It is never too early to start planning your financial future
By Chris Webb
This article is published on: 17th June 2015
During conversations with many of my clients, I hear the expression “I wish I had done something sooner” so often, that I thought I should put pen to paper.
All too often in our younger years we race through the nitty-gritty details of our finances and neglect to focus on crucial “future proofing” in the process. During our 20’s we tend to spend, spend, spend. In our 30’s we try to save, but this is the decade when most of us purchase property and start a family so that makes saving for the future difficult. In our 40’s we’re still paying the mortgage and raising our children so inevitably it is difficult to put money aside to provide for your financial future.
But if you adopt a marathon approach to money (as opposed to a sprint – see my article on this topic), it can allow you to take a more holistic look at your overall financial picture and see how decisions that you make in your 20s and 30s can impact your 40s, 50s and into your retirement years.
It doesn’t matter how old you are, being financially healthy boils down to two things. The level of debt you have and the level of savings/investments you have. The only real difference is how you approach both subjects, as this will change with age.
Tips for during your 20’s
This is the best time to lay the foundations for a bright financial future. Try creating a budget and track your expenses. Keep evaluating over a few months to ensure it’s realistic. This may seem pretty basic but you’ll be surprised how many people don’t track their expenses. This is the best time to do it, your finances are likely to be a lot simpler now than they will ever be!
- Debt – Loans and Cards
It’s easy to think that making the minimal payments and delaying paying them off, to save more, is a good idea, but this strategy rarely works. The more you make the more you tend to spend, so getting round to clearing off these debts never comes any closer.
But now is the time to break the cycle of credit card debt or loans for good!
- Start an Emergency Fund
While you’re busy paying off your debt, don’t forget that you should always try to have a “savings buffer” in the bank. To help accomplish this goal you should transfer funds straight from your “day to day” account into a deposit account. One where you aren’t likely to get access through an ATM which reduces the temptation to spend it on a whim. Ideally, you should aim to have three times your monthly take-home pay saved up in your emergency fund.
- Contemplate Your Future – Retirement
At this point in your life, retirement is far off, but it is important to start saving as early as you can. Even small amounts can make a big difference over time, thanks to the effect of compound interest. Start saving a small percentage of your salary now to reap the rewards later in life. See my articles on compound interest and retirement planning to see the difference it can make.
Tips for during your 30’s
During this decade, your financial goals are likely to get a bit more complicated. Some people will still be paying off credit card debt and loans, whilst still working on the “emergency account”. So what’s the secret to juggling it all?
Rather than focusing on one goal you should be looking at the biggest of your goals, even if there are three or four.
- Continue Reducing Debt
If you’re still paying off your credit card balances then considering consolidating onto one card with an attractive interest free period should be your first task. Failing that you need to concentrate on the card with the highest interest rate and reduce the balance ASAP. The most important thing to consider with debt is the interest rate. If you have low interest rates (I’d be surprised) then there’s no major rush to pay them off, as you could manage the repayments and contribute to other financial goals at the same time. If your interest rates are quite high then the priority is to clear these debts down.
- Planning For Kids
Little ones may also be entering the picture, or becoming a frequent conversation. Once this is a part of your life you’ll start thinking about the cost implications as well. Setting aside a small amount of funds now to cater for the ever increasing costs of bringing up a child will reduce the financial stress later down the line. If you have grand plans for them to attend university, potentially in another country, then knowing these costs and planning for these costs should be part of your overall financial planning.
- Assess Your Insurance
The thing that most people forget. Big life events such as getting married, having kids and/or buying a house are all trigger points for reassessing what insurance you have in place and more crucially what insurance you should have in place. If you have dependents, having sufficient Life cover is paramount. Other considerations should be disability, critical illness and even income protection
- Start that Retirement Plan.
It’s time to stop just thinking about setting up what you call a Pension Pot, it’s time to take action! Starting now makes it an achievable goal, leaving it on the back burner because you’re still too young to think about retiring is going to come back and haunt you later in life.
Tips for during your 40’s
This is the decade where you need to make sure you’re on top of your money. At this point in your life, the ideal scenario would be to have cleared any debts and to have a nice healthy emergency fund sitting in a deposit account.
