When it comes to investing in assurance vie for inheritance planning, the focus is often on the very generous inheritance benefits applied to policies where sums are invested before the age of 70. I am often asked by clients ‘is it worthwhile investing in assurance vie after the age of 70?’ The answer is ‘most definitely YES!’
Assurance Vie & inheritance planning
By Sue Regan
This article is published on: 9th August 2024
09.08.24
As a change from the norm, this article focuses mainly on the inheritance benefits of assurance vie investment beyond the age of 70.
As already stated, it is often a misconception that investing in assurance vie for inheritance planning is only attractive for people under age 70. Undoubtedly, investing before age 70 has very attractive inheritance benefits, but there are also valuable inheritance planning opportunities for sums invested after age 70 which should not be overlooked.
As a reminder, an assurance vie policy is “outside the estate”, according to Article L132-12 of the Insurance Code. This means that in the event of the death of the insured, the capital does not go to the heirs within the meaning of the Civil Code but to the named beneficiary(ies) of the assurance vie policy.
Sums invested into assurance vie beyond the age of 70 have an inheritance allowance of €30,500 and a exemption from gains on the total sum(s) invested. The choice of beneficiary is completely unrestricted and the allowance (and profit) is shared by all beneficiaries in the proportion to which they have been nominated. If you have existing policies that were funded before age 70 the €30,500 allowance is in addition to the €152,500 per beneficiary granted with pre-age 70 premiums.
It’s probably worth highlighting here that a notable difference between the pre-age 70 allowance and the post-age 70 allowance is that the €152,500 allowance includes both the premiums paid on the policy and the gains on these premiums, whereas the €30,500 allowance relates to the amount of capital invested and all gains across the whole policy are exempt from IHT.
Advantages of taking out a new assurance vie policy for sums paid after at 70
It is perfectly possible to add sums to an existing policy after the age of 70 and the insurance company will calculate the benefit payable on death of the life assured in accordance with when premiums were invested. However, taking out a new policy after the age of 70 has the advantage of:
- Differentiating between sums paid before and after age 70 and therefore simplifying the tax calculation
- Provides an opportunity to nominate beneficiaries that are different from those nominated in other policies
- Designate different policies for different purposes
It is worth noting that there is no limit to the number of assurance vie policies that can be taken out but the IHT allowances apply across all policies of a particular life assured (i.e. the allowances are not per policy).
Let’s take the example of a couple who are living together but have no ‘legal’ relationship (i.e. not married or PACS’d):
– A 70-year-old makes a will in favour of his/her partner. Under standard French inheritance rules the surviving partner is entitled to an IHT allowance of just €1,564 on any assets received via the will, and above that will have to pay IHT at the rate of 60%.
– If the deceased had nominated his/her partner as the sole beneficiary of an assurance vie policy opened after the age of 70, the surviving partner would then benefit from an IHT allowance of up to €30,500 and an exemption from IHT on all the gains and interest on the policy.
Exceptions as to who shares the €30,500 tax-free allowance
Beneficiaries who are exempt from inheritance tax are not taken into account to divide the overall allowance of €30,500. Exempt beneficiaries include spouses and PACS’d partners.
Thus, if the spouse of the deceased is named as one of the beneficiaries of the policy, his/her share will not be taken into account when dividing up the €30,500 allowance, which will only be divided amongst any other named beneficiaries, meaning their exempt share will increase.
If, after applying the exempt allowances, there remains a taxable element of capital invested, this can be offset against the standard inheritance allowances determined by the degree of kinship.
The potential growth in value of an assurance vie policy makes investing after age 70 attractive
Let’s look at a couple of examples:
Example 1
A premium of €30,500 is invested at the age of 70, the insured person dies at the age of 87.
For 17 years, the policy grows at an average rate of 2% per year, net of fees. At the end of 17 years the gain in value is €12,339, thus a total of €42,839 is passed tax-free to the beneficiaries. At 3% per year, the amount of gain after 17 years represents €20,259 meaning a total of €50,759 passes free of IHT. If the €30,500 had been left on deposit with interest added at a similar rate the capital and interest would fall into the estate and be subject to the standard IHT rules.
Example 2
A premium of €100,000 is invested at age 70 and the life assured dies at the age of 90, i.e. 20 years later. The beneficiaries are the life assured’s two children in equal shares.
Taking an average growth rate of 4% per year, the €100,000 becomes €222,258 after 20 years. Each child receives €111,129. This is in addition to anything they may receive from a pre-age 70 policy. €30,500 of the capital and all gains are exempt, therefore the only taxable element for each child is €34,750 (€69,500 / 2). This can be offset against the standard IHT allowance of €100,000 per parent per child if this is not used up elsewhere.
Example 3
A nephew receives €55,000 from an assurance vie policy taken out by his uncle when he was over 70 years old.
The premiums paid amounted to €40,000, the gain was €15,000. €30,500 of the premiums paid and the gain of €15,000 are exempt.
Therefore, the potentially taxable element is €9,500 (€40,000 – €30,500). However, this can be offset against the inheritance allowance between uncle and nephew of €7,967. Assuming the allowance is fully available the taxable element is €1,033 (i.e. €9,000 – €7,967) at the rate of 55%. IHT of €568 is payable (i.e. €1,033 X 55%).
The outcome, €55,000 was transferred via an assurance vie opened after the age of 70 to a nephew who pays only €568 in IHT instead of €25,868 if the legacy had not been wrapped in assurance vie (i.e. €55,000 – €7,967 = €47,033 x 55%).
In summary, if your situation allows, it is definitely worthwhile considering investing in assurance vie after the age of 70 in order to take advantage of the additional €30,500 allowance and exemption on the total gains on investment which, in some cases, could be higher than the capital invested. Not forgetting, of course, that you retain control of the policy and can spend it or change the beneficiaries whenever you wish.
