Potential Catalan Issues

By Chris Burke
This article is published on: 5th October 2017

05.10.17

It seems Catalonia and Spain are continuing their loggerheads and head jutting, but what most people are starting to consider are their OWN assets and issues being a resident here, particularly if you are not Catalan. I have received many emails this week from worried clients and contacts, about having their money here and what they can/shouldn’t do.

See below my 5 TOP FINANCE TIPS for the current predicament and indeed some of the areas we help people with.

Spain’s stock market has taken a severe hit this week, with two of the Catalan banks, Banco Sabadell and Caixabank down 6.3% and 6.7% respectively. Indeed today Banco Sabadell is holding an emergency meeting, Thursday the 5th October, to approve relocating their headquarters out of Catalonia.

Therefore, as an emergency communication to my clients and contacts I thought it would be useful to know what you should be thinking about and the main questions that have arisen this week:

1. Personal Money in banks
Any money in a bank, unless used to live on a day by day, is devaluing in real terms. If Spain reacts to Catalonia declaring independence, we have no idea what might happen. In the last crisis, banks made it difficult to move and even limited the money you could take from your bank account. If you have ‘excess funds’ in accounts in banks, you may want to consider other options so you still have full control of your money and no worries.

2. Business Bank Accounts
If your business account is with a Catalan bank, but you have a personal one that is not, you CAN move money into this. However, you have to be careful and follow these guidelines:

‘In order to avoid problems with the consideration of dividends it would be preferable to do a loan agreement between you and your company and to file a form through la Generalitat, in order to demonstrate the date of the loan and the content of the agreement. There is no stamp duty to be applied and it is not necessary to go to a Notary, but it is better to have this document done, just in case, if in the future somebody asks about this amount.
Source: Silvia Gabarro, GM Tax.

3. Currency
Anyone with sterling Money will have felt the pain of the currency weakening since the Brexit vote. Analysts have been saying for months that this is very undervalued, and built on worries about the UK leaving the EU. However, there are still fundamental issues within the EU, including the real major problems of the Italian banks, the fragile Spanish economy and a few members who are heavily in debt and unlikely to ever be able to repay this. Now we also have the Catalan Independence problems coming to a head within Spain, this could be compounded. Then in May next year we have the Italian elections which could be interesting to say the least.

Therefore, it could be argued before the Euro weakens any further, a good time to transfer money into sterling from Euros.

4. Existing/Investments
Many Catalan/Spanish banks whose client’s money is invested have more of an emphasis on their own funds or Spanish funds, than a non Spanish bank/investment would. We call this being more ‘Spanish Centric’. If the Spanish stocks are booming then this is fine, however if not the case this could be very dangerous to your investments, whether personal or corporate.

The larger the stock market, the closer correlation (it does the same as) to other large stock markets. Therefore, if your money is invested with a truly global bank/investment firm you will not put your money so much at risk to this.

5. Relocation
Believe or not, some businesses and people are relocating due to the current predicament, and some companies share prices have even gone up by 20% on revealing this news to the press!

You may or may not want to consider this, or be in a position to, but your personal and corporate finances do not need to worry if you have them set up correctly. Companies’ savings and your personal money can be with a ‘Portable bank/institution’ that acts like a balloon. Wherever you go, you pull your balloon along with you happily. Then, when you want to access some of the money, you let some ‘air’ (money) out and adhere to the local rules of where you are. No need to open up bank accounts in different countries, or go through the extensive administration. Just tell us you want your money and after some due diligence you shall receive it, wherever you are and knowing the process is legal and compliant.

Will Brexit affect your plans to move to France?

By Derek Winsland
This article is published on: 4th October 2017

04.10.17

The performance of the UK government’s Brexit negotiators, Theresa May included, is giving rise to concerns amongst UK businesses, EU nationals living in UK and, of course, us living and working in the EU. Sterling continues to react daily to the actions and reactions on both sides of the negotiating table, and the general uncertainty that this causes conveys itself to people’s decision-making.

Over the last 15 months or so, I have been approached by a number of prospective new clients, most of whom are asking the same questions: “How will Brexit affect our plans to move to France” and “How will Brexit impact our desire to remain in France”. The honest answer to this (at the time of writing), is no-one yet knows and until something concrete comes out of the negotiations, this will remain the situation. My own belief is that some compromise will be cobbled together to allow some continued freedom of movement in exchange for access to the single market.

What we do know is that if you have aspirations to live in France, you will become resident for tax here and there is nothing more certain than taxes (apart from death of course). As a French tax resident, there are a number of different taxes you will become subject to. This is no different to the position in UK, indeed comparisons undertaken on behalf of a number of prospective ‘movers’ to France has shown only minor differences in tax payable for those people. The proviso used though was that those people put their financial house in order before moving to, and becoming resident in, France.