- Retirement Savings – Priority
During your 40s it’s critical to understand how much you should be saving for retirement and to analyse what you may already have in place to cater for this. In my opinion it’s now that you need to start putting your financial future/retirement ahead of any other financial goals or “needs”.
- Focus Your Investments
Although you may not have paid much attention to “wealth management” in your 30s, you’ve probably started accumulating some wealth by your 40s. Evaluate this wealth and ensure that there is a purpose or goal behind the investments you have made. Each goal will have a different time horizon and potentially you will have a different risk tolerance on each goal. The further away the goal is, the more you can afford to take a “riskier” option.
- Enjoy Your Wealth
It’s about getting the balance right. Hopefully you’ve worked hard and things are stable from a financial point of view. You need to remember to enjoy life today as well as planning for the future. As long as important financial goals are being met there is no harm is splashing out on that dream holiday, and enjoying it whilst you can.
Tips for during your 50’s.
You may find yourself being pulled in different directions from a financial point of view. Maybe the children still require financial support, maybe your parents require more support than before? The key thing to remember is to put your financial security first, and yes I know that sounds a bit tough…….. You still have your retirement to consider and probably a mortgage that you’d like to pay off before retirement age.
- Revisit Your Savings and Investing Goals
Your 50’s are prime time to fully prepare for retirement, whether it’s five years away or fifteen. At this point you should be working as hard as possible to ensure you reach your required amount. This means that careful management of your assets is even more critical now. It’s time to focus on changing from a growth portfolio to a combined growth, income and more importantly a preservation portfolio. What I’m saying here is it’s time to really analyse the level of risk within your asset basket.
- Prioritise – Your Future vs Your Children’s Future (It’s a tough one….)
During their 50’s a lot of clients struggle with figuring out how much they can afford to keep supporting a grown child, especially when they’re out there earning themselves. The bottom line is that although it can be tough you have to continue to put yourself first. The day of retirement is only ever getting closer and unless your planning has been disciplined there’s a possibility you may need to work longer than anticipated, or accept less in your pocket than you hoped for. You are number 1…….
- Retirement Decisions and considerations
You should begin to revisit your estate planning, your last will and testament, power of attorney if you feel necessary and confirm that your beneficiaries on any insurance policies or investment accounts are all valid.
Once you’ve covered off the administration part then I’d suggest you sit back and look forward to the biggest holiday of your life……..have a great time!!!
Why it Pays to Make a Spanish Will as an expat
By Jonathan Goodman
This article is published on: 15th June 2015
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While you are enjoying your new life and possibly a new home in Spain, it is understandable that you might not want to think too long or too hard about the future, particularly about matters pertaining to your Will and inheritance issues for your children and heirs. But this subject needs to be covered and fully understood sooner rather than later. There are three central reasons for making a Spanish Will: One – It avoids time-consuming and expensive legal issues that your family and heirs will have to resolve. You can – and should – make a separate Will to dispose of any assets located outside of Spain. A British Will, for example, has no bearing on your Spanish estate. Two – Spaniards have to divide their assets equally among their family and heirs, and leave two-thirds of it all to their children. As an expat, you are exempt from this ruling and you can bequeath your assets to whomever you wish. Your estate will, however, be subject to Spanish inheritance tax, which is high when left by non-residents to non-relatives. In addition, expats resident in Spain are subject to the same taxes on any of their worldwide estate, too. Therefore, making a Will allows you to navigate these various taxes at your discretion. Three – Your estate can become eligible to a 95 per cent reduction in inheritance tax. This reduction only applies to the first €120,000, but is not available to non-residents, so bear this in mind when drawing up a Will. The Spectrum IFA Group in Spain are delighted to be able offer their clients a 15% discount when using the services of ‘AvaLaw‘, who over the last years have assisted clients from almost 50 different countries. |
