The Spectrum IFA Group Award for their Technical Articles
By Spectrum IFA
This article is published on: 20th September 2016
Technical knowledge and a deeper understanding of tax, investments, pension and financial planning means a better outcome for our clients and also a more satisfying professional outcome for us. One of the ways we do this is to use a technical articles website called Mondaq for our research. We also contribute to this site by writing articles.
In August 2016, The Spectrum IFA Group was pleased and extremely proud, to have been awarded the ‘Top Communicator Award’ for Spain. Our posts have covered a series of topics such as “Brexit and Tax in Spain“, “Insight into Wealth Management“, “Final Salary Pension Deficits” and more. Our articles had the most reader response of any contributor.
This was no mean feat given that Mondaq publishes thousands of high quality articles each year from thousands of sources!
I have a long term relationship with a UK regulated financial adviser, why should I speak to French regulated one?
By Amanda Johnson
This article is published on: 14th September 2016
Many of us have banking and financial services relationships from the UK and whilst you may feel a financial review now you are resident in France isn’t urgent or important the benefits can be enormous. A full financial review can be free and you should always ask what costs are applicable to any consultation you arrange. Some of the benefits include:
Capital Gains Tax – Certain tax efficient savings and investments recognised by HMRC would not qualify under French taxation, leaving you with a tax bill on the gain element.
Inheritance Tax – UK inheritance tax planning is very different to that in France and even though you can opt to have your UK will recognised in France, tax on your estate will be based on French tax rates and laws.
Compliance with the French tax system – Knowing how and when to declare your investments and savings can avoid financial penalties for non-disclosure.
It is very important to remember that whilst your UK financial adviser has been of great service whilst you were resident in Great Britain, if they are not trained and regulated in the country you now live the French authorities will still expect your financial affairs to fully comply to French laws and this may mean you are presented with an extra tax bill for any non compliance.
Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.
French Inheritance Planning
By Spectrum IFA
This article is published on: 9th September 2016
In May, I wrote about tax-efficient savings & investments in France, including Assurance Vie (AV), which is the most popular type of investment in France for medium to long-term savings. If you did not see the article, you can find it at https://spectrum-ifa.com/tax-efficient-savings-investments-france/
I had intended to return to discuss the benefits of AV for French inheritance planning, in the following month. But then we had the result of the Brexit vote and that caught my attention just a little more!
So now I am getting back to basics of what works for successful French inheritance planning for financial assets – regardless of whether the UK is in or out of the EU – and regardless of nationality. Without a doubt, this is the AV, as this is an excellent planning tool for protecting the survivor, providing you with freedom of choice about who you can leave your financial assets to, as well as mitigating the potential inheritance taxes for your beneficiaries.
In France, there are strict rules on succession and children are ‘protected heirs’, each being entitled to inherit a proportion of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, three-quarters of your estate must be divided equally between them.
However, for a quirk of historical reasoning, the death benefits paid from an AV fall outside of your standard estate. Therefore, you can leave the proceeds of your AV to whoever you wish and so get around the French ‘forced’ succession rules. I know that there will be many out there who are saying that you can do this anyway now, as a result of the EU Succession Regulations. Well that’s true, but maybe it’s not quite as straightforward as one might think – or at least hoped!
The problem is that even though the EU Regulations have been in place for more than a year now, these have not been widely tested. Notaires and cross-border legal specialists are still trying to get to grips with how these Regulations actually work in practice. So I, like many other professionals, still hold the view that if there is a tried and tested ‘French way’ to achieve your objectives, then this should be used. Early articles that I wrote on this subject can be found at https://spectrum-ifa.com/the-eu-succession-regulations/
The EU Succession Regulations do not change the potential French inheritances taxes that are payable, but an AV does. Whilst there are no French inheritance taxes between spouses and partners who have entered into a legal civil partnership (known as a PACS, in France), for other beneficiaries, the tax rate varies according to their relationship to you. For example, step-children (and other non-blood beneficiaries) are taxed at a punitive 60%!
For amounts invested in an AV before age 70, each beneficiary (whatever their relationship to you) is entitled to a tax-free allowance of €152,500. Taxation is limited to 20% on amounts paid above the allowance up to €700,000, and at 31.25% for amounts exceeding €700,000 per beneficiary). There is still no tax between spouses and PACSd partners, whatever amount is transmitted.