My Limoux colleague, Sue Regan in her last article, pointed out the pitfalls in assuming UK-based investments would serve the same purpose in France, and that the tax treatment of those investments in UK would transfer across the Channel to France. This is not the case, in fact holding and maintaining UK investments can and do result in nasty tax shocks for those ex-pats who wrongly believe investments like ISAs would be tax exempt in France.

Also, with the introduction of Common Reporting Standards, financial information is being shared across borders, so considering oneself to be hidden from the tax-man in France, whilst holding bank accounts and investments in UK, is delusory. If you have recently received a letter from your UK bank asking you to confirm your address, this is Common Reporting Standards in action; your bank will pass the information on to HMRC who in turn will share it with their French counterparts.

It is better to acknowledge that the ways of the past will not continue to hold true and that work needs to be done if you want to live in France and this includes re-structuring assets to make them French tax-efficient. The simplest way to approach this is to invite an independent financial adviser to carry out a financial review of your circumstances. He or she will put together a report of recommendations, to ensure your move to France will not result in tax shocks further down the line. All you have to do then, of course, is act on the recommendations.

If you feel you could be affected by this, or have personal or financial circumstances that you feel may benefit from a financial planning review, please contact me direct on the number below. You can also contact me by email at derek.winsland@spectrum-ifa.com or call our office in Limoux to make an appointment. Alternatively, I conduct a drop-in clinic most Fridays (holidays excepting), when you can pop in to speak to me. Our office telephone number is 04 68 31 14 10.

I look forward to seeing you soon.

How to be compliant…..

By Gareth Horsfall
This article is published on: 3rd October 2017

03.10.17

What an interesting couple of weeks. Organising a protest in Firenze to fight for the protection of citizens’ rights in the EU, to being interviewed across multiple news channels around the world and being joined by about 100 people who turned up on the day and got an equal amount of press attention. And now, to slip back into normal life again and a work/life pattern. It all seems a little surreal.

But whilst the amazing memories are still clear in my mind, the ever present obligations of financial life continue and in this article I am going to elaborate on one which is an extremely useful financial planning tool in Italy.

I haven’t written about the benefits of the Italian compliant Investment Bond for some time and the details have moved on a little since my last musings on this topic. In this article I just want to take a look at the Investment Bond contract, the things that make it compliant for Italian tax purposes and why they can help with long term tax planning in Italy.

WHAT IS AN INVESTMENT BOND?
In short, an Investment Bond is a life assurance contract, but the life assurance part is stripped to a minimum and your money is allocated exclusively to investments. Its other name is an Investment Bond. The life assurance part is normally offered by a company as an additional 1% of the value paid out by the company on death or a minimum protection of the original investment, determined by you. Under these terms the contract qualifies as an Investment Bond and therefore is treated preferentially for tax in Italy.

Typically these companies are based in Dublin, Ireland, and due to its place in Europe and standing as a financial centre, can design products exclusively for different EU markets. In this way the money is not located in Italy but complies with local laws.

WHAT IS THE TAX TREATMENT?
Any invested monies, whilst held in an Italian compliant Investment Bond will NOT be immediately liable to capital gains tax or income tax on distributions/dividends etc.

This means that for the larger portfolios, where active management of a portfolio is taking place, the money can be moved around and invested in any way possible without incurring an immediate tax liability. Administratively, this has huge advantages as each taxable event (income or gains) do NOT have to be reported and taxed in the year in which they occur, and neither does the arduous task of calculating everything, pro rata, from the UK tax year to the Italian tax year or vice versa, for example, and/or converting all those events to EUR from other currencies on the day in which they occurred at the official Banca D’Italia EUR exchange rate. A large task even for the more monetary minded.

The monies are only taxed when a withdrawal is made and ONLY on the capital gain element of the withdrawal, not the whole amount.

This can be a highly effective tax planning tool for those seeking growth and/or income from investments. It can literally mean an income stream with very little liability to tax in the early years.

COMPLIANCY IN RECENT YEARS
In recent years the Italian authorities have been looking into the higher value arrangements that qualify under the definition of Polizza Assicurativa Unit Linked / Investment Bond to ensure that they comply. If not, tax penalties and redefinitions of the policies can arise (more on that below).

The more recent developments are as follows:
1. The policy must have the opportunity to insure a certain level of the principal investment. (But this option does not necessarily have to be taken up).

The theory here is that these vehicles are clearly being used for investment purposes as the main driver and the life assurance element is secondary. The Italian authorities now expect to see that the option to protect a specified amount of the investment, on death, is included in the policy, rather than just the historic additional 1% paid out on death.

2. ‘Self investment’ and ‘advised’ investment options are NOT unlimited.

In the past it has typically been the case that you could invest in any traded investment funds in the world. However, the Italian authorities started to look at this more closely, and rightly in my opinion.

