories:

Low Risk Profile
People with a low risk profile wish to preserve their capital and understand that there is very little scope for significant capital growth. These portfolios are heavily weighted to investing in cash and bonds.

Medium Risk Profile
People with a medium risk profile understand that to achieve long term capital growth, some degree of investment risk is necessary. Portfolios for this category of investor are usually balanced between cash, bonds and shares (equities)/equity funds, with perhaps some exposure to property as well.

High Risk Profile
People with a high risk profile are those who are prepared to accept the possibilty of a significant drop in their portfolio values in order to maximise long term investment returns. Higher risk portfolios have a far greater weighting towards equities/equity funds and less exposure to bonds and cash.

Different kinds of investment carry different levels of risk:

Cash
Cash or savings accounts are often regarded as ‘low risk’, yet, as the credit crisis of 2007 – 2008 showed, they are not ‘risk free’. Inflation will also reduce the value of cash savings if it is higher than the rate of interest being earned. At the time of writing, inflation in Belgium is just above 2% and the interest rate is 0%, which means that you are effectively paying your bank to hold your cash savings.

Bonds
Bonds or fixed interest securities are popular with many investors. If you invest in these instruments, you are essentially lending money to the issuer of the bond; usually a company or a government. In return, the issuer pays interest at regular intervals until the maturity date. The obvious benefit to the investor is regular income. However, there is a risk that the issuer may not be able to maintain interest payments and the capital value of the bond can fluctuate.

Shares
Although past performance is not a guide to future returns, historically the best long term investment performance is produced by equities or equity funds. The increased level of risk associated with equities is directly linked to the higher returns typically available from this type of asset.

The price of a company’s shares trading on a stock market is a reflection of the company’s value as influenced by the demand (or lack thereof) from investors. Essentially, when you invest in a company you are buying part of that company and hence able to share in its profits. The converse is also true, so you could be exposed to operating losses and a fall in the company’s share price. The risks, therefore, can be high, especially if you own shares in only one or a handful of companies. Equity funds, run by professional managers and which usually invest in a range of companies, are a means of avoiding such concentrated risk.

TYPES OF INVESTMENT RISKS

There are several types of investment risk that the you can be exposed to if and when you decide to invest, and you should be aware of the possible effect on your portfolio before you start:

Market Risk
Also known as systematic risk, it means that the overall performance of financial markets directly affects the returns from specific shares/equites. Therefore, the value of your shares may go up or down in response to changes in market conditions. The underlying reason for a change in market direction might include a political event, such as Brexit, government policy (consider current US-China trade tensions) or a natural disaster.

Unsystematic Risk
This refers to the uncertainty in a company or industry investment, and unlike market risk, unsystematic risk applies to only a small number of assets. For example, a change in management, an organisation making a product recall, a change in regulation that could negatively affect a organisation’s sales, or even a newcomer to market with the ability to take away market share from the organisation you are investing in.

Systemic Risk
This is the possibility that an event at company level has the potential to cause severe instability or collapse to an entire industry of economy. It was a major contributor to the financial crisis of 2007 – 2008. Think back and you will remember the phrase that Company X ‘was too big to fail’. If it collapsed, then other companies in the industry, or the economy itself, could fail too.

Currency Risk
Investment options include shares/equities in a range of currencies. Changes in exchange rates can result in unpredictable gains and losses when foreign investments are converted from the foreign currency back into your base currency, from US dollars into Euros for example.

Portfolio Construction Risk
This is the possibility that, in constructing a portfolio, you have an inappropriate income/growth split, or that you fail to monitor and manage the portfolio in line with your investment objectives. There is also a risk that you select assets that are inconsistent with your risk profile.

Interest Rate Risk
Interest rate risk is the possibility that an investment held will decline in value as a direct result of changes in interest rates. For example, bond prices are usually negatively affected by interest rate rises.

Concentration Risk
This is the possibility that you over-invest in a particular asset, sector, industry or region, which removes valuable diversifaction from your portfolio.

Opportunity Risk
This is the risk of being ‘under-exposed’ to other types of investments that could potentially deliver better returns.

Whether you are investing on a regular basis or have invested a lump sum, it is imperative to understand how risk, or your attitude to risk, can fundamentally affect the potential growth of your investment.

Spain/Gibraltar Tax Treaty – tax residency of individuals

By Charles Hutchinson
This article is published on: 5th June 2019

05.06.19

On 4 March 2019, Spain and the UK (acting on behalf of Gibraltar) signed an international agreement on taxation and the protection of mutual financial interests.

This is the first agreement on Gibraltar with Spain since the 1713 Utrecht Treaty. However it does not imply any modification of the respective legal status of Spain and the UK with regards to sovereignty and jurisdiction over Gibraltar.