There is no limit to the number of beneficiaries that you can name. Hence, whatever your family situation, it is possible to pass on your capital to whoever you like, without them suffering excessive rates of French inheritance tax. Thus, the survivor can be fully protected and then the capital can subsequently pass to your other beneficiaries, following the death of the survivor.
For amounts invested after age 70, the inheritance allowance for all your beneficiaries combined is reduced to €30,500 (plus the investment return on the total amount invested). In effect, therefore, it is only the amount invested that exceeds €30,500 that would be taxed at standard French inheritance tax rates.
Sadly, social contributions are now charged on any gain in the policy paid out as a death benefit. Even so, when the above inheritance planning advantages are taken into account together with the personal tax savings, this makes the AV a very attractive proposition.
Inheritance planning is a highly specialised and complicated subject. Everyone’s family situation and level of wealth is different and it is very important to seek professional advice, so that the best course of action for you can be established.
The benefits of AV and tax-efficiency is a subject that we cover in our popular financial seminars across France – “Le Tour de Finance – Bringing Experts to Expats”. Overall, our industry experts will be presenting updates and outlooks on a broad range of subjects, including:
- Financial Markets
- Assurance Vie
- Pensions/QROPS
- French Tax Issues
- Currency Exchange
The date for the local seminar is Friday, 7th October 2016 at the Domaine Gayda, 11300 Brugairolles. Places are limited and must be reserved, in advance. This venue is always very popular and with less than a month to go, the event is likely to soon be fully booked. Therefore, you should contact us as soon as possible if you would like to come to the seminar. I will be at the event with our other advisers in this area, Rob, Derek and Sue.
In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you are not able to attend the seminar and would anyway like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at limoux@spectrum-ifa.com or by telephone on 04 68 31 14 10 to make an appointment. Alternatively, if you are in Limoux, call by our office at 2 Place du Général Leclerc, 11300 Limoux, to see if an advisor is available immediately for an initial discussion.
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 the investment of financial assets or on the mitigation of taxes.
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.
Every Cloud
By Derek Winsland
This article is published on: 8th September 2016
With the exception of a weakening pound and falling interest rates, we are yet to see the full impact of Britain’s vote to leave the European Union. Perhaps we may not ever see it if Teresa May and/or others decide against triggering Article 50 to herald the start of the process. We currently sit in a ‘phony’ period where no-one knows quite what will happen, causing doubt and uncertainty to set in. We await with bated breath the latest results to come out of the Treasury and the Bank of England.
The latter recently reduced interest rates to an historic low of 0.25%, at the same time announcing a new round of Quantitative Easing. Falling interest rates are either a good thing or a bad thing depending on which side of the saver/borrower fence you occupy. Clearly borrowers are happy, but for savers, especially those who rely upon their capital to supplement their retirement income, it’s not such a happy picture. Indeed, I am seeing this most days I speak to people about their finances. Thankfully, we are able to make investment recommendations that will generate higher levels of returns to counter falling interest rates, but these don’t suit everybody. But like most things I find in financial services, there’s generally a positive that accompanies a negative, if one looks close enough.
One such area relates to the impact falling interest rates has upon pension transfer values. In my last article I touched upon the way transfer values from occupational (defined benefit) schemes are calculated. Without going into chapter and verse, a fundamental part of the calculation process uses gilt interest rates to determine the transfer amount. Although the schemes have a certain amount of leeway in interpreting the rules, the bottom line is that low interest rates result in much higher transfer values having to be quoted by scheme trustees. This makes the decision on whether it suits an individual’s purpose to transfer somewhat easier to determine.
The observant amongst you will recall I mentioned TVAS in my last article, and the (somewhat out-of-date) rules that the FCA still clings on to. Remember critical yields? Well, a higher transfer value will result in a more achievable critical yield becoming attainable, so making the decision to move to a personal pension such as a QROPS, easier to make. Sure there are variables and these are more or less important depending on who you are and what your circumstances are. Carrying out a full analysis of your own particular situation, Spectrum’s advisers can place you in an empowered position to make your choices, so, if you have a defined benefit scheme that you’ve either never reviewed, or one that hasn’t been looked at for a while, perhaps now is the perfect time to do so.
Every cloud……!