Their argument is that monies in an Investment Bond should be invested in the ‘approved funds’ of the company OR the money should be managed by a professional asset manager (our preferred partners are Rathbones, Tilney Investment group and Prudential). In this way the investor, you and I, are at arm’s length from the investment decisions. That is, it should not be managed exclusively by ourselves when the money is in the hands of the Assurance company. In reality, the investor has quite a lot of power to restrict and allow investment decisions, but they must be within the parameters laid down above.

And lastly on this point, the ability for rogue advisers to recommend investing in offshore registered funds, unregulated investments or merely investments that pay the adviser extra commissions for finding more subscribers, are much more restricted with the Italian authority decision. This has to be viewed as a good thing, in my opinion.

3. One size does not fit all

The last point is one that affects many British holders of these investment vehicles where they may have been advised to take out an investment because an adviser in the UK, for example, recognises the tax effectiveness of the assurance structure but does not understand the details required for full compliancy under each EU member state.

The typical type of policy issued under these terms is one which is located in the Isle of Man, Luxembourg, or Switzerland. A lot of these contracts, although generically correct in structure, lack the detail for it to fully comply with the requirements for an Italian Investment Bond.

If you are a holder of a contract in one of these jurisdictions, it is worth checking the terms and conditions.

WHAT HAPPENS IF MINE DOESN’T MEET THE CRITERIA?
Of course, the big question is what happens if you own or are thinking of starting an investment contract of this type without the necessary conditions mentioned above.

In recent years there have been some notable cases where the Italian authorities have looked through the structure and ruled that the portfolio was nothing but a classical investment portfolio and that the preferential tax treatment never applied. As a result, all historical taxable liabilities; capital gains and income payments, have had to be calculated and paid immediately to the authorities.

The ruling was made on the basis of one or more of the elements mentioned above not being complied with, from too much control over investments to too little life assurance protection being offered to the client.

Therefore, it is vital, from a compliance point of view, to take a look at all our financial arrangements and more importantly to review them on a regular basis. What we may have once bought many years ago, and which complied then, may now have become obsolete and could cause tax questions later.

Reviewing existing contracts and investment arrangements has become much more important with the open border tax sharing arrangement, the Common Reporting Standard’ which has now been fully implemented.

It might just be the right time to start looking at your existing arrangements to ensure they comply before anyone starts looking.

If you hold assets directly or through historic contracts of this type and would like to review them, you can contact me below or call me on +39 333 6492356.

The fight to keep our EU rights

By Gareth Horsfall
This article is published on: 25th September 2017

25.09.17

As Theresa May readied herself in Florence to deliver her BREXIT speech a small but energetic group of British expats gathered in the city to voice their opinions. The group, part of ‘British in Italy’ was lead by Spectrum’s Italian Manager Gareth Horsfall.

Gareth has been instrumental in building the groups membership and organised this peaceful protest in Florence.

The protest was organised to show solidarity for EU citizens in the UK as well as British citizens living in the EU. Gareth explains, “The motivation and reason for such activity is to fight to keep our EU acquired rights…those that could affect our freedom of movement in the future, the right to work in other EU states as an EU citizen, the right to have our qualifications recognised in our current EU state of residence and any that we may subsequently move to, the right to keep our healthcare rights and especially those of a lot of our pensioner clients who rely on it, the right to have our social security contributions taken into account from other EU states and all the interconnected rights that go with these things.”

Outside the impressive 14th century Novella church in the centre of Florence, the protesters were in good voice with many flags and banners, one reading “Denied a vote – Denied a voice”. The usual media circus was in town, and Gareth was delighted to be able to talk to many journalists to throughout the day.

Gareth Horsfall is a member of ‘British in Italy‘ which has been set up to protect and fight for the rights of Italian citizens living in the UK and UK citizens living in the EU.

The message is simple:
We should be granted all the rights that we have acquired and/or are entitled to before the UK chose to leave the EU.

The objectives are listed below:

British in Italy is a group of UK citizens resident in Italy concerned about the effect of Brexit on the many thousands of UK citizens in Italy and the half million or so Italians in the UK
Our aim is to ensure that Brexit does not penalise these individuals, all of whom made the decision to move across the Channel in bona fide and relying on their EU right of freedom of movement
UK citizens already in Italy and Italians already in the UK should therefore continue to have all the rights they had acquired or were in the process of acquiring while the UK was in the EU
We have already lobbied the UK government hard not to take these rights away from EU citizens in the UK

If you have not yet made your presence known, and/or you know someone who hasn’t then feel free to get in touch with the British in Italy group at britsinitaly@gmail.com Your name and contact information will be registered and you will be added to a newsletter mailing list. (Your information will not be shared or used for corporate purposes). Or follow them on Facebook HERE

Horsfall finishes by saying “The UK Government is failing to give an outright guarantee to EU citizens living in the UK and reacting to this the EU is threatening to restrict our own rights. We are all in this together and should fight to stop it. Its not about stopping BREXIT but just about treating people fairly and not ruining peoples lives and potentially pulling families apart.