It is important to note that this treaty has not yet been ratified by the two respective national parliaments.

The treaty incorporates the provisions for tax residency of natural persons:
1- Whereby natural persons are deemed resident in Spain and Gibraltar according to their domestic law,
(i) They shall be tax resident only in Spain when any of the following circumstances exist:
a) they spend over 183 overnight stays of the calendar year in Spain, from which sporadic absences from either Spain or Gibraltar shall not be deducted,
b) their spouse (not legally separated) or partner and/or dependent ascendants or descendants reside in Spain,
c) the only permanent home at their disposal is in Spain, or
d) 2/3 of their net assets held directly or indirectly are located in Spain.

(ii) They shall be tax resident only in Spain when the above provisions are not conclusive, unless they are able to provide reliable evidence that they have a permanent home to their exclusive use in Gibraltar and remain in Gibraltar over 183 days per annum.

2- Spanish nationals who move their residency to Gibraltar after the date on which this agreement is signed shall in all cases only be considered tax residents in Spain.

3- Non-Spanish nationals who provide proof of their new residency in Gibraltar shall not lose tax residency in Spain within the tax period when the change is made and during the four subsequent years, unless they spend less than one complete tax year in Spain or are registered Gibraltarians (generally British citizens that have resided in Gibraltar for over ten years) that spend less than 4 years in Spain.

4- HNWI, Cat 2, HEPSS or any other equivalent Gibraltar tax schemes shall not by itself constitute proof of tax residency in Gibraltar.

In conclusion
You will be considered tax resident in Spain if you meet any of the conditions where you are deemed resident in Spain (183 days, family ties, permanent home, 2/3 net assets) or you cannot prove that you spend more than 183 days in Gibraltar and own a house at your exclusive disposal there, or if you are Spanish national in all cases (Spanish domestic law currently is more restrictive because nationals do not lose tax residency when moving to a tax haven in the tax period and subsequent four years).

Non-Spanish nationals who have been tax resident in Spain for more than one year and have moved to Gibraltar will be deemed tax residents in Spain for the following four years after they moved. Gibraltarians who have been resident in Spain for more than four years will continue to be resident for four years more.

The rules for Spanish nationals will come into force as of 4 March 2019 if the Treaty is formally ratified.

The rules for non-Spanish nationals will come into force for the taxable periods after the ratification date, the earliest being on 1 January 2020.

Non-Spanish nationals may use this window to consider their position.

In spite of claims for historical Spanish sovereignty over The Rock, Spain (PSOE) has recognized the existence of both a separate tax authority in Gibraltar and the existence of registered Gibraltarians. Moreover, it is proposed that once the treaty is ratified, Gibraltar should be removed from the Spanish blacklist of tax haven jurisdictions.

Source: JC&A Abagados, Marbella

“Brexit proof” your investments using a top UK financial institution

By Spectrum IFA
This article is published on: 27th May 2019

If you are living in France, did you know that a certain large, household name
UK financial institution offers a product locally from Dublin based sister organisations? This product is both EU regulated and tax efficient in France, an Assurance Vie and it is in English.

As a result, should the UK leave the EU, you can still invest with a company whose name you know and trust in a tax efficient manner, in the country you now call home.

So what is Assurance Vie (AV)?
For Brits, an Assurance Vie could be viewed as a sort of ‘big ISA’. It is the tax wrapper ‘par excellence’ for French residents and for the French themselves. Most French families have them, even members of the current government, and at the end of February 2019 total holdings in AV stood at a whopping 1,798 billion EUR! So for the foreseeable future, AV is here to stay.

As a British expatriate resident in France you have a number of international AV policies available to you, all of which are Brexit-proof. Not only are such policies compliant in the European Union, but they work cross border in the UK, so you can take them with you if you change home again or return to Blighty. And while you continue to live in France you have the reassurance that your policy benefits from the advantages of French AV, but not subject to the potentially punitive Sapin II Law which could be used to block French AV policies.

What are the main advantages of international Assurance Vie?

1/ AV has liquidity advantages for better cash flow planning
• Regular withdrawals can be made, making it an ideal vehicle to provide income to compliment your pension and rental income.
• Unlike an investment in rental property, the capital from an AV policy can be obtained relatively simply, quickly – and also partially.
• Wealth Tax (IFI) applies to real estate assets but not financial assets held within an AV policy.

