The attack on cash in Italy

By Gareth Horsfall
This article is published on: 8th October 2019

08.10.19

There are 17 different regulations for the use of cash in Italy, from the €15000 limit on shopping for foreign tourists to a €1000 limit on money transfers. 20 years of regulations of cash in a country where it is estimated that 86% of transactions are completed with the use of cash.

But changes may be afoot if this coalition gets its way.

THE PROPOSED CHANGES
The M5S and PD government are, like any good Italian government, looking at ways to rebuild this country’s coffers and balance the books. I say this with a modicum of tongue in cheek, because although that is all they ever seem to talk about, whether they ever get the chance to do anything about it before the coalition falls apart and another set of politicians comes in and changes the proposals yet again is anyone’s guess. But let’s give them the benefit of the doubt this time round.

The following proposals are ones which might seriously affect the way you do business or conduct your life in Italy.

The Italian coalition government are looking at how they can incentivise the use of traceable means of payment, i.e. bancomat, credit cards and bonifico, and increase their usage in line with other Northern European countries. To do this they are looking at monetary incentives in the way of a discount in the rate of IVA (VAT) on products and services or imposing penalties on high levels of cash withdrawals at the ATM.

Under the proposals, if you pay by electronic means instead of paying by cash then you could be eligible for a discount of 2% on IVA. However, if you pay by cash then the IVA will increase by 1%.

Using the example of paying cash in a restaurant, you would get an IVA discount of 2% on the 10% normally charged if you paid by card i.e. 8%, or alternatively an IVA rate of 11% if you paid in cash. A nifty move, if it ever comes into force, and one which could certainly catch many people out. If these proposals are implemented by this government or any other, then it might be time to review how you make and/or receive payments to think about benefitting from this discount.

ATM WITHDRAWALS
The second way that they propose to fight the black market of cash payments is to apply a tax on monthly cash withdrawals from ATM’s, or the sportello, where withdrawals exceed €1500 per month. A 2% tax would be applied if you superseded this limit. Equally, the proposal seeks to reward those who use electronic means of payment with a 2% tax credit directly into their account. How they will calculate this is still being disputed.

It remains to be seen how the proposals with be implemented, but both are currently being considered seriously with a view to adding an amendment to the recently approved raft of measures in the Legge di Bilancio 2019. Don’t get caught out if they come into force!

These proposals and rules are changing almost daily at the moment and just this morning I have seen another, which should come into force, and which will allow deductions for income tax purposes, e.g. scontrini at the farmacia or the Ecobonuses for house renovations, ONLY if they are paid by bancomat, credit card or bonifico.

In short, they are trying to disincentivise the use of cash as much as possible. This comes with a promise that if sufficient revenue is generated for the state, then the rate of IVA will not increase in 2020 and 2021 (as is proposed) and they will also look at tax deductions for individuals and families. The mind boggles.

Tax breaks in Italy

By Gareth Horsfall
This article is published on: 7th October 2019

I have been writing these articles for 10 years this year, after sending out my first one in 2009. Looking back at the very first one just the other day, I saw how it had developed and how the concepts I discuss have changed dramatically. This got me thinking about the way that the world has changed as well during this time. Last Friday I joined the Global Climate Strike in Rome. There were about 250,000 students, protesters and concerned people; marching to spread our concern for how we treat the world we live in. It certainly got me thinking about how politics is going to have to change significantly in the coming years to meet the needs and desires of these disgruntled voters.

Which leads us nicely to the new coalition government in Italy and their changes in the Legge di Bilancio which were approved on the 30th September. In the Legge there are many new rules that will come into force from 2020, some eco based (but not enough) and a number which may affect you. Below I have selected a few of the changes in the tax law which might interest you.

1. If you are in the market for a new car, then incentives will be given, up to €6000 for purchasing a new electric, hybrid, small gas or small diesel car.