If you would welcome a chat about whether investing in assurance vie is right for you or would simply like a review of your financial situation you can contact me at sue.regan@spectrum-ifa.com or call me on +33 6 89 20 32 47
Foreign exchange market update
By Victoria Lewis
This article is published on: 7th August 2024
07.08.24
With the help of Moneycorp, lets take a look at this month’s market update with the recent political, economic & global news. Whats happened, how has the market reacted and what the future holds.
Big shock to markets in August already – What happened!?
- The month of August has started off with a big shock to global financial markets – the US Federal Reserve are likely to cut rates much quicker than previously thought, with something like 1.00 – 1.25% of cuts this year now on the cards to bring rates down to 4.25 – 4.50%.
- That is up significantly from the 0.50% cut priced in as recently at last Wednesday (31st July).
- This is the result of poor US jobs data – non-farm payrolls – and higher unemployment figures, leading to fears of a US recession building.
- Additionally, as I flagged last week, the Bank of Japan raised rates by 0.15% and the Bank of England cut rates by 0.25% last week, feeding into the overall market volatility globally.
What has been the market reaction?
- We have entered a “risk off” period due to the rapid change of interest rate expectations in the US, meaning everyone is taking their risky investments off the table.
- This means stock markets have fallen significantly since Thursday (1st August), with the S&P 500 down 6.8%, FTSE 100 down 3.1%, and the Japanese Nikkei 225 down almost 17% before recovering today.
- Usually in risk off periods, the US Dollar is the go-to investment as a safe-haven, however as this is driven by US interest rates the US dollar has also fallen between 1-2% against most other currencies and instead Euro, Swiss Franc and Japanese Yen have been bought, rapidly strengthening those currencies.
- GBPEUR is down 1.5% since Friday.
- EURUSD is up 1% since Friday but has been 2% up earlier.
- GBPCHF is down 2.6% since Friday.
- GBPJPY is down 3.3% since Friday.
What next?
- There are no major central bank meetings for the remainder of August, so the FX market will be reacting very quickly off the economic data releases, especially from the US.
- Next Wednesday 15th we will have both UK and US inflation data released. This will almost certainly be a volatile day for FX markets.
- UK GDP released on Thursday 15th – is the UK continuing its recovery?
- US GDP released on Thursday 29th – is the US really going into recession?
- EU CPI inflation on Friday 30th – will inflation still be under control dropping towards 2% in the EU?
Forecast Snapshot
Where do the banks think FX markets will be at the end of the year?
GBP/USD
- Current 1.27
- Barclays 1.31 (very bullish)
- UniCredit 1.26
- Wells Fargo 1.27
- BNP Paribas 1.27
GBP/EUR
- Current 1.16
- Barclays 1.23
- UniCredit 1.16
- Wells Fargo 1.19
- BNP Paribas 1.20
EUR/USD
- Current 1.09
- Barclays 1.06
- UniCredit 1.09
- Wells Fargo 1.07
- BNP Paribas 1.06
Source: Bloomberg Analytics
Please do get in touch if you have forthcoming FX requirements. Along with Moneycorp, I can explain how to reduce FX risk and/or make the most of the potential volatility coming up in August, depending on your risk appetite and timeline.
Love, life and financial planning in Italy
By Andrew Lawford
This article is published on: 1st August 2024
01.08.24
A quick question for all Italian residents (whether you are DOC Italians or foreigners who have moved here):
Have you thought about your family situation and how Italian family law might apply to it?
The answer for many people appears to be “not really”, which may present something of a problem considering the legal consequences of various family scenarios. Italy used to be fairly simple in this regard, in that you were either married or you weren’t. If you were married, the situation was fairly clear, and if you weren’t, your “family” situation might have been somewhat tenuous.
I will explain better below, but first a brief disclaimer: this is a complicated field and each individual situation may lead to a different outcome. This article is intended to highlight some of the issues you may face but it cannot be relied upon as legal advice – I can help you to understand your own situation with the assistance of my network of legal and tax professionals. I am also not particularly concerned here with the dynamics of the legal relationship between parents and children – my focus here is on the status of the couple.
Italy has long had “forced heirship” rules which establish certain family ties that have the right to receive a given percentage of a deceased person’s estate. For simple family situations with uncomplicated assets, this may even mean that it is superfluous to make a will, because the intestacy laws already offer an adequate solution. However, “simple family situations” are now something of an exception to the rule. You might think, for example, that being in a de facto relationship qualifies as simple, given how the treatment of this type of relationship has evolved in many foreign jurisdictions to the point where there is little functional difference compared with marriage. Not so in Italy.
Italy is somewhat more traditionalist in its approach to family life and I don’t think it is an exaggeration to say that it has been dragged kicking and screaming into recognising modern family situations and, in particular, same-sex couples, who until relatively recently had no means of making their relationships official (de facto heterosexual couples did, of course, have the option of getting married – a right that same-sex couples continue to be denied).
Italy being Italy, the modern iteration of family law is complicated and requires action by a couple in order for there to be any kind of recognition of their status. Let’s take a closer look:
Marriage
For better or worse, marriage is still the gold standard of the family relationship in Italy. For reasons that will become clear below, there is no equivalent structure that confers the same level of family rights, some of which are as follows:
• automatic recognition of heirship for each spouse;
• right of the surviving spouse to continue living in the family home, even if that home was 100% owned by the deceased spouse;
• possibility to receive any Italian surviving spouse pension (pensione di reversibilità);
• possibility to enquire as to medical status of one’s spouse;
• reduced inheritance taxes for assets passing between spouses;
• possibility of child adoption.
Unione Civile
One tier below marriage is the Unione Civile, a possibility that has existed since 2016 and which allows two members of the same sex to declare themselves a couple in a similar fashion to a civil wedding ceremony. This confers most of the rights of married couples, but does not allow them to adopt children. Initially, it was intended for the Unione Civile to be available to all couples, but in the final instance it was reserved for same-sex couples. I’m not sure of the reason for this decision, but I imagine it has something to do with not wanting to undermine the concept of marriage, which remains an important topic for certain political factions.