Gareth was also part of the Exiting the EU Select committee, which met at the House of Commons back in January this year. Gareth was one of four UK citizens living in the EU who represented other UK citizens living in the EU, in Westminster.

Concerned by a Currency Conundrum…?

By Barry Davys
This article is published on: 22nd September 2017

22.09.17

As the Pound’s prospects continue to look bleak on the surface, many of us are considering what is best to do with our money. Should we invest it into a different currency so it will hold its value? Rob Walker of Rathbones investment group has an excellent overview of the major currencies available on the market, and predictions of what might happen as the financial world around us changes:

“With a portfolio approach that is global in nature, currency volatility is playing an important role in the reported returns to clients on a quarterbyquarter basis. The last two years has seen some substantial US Dollar, British Pound and Euro volatility as confidence in the respective economic regions ebbs and flows. This has a profound effect on how the overseas assets’ performance are reported in an investor’s base currency, based on their individual circumstances.”

US Dollar
The US Dollar has been a safe haven in times of increased economic uncertainty. In the first few months of Donald Trump’s presidency, the US Dollar strengthened on the presumption that tax cuts would stimulate the economy. This has subsequently reversed, as the realisation of many false or premature promises has taken hold.

British Pound
The British Pound has seen its value fall significantly against the US Dollar and Euro due to Brexit uncertainty. Until the exact path of Brexit and the economic ramifications of this are known, it is likely that the Pound will remain weak. There will be many twists and turns along the way until March 2019, not least with the Conservative’s recent General Election result and subsequent reliance on the DUP. The current status quo is very vulnerable to further turmoil and the weakness of Sterling is a byproduct of this.

Euro
At the turn of 2017, markets were focussing on the possibility of antiestablishment vote in both The Netherlands and France. At the time, both countries had parties with antiEU policies in opinion poll ascendency and thus the consensus was to remain underweight in the Eurozone. Since that time, the Euro has undergone a substantial recovery of over 14% against the US Dollar as political risk subsided and economic confidence in the Eurozone improved. Against Sterling, it is up over 7% this year in addition to the weakness after Brexit of 2016. Both of these currency movements have had the impact of weakening the value of US and UK assets for Euro investors.

Translation effects
Performance of globally diversified portfolios has been affected by each of these currency movements. For example, had a US investor bought Euro assets at the start of 2017 the translated value would be increased by 14% due to the currency effect along, but a Euro investor who bought US assets at the start of the year would be seeing a translated loss of over 12%. Investors in Sterling will have seen the value of overseas assets increase markedly during the Brexit process as the Pound has weakened significantly, but Euro investors with Sterling exposure have seen a corresponding fall. Over the long term, we would expect the impact of shorter term currency movements to average out. For the Pound particularly, I have pasted some thoughts on the longer term direction below.

When managing portfolios in Euros, Sterling and US Dollars, we ordinarily have a degree of home- country bias to a client’s base currency. However, this is dependent on a client’s unique circumstances. Our portfolios are globally diversified, where we are striving to gain exposure to a portfolio of high quality global franchises in order to reduce risk to any one particular economic region. Indeed, currency analysis can be somewhat circular, as the underlying investments in each region are typically multinationals that have a global spread of currencies. This can mean that an individual portfolio may deviate against a certain measure or benchmark over the short term, which can be transitory, but we feel this spread of global investments will serve clients well over time.

Hedging
Almost all investment professionals admit that forecasting future direction of foreign exchange is a thankless task, as currencies are largely influenced by future unknown events which are, by definition, unpredictable. As with most investments, volatility can also be driven by speculative investors such as hedge funds.

Hedging currency risk, i.e. eliminating the currency impact of portfolio returns and focussing on the underlying overseas investment return, is sometimes considered by investors. This can add to certainty but also cost. In many cases, due to the inherent unpredictability of foreign exchange markets, hedging not only detracts from returns but often proves to be the wrong action in hindsight. The additional cost and operational risk complexities of hedging currencies of hundreds of individual, tailored client portfolios mean that we cannot offer this at a client’s individual portfolio. However, in some cases, a hedged class of fund is available to Rathbones within a private client portfolio. For example, we have access to Sterling hedged classes of JP Morgan US Equity Income, Findlay Park American and Blackrock European Dynamic funds, enabling us to strip out the currency effect of these three funds at a cost. We do consider the use of these funds when we consider a currency to be excessively weak or strong.