2/ AV takes the hassle and cost out of tax reporting and legal paperwork
• If your investment portfolio is unwrapped (i.e. held directly and outside of an AV tax wrapper), then all transactions must be reported when completing your French tax return. The French tax authorities require all calculations to be reported in Euros, regardless of the currency of the underlying investment, and may also request the translation of various documents. The option of paying an accountant or tax adviser may save time and simplify matters for you, but will increase expense.
• In contrast, if the investments are held within an AV policy, all transactions are grouped for the purposes of administrative and tax returns, regardless of how many purchases and sales of investments occur over the year.
• Also should your priorities change over the years, it is a simple procedure to alter your choice of who will benefit from the money when you pass on. Changing the beneficiary clause within an AV is a simple procedure, and certainly a lot easier and less costly than altering your will with a lawyer.
• Moreover, when the time comes, your beneficiaries need simply apply directly to the insurance company itself. There is no need to pass via a notary to access the funds, the release of which can otherwise be subject to delays especially in the case of complex successions or legal challenges.

3/ AV reduces capital gains tax and investment costs
• When a portfolio is ‘unwrapped’, the sale of any investment triggers tax at the full prevailing tax rate on the resultant gain realised. So, if a portfolio consists of 15-20 lines which are being regularly bought and sold, this can become a reporting nightmare.
• Worse still, it also means that amounts can be taxed, then taxed again, and this perhaps several times over the lifetime of the portfolio. The tax consequences that typically apply to directly held portfolios can become an important consideration for your investment manager, reducing the scope of investments they are likely to consider, therefore potentially hampering performance.
• In contrast, within an AV policy, income tax and capital gains tax are not applied as long as a withdrawal does not occur. Thus, investment funds growing within the tax wrapper accumulate gross and benefit from a ‘compounding effect’ over time.
• And when a withdrawal does occur, only the gain or growth element is subject to income tax, not the capital. The actual liability is determined by how long the policy has been in existence, with the rate payable reducing on a sliding scale which is progressively lower depending on the duration of the policy. After 8 years any withdrawal benefits from an annual tax free allowance of €4,600 of the gain for a single person (€9,200 for a married couple).
• Moreover, a discretionary managed investment portfolio held within a Dublin domiciled AV is not subject to VAT, representing substantial saving on investment management fees.

4/ AV has significant inheritance planning advantages
• Planning who benefits from your estate is complicated in France by the restrictions imposed by the Napoleonic Code. Leaving sums to an unrelated third party such as a friend or unadopted foster child can attract tax of up to a massive 60%, so taking advice is essential.
• In contrast, AV avoids French inheritance law, so any funds held within a contract are effectively taken out of the French succession process.
• Within an AV policy, any number of beneficiaries (related or not) can be appointed and a tax free allowance of €152,500 per beneficiary applies. Above that threshold, a rate of 20% is payable up to €700,000 after which a rate of 31.25% applies. These rates compare very favourably with those that apply outside the wrapper.

5/ AV is more secure than your bank account
• The least customers should be able to expect from their banks is that they are solid and secure, but all is still not well in the banking sector. Since the height of the financial crisis, which began in 2007-08, banks have come under pressure to put their houses in order. In spite of this, a number of big banks have weak balance sheets, and remain technically insolvent. This is not the case of the bigger insurance companies in reputable jurisdictions like Dublin and Luxemburg which are required to maintain minimum capital levels and liquidity ratios.
• There is also a potential risk of levy on client deposits. Customer savings are held on the bank balance sheets as liabilities, not ring-fenced and protected as they are with insurance companies in certain jurisdictions. Therefore, in the event of a bank failure or forced restructuring, customers’ deposits could be at risk, at least partially. Indeed, in the EU there exists a precedent when so-called ‘haircuts’ were taken from personal savings deposits during the Cyprus banking crisis of 2012-13.
• There is now an EU ‘bail-in’ law. On 1 January 2016 the Bank Recovery and Resolution Directive (BRRD) came into force across the EU confirming new bail-in regulations. In the event of a future banking crisis depositors could face having to foot at least part of the bill – in contrast to the government bank bail outs of 2007-2009, when taxpayers’ money was used.

In July 2017, the Financial Times reported that ‘Those who receive financial advice are on average £40,000 better off than those who don’t’. And significant savings can indeed be made on condition you have proper financial advice, solid investments and the right tax wrapper. So do not let Brexit hold you back. The time to make money and save costs is now. Get the right advice, and maybe you too could save £40,000!

How to retire like a pro!

By Chris Burke
This article is published on: 24th May 2019

24.05.19

Over the years I’ve helped many clients prepare for retirement. To come up with the best solutions, there are several matters and concerns to consider that don’t automatically come to mind. Some people think they have carefully planned out their glory days, only to find out there were a few things they didn’t consider; not only on the financial side, but also on the every-day-life side of things. So, here are some of my top tips on retiring like a pro, enjoying life to the fullest and sleeping well at night.