Conviventi di fatto
Below the Unione Civile is the registered de facto couple (conviventi di fatto). This possibility is open to all couples but needs to be registered in your local comune – you will then have a residency certificate which attests to the status of your relationship. The benefits of registering as a de facto couple are essentially that the surviving partner has the right to inhabit the family home, but only for a maximum of 5 years. You certainly don’t automatically become your partner’s heir and there is no concept of family property (although you can stipulate in advance how to deal with your relationship property in the event of a separation). If you contrast this with the effects of marriage above, it becomes clear that this type of relationship isn’t equivalent to marriage in any legal sense.
Unregistered de facto relationships
The unregistered de facto couple, even if they have been together for decades, might as well not exist from a legal perspective, especially if the partners die intestate.
Forced heirship and foreigners
The issue of forced heirship needs a bit more explanation: it specifies certain individuals who cannot be excluded from your estate: spouses (even if legally separated), children and (in the absence of these first two categories) parents have a right to receive a given percentage of your estate. You will also always have a free portion of your estate that can be left to whomever you choose. The fact of forced heirship does not prohibit you from making a will leaving everything to the local dog shelter, but it does mean that these protected categories of people will be able to challenge your testamentary dispositions. For people without a spouse, children or parents, forced heirship is not a problem as the free portion of your estate is 100%, but you must of course make a will in order to guarantee that your desired heirs benefit under your estate.
If you are foreign, you may be able to insert a choice of law clause in order to allow your estate to be dealt with under the rules of your home country. However, the rules around this are somewhat complicated and you will need specialised legal advice to make sure you get it right.
Don’t forget about inheritance taxes
You should also be aware that any inheritance tax exemptions accorded to spouses are unavailable to de facto partners, so under current rules assets left to a de facto partner would be taxed at 8% of their value (against 4% with a €1 million exemption for spouses).
Living Wills
Whilst we’re on the subject of inheritance and wills, another curious area that has evolved over the years is that pertaining to the expression of one’s desires when it comes to medical treatment. There have been some high profile and saddening cases of the medical profession in a pitched battle with the family members of someone who has had the misfortune of ending up in an irreversible comatose state.
If you would like to make clear your desired level of treatment in such a case, you can do so by using a living will (known in Italian as a DAT – Disposizione Anticipata di Trattamento). My wife and I tried to make living wills when we first married, but our notary refused to help us given the uncertain legal context at the time. The situation is now clearer, so we are in the process of sorting these out. If anyone is interested in how this ends up working in practice, send me an e-mail and I’ll be happy to help.
Where to from here?
If any of the above has struck a chord, then please do get in touch. Aside from helping to find a qualified professional to assist with your will, a general review of your assets and associated holding structures will ensure that you pay the least amount of tax possible during your life, whilst also directing your assets to the right people when you pass away. In particular, paying inheritance taxes in Italy is, for most people, a choice rather than an obligation, as they can legally be reduced to a bare minimum through intelligent estate planning.
2024 Market Update
By Peter Brooke
This article is published on: 28th July 2024
28.07.24
Following my outlook in January I am writing with a quick update on the year so far and a look forward for the rest of the year and into 2025.
One important point I would like to make is that many global issues, especially Politics and the outcome of the many elections we have in 2024, might feel very important to us on a day-to-day basis but might have a very different impact on investment markets and so do please read the following through the lens of investing.
Global equities have been performing well, with US equities gaining 15% in the first half of 2024, led by companies like Nvidia, Microsoft, Alphabet, Amazon, Meta, and Apple, which contributed significantly to market progress.
The economic outlook indicates that the global economy is expected to grow by 2.6% in 2024, with improved growth prospects in the US and China due to factors like loose fiscal policy, immigration, and government stimulus programs.
Market ‘breadth’ has been a concern, with the above five technology stocks driving over half of the returns in the US market; as global growth continues this should lead to opportunities in other sectors like industrials that are connected to the Artificial Intelligence theme; very recently we are starting to see a broadening of market returns.
Market risks related to inflation and interest rates are expected to shift to a positive tailwind in the second half of the year, which should be good for both shares and bonds. Central banks, like the European Central Bank (ECB), are already cutting interest rates and others are likely to follow suit.
Here is a chart of four different Risk Benchmarks and the main UK and US Stock markets so far in 2024; steady, but the US continues to serge ahead… for now.
Inflation
Inflation hasn’t yet returned to pre-covid levels and is unlikely to drop back this much any time soon. Goods, energy and food inflation have all fallen but services inflation is still high, though this has started to fall slightly in recent weeks. ‘Services’ includes ‘shelter’ e.g. rent and other services such as hospitality.
Interest rate cut forecasts from the ‘experts’ have see-sawed so far this year but the current consensus view is that the first US interest rate cut should now be expected in September. The ECB has already started cutting rates, very slowly, and UK rate cuts might be pushed out into 2025 as services inflation in the UK remains ‘stickier’ than elsewhere.
Elections
Elections do pose sporadic risks to markets, though normally election results don’t truly matter in the longer term; but with the huge volume of elections this year and the swings from left to right (and back again) the volatility caused by the outcomes of elections will probably have much greater short-term impacts than normal.
US – The upcoming election is a key risk, with potential market volatility depending on the election result, especially following the attempted assassination of Donald Trump and the withdrawal of Joe Biden.
If Kamala Harris is selected as the Democratic candidate then Democratic party policies are likely to remain unchanged and so volatility in markets could be short lived, but if they enter the time consuming process of selecting a different candidate (increasingly improbable at the time of writing) then the inevitable political uncertainty could drive US share and bond volatility for longer.
According to the polls and bookmakers the Republicans are now more likely to win, but what might that mean for investors? Potential tax cuts, more deregulation, more protectionism and more oil drilling could be good for US corporate profits and might help bring down inflation. This might not be great for the planet and society but could be good for business.
In addition tariffs on goods entering US from China (and the rest of the world) could add to the short term inflation problem.