Thoughts on the Pound
Using our long term macroeconomic framework, Sterling looks to be significantly undervalued versus the Euro (see chart below) in our view. Without Brexit, we’d be looking at what we call an ‘equilibrium’ value of around 1.50 euros to the pound, taking into account economic fundamentals only (relative prices, relative productivity and relative expected savings). Assuming Brexit, we’re working on the basis of c.1.3 € to £ but it could take a number of years to get there.

Productivity is a key driver of our long term framework – particularly productivity in the tradeable goods sectors. This is likely to suffer after Brexit due to nontariff barriers to trade (think complying with overseas regulation and customs regimes). That said productivity growth on the Continent has been weak, and is unlikely to surge ahead while the UK economy recalibrates, somewhat limiting the damage to the equilibrium rate. If the European project revivifies around a new Macron/Merkel nexus, then further gains from integration may lower the equilibrium rate a little further via improving Eurozone productivity.

Although the longrun economic value of the pound would shift lower in a ‘hard Brexit’ scenario (ie. no special deal), primarily due to the impact on productivity, the actual exchange rate is so far below the economic equilibrium value that we expect the pound to rise on a long term basis in any scenario. It is really just a question of speed. Unfortunately, such longterm analysis does not help us forecast currencies on a 612 month view, and the newspaper headlines generated by ongoing Brexit negotiations could well drive exchange rate volatility.

Until June, the EUR/GBP exchange rate over the last couple of years has closely tracked changes in relative interest rate expectations (ie. what the market thinks interest rates will be in Europe in 3 years time relative to what they think they will be in the UK). This lends some shorter term support to the pound, and indeed could favour sterling further if the run of strong macro data in the Eurozone starts to roll over.

The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance should not be seen as an indication of future performance. Changes in rates of exchange between currencies may cause the value of investments to decrease or increase.

Information valid at 12 September 2017.
Tax regimes, bases and reliefs may change in the future.

Le Tour de Finance – Autumn 2017

By Spectrum IFA
This article is published on: 21st September 2017

As we leave summer behind and gently enter the autumn months, we look forward to the next leg of the ever popular Le Tour de Finance in France.

During October, the team shall be visiting:
5th October – Le Puy Sainte Réparade (13610 ) – Book your place
6th October – Gayda, Languedoc (11300) – Book your place
17th October – Martigné sur Mayenne (53470)- Book your place
18th October – Clecy (14570) – Book your place
19th October – Lanvallay (22100) – Book your place

The venues for these next five events have been carefully chosen to bring even more enjoyment to the attendees. Wonderful vineyards, grand chateaux and beautiful golf courses.

Thus far, Le Tour de Finance in 2017 is proving to be the most popular series of events ever. The seminars offer English speaking expats a chance to meet various experts from international companies, involved in providing solutions for expats.

The experts represent a range of international institutions giving attendees unprecedented access to ask those nagging questions about living as an expat in France. Fields of expertise include; Wealth Management, Assurance Vie, Currency Exchange, QROPS/Pensions, Specialist Expat Independent Financial Advice, and Expat Tax Advice.

Representatives from a wide range of international companies such as Tilney, SEB Life, Currencies Direct, Standard Bank, Rathbones, Old Mutual, Prudential International and Momentum Pensions attend the events for a small presentation but more importantly, the events allow attendees to ask direct questions to these experts. This unprecedented access to the experts is what really sets Le Tour de Finance events apart.

The events in October will be visiting the Le Puy-Sainte-Réparade in the Bouches-du-Rhône, Brugairolles in the heart of the Languedoc, Martigné sur Mayenne and Clécy in north western France and, finishing up in Lanvallay Côtes-d’Armor department of Brittany.

Keep an eye open for future events and forums in France, Spain and Italy or contact us here to receive updated information on events in your region.

The objective of Le Tour de Finance is to provide expatriates with useful information relating to their financial lives. We try and cover frequently asked questions that we receive from our clients, however, it would be helpful for us to know what your particular areas of interest might be.

If you have any specific question please contact us here – Le Tour de Finance Questions

To declare or not to declare?

By Gareth Horsfall
This article is published on: 20th September 2017

That was the question of the summer 2017!

During the long hot summer of 2017 I had a number of people calling me for advice on when and which assets to declare which to date had not been declared in Italy. A troubling question indeed.

A number of people who have been living in Italy for many years had recently received letters from their banks, mainly in the UK. This letter had been asking the individuals to inform them of their TIN number: tax Identification Number (codice fiscale or National Insurance to you and I). The main question was why would they need this and what would the consequences be of not providing it.

THE COMMON REPORTING STANDARD
If you are one of those people who read my E-zines, you will know that I have written about this subject over the last few years on numerous occasions, but its worth going over the detail again now, since an automatic sharing of financial information across borders (of which the UK/USA/Italy and most developed countries are party to) will take place before the end of September 2017, if it has not happened already. The information they will receive will be backdated to 1st January 2016.