2. BUT, if you buy an SUV or an ‘auto lusso’, then you will taxed up to €3000.

3. Anyone who is working online might be caught in the trap set to try to tackle evasive tax practices by the big tech companies. Italy is following the French lead and introducing a tax of 3% on web based business revenues generated in Italy.

4. The flat tax of 7% for retirees moving to, and getting residency in Italy is fully approved from January 2019. The main caveat is that you must move to a village of no more than 20,000 inhabitants in any of the following regions:

Sardinia, Molise, Abruzzo, Puglia, Basilicata, Calabria, Sicilia

Other terms and conditions apply, so check carefully before assuming you automatically qualify.

5. Income tax deductions will be available for anyone who carries out invoiced home renovation, purchases eco domestic appliances, completes seismic work on their house, purchases sun curtains for balconies or buys mosquito blocks for doors, amongst other property related deductions. The following article (in Italian) provides a nice summary (once again conditions apply, so make sure you check the small print or speak with a commercialista before going ahead).

https://www.theitaliantimes.it/economia/proroga-bonus-ristrutturazioni-mobili-verde-ecobonus-legge-di-bilancio_011019/

However, please remember that this work must be ‘invoiced’ work and paid for by electronic means. If you pay for it in the black or in cash (even if invoiced), then it is not deductable. Although paying in the black is illegal, it will often mean you can negotiate a discount on the full price. Whilst this might make paying in cash may seem attractive, it won’t afford you any income tax deduction so may turn out to be more disadvantageous.

6. The canone RAI (TV licence fee) has been reconfirmed as €90 per annum. No price increase will be applied, at least for this year.

7. And the pièce de résistance … if you thought that IMU and TASI were hard enough to get your head around, the latest news is that they are going to be unified. No prizes for anyone who can come up with the new acronym. TASIMU???

Interest rate outlook and what it means for your investments

By Barry Davys
This article is published on: 1st October 2019

01.10.19

I had a very nice dinner a few days ago with an investment manager I have known for 12 years. We meet regularly and he is one of the investment managers in London that we, as a company, use for some of our clients. So we know each other professionally quite well and one of us always acts as devil’s advocate to the other one’s position in discussions. It is a great way of getting your point of view tested. Yes, we did talk about Brexit, but the more important issue was the fact that long term interest rates are likely to stay low for a very long time in Spain and in Europe. So here are some thoughts about what these low interest rates mean for our savings and investing.

First, Brexit. Brexit is on everyone’s lips and quite understandably so. Whether you love it or hate it, no one seems to be able to work out what is going to happen. I admit to not being able to work out where it will end. The Brexit outcome is incredibly important to us as individuals and businesses. Yet what about for our savings? Britain is the sixth largest economy in the World. Sounds important. According to the World Bank, the World economy is $86 Trillion. Britain’s economy is $2.8 Trillion. So Britain represents just 3.26% of the World economy. Which means we still have 96.74% of the World economy where we can invest!!!

Perhaps the more important story for savings and investments is the impact of very low interest rates that could stay low for decades. My dinner guest gave good insight into the future of low interest rates. This insight is important to us as individuals with savings and investments.

In October 2007, interest rates in the UK fell from 5.5% to 0.5% in May 2009. Interest rates in Europe followed a similar path. The ECB in July 2007 cut its interest rate from 5.25% to 0.75% in May 2009. The ECB rate has now fallen to just 0.25%.

Will low interest rates stimulate the economy? Yes, it will, but not enough to get economies back on track. Mario Draghi, the current President of the ECB, says central banks changing interest rates will help, but Governments have to spend more too for sufficient economic growth to happen. As an example, Germany has been taking a lot of stick because it has not been spending. The amount it collects in taxes etc is equal to the amount it spends.

This is the German Government policy. This is a sensible policy unless parts of the country break down and need repairs. Two items that need repair in Germany are the military and the transport infrastructure.