Europe – there has been a backlash against various EU led initiatives, like climate change policy and immigration leading to a swing towards the right in many countries.
France – President Macron called a snap election as the Far Right were gaining traction in EU elections; several left wing, centrist and right wing alliances formed as tactical voting led to a deadlock. The major coalition is now on the left of the house which is probably negative for French investment returns but any law changes are very unlikely for at least 12 months when another round of elections is expected.
UK – the new Labour majority government was not a big surprise with ‘time for change’ as a leading driver; but will they be able to do what they said they would do? So far they remain quite centrist and don’t appear to be planning on drifting back to the ‘old labour’ way. They are likely to be more fiscally responsible and will target growth BUT can they actually do it as the challenges are significant and the budget is tight – for example the demands on the NHS and the hot potato of immigration.
There might, however, be a big shift with the relationship with Europe, which must be positive for both sides, especially with respect to defence, cybersecurity and trade and even more so if the US becomes more self protectionist under Trump.
Currency
Here are some thoughts from our friends at Moneycorp:
As many predicted the Labour Party secured a strong majority, and the FX markets remained relatively stable. We’ve seen GBP strength, with GBP/USD rising by 1.7% and GBP/EUR up by 0.8%.
The French election results, however, were unexpected. We had anticipated significant market movements, but the outcome has been a 3-way hung parliament, with all other parties joining forces to prevent the far-right Rassemblement National (RN) from gaining power. This situation suggests potential political turmoil in France for at least the next 12 months until another election can be called. This is not a favourable outcome for President Macron or Europe as a whole. Despite this, the FX markets have remained stable, as the EUR had already weakened prior to the election.
Inflation data and interest rates continue to be the primary drivers of the FX markets.
Here is a Forecast Snapshot of where the banks think FX markets will be at the end of Q3 (30th September).
GBP/USD
Current 1.2840
Barclays 1.28
UniCredit 1.26
Wells Fargo 1.26
BNP Paribas 1.27
GBP/EUR
Current 1.1860
Barclays 1.22
UniCredit 1.16
Wells Fargo 1.19
BNP Paribas 1.20
EUR/USD
Current 1.0825
Barclays 1.05
UniCredit 1.08
Wells Fargo 1.06
BNP Paribas 1.05
I am, once again, very grateful to the teams at Evelyn Partners, Rathbones, New Horrizons and Moneycorp for their help in putting this summary together and hope it is useful in framing where we are today and how we got here.
Here are some further links to supporting views on the above:
https://www.evelyn.com/insights-and-events/insights/investment-outlook-july-2024/
https://www.rathbonesam.com/knowledge-and-insight/review-week-biden-bows-out
https://www.rathbonesam.com/blog/guess-whos-back
If you listen to podcasts I can highly recommend the Sharp End Podcast from David Coombs at Rathbones Asset Management
Talk to me
As always, please remember that financial decisions should be made with careful consideration of individual circumstances and professional advice, I am here to support you.
If you have missed any previous news and updates these can all be found on the archive page here.
I am away on holidays until 5th August but if you have any questions or need further assistance, please feel free to reach out via the below channels, or the booking system – always drop me a quick message if you need a time slot outside of those available.
For now, have a great day, and a wonderful summer
Best regards
Peter Brooke
Preparing for the end of your NHR
By Portugal team
This article is published on: 24th July 2024
24.07.24
Many people have been attracted to Portugal by the very advantageous Non-Habitual Residence Regime, but many are concerned about what will happen to their spending power once the normal tax rates are applied. Mark Quinn and Debrah Broadfield look at the planning you should put in place to prepare your finances for the end of NHR.
What is NHR?
NHR is a preferential tax status granted by the Portuguese government to new residents and lasts 10 years. It offers greatly reduced tax rates on foreign-sourced pensions, employment income generated from ‘highly valued’ professions, tax exemption on foreign-sourced rental income, dividends and on real estate capital gains.
What it does not do is protect from capital gains generated from stocks and shares, company sales or dividends received from funds.
What happens after NHR?
You will become subject to standard rates of tax but your tax position will be determined by the planning (if any) you have implemented during the NHR period.
How to take advantage of NHR
The benefits of NHR are not automatic and you must plan to make the scheme work for you. This might involve rearranging your assets and income sources so you can fully take advantage of the tax breaks. For example:
If you are receiving a salary from an overseas company, dividend payments are preferable as these are tax-free, but a salary is taxable at either 20% (if a qualifying profession) or standard scale rates. Additionally, social security contributions will be due on salary payments, but not on dividends.
If you have foreign property you will want to sell this during the NHR period. Whilst rental income is tax-exempt during NHR, post-NHR it is taxable at scale rates. Similarly, capital gains on sale during NHR are exempt, but post-NHR 50% of the gain is taxable at scale rates.
If you are selling a UK company, you would want to structure the sale as a dividend pay-out, rather than a share sale. The former would be tax-free and the latter would be taxed at 28%.
If you have non-Portuguese sourced savings and investments, interest and dividends from direct equities are tax-exempt (strictly, dividends derived from funds are taxable under NHR) but after NHR, they are taxable at 28%. Capital gains however are not protected under NHR. Gains realised e.g. by selling or switching your investments, are taxable – even if you do not have the gain physically paid out to you and they remain within the investment portfolio/ISA/platform. If the investment holding sold was held for more than 365 days the tax rate is 28% but if held for less, then it is taxable at scale rates of tax. The capital gains tax can be mitigated by restructuring these types of holdings within approved tax wrappers.
Pension income is taxable at 10% under NHR (or 0% if you have pre-31st March 2020 NHR). Post-NHR, generally pensions are taxable at scale rates so some individuals aim to deplete their pension over the NHR period. Just bear in mind however that this might not be suitable for everyone, as moving pension savings out will expose them to UK IHT. Do note, that QNUPS are often sold as a ‘silver bullet’ to protecting assets from UK IHT but this is not the case. There is no guarantee of tax-exempt status and HMRC are vigilant when assessing potential tax avoidance on death.