WHAT IS THE OBJECTIVE?
In short, the idea behind the CPS was modelled on a similar idea which the USA put into force before it. That was FATCA (Foreign Account Tax Compliance Act) and was designed to circumnavigate the individual to whom any tax liability may be incurred and for the banks and financial institutions with which we hold out money/assets etc, to declare these holdings directly to the relevant tax authorities.

So it no longer became the responsibility of the individual to report their money ‘correctly and honestly’. Now, this information would be reported directly.

The rest of the world has now pretty much followed suit (except notable offshore jurisdictions which are also coming under Governmental pressure to fall in line) and hence the need to get clarification on your country of tax residence and your TIN (Tax Identification Number).

WHAT INFORMATION WILL THEY SHARE ABOUT ME?
Under the Common Reporting Standard the financial information to be reported includes the name, address and tax identification number (where applicable) of the asset owner; the balance/value, interest and dividend payments and gross proceeds from the sale of financial assets.

The financial institutions that need to report include banks, custodian financial institutions, investment entities such as investment funds, certain insurance companies, trusts and foundations.

The tax authority will receive much more information than ever before. Even information it does not need. For example, there is no wealth tax in countries like the UK, Portugal, Cyprus and Malta, but the tax authorities will still receive bank account balances. If this raises any red flags they may investigate where the money came from in the first place.

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

I explain the Common Reporting Standard as follows:

Imagine a normal spreadsheet in which all tax authorities have been entering information regarding us for years. The Italian, Spanish, French and British authorities all created their own spreadsheets with their own column headings and rows. When this was exchanged with another tax authority it would first have to be interpreted before the information could be used. The CRS went one step further. In effect, all countries are now using the same spreadsheet with the same column headings and rows and the data is much easier to interpret. With the help of computers they can identify discrepancies very easily. (This is clearly a simple explanation, but helps understand the concept)

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

SHOULD I TELL THEM?
A logical question would be, what if I don’t tell the bank or financial institution of my TIN?

The banks would refer to the country in which they have the most information about you. It logically concludes that if you have a UK address on a UK bank account, but live in Italy, and have received a letter to confirm your TIN then the bank already suspects that your tax residency has not been correctly declared. It would be up to you to prove otherwise were you subject to an investigation.

What would happen if I gave my TIN in my country of origin?
If, for example, you gave your National Insurance number in the UK, but were living in Italy, then the UK authorities would consider you a UK tax resident and tax you there. That may be your preference, but should any institution or Government suspect that this is being declared falsely then the consequences could be severe. The logical conclusion here is that if you are making payments in Italy on a regular basis and/or sending money to an Italian bank account then this information would be red flagged.

So what should you do if you are NOT ‘in regola’ yet?
From the people that I spoke with this summer, it seemed that a number were afraid of giving this information because it would highlight any money/assets which have not been declared correctly to date. The sad news is that you are probably too late. They know already, hence why you received the letter.

My advice is always the same. The past cannot be corrected but you can change your future. Hiding and hoping the problem will go away is no longer an option. The only solution is to get your financial situation ‘in regola’.

WHAT WILL I PAY?
How you declare your money and how much you will pay is another question and one that can only be calculated by a commercialista, but it does make sense to have a look at your whole financial situation and see what damage limitation you can do by planning efficiently as a tax resident in Italy. That is my specialty and I always recommend you contact me before going directly to the commercialista because there may be ways to mitigate any tax burden before you make that first tax declaration. Once the first tax declaration is in, any subsequent changes can be difficult and costly to rectify.

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

Has your bank in Spain paid you over 3% p.a. interest on your savings recently?

By John Hayward
This article is published on: 19th September 2017

The probability is that it hasn´t. However, you could have made more than 3% a year in a low risk savings plan with one of the biggest insurance companies in the world. We have many happy savers who have seen steady growth of over 3% a year for the last few years. How? Read on…

Saving money in a low interest world

Losing spending power to inflation
With special offers currently being offered by banks of 0.10% APR interest and inflation in Spain running at 1.6%, there is a guaranteed loss of the real value of money at the rate of 1.5% a year. There are some who would be disappointed, if not angry, if their money in an investment had lost 7.5% over 5 years yet this is exactly what has been happening to people over the last few years without them really appreciating it. 3% a year is not only an attractive rate of return but it is necessary to cope with inflation and provide real growth.

