FACTA: the unintended consequence for Expatriate US citizens
By David Hattersley
This article is published on: 13th May 2015
13.05.15
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.
The Spectrum IFA Group and CIFA Conference in Monaco
By Peter Brooke
This article is published on: 6th May 2015
06.05.15
Peter Brooke represented The Spectrum IFA Group at this years’ CIFA conference in Monaco on 22nd – 24th April, by taking part in a panel session.
CIFA (Convention of Independent Financial Advisers – www.cifango.org) is a non-governmental organization with consultative status at the Economic and Social Council of the United Nations. South South News is a TV channel dedicated to the UN. See Pete in action by clicking on the links below.
To view the two interviews please click on the links 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
Who is CIFA?
At the initiative of a group of Independent Financial Advisors and under the auspices of the Swiss Group of Independent Financial Advisors (GSCGI) it has been agreed to create a high level international centre in the form of a Swiss Foundation in the field of finance, asset management and global financial counseling.
The objectives of the CIFA are as follows
- To protect and defend the interests of Independent Financial Advisors at national and international level by creating a unique network of resources both in Switzerland and internationally.
- To propose and present projects to national and international authorities for the harmonisation of the differing operating rules and regulations within the member states represented by CIFA.
- To facilitate the implementation of new rules and procedures imposed by national and supra national authorities.
- To establish a code of conduct to deal with unethical practices and money laundering.
CIFA is a non-profit Swiss Foundation.
Le Tour de Finance, Denia, Spain
By Spectrum IFA
This article is published on: 4th May 2015
The Spectrum IFA Group has continued to support Le Tour de Finance 2015 with events in Spain throughout April. The recent events in Spain were held in Barcelona, Sitges and Denia.
These very successful events bring together a number of financial experts dedicated to helping expats understand and manage their finances when living in Spain.
Le Tour de Finance aims to reach expats where they live so that everyone can seek specific advice relevant to their local area. Tax advice, pensions/QROPS, mortgages, healthcare, schools, business advice and making the most of your assets are just some of the subjects that expats need to know more about when living as an expat.
Le Tour de Finance is the ideal opportunity to find answers to the most pressing questions facing British people living in France, Spain or Italy.
If you would like further information or would like to book a place, please contact us
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The Spectrum IFA Group at ‘A Place in the Sun Live’ Olympia, London 8th – 10th May 2015
By Spectrum IFA
This article is published on: 30th April 2015
The Spectrum IFA Group have two stands at next weekend’s “A Place in the Sun Live” at the Olympia, London. This event is the UK’s largest and best attended overseas property exhibition, attracting thousands of serious overseas property hunters who are there to avail of the perfect opportunity to meet the experts face-to-face.
The Spectrum IFA Group stands are located in two of the most popular dedicated feature areas – The French Property Village and the Italian Property Pavilion. Together with the teams from Spain and the Spectrum specialist International Mortgage Division.
Each show welcomes over 6,000 visitors and 120 exhibitors showcasing worldwide properties to suit any budget.
Visitors will receive a free copy of the A Place in the Sun magazine and Show Guide and also have the opportunity to hear from and meet the stars, Amanda, Jasmine, Jonnie and Laura, and even choose to take part in a screen test for the chance to appear on the next series of A Place in the Sun.
The aim to provide you with everything you need under one roof and hope that by the time you leave the show you feel more equipped for your search and may have even found your perfect property abroad.
To book FREE tickets to the 2015 Olympia, London event on the 8th – 10th May 2015, please click here.
What is QROPS?
By Spectrum IFA
This article is published on: 23rd April 2015
Download your QROPS Guide
A QROPS (Qualifying Recognised Overseas Pension Scheme) is an overseas pension scheme that meets certain requirements set by HMRC and follows the same standards or equivalent as a UK pension.
Most expat UK pensions can easily be transferred into a QROPS, as long as the overseas scheme is registered with HMRC and is fully compliant with the standards of the jurisdiction it is domiciled in. QROPS’ profile was increased after HMRC introduced a series of new pension rules on 6th April 2006.