The military, if the stories are to be believed, did not have one single usable helicopter earlier this year. Roads in Germany need repairs, including bridges. Spending money on these road repairs not only give jobs to workers and their companies but also helps the German transport system to run smoothly. This helps the logistics chain in the economy and gives a boost to the economy. These are two examples of where government spending is helpful and supportive of low interest rates. To offset a recession there has been some suggestion of Germany spending €50 Billion on infrastructure spending. As a comparison, Spain already is spending more than it gets in on taxes.

The Bank of England Monetary Policy Committee is responsible for setting interest rates in the UK. It has said that due to the Brexit uncertainty, the next UK interest rate move is likely to be down. The UK official interest rate is only 0.5% now, which gives an indication of the outlook for interest rates: near zero for a long time.

JP Morgan is the sixth largest bank in the World with assets of $2.73 TRILLION. Bob Michele, Global Head of Fixed Income at JP Morgan, has gone even further than the Bank of England in predicting the European interest rates. His analysis shows that Europe will have negative interest rates for the next eight years. Mario Draghi has also said that European economic growth will be very low for seven years, which is another indicator for low interest rates. Indeed for both the UK and the EU there are many forecasts of very long term, low interest rates.

On the bright side, borrowing costs are much reduced as a result of low interest rates. Monthly mortgage payments are much smaller than normal. Businesses and Governments can borrow at much lower rates. On the dark side, we get little, or indeed no, interest on our savings. How low can interest rates go? Rates are negative in Switzerland and Denmark for people living outside the country. These non resident account holders actually have to pay the bank to take their money. When interest rates on savings are very, very low, what do we do with our savings?

If we have savings should we consider paying off our mortgage? Mortgage rates in Spain around 1.63% fixed for 20 years (via Spectrum Mortgage Services, email me if you require details). It can be better to invest than pay off a mortgage at this rate. If we have other loans you should look to pay off the loan from savings if the interest rate on the loan is greater than you can achieve by investing. A good benchmark figure to use is if the loan rate is greater than 5% per annum you should consider paying it off from savings.

Despite these low rates it is essential that we keep some money readily available, probably in a bank, as an emergency fund. Yet, with these historically low interest rates, it is also essential we do not leave more than we need in the bank. Inflation, even low inflation, eats into the buying power of money left in the bank. It is an insidious effect we often don’t notice until we come to buy our next big purchase. It is at this point we realise that we can’t buy what we thought we could buy because we have had interest on our savings that was smaller than the rate of inflation. When this happens, buying power falls. Instead of being able to buy the sports version of a car we find we can only afford the base model.

We need to use other types of savings and investing strategies during times like these. There are many other options, but most alternatives come with some investment risk. What does investment risk look like?

You may not have realised, but since the market collapsed in 2009 there have been corrections of -16.0%, -19.4%, -12.4%, -13.3%, and -10.2% in the S&P 500!

What is the investment return on the S&P 500 since bank interest rates hit their lows in 2009? INCLUDING the falls above, it may surprise you that the return has been 219%.

This is just one index based on shares in one country and is used to highlight volatility in a market. To reduce the impact of this volatility our savings should be in diversified pots. A fair question for you to ask me is “With these low interest rates, what pots do you invest in?” The answer is I have a mix. I have some very steady, some would say old fashioned, funds. Others are with a mix of investments managed by a fund manager, including some investments in the S&P 500. I have some UK Premium Bonds for my emergency fund as they are easily accessible. I have income producing investments in my pension. Index linked funds give me some protection against inflation (just in case we get an unexpected event). I have some forward looking funds that invest in India and China. And then… well I have three small holdings in UK private companies making new technologies and an Exchange Traded Fund (ETF) for Artificial Intelligence and Robotics.

There is diversity across types of investments, e.g. shares, funds, regions and bonds. Within the higher risk parts there is balancing of risk. The three individual shareholdings in tech companies are very high risk because the value of the shares in each company depends on the results of that company alone. Balance is provided because the ETF performance which depends on the 41 companies it tracks. If one company does badly, there are 40 others to take up the slack. It was sensible for me to diversify from an investment being dependent on the results of one company, to something which is dependent on the results of 41 companies. Especially as I am not a researcher in the fields of AI and robotics.