The story you are about to read is true; only the names have been changed to protect the innocent… Mr. Rainyday and Mr. Blueskies were catching up over a beer in Barcelona on a sunny Friday morning. Mr. Rainyday had barely taken a sip of his beer before he was on his pet topic — complaining about Spain, his and Mr. Blueskies’ adopted home as of a few years ago. ‘This time its dad’s flat in Andalucía. It’s over a year and a half since his funeral, and I’ve only just got it transferred to my name. Plus, it’s cost me a fortune. There’s no way it’d be such a hassle back home. It’s a total scam!’ ‘That’s funny,’ said Mr. Blueskies, ‘My dad died around the same time, had an identical apartment in the same building as your dad, and it only took us four months to get the apartment registered in my and my mother’s name. And, if I remember correctly, it didn’t cost that much, either.’ ‘Really?’ asked Mr. Rainyday, ‘How’d you manage that?’ ‘I don’t know. It all seemed pretty straightforward. Our advisor took care of everything for my dad. Was there a problem with your father’s Spanish will or something?’ ‘Will? What will? Dad didn’t have one, but I thought you didn’t even need one in Spain?’ ‘You don’t need one, but having one makes things a lot easier and cheaper for your heirs,’ said Mr. Blueskies. ‘Since my father had a Spanish will, I did not have to sworn-translate and legalize tons of documents, there were no surprises regarding the applicable law, no need to get certificates regarding which testament is valid according to the foreign law applicable to the inheritance, no need to pay lawyers to deal with all the unnecessary bureaucracy in all the countries, and no need to wait for a year or two to get the title of the apartment…’ ‘I see…’ said Mr. Rainyday. ‘Anyway, what outraged me even worse than the bureaucracy, was paying the 60.000 euros of inheritance tax for the property worth 300.000 euros.’ ‘Wow’, exclaimed Mr. Blueskies, ‘You paid that much, did you! We did not pay any taxes for inheriting my dad’s flat, since Roser advised my father to leave in his will 50% of the flat to my mother and 50% to me, so that we both could take advantage of the personal tax exemption of 175.000 euros that Andalucía had for all of us who were residing over there at that moment. What a difference, eeh, with some simple inheritance planning?’ Since Mr. Rainyday looked really sour, Mr. Blueskies changed the topic and started to speculate whether Barça is going to bring home all the 3 titles this season… |
Clients of The Spectrum IFA Group are eligible for up to a 15% discount
on making a Will with AvaLaw. Contact us now for further information
Do I need help planning my finances in France?
By Amanda Johnson
This article is published on: 12th June 2015
If you are not sure whether you want or need a financial review at the moment, why drop into one of my financial surgeries for a coffee and an informal chat?
Financial Surgeries July-September 2015
What are they?
An opportunity for you to speak to me locally and informally about your personal situation. I can answer any questions that you may have about tax efficient savings and investments here in France, as well as helping you understand your pension options since the UK pension changes. We can also cover Inheritance tax planning and an update regarding the new laws taking effect in August 2015.
Where they are?
Café du Cour, Vouvant Wednesday 9th July 11.30 until 14.30pm, Wednesday 9th September 11.30 until 14.30pm
Brasserie Vue du Chateau, Bressuire Friday 24th July 11.00 until 1pm, Friday 25th September 2015 11.00 until 1pm
Do I need to make an appointment?
Whilst there is no need to make an appointment, however, if you do let me know you are coming in I can ensure that I am not double booked.
Why not pop along for an informal chat?
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.
You can’t please all of the people all of the time
By Spectrum IFA
This article is published on: 11th June 2015
It’s a sad but true fact that you can’t please all of the people all of the time. While most of us dance a little jig each time the sterling pops its head over the 1.40 mark (however briefly!), others wince and reach for their calculators, working out how much less they are now worth in sterling terms. For various reasons, as we have discussed before, people decide to ‘go home’. The very fact that they describe it in those terms probably makes them all the more likely to take that decision in the first place, but the fact is that the older we get, the more compelling the argument can become to return to our roots.