What can you do to plan?
Portugal does offer very advantageous tax breaks for those that use approved long-term savings vehicles, and it is not dependent on your NHR status. These shelter ongoing income and gains from tax and tax is only applied to gains when you make a withdrawal at 28%. Additional tax reductions apply after years 5 and 8 reducing the tax rate to 22.4% and 11.2%. Having said this the right jurisdiction must be chosen otherwise you could be subject to a punitive rate of 35%.
A particular advantage is that the tax reduction time limit is applied to the start date of the structure, not each time monies are added. This means you can start the structure with a small sum and add to it over time say, as you sell foreign property, drawdown your pension or sell a UK company.
The ideal position is to establish the structure when you are at the beginning of NHR so that by the end of the NHR period the structure is at its maximum tax efficiency.
Many individuals draw on their pensions and dividends during NHR tax efficiently and accelerate the drawdown towards the end of the 10 years to fund the tax-efficient investment. They may also sell property or companies during the NHR period and reinvest the proceeds in preparation for the end of NHR. Then after NHR, they switch the income source to the new investment and generally enjoy single-digit or very low double-digit effective rates of tax.
Financial Planning for later life and health concerns
By Portugal team
This article is published on: 13th July 2024
13.07.24
As we age, financial planning and investing take on greater significance, particularly for those facing health challenges such as dementia or other serious illnesses. These circumstances necessitate a comprehensive and thoughtful approach to ensure that financial stability is maintained and that the needs of both the individual and their loved ones are met.
The Importance of Financial Planning
Financial planning for older adults or those with health issues often requires more detailed and forward-thinking strategies compared to younger, healthier individuals. This is because health care costs can be substantial and may increase significantly over time. Furthermore, cognitive impairments like dementia can make managing finances independently increasingly challenging.
A key concern in such situations is the possibility that one spouse may have predominantly managed the household’s finances. If that spouse were to pass away or become incapacitated, the surviving partner might be unprepared to handle complex financial decisions. This gap in knowledge and experience can lead to significant financial difficulties, or even permanent financial loss which is why proactive planning, and the involvement of both spouses, is crucial.
Put your plan in place
- Comprehensive Financial Review: Begin with a detailed review of your current financial status, including assets, liabilities, income streams, and expenses. Think about how these are likely to change in the event of a prolonged illness or on the death of one spouse e.g. will pension income stop or costs of care increase? If assets will need to be sold or will be gifted on a death, what are the tax implications? As this could leave the beneficiary with less than expected. Understanding the full financial picture is essential for making informed decisions and early planning is key to avoid any unexpected outcomes.
- Health Care and Long-Term Care Planning: Consider the potential costs associated with health care and long-term care. This may involve looking into long-term care insurance or earmarking certain investments specifically for medical expenses. Planning for these costs can help prevent the depletion of assets and ensure that care needs are met without compromising financial stability.
- Estate Planning: Ensure that wills, trusts, and powers of attorney are up-to-date. These legal documents are critical in ensuring that one’s wishes are carried out and that there is a clear plan for the management and distribution of assets in the event of death or incapacitation. A well-structured estate plan can help avoid legal complications and ensure that the surviving spouse and other beneficiaries are taken care of according to the individual’s wishes.
- Simplifying Finances: Simplify financial accounts and consolidate where possible. This makes it easier for the surviving spouse or a designated caregiver to manage the finances. Reducing the number of accounts and financial instruments can help streamline management and reduce the risk of oversight or errors.
- Regularly Updating the Plan: Life circumstances and health conditions can change rapidly. It is vital to regularly review and update financial plans to reflect current needs and goals. Regular reviews ensure that the plan remains relevant and effective in addressing changing circumstances.
The Role of Financial Professionals
Given the complexities involved, it is often beneficial to work with a financial professional who can provide objective guidance and help navigate the intricacies of financial planning, especially when health issues are a factor.
You also have the control to choose a trusted professional for you and your loved ones to work with. Doing this ahead of any event can provide comfort, continuity in financial safety and quality of advice, especially for financially inexperienced individuals.
An advisor can help in developing a comprehensive plan that considers both current needs and future contingencies. They can also work alongside other professionals such as lawyers, accountants or your executors, to ensure that all aspects of your financial life are coordinated and optimised.
For those with dementia or other cognitive impairments, actively managing investments can become increasingly challenging and an advisor can take over this responsibility, ensuring that the investment strategy remains aligned with the client’s goals and risk tolerance.
An advisor can also help ensure that the surviving spouse is prepared and supported. This includes educating them about the financial plan and ensuring they know how to access accounts. This support can be invaluable in helping the surviving spouse navigate financial matters during a difficult time.
Conclusion
Financial planning and investing for older adults or those facing health challenges requires a proactive and comprehensive approach. The potential for increased medical costs and the possibility of cognitive decline make it crucial to have a well-thought-out plan in place. When one spouse handles most of the financial matters, it is even more critical to ensure that the surviving spouse is not left unprepared.
By addressing these issues head-on and seeking professional advice, older adults and those with health concerns can safeguard their financial future and that of their loved ones. Proactive planning, regular updates, and professional guidance are the keys to managing the financial complexities that come with aging and illness.
Top financial tips – Spain July 2024
By Chris Burke
This article is published on: 11th July 2024
11.07.24
Summer is well and truly here so it’s time to enjoy everything that brings, especially before it gets too hot! It’s hard to beat Spain when we have so many sunny days – a walk along the seafront or a stroll through the forest to keep cool and listen to the nature.