This is my mix of investments, but it may not be right for you depending on what return you want and how much risk you are prepared to take. Do I also choose superb investments and do these investments avoid market falls? I admit it, no they don’t. But my diversification does.

Tax is also relevant to the good husbandry of your savings at all times, not just when rates are low. With money in the bank and interest rates so low, it is not much more than adding insult to injury when the taxman takes 19% to 21% of your interest. However, it is important that having moved your savings from a bank account you make the investment tax efficient. How to do this will depend upon your situation and requires individual advice.

This brief note gives an example of what we need to do now as we are faced with low interest rates for a long period. What is right for you will depend on your circumstances. Is it worth taking some risk? Yes, especially if you use several different types of investments; investments in different types of assets and different geographical areas. Putting your savings in different pots can help to reduce the investment risk.

As is often the case, what looks like a disadvantage, the low interest rates, means opportunities appear elsewhere!

How to invest – What Is Asset Allocation?

By Spectrum IFA
This article is published on: 30th September 2019

30.09.19

If you read my previous article, I discussed the importance of diversification in your portfolio and how it is a strategy that can limit your exposure to risk. Another strategy is through asset allocation.

Asset allocation involves dividing an investment portfolio among different asset categories, such as equities, bonds, property, commodities and cash. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.

TIME HORIZON
Your time horizon is the expected number of months, years, or decades you will be investing to achieve a particular financial goal. If you have a longer time horizon, you may feel more comfortable taking on a riskier or more volatile investment, because you can wait out slow economic cycles and the inevitable ups and downs of the markets. However, if you are saving for a property or a car, you are less likely to want to take on risk as you have a shorter time horizon.

TOLERATE RISK
I have spoken in more detail about risk, here. However, to summarise, risk tolerance is your ability and willingness to lose some (or all) of your original investment for greater potential returns. More adventurous clients, or those with a high tolerance for risk, are more likely to risk losing money in order to get better returns. My more cautious clients, or those with a low-risk tolerance for risk, are more likely to prefer investments that will preserve the value of their original investment.

THE IMPORTANCE OF ASSET ALLOCATION
By including asset categories with investment returns that move up and down under different market conditions within a portfolio, you can protect against significant losses. Historically, the returns of the three major asset classes (cash, equities and bonds) have not moved up and down at the same time. Market conditions that cause one asset class to do well often cause another asset class to have average or poor returns. By investing in more than one class, you will reduce the risk that you will lose money and your portfolio’s overall investment will have a smoother gradient. If the return in one asset class falls, you could be in a position to counteract your losses with better performance in another asset class.

If you are looking to start investing or review the asset allocation in your existing investments, please contact me either by email emeka.ajogbe@spectrum-ifa.com or phone: +32 494 90 71 72

Tax Advice in Spain for Expats

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

24.09.19

Whenever someone gets in touch with me, the first, most important thing I suggest they do is to make themselves and their family as tax efficient as possible, i.e. tax planning. There is no point having a ‘leaky bucket’: their money earning interest but more than needs to is pouring through the ‘tax holes’ they haven’t plugged or planned for.

So, apart from the obvious reason of minimising the current tax you pay, why is it important to review your tax situation? It is to make sure you are aware of ‘stealth taxes’. Stealth taxes are those which are not easy to detect and that many people are not aware of.

If you are a government, you want to win as many votes as possible to be elected (or re-elected). You need money to spend, but raising taxes on the upper echelons will damage your votes, raising taxes on the working classes will also damage you votes, and both will be very vocal. Therefore, what has become increasingly popular with governments is to increase taxes that won’t necessarily hurt voters’ pockets on a day to day basis, but which could do in the future.

A good example of this is something called the lifetime allowance. This is the ‘ceiling’ under which the value of your UK private pension will be in the regular tax bands. However, if your pension pot overshoots this limit, you will pay increased tax of up to 55% on anything over that ceiling. Never heard of this tax? Well, I can assure you there are some very normal, everyday, hard-working people who are not in the upper echelons of society and who, due to long pension contributions and having good investment advice, will reach this limit in their lifetime.