• Putting your pension into a QROPS will give you a greater level of control over the way your pension fund is invested. You can consolidate a number of different pensions into one QROPS pot and you will not have to buy into an annuity.
• QROPS will also let you bestow the rest of the fund to your beneficiaries without any deduction of UK tax upon death, as long as you have spent five years or more living outside the UK.
How secure is your pension? The global recession and credit crunch have created a lot of concern about investments. And for most people pensions involve very large investment decisions. You could already be receiving a pension income, but is it working hard enough for you? Or are you one of the many people with a deferred pension. There can be risks involved, even with final salary schemes. Falling stock markets and increased life expectancy have put a great strain on these schemes with most being closed to new members. We recommend that all expatriates with a UK pension review their fund carefully, and consider all the options. Particularly as non-residents have the opportunity to move their UK fund to an international pension.
What is an International pension? New UK legislation has created international pension products known as Qualifying Recognised Overseas Pension Schemes(QROPS). In essence, QROPS must mirror the UK requirements for pension commencement lump sum and income benefits. HM Revenue & Customs (HMRC) will only allow overseas transfers to schemes that have an official QROPS status. Careful consideration needs to taken when considering a transfer, as HMRC are aware of some jurisdictions promoting the scheme as a blatant way of tax evasion (ie Singapore, which was delisted by the HMRC in 2008).
We work closely with the authorities concerned to help our clients be placed in the most appropriate jurisdictions.
So what are the benefits of QROPS?
• Potential freedom from UK tax upon death, even after the age of 75 (Finance Act 2008)
• Transfer of the fund to future generations upon death with the potential avoidance of current UK tax charge on residual fund. If the member is over the age of 75 at death, the beneficiary will be taxed at their marginal rate of income tax on any income from the fund, or at the rate of 45% if the whole of the fund is taken as a lump sum. From April 2016, lump sum payments will be taxed at a beneficiary’s marginal tax rate.
• Flexibility to access funds at any time between the ages of 55 and 75.
• Access to income and capital without deduction of tax.
• No deduction of tax at source. However, taxation may apply in the member’s jurisdiction of tax residence.
• Reduction of currency risk by transferring the funds to Euros, for example if a client lives in Europe and will be spending Euros in their daily lives.
• No requirement to buy an annuity
Example when QROPS is a good idea
A Client is aged 65 and lives in France and has done so for more than 5 full UK tax years.
The client has no intention to return to the UK.
The client wishes to take the maximum Pension Commencement Lump Sum (PCLS) and immediately draw an income from the remaining pension fund.
The existing UK pension scheme is a Money Purchase Scheme and does not have any guarantees attached to it. The client is being charged 1% per annum plus annual fund management charges by their UK provider and the pension has a transfer value of £200,000.
In the event the client passes away they wish their pension fund to pass as a lump sum to their spouse. Were they to pass away after age the age of 75, the fund would be subject to a 45% UK tax charge before being passed on to their widow/widower. (from 2016 both income or lump sum benefits would be taxed at the beneficiary’s marginal rate of income tax).
Following a detailed analysis of their UK scheme, including the cost and tax implications, the client decides to go ahead with a transfer under the QROPS provisions to a Malta registered and recognised provider.
The QROPS costs are £645 for the set up fee and £845 per annum (in some cases these fees can be less).
The investments are administered for a cost of 1% per annum plus annual fund management charges.
The client receives 30% of their pension pot as a PCLS, which is taxed in France at a rate of 7.5%. Had the client left their pension in the UK, they would be able to take only 25% PCLS and it would still be taxed in France. He then draws an income of 150% of UK GAD rates, which is paid to them gross by the Maltese QROPS provider, as Malta has a Double Taxation Treaty in place with France.
Then they declares this income on his French Tax return. The funds used in their portfolio are all purchased without initial charges or commissions.
These funds are all daily traded and none are subject to any penalty charges if they are sold. The funds purchased to provide income are managed by some of the very top investment houses in the business; for example, BlackRock, JP Morgan Asset Management , Jupiter Asset Management, Kames Capital and Henderson Global Investors.