There are currently two main problems for those who come to that decision today. The first is the exchange rate, and the second is the housing market. How unfair is it that many of us came to France on the back of a strong pound, then congratulated ourselves when it collapsed, only to find that when we need it to stay weak, it bounces back to bite us where it hurts? And, to compound matters, our cherished piece of French real estate turns out to be worth a fraction of our own valuation. I don’t think this is particularly a French issue though, unless we (surely not?) were persuaded to pay more than the property was worth in the first place. I learned many years ago that if you think you might want to move home at some time in the future, plan ahead. Don’t wait until you want/need to sell and bide your time. Advertise early, and wait for that elusive buyer who really wants to buy your home. Easier said than done though, I must confess, although I have in the past been successful in selling a ‘quirky’ house on this basis, and buying a much more sellable property, purely to put myself into a more flexible situation where I knew I could move quickly if I needed to. Even then some ego inflated politicians started a war and held up our move to France for quite a few months.
No, you can’t please all the people all the time, but what you can do is try to give them the best advice at all times. If you get that right, then major upheavals such as moving back ’home’ can be made less of a trial. A good example is investment advice. I estimate that currently around 5% of my clients are in the process of moving back to the UK, or are thinking about it. I know for a fact that all of them are happy that they took my advice to invest in what I class as ‘Expat Assurance Vie’ policies. I call them this because I know full well that they are designed for and aimed at the expatriate market in France. One major advantage is that they are completely portable. It is easy to convert the policy to a standard UK investment bond. You could even have stayed invested in sterling, but if you had switched to Euro, you can switch back. If the current exchange rate deters you, there is nothing to stop you going back to the UK with your investments still in Euros, to be converted when the rate goes back down (as it surely will).
In part I blame social media for this new type of expat existence. Originally, when you moved abroad, you kept in touch by mail. Good old fashioned post. If something of note happened, either abroad or in the UK, you would write to your family and tell them about it. If it was very urgent, you’d phone, but that was expensive. Nowadays little Jimmy in Tonbridge Wells starts teething and the whole world knows about it in minutes. Don’t get me wrong, I’m not a complete dinosaur when it comes to these matters. I have a Facebook page! But I don’t really know how to use it though. I’ve never found my ‘Wall’, and I’ve never enjoyed being poked. As for Twitter, I’ve never understood the rationale behind it, never mind how to use it. I thought retweeting was military code for a strategic withdrawal.
I suppose it all has its uses, but it makes the world a more volatile place. Sometimes you can just have too much information. Sometimes it’s better to let someone else take over and do ‘stuff’ for you.
Maybe a financial adviser for example…
Le Tour de Finance 2015 in France
By Spectrum IFA
This article is published on: 8th June 2015
Le Tour de Finance has just completed its final stage of the spring 2015 events, after travelling through France, Italy and Spain. For those who are not familiar with these events, this is a series of seminars, where we bring ‘experts to expats’. Now in its sixth year and due to the popularity of ‘Le Tour’, the events take place in both spring and autumn. For the local events, we had some ‘’old and new faces’ presenting.
SEB Life International and Prudential International presented on the topic of assurance vie, explaining the tax-efficiency of this type of investment, both personal and for inheritance planning. Each of the companies outlined the unique features of their own products and it could be seen that the products complement each other, one or the other being more suited to a client, for example, depending upon attitude to investment risk.
Momentum Pensions, which is a multi-jurisdictional pension provider based in the UK, Malta, the Isle of Man and Gibraltar, presented on the highly topical subject of the UK pension reform that has taken place. The presentation outlined the ‘freedom and choice’ options now open to people, but also covered the UK tax consequences for those who decide to flexibly access their pension funds. The alternative of transferring benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS) and the advantages that this can provide for expatriates was outlined.
Currencies Direct presented on the various options open to clients who wish to exchange currency, whether this is for regular payments or for ad-hoc exchanges, for example for property purchase. It was very interesting to see how much could be saved by using Currencies Direct, rather than a retail bank, particularly in the light of the current strength of Sterling against the Euro.
There was a presentation on French succession planning from Heslop & Platt, which is a firm of UK solicitors that are specialists in French law. Various possibilities that already exist under French law to put in place successful inheritance planning were outlined. In addition, the forthcoming EU rules on succession were covered and the fact that if a French resident elects the succession laws of their country of nationality to apply, the estate would be administered by a French notaire trying to apply that country’s rules. What seems clear now is that this is likely to cause complications, delays, additional expenses and uncertainty, whilst French inheritance taxes will still apply. As such, the opinion was that if there is a ‘tried and tested French solution’ that achieves the objective that someone is seeking, then this should be the first choice to use, rather than relying on the EU Regulations.