To explain this a little more, the lifetime allowance ceiling was introduced in 2006 and was £1,800,000 at its maximum. Over time, it has been reduced and reduced to its present rate of £1,055,000. During that same time inflation has increased, people’s earnings have increased, contributions to pensions have increased; so why should the ceiling go down? Stealth tax.

Moving forward, stealth taxes are likely to be the most popular way for governments to increase their income without the majority of people noticing.

Let’s think about this. What else could the government do along these lines to increase revenue? How about tax those British people living outside of the UK more? They don’t live there, they don’t have the same rights as everyone that does, so are they not an easier target? So, what could they do? Tax UK state pensions (currently they do not tax non-UK residents, although they are taxable in Spain)? Or how about tax those with UK private pensions a ‘non-resident tax’? Or tax those who move their UK pensions outside of the UK and not into a place where the UK government has an agreement with? In fact, the last one they do already!

What can you do? Well its quite simple really; plan now so that should any of the above or anything like this happen, your assets or monies are arranged to be as tax efficient as possible to mitigate these circumstances. If your assets are working just as effectively as they are now, but are much more tax efficient, it could save you and your family a lot of money in taxes in the future.

Perfect preparation prevents P*** P*** performance I believe is the phrase!

Spanish Resident Services

By Jeremy Ferguson
This article is published on: 10th September 2019

10.09.19

I was recently with someone whom I have known for quite a while, having met him regularly at business events in and around where I live. I knew what he did for a living (chef) and he knew what I did for a living, or at least I thought he did!

Over dinner one evening, I was asked “Jeremy, I know you are a Financial Adviser, but what exactly do you do?”

It actually took me by surprise, thinking everyone would know what I did if I had told them my job title. The discussion continued; “ I would get it if you said you were a chef, you cook food; if you were a car mechanic, you repair cars; if you were a pilot, you fly planes; but what exactly do you do as a Financial Adviser?”

Wow! My answer actually took a little longer than I thought, explaining all of the different aspects I deal with. That got me thinking, I do need to explain a little more about what I do, but not bore people to death.

With that in mind, I put together a small ‘flyer’ showing the areas I deal with, which then pushed me to write this article with the objective of giving people a little more detail around all of the areas I can help with.

So this is what I do for people who live here in Spain:

Retirement Planning / Pension Management
If you haven’t got to that age yet, have you tucked enough away to get you through retirement? Is what you have saved so far suitably invested now things are changing? If you have got to that age, is what you have expensive and suitable for your current lifestyle? We can review your plans and help with managing your finances in retirement.

Pension Transfer Advice
QROPS is a complicated area. What does it even mean? Qualifying (it qualifies as a pension) Recognised (it is recognised by HMRC in the UK) Overseas (it is outside of the UK) Pension Scheme. It simply means it may make sense to move your pension away from the UK to gain more control, for example to choose Euros instead of Sterling. Quite often it makes no sense to move it. What is important is that we can provide you with all of the information you need to make an informed decision. Brexit may mean there is a limited time to do this.

Tax Efficient Investments
If you have ISA’s you will be taxed on these in Spain. Are you invested in policies you bought in the UK holding UK funds that are being taxed on the profit? We can take a look at what you have and see if there are better options out there for living in Spain from a cost, tax and administrative perspective.

General Financial Overviews
Savings in banks in the UK and here, ISA’s, personal pensions, state pensions, general investments, shares, and the list goes on. Are all of these suitable now things have changed and you have retired in Spain? Do you know where all your monies are? Have you forgotten a small pension you may have paid into when working for a company many years ago in the UK? Are you being charged too much for what you have? Is everything all kept together in one place? We can help manage all of this.

Cash Flow Planning / Long Term Plans
How long are you going to live? (I’m afraid we cannot answer that one). How long will what you have last? What effect is inflation having on everything. Can you reduce your outgoings? We can help you take some time to look at all of these things in detail and maybe tweak things to help your money go a little further.