Cons:
• The additional costs are only the £645 set up fee and an £845 annual charge.
Pros:
• The client has been able to withdraw an additional 5% of the fund as a PCLS. • Upon death the client’s pension pot will pass in its entirety to their widow or widower. • The client is able to mitigate potential currency risks. • Increased Flexibility (i.e. a normal Personal Pension Plan does not allow drawdown) • Consolidation of pension plans making them easier to manage
Example when QROPS is not a good idea
A client has a Section 32 pension. • The client is coming up to retirement age, they do not live in the UK and have no plans to return.
• The client’s main requirement is a high income and as they have no children they are not so worried about the death lump sum.
• Having analysed the pension we find out that it provides a Guaranteed Annuity Rate (GAR) of 8.7% per annum for life. (Note* this is not the case with every Section 32 pension).
• Our view is that this is a very good income rate, especially when compared to current annuity rates which are very low.
• Transferring to a QROPS would mean this GAR is lost and then any future income will be based on normal income drawdown rules.
Therefore we recommended that this particular client should leave the pension where it is in order to enjoy this high guaranteed income rate.
Our advice would not always be the same for every client as there would be restrictions to when annuities could be taken, the spouse’s benefit would have been minimal and there also would be no death lump sum for any other beneficiaries. So this solution would not be ideal in every case.
A client’s aims and objectives will drive the advice as for some people it may have been better to transfer this plan. This is why we fully review each individual pension plan and discuss with our clients what the benefits are, what the options are and what might be best for them depending on whether they require a higher lump sum, higher income, better spouse benefits, better death benefits for children, require income earlier than age 60, as many GARs are only applicable at age 60 etc.
The importance of each factor will vary depending on whether a client is married, has other income or cash available, has children, whether they are divorced and re-married, their risk profile etc.
Other reasons not to transfer:
• Fund value below £50k – expense ratio too high.
• Final Salary – the client wants the stable income with inflation increases and is happy for the pension to stop on the death of both the client and their spouse.
• Guarantees attached. – The pension has a Guaranteed Annuity Rate (GAR) or Guaranteed Minimum Pension (GMP) – i.e. the annuity could be in the region of 8-10% for life or the client could have a guaranteed income which is also in this region. (although with the latter the fund growth can increase to make the guaranteed income less attractive, you don’t know until retirement date, with the annuity you always get the % so if the fund goes up the % stays the same.
• The pension has an enhanced lump sum.
Le Tour de Finance Paris 15th April 2015
By Spectrum IFA
This article is published on: 20th April 2015
The Spectrum IFA group was delighted to host the Paris stage of Le Tour de Finance at the British Embassy in Paris on Wednesday 15th April 2015.
A wonderful venue with equally wonderful staff. The Paris event was one of the highlights of the 2015 tour and the first time that it has been held at this very prestigious venue.
Many thanks to the Franco British Chamber of Commerce (FBCCI) and the Institute of Directors for their support of Le Tour. The event was attended by 80 people and finished with a networking buffet, allowing everyone the opportunity to both meet the speakers and also to meet other Paris-based expatriates.
The event was opened by Mr Robert (Bob) Lewis, Chairman of the FBCCI and was followed by presentations from Spectrum, Peterson Sims (UK & French Accountants), Prudential International (Assurance Vie), Currencies Direct (FX Specialists), Tilney Bestinvest (Discretionary Fund Managers), Heslop & Platt Solicitors (Specialist Estate Planners) and Aberdeen Asset Management (Fund Managers). Feedback was extremely positive and given the number of questions raised during the networking cocktail, it was clear that the attendees truly did appreciate the opportunity to avail themselves of the information on offer.
Le Tour de Finance now moves to the South of France for 3 events in May.
Go to Seminars to find out more.
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Changes to UK pensions: how will they affect you?
By Spectrum IFA
This article is published on: 14th April 2015
14.04.15
This year brings about major changes in UK pension rules. Under the reform named ‘Freedom and Choice in Pensions’, which comes into effect in April 2015, people will be provided with greater choice about how and when they can take their benefits from certain types of pension arrangements.