Coveting the shiny stuff – Gold
By Gareth Horsfall
This article is published on: 7th September 2016
Dear Readers, please forgive me for I have sinned. It has been quite some time since my last post and during this time I confess I have been having impure thoughts.
I have been dreaming that the UK did not vote to leave Europe. I have been dreaming that Sterling had not fallen 12% against the Euro since June 23rd and that pasta was not now 10% more expensive in the UK, I have been having impure thoughts about low(ish) inflation in the UK and not rampant price increases after BREXIT. Lastly, I have been dreaming that interest rates would rise and not fall further into negative territory, basically charging customers to hold money with them.
Forgive me for my sins and lead me not into new temptation…………GOLD
There is a lot of talk going around at the moment about gold being the best investment to hold and certainly since BREXIT it has proven its case. However, gold has some signifcant shortcomings alongside other forms of investment. Essentially, it is of pretty much no use and it does not produce any yield. True gold has some decorative and industrial uses but demand is limited and doesn’t really use up all of the production. If you hold a kilo of gold today it will still be a kilo of gold at the end of eternity (taking into account any chance events which may affect the gravitational effects on earth).
THE INVESTMENT CHOICE DILEMMA
PILE A
Today the worlds total gold stores are approximately 170,000 tons. If all this gold was melded together it would form a cube of about 21 metres per side. Thats about as long as a blue whale. At $1750 per ounce, it is worth about $9.6 TRILLION.
PILE B
Warren Buffet, who is not a fan of gold as an investment, is famously quoted as saying that with the same amount of money you could buy ALL US cropland (which produces about $200 billion annually), plus 16 Exxon Mobils (which earns $40 billion annually). After these purchases you would still have $1 trillion left over. (You wouldn’t want to feel strapped for cash after such a big spending spree, so best to leave some spare cash lying around)
So the Investment choice dilemma is who, given the choice, would choose PILE A over PILE B?
In 100 years from now the 400 million acres of farmland would have produced an immense amount of corn, wheat, cotton, and other crops and should continue to do so. Exxon Mobil will probably have delivered back to shareholders, in the form of dividends, trillions of dollars and will hold assets worth a lot more. The 170,000 tons of gold will still be the same and still incapable of producing anything. You can cuddle and hug the cube, and I am sure it would look very nice but I don’t think you will get much response.
So, taking all this into consideration, you would be forgiven for thinking that gold really doesn’t have a place in anyone’s portfolio. I think you would be wrong.
Gold may not produce any yield, but with people in Asia, especially China and India, gold is very popular. In addition, it is also proving very popular for nearly ALL central banks around the world. Are all they all going mad, or do they have specific reasons for holding gold?
Well, despite Warren Buffets’ musings above, gold has to be seen in todays world as another form of money as central governments continue to print more traditional money, uncontrollably, and the paper currencies that we use in everday life become more and more worthless.
We must remember that the history of gold is that it rose, on its own, as a tradeable form of money in the world. No one has been forced into using gold as a form of money, whereas paper money is controlled by the state and has never been adopted voluntarily, at any time.
So this is where Waren Buffets argument falls down, because actual money in itself has exactly the same characteristics as gold. Its value! (Gold has some minor commercial uses, but its true value is in its store of value). Therefore, it should not be considered an investment, but actually another form of money/currency. In its basic form it is a form of barter and exchange.
Unlike paper money which can just be created without limit and at next to no cost, gold is both scarce and expensive to mine. It takes 38 man hours to produce one ounce, about 1400 gallons of water, enough electricity to run a large house for 10 days, upto 565 cubic feet of air under pressure and lots of toxic chemicals, cyanide, acids, lead, borax, and lime. (Just writing this makes me feel sick about the environmental impact of mining gold).
So, in summary the problem with the PILE A and Pile B scenario is that it assumes that gold is a form of investment, whereas in reality it should be considered another form of money.
For 6000 years gold has been an effective store of value.
The correct comparison that should be made is gold versus cash. Imagine a gigantic pile of cash. This pile of cash would be as equally inert and equally unproductive as gold, in itself.
The only way you could earn anything from gold or cash, in this case, is by depositing it with a bank and earning interest, at which point you relinquish your ownership (it becomes the property of the bank) and you then become an unsecured creditor to the bank itself, i.e if the bank fails it has the legal right to take all your gold and cash. Sound familiar? It might be better to hold true gold in a safe at home!