Spanish compliant insurance bonds
ISAs, Premium Bonds, and some other investments in the UK are tax free for UK residents. They are not tax free for Spanish residents. We are licensed to promote insurance bonds in Spain which are provided by insurance companies outside Spain but still in the EU. In fact, even after Brexit, these companies will still be EU based and so Brexit will not have the impact on these plans that it could have on UK investments. As the bonds are with EU companies, and the companies themselves disclose information to Spain on the amount invested, as well as any tax detail, the bonds are Spanish compliant which makes them extremely tax efficient. We do not deal with companies based outside the EU as we are satisfied that the regulation within the EU is for the benefit of the investor. We do not have the same confidence in some other financial jurisdictions and neither do Spain.

What investment decisions do you have to make?
Although we have the facility to personalise an investment portfolio within the parameters laid down by the EU regulators, offering discretionary fund management with some of the largest and best known investment management companies, we can also use a more simple approach for those who do not require any input into the day to day investment decisions.

So what has happened over the last 5 years?
The chart below illustrates the performance of one of fund’s available to you compared to the FTSE100 and the UK Consumer Price index. The argument to stay invested when markets fall is valid when one looks at the FTSE100 roller coaster line with the increase we have seen over the last year or so since the Brexit vote. However, anyone accessing their money around the time of the vote could have seen a 25% drop in the investment values. Not so with the fund in the insurance bond.

Real cases

Real case 1 – £40,000 invested 24/07/12. £50,770 as at 14/09/17. Up 26.92% in 5 years

Real case 2 – £356,669 invested 10/09/14. £431,177 as at 14/09/17. Up 20.88% in 3 years

Real case 3 – £316,000 invested 05/04/16. £334,422 as at 14/09/17. Up 5.82% in 18 months

Real case 4 – £80,000 invested 13/07/16. £86,160 as at 14/09/17. Up 7.70% in 15 months

Real case 5 – £20,000 invested 27/01/17. £20,712 as at 14/09/17. Up 3.56% in 8 months

These growth rates are not guaranteed but are published to illustrate what has actually happened and that the percentage returns on the fund are irrespective of the amount invested.

How can they produce such consistency?
Each quarter, the insurance company estimates what the growth rate will be for the following 12 months. This rate is reviewed based on the views of the underlying management company with people situated in all parts of the globe specialising in their own particular area. In good times, the company will hold back money that it has made so that, when things are not so good, they are still able to pay a steady rate of growth to their savers.

I don´t want to take any risk
It is difficult to avoid risk. In fact it´s practically impossible. A risky investment is seen by many as something which has a good chance of failure, either in part or completely. Stocks and shares are seen as risky whilst putting money into a bank deposit account is not. It is generally known that stocks and shares can go down as well as up but some people are unaware, or simply ignore, the risk of keeping money in a perceived “safe” bank deposit. Bank accounts have limited protection against the bank going bust. Then, if it came to the situation where a bank had to be bailed out by the government, it could take months, if not years, to access your money. As already mentioned, if the account is making less than inflation, you are losing money in real terms. So a bank account is far from risk free. The fund illustrated above is rated by Financial Express as having a risk rating of 22% of that applicable to FTSE100, much further down the risk scale and in an area that many people feel comfortable with.

What are the charges?
We explain in detail the underlying costs. In my experience, far too many people commit to a contract without understanding what they have, having received little explanation of the terms and conditions. This is where we differ to most. Different companies have different ways of charging and we run through all of the charges so that you are happy with what you have. The real examples above have had charges deducted and so these are the real values. Your bank may not charge you for the 0.10% interest (less tax) they are paying you but they are making money through investment but not passing anything on to you even though you supplied the money they invest.

What do I need to do next?
Contact me and I can review your savings, investments, and pension funds. I can then explain how you could arrange these in a tax efficient way whilst giving you the opportunity to access the growth that is available, for an improved lifestyle and to cope with rising costs.

Planning to retire to France – don’t get caught in the tax trap!

By Sue Regan
This article is published on: 18th September 2017

18.09.17

Retiring to France can be dream come true for many people. The thought of that ‘place in the sun’ motivates us to save as much as we can whilst we are working. If we can retire early – so much the better!

In the excitement of finding ‘la belle maison’ in ‘le beau village’, we really don’t want to think about some of the nasty things in life. I am referring to death and taxes. We can’t avoid these and so better to plan for the inevitable. Sadly, some people do not plan before making the move to France and only realise this mistake when it is too late to turn the clock back.

For example, investments that are tax-free in your home country will not usually be tax-free in France. This includes UK cash ISAs and premium bond winnings, as well as certain other National Savings Investments, all of which would be taxable in France. So too would dividends, even if held within a structure that is tax-efficient elsewhere. All of these will be subject to French income tax at your marginal rate (ranging from 0% to 45%) plus social contributions, currently 15.5%.

Gains arising from the sale of shares and investment funds will be liable to capital gains tax. The taxable gain, after any applicable taper relief, will be added to other taxable income and taxed at your marginal rate. Social contributions are charged on the full gain.