Before going into all the financial ins and outs, stop to consider this: Where do you stand financially right now? And, what life goals or dreams do you have for the coming years? Remember, we want these years to be golden, not feel like walking on hot coals. So, starting with where you are and what you really want helps provide realistic focus.

When it comes to planning ahead for your post-work life, there are (for a great number of people) three main sources of cashflow which, when orchestrated carefully, can together ensure a comfortable retirement: company pension (or employer savings plan), social security and personal savings. For others – particularly the self-employed – retirement will entail savings, investments, assets and most likely continuing with your projects whilst learning to detach a bit. No matter which camp you lie in, knowing what you will receive from each source and then working out your monthly living budget will be is a great place to start for setting out what lifestyle you can plan.

After taking into account what monthly living allowance you will have, probably the most crucial thing on the “how to retire for dummies” list is devising and then maintaining a lifestyle you can afford. Practicing frugality whilst enjoying life is indeed a quality many fail at. It’s about knowing what you have to live on and living within those means. Being prudent with your finances does not mean being tight or ungenerous. As Coco Chanel said, “Some people think luxury is the opposite of poverty. It is not. It is the opposite of vulgarity.” And none of us want to be vulgar. We want to be financially prepared and savvy.

Outside of whatever your retirement plan is, it is also important to ensure you have set aside, in a separate account, an ample emergency backup supply. “Emergency” meaning for any one of a hundred things that might unexpectantly pop up and require a quick financial outlay. It will help you sleep better at night.

Retirement isn’t always all sunshine and happy days. Many retirees struggle immensely with the sudden and somewhat shocking change of lifestyle. They go from being busy and surrounded by colleagues and friends, to being at home looking for a new purpose whilst trying not to step on the toes of their partner. For some, the extreme change of lifestyle and the thought of being on a continuous holiday can be scary and depressing. However, it should be thought of as a new opportunity to work on relationships, invest in travelling, both inward and outwards, and to learn new skills.

Nowadays, many post-retirees are creating projects to generate new income as well as keeping their minds sane and boosting their overall quality of life and health. This can also help to improve your self-worth and the relationships you hold dear. It doesn’t mean you have to work from 8 to 8. It can just be involvement in projects that help to provide a balanced life.

When it comes to retiring, there’s a dirty word we all must know and understand: inflation. As Sam Ewing said, “Inflation is when you pay fifteen dollars for a ten-dollar haircut you used to get for five dollars when you had hair.” When we are working, salaries are supposed to keep up with inflation. However, when the salary stops and you’re living off savings, inflation is like an armed robber. There are now online inflation planners which can quickly calculate both pessimistic and optimistic inflation rates and help you formulate what to expect living, household and medical costs to be in future years.

Lastly, I would suggest having a pool of money that you leave untouched and allowed to grow, until you need it later in retirement to help offset increasing expenses. If you have income from property, this is great because it more or less keeps up with inflation rates. Otherwise, consider some inflation-protected security investments – a balanced mix of stocks, bonds, short-term investments, at different levels of risk and potential growth. Considering all options and forming a good plan is something I can help each client with.

Retirement doesn’t have to be scary. If you’d like to discuss any aspects of financial planning for your retirement, please email me for a complementary face to face meeting.

Qu’est ce que la “Loi Beckham”?

By Cedric Privat
This article is published on: 20th May 2019

20.05.19

Depuis 2005, le Real Decreto 687/2005, également appelé “loi Beckham” (David Beckham en fut le premier bénéficiaire), permet aux nouveaux résidents espagnols d’obtenir une importante réduction fiscale.

En effet ce régime spécial des impatriés permet aux contribuables d’être imposés au taux fixe de 24 % jusqu’à € 600 000 de revenus annuels, puis à 45 % une fois dépassé ce seuil, et non au barème progressif de l’impôt sur le revenu ou IRPF (“Impuesto sobre la Renta de las Personas Físicas”).

Il s’applique la première année de résidence et les 5 années suivantes. Toute personne ayant un nouveau contrat de travail en Espagne (ou statut d’administrateur) peut potentiellement opter pour ce régime auprès de l’administration fiscale (sauf si vous avez résidé en Espagne pendant les 10 dernières années).

La demande doit être déposée dans les 6 mois à compter du début de votre activité qui apparaît sur l’inscription à la sécurité sociale espagnole. Quant à l’impôt sur le patrimoine, seul votre capital en Espagne sera susceptible d’être taxé.

Je me tiens à votre disposition si vous souhaitez de plus amples informations sur ce sujet, ou si vous désirez opter pour ce régime fiscal.

N´hésitez pas à me contacter