Succession Planning
Who do you plan to leave your assets to when you pass away? (Please don’t say the Taxman!) Where are the likely beneficiaries living? Where are your assets based and is everything in place to make sure things go as smoothly as possible when the unthinkable happens? We can help you with all of this and give guidance on wills, taxes and everything associated with succession plans.

Mortgages
Are you looking to buy a property here in Spain but worried about the poor exchange rate when you have sterling to pay for it. Have you considered borrowing as much as you can in Euros so you can keep your pounds and maybe exchange in years to come if the rate has improved? Mortgages are at all time lows with regard to interest rates at the moment, so maybe now is the time to take advantage and lock those low rates in? Do you understand the mortgage offer you have from the bank? We can help expats with mortgages and all of these questions through our mortgage division.

So now you can understand why my friend needed a little more explanation about what I do. I hope this has given you an insight into all of the areas I can help people with and if all has gone to plan, next time someone asks me exactly what I do, my answer will certainly be a little more polished!

Pension Transfer from the EU Institutions

By Spectrum IFA
This article is published on: 31st August 2019

31.08.19

The EU Pension Scheme is what is known as a defined benefit/final salary scheme. This means that when you retire, the organisation guarantees you a monthly payment (defined benefit) until you die. When you pass away, your partner will receive a reduced monthly payment, known as a Survivor’s Pension, until they die. It is an extremely good scheme, however, you only qualify for it if you have worked at the institutions for at least ten years (not necessarily continuously).

If you are coming or have come to the end of your contract, have worked there for less than ten years, then you will be entitled to transfer out your accumulated EU Pension Rights, or what is known as a severance grant. There are two very important reasons why you should take this with you when you leave:

1. You Will Lose It, Eventually
Let’s say that you have worked at the EU Institutions for about eight years and accumulated ap-proximately €200,000 in EU Pension Rights. The day you leave, that accumulated money will re-main there, only rising in line with inflation to keep the present value. You cannot add to it or in-vest it in funds that could possibly attract stronger growth. If you do leave it until your pension-able age (66 or more), in a strategy of ‘safekeeping’, then you will lose it completely. This is even more important to consider if you are not far from your pensionable age when you leave and do not have much time to protect your retirement. Therefore, it makes sense to transfer it as soon as you can, to maximise potential growth and protect your financial future.

An added benefit to this is that if you decide to return to the EU Institutions at some point, you can transfer your pension back in and (if you are there long enough), make up the ten years.

2. No Death Benefits
All pensions come with death benefits. This ensures that in the event of your passing, your bene-ficiaries, be they your spouse, children, or your extended family, will be provided with an income. In some cases, this sum can be greatly reduced, yet it will still be something. Unless you have worked for the qualifying ten years, your acquired EU Pension Rights is not a pension; it is a pot of money that you have accumulated through working at the EU Institutions. Therefore, it has no death benefits. In the event of your passing, your family will not benefit from what you have ac-cumulated and it will be absorbed back into the EU. By transferring it out, you ensure that the full amount of what is left (you may or may not have taken an income) is passed onto your beneficiar-ies to provide them with an income, and that the money is not lost.

What Are The Next Steps?
If this is something that you wish to consider, we will conduct an evaluation of your situation and the value of your pension rights at the EU. Once we have agreed and confirmed with you that transferring out is the right option, we will work with an approved provider who complies with the transfer out requirements, and who will help set up your new pension. Then, as part of our ongo-ing service, we will review your pension and personal circumstances every quarter to ensure that you are always updated with the latest information. Even if you move countries, our service will continue.

So, if you have come to the end of your contract at the EU Institutions, have less than 10 years of service and you don’t like losing large sums of money, wish to protect your financial future and potentially provide for your dependents/beneficiaries, then contact me either by email: emeka.ajogbe@spectrum-ifa.com or phone: +32 494 90 71 72.

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.