The question is whether you invest directly in gold or the gold mining companies themselves?
Parkinson’s Law
By Victoria Lewis
This article is published on: 24th August 2016
Are you familiar with Parkinson’s Law? Originally it stated that “work expands to fill the time available for its completion.”
Parkinson’s Law is the title of the book written by Englishman Cyril Northcote Parkinson in 1958 and today, the more recent understanding of the law is a reference to the self-satisfying uncontrolled growth of the bureaucratic apparatus in an organization.
The Law is also applied to money and wealth accumulation: expenses always rise to match income. Parkinson’s Law can explain why many people retire poor and why some people succeed, whilst others fail.
The law says that, no matter how much money people earn, they tend to spend the entire amount and a little bit more. Their expenses increase in line with their earnings. Many people earn today several times more than they were earning at their first jobs. But somehow, they seem to need every single penny to maintain their current lifestyles. No matter how much they make, it is never enough.
The key to financial success – break the (Parkinson’s) law
Parkinson’s Law explains the trap that most people fall into. This is the reason for debt, money worries and financial frustration. It is only when you have sufficient willpower to resist the urge to spend everything you make that you begin to accumulate money – the perfect environment to help you achieve financial independence.
Reduce your outgoings
If you ensure your expenses increase at a slower rate than your earnings, and you save or invest the difference, you will become financially independent in your working lifetime (and retirement).
Measure the difference between your earnings and the costs of your lifestyle, and then save and invest the difference. You can continue to improve your lifestyle as you make more money.
Take action
Here are two things you can do to apply this law immediately:
- Imagine that your financial life is like a failing company that you have taken over. Stop all non-essential expenses. Draw up a budget of your fixed, unavoidable costs per month and resolve to limit your expenditures to these amounts. The aim is to make sure that your ‘company is making a profit’.
Carefully examine every expense. Question it as though you were analysing someone else’s expenses and look for ways to economise. Aim for a minimum of say, 10% reduction in your living costs.
- Resolve to save and invest 50% of any increase you receive in your earnings from any source. Learn to live on the rest. This still leaves you the other 50 percent to do with as you desire!
Autumn Tour de Finance seminars
By Spectrum IFA
This article is published on: 16th August 2016
At this time of the year, it’s pretty difficult for anyone to think about financial planning. The sun is shining, families are visiting, or perhaps we are taking our own vacations somewhere else. Tax, investment markets, pensions and inheritance planning are usually the last things that people want to think about, but this year is proving to be a pretty exceptional year.
September brings the rentrée and it’s also a time when reasonable assumptions can usually be made about what might happen in financial markets over the rest of the year -although this year may be a challenge!
There is at least one ‘big political event’ up ahead that might keep the markets guessing and who knows what the outcome of the US Presidential Election will be? Can anyone ever depend again on forecast polls to gain some insight, after the shock result of the EU Referendum?
On the UK, could there also be a General Election? If not this year, next year? Will Theresa May really be able to resist the pressure that is likely to ensue and stay firm to the statement she made in her leadership campaign not to call a snap election?
Brexit is of course a big question – will it happen or not? If so, when? No-one really knows, but in the meantime, markets remain on high alert and sensitive to the potential outcomes of a Brexit.
As a result of Brexit, the Bank of England has drastically cut its forecast for UK growth for 2017. The interest rate has also been cut to a historic low of 0.25% and this may not be the last reduction for this year. Combined with the prospect of an increase in inflation, due to a weaker Sterling, the prospect for any meaningful return on cash has diminished still further. How will this affect you? What will happen if interest rates stay permanently lower and not just for longer?
There are other things that could affect the way that markets perform over the rest of the year and into 2017. What is the prospect for global equity and bond markets? Are we reaching the peak of the current market cycle? Should you be taking short-term ‘protective’ actions to protect your wealth for the long-term? Do you need to take action with your pension funds to make sure these last as long as you do?
Le Tour de Finance
All very interesting questions and fortunately, we are again holding our popular financial seminars across France – “Le Tour de Finance – Bringing Experts to Expats”, which is a perfect opportunity for you to discuss some of these questions directly with experts. Our industry experts will be presenting updates and outlooks on a broad range of subjects, including:
- Financial Markets
- Assurance Vie
- Pensions/QROPS
- French Tax Issues
- Currency Exchange
The date for the local seminar is Friday, 7th October 2016 at the Domaine Gayda, 11300 Brugairolles. Places are limited and must be reserved, in advance. This venue is always very popular and so early booking is recommended.