Following proposals first made in March last year, subsequent consultation resulted in the Pensions Taxation Bill being published in August, with further amendments then being made in the October.
Additionally, some provisions were clarified in the autumn budget statement. Therefore, subject to there not being any further changes before the imminent enactment of the legislation, we can be reasonably certain of the new rules.
TYPES OF PENSION
To understand the reform, you need to understand the two main types of pensions:
- The first is the Defined Benefit Pension (DB), where your employer basically promises to pay you a certain amount of pension, which is calculated by reference to your service and your earnings. DBs are a rare breed now, as employers have found this type of arrangement too costly to maintain.
This is because the liability for financing the scheme falls upon the employer (after anything that the individual is required to contribute) and if there is any shortfall in assets to meet the liabilities – perhaps because of poor investment returns – the employer must put more money into the scheme.
- The second type of pension is the Money Purchase Plan (MPP). You put money into an MPP, as does your employer, the government (in the form of tax rebates) and, in the past, national insurance contribution rebates.
For some, your MPP was not arranged through an employer at all and you just set up something directly yourself with an insurance company.
There are several different types of MPP arrangements, but they all result in the same basic outcome. The amount of the pension that you receive depends on the value of your pension pot at retirement and so the investment risk rests with you. There is no promise from anyone and no certainty of what you might receive.
CURRENT CHANGES
The proposed reform is all about MPPs, although there is nothing to stop a person from transferring their private DB to an MPP if they have left the service of the former employer.
The majority of the changes will be effective from 6 April 2015 and these will apply to money purchase pension arrangements only. Therefore, people with deferred pension benefits in funded defined benefit plans, who wish to avail themselves of the changes, must first of all transfer their benefits to a money purchase scheme. Members of unfunded public sector pension schemes will not be allowed to make such a transfer.
Under the new rules, people will be able to take all the money in their pension pot as a one-off lump sum or as several lump sum payments. For UK-resident taxpayers, 25% of each amount will be paid tax free and the balance will be subject to income tax at the marginal rate (the highest being 45%).
Alternatively, it will be possible to take 25% of the total fund as a cash payment (again, tax free for UK residents) and then draw an income from the remaining fund (taxed at the marginal rate). The commencement of income withdrawal can be deferred for as long as the person wishes. Furthermore, there will be no minimum or maximum amount imposed on the amount that can be withdrawn in any year.
The annual allowance, which is the amount of tax-relieved pension contributions that can be paid into a pension fund, is currently £40,000 per annum. For anyone who flexibly accesses their pension funds in one of the above ways, the annual allowance will be reduced to £10,000 for further amounts contributed to a money purchase arrangement.
However, the full annual allowance of up to £40,000 (depending upon the value of new money purchase pension savings) will be retained for further DB savings.
The ‘small pots’ rules will still apply for pension pots valued at less than £10,000. People will be allowed to take up to three small pots from non-occupational schemes and there is no limit on the number of small pot lump sums that may be paid from occupational schemes. For a UK resident, 25% of the pot will be tax free. Accessing small pension pots will not affect the annual allowance applicable to other pension savings.
The required minimum pension age from which people can start to draw upon their pension funds will be set at 55, except in cases of ill health, when it may be possible to access the funds earlier. However, this will progressively change to age 57 from 2028; subsequently, it will be set as 10 years below the state pension age.
DEATH DUTIES
The widely reported removal of the 55% death tax on UK pension funds has been clarified. Thus, whether or not any retirement benefits have already been paid from the money purchase fund (including any tax-free lump sum), the following will apply from 6 April 2015:
- In the event of a pension member’s death below the age of 75, the remaining pension fund will pass to any nominated beneficiary and the beneficiary will not have any UK tax liability. This is whether the fund is taken as a single lump sum or accessed as income drawdown.
- If the pension member is over the age of 75 at death, the beneficiary will be taxed at their marginal rate of income tax on any income drawn from the fund, or at the rate of 45% if the whole of the fund is taken as a lump sum. From April 2016, lump sum payments will be taxed at a beneficiary’s marginal tax rate.