From a financial perspective, I am always here to update you on anything new or tips/hints to keep your finances healthy – this month we are focusing on the following:
- Biometric card for entry & exit to Spain – Autumn 2024
- Inheritance tax & gift tax in Spain
- 80+ state pension for UK persons living abroad
Biometric card for entry & exit to Spain
The EES (Entry/Exit System) will be introduced by the EU in Autumn 2024 – this is an automated system for registering travellers from the UK and other non-EU countries each time they cross an EU external border. It will require third country nationals, including UK nationals, visiting the EU to create a digital record and provide their biometric data (fingerprints and facial image) at the border when they enter the EU’s Schengen Zone. It is expected that Spanish Green Certificate holders may face significant delays and difficulties at borders if they do not have a TIE.
The system will register the person’s name, type of travel document, biometric data (ie fingerprints and captured facial images) and the date and place of entry or exit each time they go through a ‘checkpoint’, which will in real terms replace stamping of passports (so those regular travellers to the EU won’t have to worry about running out of passport pages with stamping!).
Whilst hopefully making travelling easier and quicker, it’s also clear to note that there will be a ‘hard electronic’ record of which borders you cross and how many days you are spending in each country, which from a tax perspective could be interesting. Let´s see how long it takes for this to also become common practice at ‘road borders’.
Inheritance tax (IHT) & Gift tax in Spain
One of the great unknowns amongst those who are non-Spanish and tax resident in Spain is how inheritance tax works and what amounts are payable. Particularly if you come from the UK, it’s important to note that Spain does not, (generally), take into consideration the rules of other countries regarding IHT. Inheritance tax in Spain has no ‘double tax treaty’ with the UK, meaning Spain will not take into account any tax paid on this OR rules applicable in that country (for example, if there is no tax to pay in the UK there could be significant tax to pay in Spain).
They purely look at the amount you are inheriting and if you are a Spanish tax resident apply the following to work out how much tax you need to pay them (if any):
- Your relationship to the deceased, (the more distant a relative you are, the more tax)
- The amount being received, (there is a progressive tax upwards with the more you inherit)
- The value of existing assets by the inheritor
- Which region you are tax resident in Spain and where additional ‘local’ laws apply
Inheritance tax starts from zero (allowances) and can reach up to 82% for a distant relative. Therefore, it’s imperative to understand what this number is should the situation arise, enabling you to plan effectively and maximise the remaining monies. It´s only my personal opinion but why would you not want, with proper planning, to maximise those ‘hard earned monies’ your relatives accumulated and left you over their lifetime?
On a side note, if there are relatives in other countries, (perhaps you have siblings), the Will can be set up to make sure you receive the same amount from the estate net of inheritance tax -the executor of the Will can deduct the tax from the ‘pot’ and then distribute accordingly – therefore the tax can be paid from all members receiving the inheritance not just yourself and enabling you to receive the same amount in real terms. This is something I have come across on a few occasions.
Another way is to receive any monies is as a ‘Gift’ whilst the donor is still alive, the tax on these is between 5-9% (again, the closer the relation the less tax you pay, so for a parent making a gift the tax would normally be 5%). Furthermore the location of the assets, (such as property in the UK), will make a difference to the amount paid.
As you can probably appreciate, by understanding these rules you can start to plan how and when best to receive any assets from relatives/parents. This is an area in which we work closely alongside tax advisers/planners almost every day, making sure our clients take sound financial/tax planning advice and a strategy is implemented to make sure the money is:
- Received as tax efficiently as possible
- Managed carefully to provide a tax efficient income for life (and for any other close family members)
- Invested safely and strategically
- Set up in an inheritance friendly manner for future generations
80+ state pension for UK persons those living abroad
If you do not receive the UK basic State Pension or you get less than £101.55 a week, you could get the difference paid up to this amount, as long as you were 80 years old before the 6th April 2016.
Other qualifying criteria are:
- you were resident in the UK for at least 10 years out of 20 (this doesn’t have to be 10 years in a row) – this 20-year period must include the day before you turned 80 or any day after.
- you were ‘normally resident’ in the UK, the Isle of Man or Gibraltar on your 80th birthday, or the date you made the claim for this pension if later.
If you would like to discuss any of the topics above in more detail or you would like to have an initial consultation with Chris to explore your personal situation, you can do so here.
Click here to read independent reviews on Chris and his advice.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with me.
Have you made THE folder?
By Chris Webb
This article is published on: 10th July 2024
10.07.24
Due to emotional and unfortunate circumstances faced by some of my clients recently, I am drawn back to the importance of a simple document we created some years back, during our Covid lockdowns of 2020, and have recommended that our clients do the same.
Most have embraced it, some probably haven’t. Personally, I think it’s of benefit to everybody, but we all have our own ways of doing things. A lot of time and effort went into producing the document, based on previous client experiences, and our own. There didn’t seem to be an appropriate name for it at the time, so we simply called it ‘’The Folder’’.
The whole point of creating your folder is to ensure that there is a record of your assets, your important contact information and plenty more. It is a single file or folder and can be digital or physical. This folder will allow you to detail any important information / assets where it is vital a record is kept. We think we have covered everything and believe this document will make things a lot easier for everybody in many different circumstances.
Recent dealings with my clients reminded me to review my own folder and unsurprisingly there were a few changes to be made………
There are many scenarios where you´ll be thankful for making the folder. When I moved house I went straight to the folder and had all the company’s contact information as well as all the policies or account details which were relevant. This made informing them all much easier. I´ve also lost family members where finding their folder reduced the stress in dealing with their estate. In these moments of stress, you can find yourself trawling through endless pieces of paperwork to ascertain asset and account details, then you get that lightbulb moment…….. why wasn’t it all documented.
And that’s exactly why the folder was created.
Apart from dealing with personal practicalities, like moving house, I believe the folder comes into its element when having to deal with the loss of a loved one. Rather than spending hour after hour trying to unravel their finances, all the information is to hand, in one folder. Having experienced both sides of this situation (one with a folder and one without) I completely understand the additional pain caused by what should have been easy administrative tasks. The folder took most of that pain away. Speaking to some of my clients recently I know they are feeling the same………….