In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you would like to attend the seminar or would anyway like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at limoux@spectrum-ifa.com or by telephone on 04 68 31 14 10. Alternatively, drop-by to our Friday morning clinic at our office at 2 Place du Général Leclerc, 11300 Limoux, for an initial discussion.
One final thing to share with you is the news that our Languedoc team is expanding. Sue Regan has joined us as an adviser and so now we have six advisers covering this region. Sue lives at Cruzy and so is well placed for visiting clients in Narbonne, Beziers and the surrounding areas. She can be contacted directly by telephone on 04 67 24 90 95 or by email at sue.regan@spectrum-ifa.com. Sue will also be at the Gayda event with Derek, Rob and myself.
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 here
Tin Hat Time at the FCA
By Derek Winsland
This article is published on: 1st August 2016
In the wake of the fourth Parliamentary Review into the Financial Conduct Authority and its handling of high-profile incidents, comes the latest criticism from the Financial Services Complaints Commissioner who accuses the FCA of “an unwillingness to face up to and address its shortcomings”. He went on to say he had seen a tendency at the FCA to find reasons for excluding cases from the complaints scheme in circumstances where they should not have been excluded. Oh dear, smacks of Big Brother getting too big for his boots and believing itself to be above the law?
It is currently squirming with embarrassment over the antics of Sir Phillip Green and the BHS pension scheme, and this is fostering the belief in the industry that it is too focussed on the advisory sector and overlooking the problems that Pension Freedoms is having on occupational pension schemes, especially Defined Benefit (DB) or ‘final salary’ schemes.
You will no doubt be aware that the legislation passed in April 2015 relaxed the rules over how benefits could be taken from pensions. Gone was the insistence that a “pension is a pension – its job is to provide your income in retirement.” Although this is true, the old-fashioned rules take no consideration of lifestyle and personal choices. A casualty of this new form of thinking is the annuity, where you handed over your pension pot to an insurance company in return for an income for the rest of your life. A great concept except that the insurance company kept your money when you died. Under the new rules, you could use your pension pot to draw income off in retirement (or even before retirement now). This ‘income’ could be regular or ad-hoc in support of other income like state pensions for example.
Crucially, the new rules addressed the world in which we live and choose to live. An example of this could be where a member of a DB pension scheme (or a number of schemes over his/her working life) may decide on a change of career, to move to France to buy a property with an attached Gite to rent out. That is a lifestyle choice that perhaps suits that individual. Personal choice.
Under current (and out of date) FCA thinking, the default assumption is that it would not be appropriate for that individual to transfer the accrued benefits from such DB pension schemes, unless it can be proven that such a transfer is in that client’s best interest. How is this tested? Through the Transfer Value Analysis System or TVAS. Results are shown in the form of critical yields and hurdle rates. Sound complicated? You bet! Except it doesn’t allow for lifestyle choices or individual circumstances, which to the member are of far more importance. As advisers we’re told we must advise and inform the client of what’s in his or her best interest, even if it doesn’t gel with that person’s view. Believe me, those conversations are not easy. The FCA, meanwhile, sits in Canary Wharf, navel-gazing while all this is going on. The more cynical amongst us think the FCA has far more on its plate like finding ways to boost its coffers now it’s been told to stop bank-bashing and fining them for their latest misdemeanours.
There is hope on the horizon, however. The new chief executive of the FCA, Andrew Bailey has promised a greater focus on pensions, hopefully this won’t be an exercise in covering their backsides, but rather a genuine attempt to move with the times, providing much-needed and valuable guidance to the people they serve, the consumer. Let’s all hope that this is sooner rather than later and that the FCA doesn’t get distracted too much wrestling with the bear called Brexit.
If you would like more information on our view of how the investment markets are likely to play out into the future, ring for an appointment or take advantage of our Friday Morning Drop-in Clinic, here at our office in Limoux. And don’t forget, there is no charge for these meetings.
Some alternative BREXIT thoughts and why Italy could be next
By Gareth Horsfall
This article is published on: 12th July 2016
The last couple of weeks entertainment have taught me that there are decades when nothing happens in the world and weeks where decades happen. I have bounced from anger to frustration and back again. and am still trying to understand the logic for the BREXIT vote. I am slowly getting to that place and thought I might share some alternative, and thought provoking views in this E-zine.