INCREASED FLEXIBILITY
There will be more flexibility for annuities purchased after 6 April 2015. For example, it will be possible to have an annuity that decreases, which could be beneficial to bridge an income gap, perhaps before state pension benefits begin. In addition, there will no longer be a limit on the guarantee period, which is currently set at a maximum of 10 years.
French residents can take advantage of the new flexibility and providing that you are registered in the French income tax system, it is possible to claim exemption from UK tax under the terms of the double-tax treaty between the UK and France.
However, there are a number of French tax implications to be considered here, and these are as follows:
- You will be liable to French income tax on the payments received, although in certain strict conditions, it may be possible for any lump sum benefits to be taxed at a fixed prélèvement rate.
- If France is responsible for the cost of your French health cover, you will then also be liable for social charges of 7.1% on the amounts received.
- The former pension assets will become part of your estate for French inheritance purposes, as well as becoming potentially liable for wealth tax.
Therefore, if you are French-resident, it is essential to seek independent financial advice from a professional who is well versed in both the UK pension rules and the French tax rules before taking any action.
Such financial advice should also include examining whether or not a transfer of your pension benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS) could be in your best interest.
The Spectrum IFA Group sponsors the Mimosa Matters Ball
By Peter Brooke
This article is published on: 10th April 2015
10.04.15
Mimosa Matters was established by a group of women touched by cancer in some way and who have decided to help and support La Ligue contre le Cancer in the Alpes Maritimes.
On April 17th at The Royal Mougins Golf Club, the charity is hosting their second Mimosa Charity Ball.
Peter Brooke of The Spectrum IFA Group is kindly sponsoring the Illusionist, to entertain the guests and give the whole event that magical touch.
Funds from the charity ball will go directly towards the opening of a new Espace Ligue centre in Antibes – where cancer sufferers and their families can receive free counselling, support and alternative therapies – as part of La Ligue Contre le Cancer (a French Cancer Research Association)
For more information on the event please email Mimosaball@gmail.com
The Spectrum IFA Group & the Decorative & Fine Arts Society
By Charles Hutchinson
This article is published on: 2nd April 2015
02.04.15
The Spectrum IFA Group and Charles Hutchinson in the Costa del Sol were proud to sponsor a recent event for the DFAS (Decorative & Fine Arts Society), which is the local branch of NADFAS (National Association of Decorative & Fine Arts Society).
The lecture in March was held at the legendary San Roque Golf & Country Club where the centre piece is the magnificent Domecq mansion. Attended by over 100 people on the 18th March the informative lecture was entitled “Romancing the Stone” and was given by Joanna Hardy on the subject of Jewellery and Gem Stones. She is a world famous authority on the subject, having been with De Beers, Sotheby’s, Phillips, regularly writes for the Daily Telegraph and features regularly on the Antiques Roadshow.
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French social charges on worldwide investment income
By Spectrum IFA
This article is published on: 1st April 2015
01.04.15
On 26th February 2015, the European Court of Justice (ECJ) made a very important ruling concerning the application of French social charges (prélèvement sociaux). These charges are levied to fund certain social security benefits in France, as well as the compulsory sickness insurance schemes.
If you are resident in France, you are required to pay the social charges on all your worldwide investment income and gains and the current rate is 15.5%. However, the payment of these social charges does not actually give you any automatic right to French social security benefits and health cover.
In fact, many early retirees have been refused health cover when their Certificate S1, issued by the UK, has expired, if they have not been resident in France for at least five years. Since having adequate health cover is a condition of French residency, such people have either had to work in France – perhaps even setting up their own business – or they have been obliged to take out private health cover.
It is clear that France considers social charges on investment income and gains as an additional tax, rather than a social security contribution, since the payment does not provide any automatic rights to social security benefits and health cover. However, it is the French Code de Sécurité Sociale, rather than the Code Générale des Impôts, which lays down the conditions under which these social charges are payable in France.
Thankfully, the ECJ has reached a different conclusion. In its determination, the ECJ decided that France’s social charges have a sufficient link with the financing of the country’s social security system and benefits. In addition, there should be no distinction made between those charges payable on earnings and those payable on investment income and gains.