As I mentioned earlier, the folder can be physical or digital. For the physical folder it is vital to only list information that would not create a problem should that folder end up in the wrong hands. So, I have only listed the names, telephone numbers, policy / account numbers of all our assets. It would give enough information for someone to be able to deal with our affairs with minimum hassle.
Some still ask, is it worth the effort?
Well, I think it is. A time of loss can be stressful enough without having to try and piece together the deceased’s financial affairs. This can be a really difficult time for family members. However, preparing the folder is much more than avoiding stress; if you leave behind an administrative nightmare you could delay the access of inheritors or beneficiaries of funds and potentially cost a small fortune in legal fees. Imagine trying to track down investments you have no record of or pensions that may have been held for 50 years or more?
To give you an example of this, the UK Department of Work and Pensions estimate that there is currently more than £400 million sitting in unclaimed pensions pots in the UK. Good luck trying to find out if you have one!
If you´re wondering what to include, the Folder makes that very clear and is simple to follow. It´s essential to list what assets you have, where they are and important contact information for each asset. Keep copies of any insurance policy documents, pension statements etc.
I have put a small list below which would help most people but you do need to look at all your assets individually to make sure the list is as correct as possible
- Personal pension documents
- Employer pension details
- Details of any entitlement to state pensions
- List of bank accounts with account numbers, login details
- Details of any credit cards
- Property, land and cemetery deeds
- Proof of loans made
- Vehicle ownership documents
- Stock certificates, brokerage accounts, investment platform details, online investment account details
- Details of holdings of premium bonds, government bonds, investment bonds
This list is based on my own experiences and those of my clients – you need to be thorough when completing the folder, ensuring nothing is left out.
And don’t forget to review your folder. I will admit to being guilty of not keep my folder up to date and tend to only look at the folder when something significant changes in our lives. It´s easy enough to overlook a change in insurance company or something that at the time doesn’t seem hugely important. I reviewed mine recently and it was just that – small changes to our circumstances, but apart from being hidden deep within our emails there was no other record of those changes.
I would recommend reviewing the folder on an annual basis, but if you’re extra diligent you should review and update every time something changes. For example, if you change insurance companies then add the new details and delete the old. This is a continuous job, its not something you do once and never look at again.
Most importantly – please remember to tell someone about your folder!
Someone needs to know you have made one and whether it´s digital or physical. If its digital they need to know if there´s also a password. Personally, I have sent copies of mine by email to family members, so they have a record of it. They don’t need to know your passwords, just the basics.
Remember, there is very little point going to all this effort if know body knows it exists.
I hope you consider completing your folder. Unfortunately, most people only consider it when they´re trying to deal with a situation and as mentioned, they have that lightbulb moment. Taking an hour out of your time now will save someone many, many hours later down the line.
If you have any questions about The Folder or other aspects of your finances, please feel free to reach out on chris.webb@spectrum-ifa.com
The Financial Review Process
By Peter Brooke
This article is published on: 9th July 2024
09.07.24
… why, what and how …
Whether you are an existing client of mine or not, and following on from my previous article on ‘The Value of Seeking Financial Advice’, I wanted to take this opportunity to go through the steps in our ‘Client Financial Review Process’.
WHY?
Firstly, and most importantly, it’s crucial to regularly check in on your financial journey, ensuring that we’re on track to meet your goals.
Secondly, we have a regulatory obligation to conduct a review at least once per year for all of our clients, whether this is in person or remotely.
Thirdly, we have a relationship which is built on trust and my understanding of, often, very personal details, so a regular catch up is a great way to nurture this relationship and ensure important issues are raised and discussed; and its a good excuse for a cup of tea and a biscuit [even if via Zoom].
WHAT?
A review won’t just be looking at what has happened over the last year but is designed to identify potential financial planning adjustments we might want to make if your circumstances are changing.
The review should, and will, include the following:
- An update of your situation – incomes, bank balances, asset values, expenditures.
- Changes to your situation – retirement, moving house, changing jobs, school fees etc.
- Cash Flow planning update – are we still on target to meet your goals? … “am i going to be ok, and if not what do I need to do to make sure I am?”
- Investment Portfolio performance update – has it out-performed or under-performed the risk ‘benchmark’ we have allocated? If so, why? Are any changes needed?
HOW?
Many of my clients have been through this review process over the years but I have made a few tweaks and so I wanted to take you through the steps.
The biggest change for us is that I will be asking many of my clients to update their situation directly onto the Secure Cash Calc Portal prior to our review, so I have the most up to date information in advance. This will give me a chance to review your situation before our meeting to ensure we get the most from our time together.
Of course it is not obligatory to use the portal as it is not appropriate for everyone, but if you would like to then do let me know.
The following summary explains each step.
Options for you…
The above summary is focused on the normal Face to Face or Zoom meeting review process, but I can also provide your review as an email or I can even record a video presentation of my update on your portfolio and cash flow plan which you are then free to watch at your leisure; then we can discuss any steps necessary and update any administrative requirements afterwards.
Please do let me know if you prefer to have an email or video review?
As you can see, it’s a collaborative process and financial reviews are a great way to check-in on how things are going and where adjustments need to be made, so if your situation changes, please don’t wait for the next review, get in touch and we can review early.
If you have any questions please use the the below channels, or the booking system – always drop me a quick message if you need a time slot outside of those available.
If you have missed any previous emails, click here to access the Archive.
For now, have a great day,
British living in Italy
By Gareth Horsfall
This article is published on: 8th July 2024
08.07.24
In this E-zine I will keep things brief because house work is still ongoing from my end (hopefully completed by the end of July and moving into the new place on the 5th of August). The photo below was taken down the road from the property near a vineyard.
I know many of you already own properties near views very much like this one, or see equally beautiful sunsets, but I thought I would share this as my excitement builds!
Anyway, not wanting to burden you too much with my own personal matter, I came across a few things recently which I thought should be communicated to the British contingent amongst the readers of this article.
The first is an important announcement for anyone who is over 80 years old and a recipient of the UK state pension!