I also want to write about why Italy could be next in line. (Any ideas on what to call it, Exaly, ItIt?)
One thing appears to be much clearer to me now and that is that the vote on June 23rd was basically the ordinary people of the UK telling the ‘establishment’ that they have had enough of austerity and want change.
This shouldn’t come as a surprise after 8 years of government and central banks supporting bailed out banks (TARP, LTRO, LTRO2, QE, ZIRP, NIRP to name a few of the easing programmes that have been employed!) allowing huge corporate bonuses to continue, destroying income from savings with low interest rate policies and more austerity/taxes for you and I. Conversely the uber rich and corporates have seen asset price rises, an increase in offshoring and consistent tax breaks. Warren Buffet is quoted as saying that he would be happy to pay higher taxes and cannot understand why he pays a lesser percentage of personal tax than a nurse. It seems that since the financial crisis of 2008 there has been one objective: to save the financial industry at all costs.
With all this in mind is it any wonder that the average working man in Northern England is ‘not’ concerned about the consequences of BREXIT; a possible fall in house prices, a loss of jobs in the City, a 10% fall in share prices. These people are immune to this kind of pain. For this person BREXIT probably seems like a bonus. An opportunity to put a finger up to the establishment and David Cameron who have not protected their interests as they should have.
The working class man from Northern England may be immune to the pain of people who have assets, but financial markets are not, and they have reacted as you would expect. (Admittedly they have rebounded in the last few days). This affects the middle class, who also have assets. Expect more volatility to come.
This could all signify an end to economic policy being controlled by academics and economists.
BREXIT: In two minds
Continue with the status quo; economic tranquility and pushing the economic pain further down the road, in reality to the next generation or, should I be a supporter of BREXIT’s ‘economic’ possibilities and what it could ultimately deliver: higher interest rates, debt defaults, inflation, possible asset price falls (no one really knows what will happen here), higher taxes in the short term, vast privatisation of public assets and reduced benefits, with the aim of normalising world economic affairs through short term pain, long term gain. My problem with BREXIT is that I don’t think that the average man in Northern England who voted out actually understands that this is what it actually signifies and if they did then would they really have voted out?
In the end that decision will be made by the people, but let’s not think it is only isolated to the UK. Donald Trump is making similar inroads into the old industrial heartlands of America. Don’t be surprised to see him as President of the USA later in the year. Marine Le Pen in France and Movimento 5 Stelle in Italy (although they have now come out in support of the EU, but with radically changed policies).
Which brings me nicely onto Italy. I have had the BREXIT conversation with many people since then and I have been surprised to hear the reactions from Italians. I can give 5 cases when each person considered their future better outside the EU. A fascist man running a stabilimento (no surprise there then!); a right leaning hairdresser from Naples, devout catholic and openly critical of the influx of immigrants (in my opinion you could call him racist with some of the views on non Italians); a centre right voting physiotherapist with 3 children and self employed; a self confessed communist psychiatrist (with 3 houses and a house in the centre of Rome paid for by her father); and a cartoon animator, living hand to mouth, who is an open supporter of M5S and a vote to exit from the euro and the EU.
All have their own reasons but essentially the same rationale. When the euro was introduced everything doubled in price and wages halved. They seem to think a vote to leave is a way to turn back the clock. That nostalgic feeling…’taking back control’. We have heard that somewhere before!
The reality is likely to be quite different and would reflect the UK’s immediate future if they do exit from EU (I am still not convinced they will). However, the point is that they all feel let down by the EU and would be better off without it.
So, where does this lead us to. A huge inflection point for Italy will come in October. Renzi has proposed a Constitutional change which will essentially liberate the Government from the current two chamber system and allow one party rule for a 5 year period, in much the same way as the UK and the USA.
If this Referendum should fail to be approved by the people then Renzi has stated that he will step down as Prime Minister.