EU Regulation 1408/71 deals with the application of social security schemes to people moving within the European Union. The Regulation provides that people should be subject to the social security legislation of only one Member State (except for very limited situations). To have anything different could lead to unequal treatment between Members States and their citizens, which would be contrary to EU principles.
Therefore, for any French resident who is the holder of a Certificate S1 that has been issued by another Member State, this means that he/she is subject to the social security legislation of the issuing State. As such, the ECJ has ruled that France cannot impose an obligation on the person to pay social charges to France, as this would result in them being subject to the social security legislation of more than one Member State. The ECJ has also ruled that this principle applies whether or not the insured person actually pays social security contributions on the income/gains concerned in the Member State that insures the person.
Since 2012, non-residents have also had to pay the social charges on any French property rental income and on any gains arising when they have sold the French property. There is general opinion now that the ECJ ruling should also bring this to an end, at least for residents who are insured in another EU State.
EU legislation overrides the internal legislation of Member States. Notwithstanding this, we will still need to wait for the French government’s response to this ECJ ruling. Arising out of this, if France accepts the ruling, it will need to amend its own internal codes to ensure compliance with the ruling.
In the meantime, taxpayers can make an application for a refund of social charges paid in 2013 and 2014, by filing a claim with their local tax office before 31st December 2015. In addition, taxpayers may also wish to refer to the ECJ ruling when submitting their French tax returns for this year, if they believe that they are affected.
On the subject of French tax returns, these are due by 19th May 2015, if submitting a paper return or if submitting on-line by 26th May 2015 for departments 01 to 19, by 2nd June 2015 for departments 20 to 49 and by 9th June 2015 for other departments. According to the ECB website, the average exchange rate of Sterling to Euros for 2014 is 0.80612.
For those of you who came to live in France during 2014, then you will need to make your first French tax declaration and declare all your worldwide income and gains. This includes income and gains that might be tax-free in another country, for example, UK ISAs, premium bond winnings and Pension Commencement Lump Sums, which are all taxable in France.
Even if the income is taxable in another country, for example a UK government pension and/or UK property rental income, the amount must still be reported in France and it will be taken into account in calculating your French income tax. You will then be given a tax reduction to take into account the fact that the income is taxable elsewhere.
It is also very important to declare the existence of all foreign bank accounts (whatever the amount in the account) and life assurance policies taken out with companies outside of France. Failure to do so can result in a penalty of €1,500 for each undisclosed bank account. However, if the total value of all unreported accounts is €50,000 or more, then the penalty is increased to 5% of the total value of the accounts, if this results in a greater amount. The same penalties also apply for undeclared foreign life assurance contracts.
Pensions – I cannot pass by without saying something on this. I have personally become so fed up with all of the UK changes that I have now taken the decision to transfer all of my own UK pension benefits into a QROPS. I have chosen the well-regulated jurisdiction of Malta and I feel that I am in control of my own retirement planning again. In short, I feel that I will now have a pension for life and not just for Christmas or for the next session of the UK parliament.
With days to go before the reform takes place in the UK, if you are affected, do you understand what this means for you? If not, would you like to have a confidential discussion with me about your situation?
Pensions is one of the major subjects that we are also covering at our client seminars this year, as well as EU Succession Regulations, French taxation, health insurance and currency exchange. We are already taking bookings for Le Tour de Finance 2015 and this is a perfect opportunity to come along and meet industry experts on a broad range of financial matters that are of interest to expatriates. The local events are taking place at:
Perpignan – 19th May
Bize-Minervois – 20th May
Montagnac – 21st May
Le Tour de Finance is an increasingly popular event and early booking is recommended. So if you would like to attend one of these events, please contact me to reserve your places.
Whether or not you are able to come to one of our events, if you would like to have a confidential discussion about pensions, investments and/or inheritance planning, using tax-efficient solutions, please contact me either by telephone on 04 68 20 30 17 or by e-mail at daphne.foulkes@spectrum-ifa.com.