New to Le Tour this year was Leonetti Business Services, a firm that can help you with some of the French bureaucratic issues that we are all faced with from time to time, which undoubtedly can help to get rid of the frustration that these things can create.
Martignole Huzé Associés, a firm of chartered accountants based in Carcassonne, presented on the services that they can provide in English, including the completion of French tax returns, having regard to the conditions of Double Taxation Treaties.
Also new to Le Tour this year was Tilney Bestinvest, which presented on the range of investment management services that this company can provide. The choices range from Mulit-Asset Portfolios, where clients pick the one most suited to their objectives and leave the company to take care of the investment management, through to the more actively managed full Discretionary Fund Management services for larger portfolios.
For The Spectrum IFA Group, we presented on our processes and the products and services that we provide to clients, as well as highlighting the importance of our independence and how we are regulated in France by the French authorities. We also outlined client concerns, for example, tax-efficiency, inheritance tax planning, securing pensions and protection of capital. In addition, in view of the topical issues that we are facing this year, we presented the French tax and social charges consequence of cashing-in UK pensions and for inheritance planning, we used assurance vie to demonstrate the potential inheritance tax savings, providing examples of two scenarios – the ‘French Way’ and the ‘EU Way’. Assurance vie was also used to demonstrate personal tax-efficiency.
As always, the feedback from many people attending these events has been very positive and if you were not able to make it this time to Le Tour de Finance, keep in mind the next local events which will take place in October. On the other hand, if any of these subjects are of interest to you now and you would like to have a confidential discussion about your financial situation, please contact me directly or by using the form below.
Offshore Disclosures Facility
By Peter Brooke
This article is published on: 25th May 2015
This month I had the opportunity to sit down with Patrick Maflin from Marine Accounts for a Q&A session on the Offshore Disclosures Facility.
Patrick, Firstly what is the Offshore Disclosures Facility?
The Offshore Disclosures facility is an amnesty for UK citizens who have undeclared offshore earnings. It is directly aimed at targeting offshore tax evasion. The G20 have now opted similar schemes such as the Offshore Disclosures Program (ODP) in the US & Project Let’s Do It in Australia.
What is offshore evasion?
Offshore evasion is using another jurisdiction’s systems with the objective of evading UK tax. This includes moving, not declaring or hiding (via complex offshore structures) any income, gains or assets out of the site of HMRC.
When does the amnesty end & what happens if I do not declare?
The UK disclosure facility ends on 30th September 2016. Individuals who choose not to declare their earnings can face fines of up to 200% of the tax evaded and possible imprisonment as it is now a criminal offence. Project Let’s Do It in Australia came to an end in December 2014 and the IRS have not stated when ODP will end.
How can I declare my earnings through the facility and what are the benefits?
UK seafarers can declare their earnings under the Seafarers Earnings Deduction (SED) providing that they spend more than 183 days out of the UK and work onboard a ship. If you declare now before becoming subject to investigation you will not face fines and will not have to pay tax on your earnings. However if you owe tax through work days in the UK or not qualifying for the SED exemption you will only pay 10% on top of your tax bill as opposed to 200%.
What happens if HMRC contact me first?
If they do contact you first you are faced with possibility of a tax investigation into your financial affairs and will not qualify for any penalties at the lowest rates and will have to pay the taxes you owe for up to 20 years. You could also face criminal prosecution.
What if I move my funds to the Cayman Islands, surely it is safe there?
The UK signed ten more automatic exchange agreements in 2014 including many of the classic ‘offshore centres’. The new global standard developed by the OECD has been endorsed by the G20 and now 44 jurisdictions in total. This will lead to greater tax transparency and the ability for governments to clamp down on those who evade tax.
What exactly will the new global exchange mean? What type of information will the G20 access?
The 44 jurisdictions are going to share if you have a bank, investment or custodial account and will be able to see your name, address, account number, balance and income.