The problem for Italy is that:
- It will likely return to less than 1% economic growth, and for a country that has hardly grown since the introduction of the Euro in 1999, that would not be good
- Italian banks do not have enough capital to weather a storm of that nature. They are sat on €360 billion of non performing loans (a third of the size of the Italian economy). If Italy voted out of the EU, Banca Italia would have to print that money to re-liquidate the Italians banks and that would lead to some pretty spectacular inflation
- And lastly, Renzi leaving his post would would leave a big void and allow parties with an anti European sentiment to fill the space
This is going to be a trying time for Italy, the EU and the UK. I would suggest that this IS the EU’s ‘moment’. If it can survive this then it will pull through, if not then it will fall apart.
So in all this mess and future potential mess what should we be doing with our money. GOLD and the US Dollar. These are things that will weather the storm. How and in what to invest to get best access to these assets is a subject for another time.
Changes in tax for International people living in Spain after the EU Referendum. What changes and what does not?
By Barry Davys
This article is published on: 6th July 2016
If the UK leaves the European Union what impact does this have on taxation for international people living in Spain?
The framework for taxation in all countries is based upon the following:
- Are you tax resident according to the laws of that country?
- Which tax authority is the controlling tax authority for your Worldwide income and gains?
- If you have income or gains outside of the country where you are tax resident, is there a double taxation agreement between the country where you are resident and the country where the income or gain is made?
For those of us living in Spain, the simple test is are we in the country for more than 183 days in any calendar year? If yes, then we will be Spanish Tax resident.
If we meet the residency requirement Spain is our controlling tax authority. This means we have to report our Worldwide income and gains to Spain and our main payment of tax is in Spain.
Double Tax Treaties
The OECD, UN and USA have set up model frameworks for Double Taxation Treaties. Most countries use these frameworks. However, the Treaties are between individual countries. Even if the country is in the EU there is NO EU wide double taxation agreements. Therefore, if the UK leaves the EU it will not affect the double taxation agreement between the UK and Spain. As an example, Spain has 88 tax treaties, 66 of them with countries outside the EU and even if the UK leaves the double tax treaty should stay. The tax treaty between Spain and the UK covers both income and gains.
Beckham Rule
It is not expected that there will be any changes to the Beckham rule (Impatriate Tax Regime). It is available to people from around the World. Therefore people moving from the UK to Spain should still be able to benefit from the lower rate of taxation for five full tax years.
Where we do expect changes
There is a potential economic impact in both Inheritance Tax and Exit Taxes if the UK leaves the EU.
Inheritance Tax
In September 2014, the European Court of Justice instructed Spain to change its rules regarding Inheritance Tax where the deceased person or the person receiving the inheritance was in another country in the European Economic Area (EEA). The effect was to allow these people to claim the allowances that are available to inhabitants of Spain, rather than them being taxed on a special “National” rate. This was because the National Rate resulted in higher taxes.
If Britain is now longer a member of the EEA, it is quite possible that we will have to return to paying the national rate of inheritance tax. Please note, it is possible for the UK to leave the EU but not the EEA and therefore will still qualify. Whilst the loss of the local allowances will only put us back to the situation two years ago it will still be a backwards step.
There are several pieces of Inheritance Tax planning that you can do to reduce the burden of Inheritance Tax. HOWEVER, we have not left the EU, there is some debate about whether we will ever leave the EU and we may yet become part of the EEA. We strongly recommend, therefore, that you discuss the possible planning methods now but do NOT implement any planning on the basis of the UK leaving the EU. This is because once taken, many of the planning steps cannot be undone.
Exit Tax
Exit tax is chargeable to all taxpayers that have been in Spain in at least 5 years of the last 10 years whilst Spanish Tax Resident if:
The market value of the shares and collective investments held exceeds a joint value of Euro 4 Million
or
Only Euro 1 Million if the person holds 25% or more of the shares in a company.
However, currently, if the person moves to another country in the European Economic Area with whom an effective exchange of information exists, the gain will only need to be declared and Spanish Exit Tax paid if during the next 10 years the shares are sold or the person loses his residency in the EU or in the EEA.
It the UK leaves the EU and does not get EEA membership, Spanish Exit Tax would become payable on departure.
CRS – Automatic exchange of information between countries
The OECD has also introduced a common framework for the automatic reporting of information from one country to another of the financial affairs of people who live in the second country, for example UK to Spain where a British person lives in Spain. This framework has been updated and common formatting of reporting leads to common software and much easier analysis of the information.
Please be aware that these reports will still take place even if the UK leaves the EU. Currently there are 101 countries using this common software and standards.