The Department of Work and Pensions is checking to make sure that everyone is still eligible to receive UK state pension benefits, and therefore requires that anyone over 80 years old, of any nationality, and who is drawing a UK state pension, complete a form and have a witness sign it before sending it back signed, in the post!. This is called a life certificate. This is a routine process with which the DWP update their records. (If you have already done this, then you do not need to do it again!)
The number of submitted life certificates so far is lower than the DWP expected and so it has extended its deadline to the 31st of July 2024.
** If the certificate is not provided, it could lead to suspension of UK state pension benefits **
If anyone over the age of 80 and receiving UK state pension benefits has not received a letter explaining this, or has not updated their address details, then the link to do so is here:
https://www.gov.uk/international-pension-centre
Anyone receiving or about to receive UK state pension benefits UNDER the age 80 will be contacted towards the end of this year, therefore you may like to check that the DWP have the correct address on file for you by using the same link above.
Please feel free to share this information if you feel anyone might be affected or just to spread the word.
Brexit – for the Italians it’s all wrapped up!
The next bit of news came from the Agenzia delle Entrate recently. Specifically their notifications page on the telegram app.. They regularly post the latest decisions taken re: specific cases submitted to them (intepelli) and also the latest announcements re: tax and various other bureaucratic measures.
The Italian government has taken the decision to close the ‘Punti Assistenza’ for both foreign investors looking to invest in Italy and also the ‘Info Brexit’ points of assistance. The reason for such a move is that they say they are rarely used. They go on to say, regarding the punto ‘Info Brexit’, that since the UK left the customs union, the Agenzia delle Entrate has provided clarification regarding most issues and hence is closing the Brexit information point.This may or may not be the case, but, certainly, questions remain and it looks like the Facebook citizens group ‘Beyond Brexit’ will be the last bastion of information regarding Brexit issues in the end. I would imagine that the UK Embassy will also be providing little to no support moving forward.
If you want to read the communication from the Agenzia delle Entrate, you can do so at the following link:
Confirmation of EU permanent residence
Charlotte Oliver, of Oliver and Partners legal firm in Rome, also put out a recent communication from the Ministero dell’Interno which has issued guidance to the Comune in relation to British citizens resident in Italy since before 31.12.2020 which marks the end of the Brexit transition period. The Circolare confirms that British citizens are still entitled to obtain a certificate of permanent residence from the Anagrafe (“attestazione di soggiorno permanente“).
In other words, as guaranteed by the UK-EU Withdrawal Agreement, British citizens continue to have the right to obtain a permanent residence certificate (as provided for in the EU Freedom of Movement Directive and article 16 of Italian Law no. 30/2007). British citizens are entitled to this certificate after 5 years of regular and continuous residence in Italy, registered with the Comune, even if part of those 5 years were after Brexit.
You can see Charlotte’s communication and the MInstero documents on her website, at the following link: https://www.oliverpartners.it/confirmation-of-permanent-residence-for-british-citizens/
A Sterling revival?
A nice piece written by Evelyn Partners, one of our asset management partners, was sent through to me on the 28th of June. It may interest you as it describes a possible revival in Sterling’s fortunes.
Some of you might remember the heady days of GBP:EUR (just after the launch of the EUR in 1999 and the uncertainty at the time) at €1.752 reached on the 3rd of May 2000. But, you may also be surprised to know that over the EUR’s 20 year history, the GBP:EUR exchange rate has averaged €.1.33. The lowest, €1.08, reached on 30th of December 2008 (financial crisis – right after the global crash) .
Due to Brexit and the political uncertainty, the average GBP:EUR exchange rate over the last decade has now fallen to €1.20.
So, why the potential revival?
Well, it may not surprise you to learn that it is all about the UK elections, the Labour win and the disastrous time under the Conservatives. (Theresa May, Covid lockdowns, rising energy prices and Liz Truss’s short-lived government).
It would seem that Labour is very likely to try and realign the interests of the UK with its nearest neighbours and Labour may try and negotiate new agreements with the EU to ease trade and the share of technology and other areas. The EU may be interested in the UK’s military equipment and intelligence capabilities, given the ongoing events in Ukraine. The UK may also decide to align with the EU market on food and agricultural products, which may maintain smooth customs arrangements for import and export, but it might be a sticking point because it may mean that the UK becomes a rule taker again rather than rule maker.
Also, the longer the UK remains non-aligned with the EU, the more its businesses are adapting to other foreign markets. The US is now the UK’s biggest customer regarding service led businesses. In reality, though, the service sector is unlikely to interest the EU anyway, because they are able to continue to take away valuable services based businesses from areas which had previously been monopolised by the UK.
This may all be rather positive for the GBP: EUR exchange rate of course, but a lot depends on to what degree Labour will be able to negotiate closer ties to the EU, without breaking the Brexit red lines.
If you are interested in the wider article, you can find it at the link below:
https://www.evelyn.com/insights-and-events/insights/get-ready-for-a-sterling-revival-under-labour/
I have for years now been advising clients to retain any GBP holdings in the currency and invest likewise. It is my long term view that a single country like the UK, will have the ability to develop its markets and economy more dynamically and quicker than a bloc of 27 states who need approval from each (in most cases) to make decisions for the bloc. I am not anti EU by any means, but the political environment in the EU is such that it does not bode well for long-term economic stimulus and development. This will always be a drag on the EUR versus other currencies, and particularly now with the situation in Ukraine and long term inflationary pressures. That all being said the UK will need to go through some soul searching to determine it’s future direction, which may or may not lead to a Sterling revival.
Long-term productivity figures seem to imply that GBP:EUR should be at a natural rate of around 1.2 to 1.25 but that does not take into account political cycles and significant economic events such as Brexit. Markets like stability and until that returns sterling will probably still be in for a volatile ride.
I will be back with more information, musings and ideas when we are installed in the new home, after August 5th, but if in the meantime you would like to discuss any tax or financial planning related issues in Italy then please don’t hesitate to contact me as I will working through the summer.
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