When I browse the yachting forums I still see crew asking where the best place is to open an account to avoid paying tax! What do you think of this?
It surprises me that people choose to openly broadcast that they are looking to avoid paying tax and that they believe that today with the open exchange of information that this is still possible and the right course of action.
HMRC contacted over 20,000 people in 2013 about their offshore assets. In 2014 offshore banks in the 44 jurisdictions started collecting information about UK & US residents. This information will reach HMRC by the start of 2016.
Are Offshore accounts still permitted under the Offshore Disclosures Facility?
Of course, there is nothing wrong with having offshore accounts & investments as long as you declare the income and gains on your tax return. This is not designed to stop people banking offshore, but to allow individuals to bring their tax affairs up to date if they have worldwide undeclared income. The principle benefits of using an offshore account is currency flexibility.
This article is for information only and should not be considered as advice.
Self Managed Investment Solutions
By Peter Brooke
This article is published on: 21st May 2015
CIFA Forum – Monaco April 2015
Peter Brooke, one of our Investment Team Strategists and senior Financial Advisers attended the 13th International CIFA Forum in Monaco at the end of April 2015. The forum allows for presentations, discussion and debate about many aspects of financial regulation, advice and management all with far reaching opinion and outcomes for the future of financial advice across Europe and the world.
Peter was invited to sit on an expert panel in order to provide some of his own insight as an adviser to European based clients on how they choose between self-managed investment solutions as opposed to going through an IFA and secondly, how we, as an advisory industry, can best fulfil this role and what is the fairest way for clients to pay for it.
The main points were:
Should the payment for investment management services be separated from the costs for financial advice?
YES… Financial advisers, as opposed to ‘investment advisers’, should have a more fiduciary role and should look after all matters of client finances; how the investment part (which is really just one of the “tools in the box”) is then paid for is a separate discussion.
What is a reasonable cost for investment management services?
This answer wasn’t reached… some believed a flat fee should be appropriate as the same process is used if you are managing €1000 or €100 000; but this would then dissuade people without significant assets from accessing investment advice.
If we have a percentage basis approach then one could argue that the people with more assets under management would be paying significantly more for the same service… the debate ended with the idea that IFA firms need to decide what their core capabilities are and therefore who their core clients are and should focus on pricing their service to attract only those clients.
The amount of client involvement also needs to be considered when pricing the advised solution. This discussion will continue to run and run as different regulation affects how different jurisdictions provide investment management services.
What are other things that clients need to consider when buying investment services?
Peter very much banged the drum on client engagement and education. In his opinion trust between the client and the adviser is built through spending one-on-one time together and also being completely transparent with costs, legal structures and the processes being employed to select and advise upon investment solutions.
For example Peter pointed out that some retail clients in Europe are still being sold Sophisticated Investor Funds which are completely inappropriate; with better awareness of these sorts of issues problems like this will be avoided in the future.
A lot of this change can be lead by IFA firms helping clients self-educate to question, review, challenge and scrutinise the advice they are given and the firms who are giving it. Clients should be encouraged to do their own due diligence and self-educate wherever possible.
The more transparent this industry is with the people who are asking for our guidance and advice, the better the relationship between the finance industry and the general public will be; this in turn will help close savings gaps around the world, reduce poverty in later life and reduce reliance on states for retirement benefits. It all starts with our daily behaviour towards our clients and we can truly make a difference as an important industry.
A brief interview with Peter following his panel session can be found below:
http://www.southsouthnews.com/special-coverage/13th-international-cifa-forum-2015/player/234/4029
http://www.southsouthnews.com/special-coverage/13th-international-cifa-forum-2015/player/233/4002
Le Tour de Finance continues into the Languedoc & Pyrenees region.
By Spectrum IFA
This article is published on: 20th May 2015
After the successful events during April in Spain, The Spectrum IFA Group and Le Tour de Finance moved into France for a series of events in Perpignan, Bize-Minervois and Montagnac.
As with previous events bring together a number of financial experts in their fields to discuss important areas such as pension & QROPS, Tax Efficient Investing, Estate Planning and French Wills.
Le Tour de Finance aims to reach expats where they live so that everyone can seek specific advice relevant to their location in a relaxed and informal atmosphere.