If you receive any cash sum from your retirement funds, for example, the Pension Commencement Lump Sum from UK pension funds, this would be taxed in France. The amount will be added to your other taxable income or under certain conditions, it can be taxed at a fixed rate of 7.5%. Furthermore, if France is responsible for the cost of your healthcare, you will also pay social contributions, currently around 7.4%.

Distributions received from a trust would also be taxed in France and there is no distinction made between capital and income – even if you are the settlor of the trust.

As a resident in another country, it would be natural for you to take advantage of any tax-efficiency being offered in that jurisdiction, as far as you can reasonably afford. So it is logical that you would do the same in France.

Happily, France has its own range of tax-efficient savings and investments. However, some planning and realisation of existing investments is likely to be needed before you become French resident, if you wish to avoid paying unnecessary taxes after becoming French resident.

I mentioned death above and as part of the tax-efficient planning for retirement, inheritance planning should not be overlooked. France believes that assets should pass down the bloodline and children are ‘protected heirs’, so they are treated more favourably than surviving spouses. Therefore, action is needed to protect the survivor, but this could come at a cost to the children – particularly step-children – in terms of the potential inheritance tax bill for them.

Whilst there might be a certain amount of ‘freedom of choice’ for some expatriate French residents, as a result of the introduction of the EU Succession Rules, this only concerns the possibility of being able to decide who you wish to leave your estate to and so will not get around the potential French inheritance tax bill, which for step-children would still be 60%. Therefore, inheritance planning is still needed and a good notaire can advise you on the options open to you relating to property.

For financial assets, fortunately there are easier solutions already existing and investing in assurance vie is the most popular choice for this purpose. Conveniently, this is also the solution for providing personal tax-efficiency for you. There is a range of French products available, as well as international versions. In the main, the international products are generally more suited to expatriates as a much wider choice of investment options is available (compared to the French equivalent), as well as a range of currency options (including Sterling, Euros and USDs).

If possible, you should seek independent financial planning advice before making the move to France. A good adviser will be able to carry out a full financial review and identify any potential issues. This will give you the opportunity to take whatever action is necessary to avoid having to pay large amounts of tax to the French government, after becoming resident.

Even if you have already made the move to France, it may still worth seeking advice, particularly if you are suffering the effects of high taxation on your investment income and gains or you are concerned about the potential inheritance taxes for your family. A full review of your personal and financial situation enables us to identify any issues and recommend solutions that will meet your long-term goals and objectives.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or on the mitigation of taxes.

Update – Le Tour de Finance, Domaine Gayda, 6th October 2017
This year’s event is now fully subscribed but we are keeping a reserve list in case of any cancellations, so please let me know if you would like to be added to the list. Alternatively, if you would like to have a confidential discussion about your financial situation, please contact me either by e-mail at sue.regan@spectrum-ifa.com or by telephone on 04 67 24 90 95.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter

Preparing your loved ones for life after your death

By John Hayward
This article is published on: 9th September 2017

09.09.17

Having recently attended a funeral for a good friend of mine, I was reminded of the problems a death can create, aside from the actual act of dying. It appeared that, although he had organised a funeral plan, he had not made it clear where his Will was. Even if the Will was found, most Wills are written to distribute unspecified assets. An heir needs to know what assets there are before claiming anything. A draw full of files might appear organised but much of the content may be out of date or even completely irrelevant.

Who is the household´s financial controller?
In my experience, when dealing with couples, one party, normally the husband, deals with all things financial. This has resulted in many widows having a hard time with finances on the death of the husband. The thought of picking a phone up to contact their bank is daunting enough. Forgetting one of the six security questions is fatal. Logging into the online banking system is totally out of the question, even if they knew what the user ID and password were.

What can you do?
It is a really good idea to make a list, with company name and reference number, of all the bank accounts, insurance policies, investments (insurance bonds/unit trusts/shares), premium bonds, and anything else which would make life easier for those looking after your affairs on your demise. Here is a link which illustrates just how much information could be required. Are you confident someone will easily be able to put all of this together?

How can we help?
Many years ago, I was a “Man from the major UK insurance company”. I still tend to work on the home service principle. Meeting people in their homes has always been more attractive to me as paperwork will often be to hand. There is also the possibility of a cup of tea and a digestive. There have been times when I have found investments that people were unaware of and also helped to cull the collection of paperwork, creating more storage space, and possibly room for a new sofa (from the proceeds of the policy they didn´t know about). Obviously, I do not wish to major in house clearance but I am happy to help people organise their paperwork, review existing investments and pensions, and make life easier for those with the task of dealing with everything later. Hopefully much later.

Fun financial fact
According to several reports, in 2012, in the USA, a 1 cent coin cost 2.4 cents to make. By 2016, the cost had reduced to 1.5 cents. Making cents still does not seem to be making sense.