The sessions are always educational and drive many questions from the attendees about specific real life experiences, that allow the panel of experts to tailor the presentations.
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Le Tour de Finance returns in October in Provence, Aix en Provence and Languedoc-Roussillon.
If you would like further information or would like to book a place, please contact us
The objective of Le Tour de Finance is to provide expatriates with useful information relating to their financial lives. We try and cover frequently asked questions that we receive from our clients. It would be helpful for us to know what your particular areas of interest might be.
Send us your questions and the event you will be attending and we will try and cover them on the day: Please click here:Le Tour de Finance Questions
Misinformation, not just a problem for politicians?
By Spectrum IFA
This article is published on: 14th May 2015
Oh my, what to talk about this week? Whatever you do, don’t invest in opinion polls. Amazingly, we already have a new government; non-committal about staying in Europe, but firm on staying out of the Euro, and we have an EU country, Greece, firmly committed to staying in Europe, but possibly about to be forced to leave the Euro due to profligate bankruptcy. Actually not only bankruptcy, but the next stage on from that; running out of friends, or in fact anyone, who will now lend them money. This is beginning to look like a one way street for the Euro, but beware. Nothing is ever as clear cut as it seems.
Misinformation. Clearly a problem for politicians, but a big problem for us too. What I want to talk about today is the worrying number of new clients that I’ve seen so far this year who have previously accepted financial advice that is clearly flawed. If you took advice on investments before you came to France, or maybe have sought advice from unregulated sources since you got here, you may well be the proud owner of an offshore bond. If this sounds like you, then please keep on reading. You have the wrong investment for successful tax efficiency in France, and it can have severe consequences.
Don’t get me wrong, there is nothing illegal about holding a Jersey or Isle of Man domiciled bond in France, as long as you declare it to the ‘fisc’, but you may well be in for a nasty surprise when you start to draw money as regular income or one-off cash injections. And whatever you do, don’t die. Not that it will bother you too much at this point, but it will only add to the consternation of your beneficiaries if your local tax office turns its nose up at your non-European, definitely non assurance vie bond.
If your bond is not a true assurance vie, it will not be set up to jump through the tax hoops that the French tax system presents. How do you tell if your bond will be able to jump through the hoops? Well, you’re off to a good start if you talk to a regulated and approved adviser registered in France, who offers you an assurance vie. This must be compliant. Anything else, and you should start to worry. There are a few ‘litmus’ tests you can use. The first is elementary geography. Is your bond issued in Europe? If not, forget it. You do not have an assurance vie, or anything like it. Secondly, ask your bond provider if he will be able to give you certified tax information to enable you to make your French tax return. Unless you can be completely satisfied that you will be told exactly how much of your withdrawal is taxable, in Euros (even if the bond is in sterling), you have a problem, and you have the wrong bond. You will pay more tax on the gain and you will lose out on various other benefits than if you had structured the exact same underlying investments inside an assurance vie. You have, in short, been badly advised. This is not necessarily through deceit or bad practice, but almost certainly through ignorance; both of the French financial system and of its products. Most likely the advice will have come from a UK IFA trying to keep a grip on a client moving abroad, or an international IFA operating outside of his usual area.
Help is available. Spectrum financial advisers are registered and regulated in the countries in which we work. Unlike back in the UK, we do not charge for our advice or time. Taking advice from registered advisers is a no-lose situation. You will get good advice; you won’t be hassled or coerced into doing anything at all that you’re not entirely comfortable with, and you won’t be charged.
A good way to meet advisers is to attend a financial seminar, such as those currently taking place under the ‘Le Tour de Finance’ banner.
You must, in short, satisfy yourself that your financial adviser is qualified to advise you about the conditions that exist in the financial regime in which you are going to live and pay taxes. There are various loopholes that allow non France-based IFAs to operate here from a number of European countries. Please make sure that you choose an IFA who lives and works in your local community.
You have two such advisers writing for the ‘Flyer’ at the present time. Why on earth would anyone in their right mind rely on an IFA in Chipping Sodbury or Crete to advise them on the most important financial decisions of their lives?
FACTA: the unintended consequence for Expatriate US citizens
By David Hattersley
This article is published on: 13th May 2015
I have an affinity with the USA, my first manager during a part time job with a UK insurance broker in the 1970’s was an American, a Malcom J Clifford who drove around in a red E.Type. Then, my first full time sales roles in the UK was a happy 8 years spent with SC Johnson, the US company based in Racine in Wisconsin. My first client in Spain was and is an American lady married to an Englishman who both worked offshore before retiring here. And now I have my first grandchild, born in the US, of English parents with my son-in- law working there.
It seems that there are an awful lot of “firsts” that I have to be grateful for, that emanate directly and indirectly from ties with the USA.
On a recent business trip to San Sebastian to look for potential expat clients, the majority seemed to be from the US, not an Englishman in sight. So for a potential niche market a seed was planted.
That was until I researched FACTA and began to understand its complexities, and in many ways its injustices to the individuals that retire or work abroad as US expatriate citizens.
The United States is the only OECD country in the world to tax its citizens based on their citizenship, not residence. It also, as an OCED country, has the fewest percentage of citizens living abroad (according to the US State Department, 7.6 million US citizens work or live abroad out of a population estimate in 2015 of 320,206 million which is only 0.023%). Help might be on its way though via the US Senate Committee on Finance. Hatch and Wyden released the Public Input on Bipartisan Tax Reform (see link below).
http://www.finance.senate.gov/newsroom/chairman/release/?id=3b14e94b-69f9-41e2-9fd3-
The interesting thing to note was that up to the final submission date of the 29th April a total 1,400 submissions were made of which 347 submissions were submitted in relation to “International Tax”. This came second only to an “Individual Income Tax” figure of 448.
Whilst the principle was fine, especially in relation to those that tried to dodge paying tax of any kind, anti terrorism, trafficking et al, the majority of middle class US citizens abroad were, and are, honest citizens, paying tax in their country of permanent residence whilst still trying to desperately retain their American citizenship. The rules are both complex and numerous, and it is easy to fall foul of these, and be penalised. There is a major differential between “large body Corporate” that gets many tax breaks vs the individual and or small company.
The majority of submissions started with “I live in or have lived in for a number of years and paid my taxes in”.
On reading reports on the impact on this legislation I have come to realise that the
“unintended consequences” have been numerous, which is strange for a country that promotes that it is part of the global economy, and believes in freedom of movement etc, democracy and fairness.
There are many different scenarios so I will just highlight a few that have major consequences for individuals living abroad;
- Married couples where one is a non US citizen and not recognised by the US, paying taxes in the country of residence, and the US citizen having to consider giving up their US citizenship because of the losses sustained by being taxed by the US as a single person.
- Onerous paperwork via FACTA, that is not fully understood with very few choices of locally based small accountancy firms that understand it, yet still paying legitimate taxes in the country of residence and having to pay for the filing of local resident taxes too.
- The ability to save for retirement, because local pensions do not comply with US regulations on pensions, and could be subject to tax both on the way in and on exit.
- Currency “ghost gains” applied by the US IRS on a capital gain. Whilst large companies can use a “functional currency”, individuals have to report in US$. If an American bought a primary residence for 200,000 Euros when the exchange rate was 1 EURO = $1.50 ( ie 133,333.33 US$ ) and they sell the same home for 200,000 Euros when1 Euro = $1.00, ( ie 200,000.US$ ) they would have a US taxable gain of $66,666.66 in phantom profit. This same example applies to mortgages and a variety of other investments. In many cases Americans have to pay taxes on these exchange rate gains but cannot use the losses if they occur.
- The substantial reduction in the number of foreign institutions in the country of residence offering banking, savings and investments, that are compliant to the country of residence. This is due to the increase in both legal and compliance costs of these institutions of complying with FACTA. But, a US citizen who is resident in a foreign country cannot open a US sited bank account or investment either.
These are just a few examples, and whilst we cannot change the rules or the reporting procedures, we can at least provide limited financial advice, a range of products and services appropriate to the country of residence to which we operate in, and investment advice that is locally compliant, written in English and available in multi currencies.