How my Spectrum IFA Group Financial Adviser in Spain saved me 82,947euro in tax!!
By Barry Davys
This article is published on: 5th November 2014
05.11.14
Mr Blood had lived in Spain for eight years. However, as a result of a pension mis-selling review in the UK by a large UK bank he received compensation to cover a pension shortfall. The client was extremely satisfied with the amount of the compensation. Advice was requested from his Financial Adviser (IFA), Barry Davys of The Spectrum IFA Group, on how to invest this compensation to ensure that his pension fund returned to its true value.
Whilst this payment of compensation is tax free in the UK, Mr Blood is resident in Spain. In Spain these types of payment are taxable. Fortunately, the IFA knew the differences in the tax regimes. Barry had a tax lawyer calculate the amount of tax due on the compensation payment and Mr Blood was, not surprisingly, horrified to find that the tax to be paid was 82.947,91€.
Despite the client having signed a letter of acceptance with the bank and the compensation having been paid, Barry reviewed the case and found that the letter of acceptance did not sufficiently identify the issue of Spanish tax, having only emphasised the UK tax situation. Barry opened negotiations with the bank. As the regulatory requirements in the UK required the bank to put the client in a “no loss” position, the payment of tax resulted in a loss. To be fair to the UK bank they accepted this principle and agreed to pay a further compensation to cover the loss from having to pay tax.
The payment of a further 82,947€ could have seemed like a satisfactory outcome. However, any payment to cover the client’s loss as a result of the tax payment would be subject to taxation on the additional payment too. Our adviser again instructed a tax lawyer for the calculation of the gross amount required to ensure the client was put back in a no loss situation. Further negotiation by the IFA resulted in a grossed up additional payment to the client of 178,000€. This resulted in Mr Blood being recompensed in full for the loss.
Case Study Key Points
The key points in this case study show that a knowledge of UK and Spanish tax law was required to identify the problem. Secondly, knowledge of regulatory requirements helped ensure a successful negotiation between the bank and the IFA. Using specialist tax lawyers to calculate liabilities strengthened the client’s position. Finally the IFA’s knowledge of UK and Spanish pension law helped to identify what options were available for reimbursement.
On payment of the additional compensation Mr Blood commented;
“I was frankly shocked to learn that the Spanish Hacienda doesn’t recognize compensation for a loss as exactly that; a compensation. My initial dealings with the bank quickly highlighted my lack of experience with financial matters, and I was relieved that Barry agreed to negotiate on my behalf. His in-depth knowledge of the financial services industry and his negotiation style delivered for me the best possible outcome I could have wished for me and my family. I sincerely believe this outcome was only possible with his support.”
Barry Davys was also pleased. “It is extremely gratifying to be able to help someone in this way. The years of studying taxation, pensions, regulations etc. feel worthwhile in situations such as these. It is an extremely interesting time in Spain with many changes in taxation. I look forward to the challenge of continually helping international people with their financial planning to put them in the best possible position”.
At a time that is convenient for you
The Spectrum IFA Group sponsors What Larks English Theatre Group
By Victoria Lewis
This article is published on: 3rd November 2014
03.11.14
Victoria Lewis and The Spectrum IFA Group are proud to be sponsoring the local English theatre group What Larks for their upcoming productions of ‘Barbara’s Wedding’ and ‘A Well Remembered Voice’.
The double bill of two beautiful J M Barrie short plays has been chosen to commemorate the centenary of the beginning of the 1st World War.
The events are taking place on:
- Sunday 30th November –BEDOIN, 84410
- Tuesday 2nd December – BONNIEUX, 84480
- Sunday 7th December – AIX-EN-PROVENCE, 13100
Barbara’s Wedding:
The Colonel is in his dotage, and as his memory fades, past and present become intertwined.
He is visited by his beloved grandson and the young man’s fiancée, Barbara.
But are they really there? And who is it exactly that Barbara is marrying?
A Well-Remembered Voice:
A couple have lost their son in the trenches. The young man’s mother tries to speak to him through a séance, while his father simply reminisces, by himself. And yet in the process it is Mr Don, and not his wife, who is finally able to talk to their son, in a way he never could when the boy was alive.
Tickets are available from www.whatlarks.org
Savings solutions in Spain
By John Hayward
This article is published on: 29th October 2014
29.10.14
Stockmarket falls and low interest rates
Have you seen your investments fall by over 4% in the last month? This could be the case if you have been invested in the stockmarket. Most people know that investments can go down as well as up. Over time, stocks and shares can make significant gains. However, it still hurts when one sees a loss of this amount in such a short period. Some people prefer to keep their money in cash but then we have another risk. Interest rates are low and, even with the suggested increases in 2015, they could remain low relative to inflation. What many people want, and probably need, is a steady increase in the value of their savings with as little risk as possible. So what is the solution?
The low risk solution
We at The Spectrum IFA Group have access to an insurance bond offered by arguably the largest insurance company in the UK and one of the largest in Europe. Their investment model has allowed consistent returns of over 4.5% a year (after deducting charges) whilst exposing the investor to a fraction of the risk of a stockmarket such as the FTSE100. Whilst the FTSE100 has fallen by more than 4% over the last month, this low risk approach has produced a gain of almost 1%.
Tax friendly in Spain and the UK
No tax is payable on the pure growth of the insurance bond. Even if withdrawals are made, the tax treatment is vastly more favourable when compared to bank accounts or other non-compliant arrangements (see an example of how tax is calculated here). If you are currently Spanish resident, but you subsequently move back to the UK, the bond can follow you and benefit from the advantageous tax treatment awarded to these policies in the UK.
Outside Spanish inheritance tax (IHT)
With Wills correctly drafted and you are deemed domicile the UK, this insurance bond is outside Spanish IHT because it is not based In Spain. With IHT in Spain extremely punitive for non-residents (law possibly to change in 2015), this is a huge benefit to the non-resident beneficiary. It can be written in joint names so as to avoid Spanish IHT on the resident owner.
No Modelo 720 declaration
As this bond is Spanish compliant, there is no obligation to declare it as an overseas asset on the Form 720. This is because the insurance company declares it to Spain each year.
To find out more about how we can help you arrange your savings in a more beneficial way, contact your local adviser or fill in the contact form below.
UK Pensions – Spend it or Save it
By Spectrum IFA
This article is published on: 25th October 2014
25.10.14
I make no apology for returning to one of my favourite topic this week – pensions. I am quite frankly aghast at what is going on in the UK at the moment. I expect that many of you might recognise this quote from our esteemed Chancellor:
‘People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long term economic plan.’
Fine words indeed, but this is what I think is really going on:
‘There are many people who have worked hard and saved all their lives, and I need to get my hands on that money. I can’t steal it, this isn’t Cyprus after all, but if I let you spend it, just think of the tax revenues I’ll rake in’.
Actually, I really feel sorry for the Pensions Minister, whose job it is to encourage saving via pensions. He really must feel as though he’s the bandmaster on the Titanic, and he’s never had to perform on a sloping deck before.
I have a whole list of problems with this new course being set by the government (note the continuing nautical theme there…). Firstly, we all know how deadly boring pensions are when we’re young. We’ve all been there. Yes, I know I should save, but I have a life to lead, and it’s not cheap. The older you get; the more interesting pensions become. You just have to hope that you see sense before it’s too late. But what happens for the future generations? If you can access your pension fund whenever you want to, why bother?
Pensions instil discipline, or at least they used to. In my view, a pension fund isn’t even really your money. It is money that you give, or somebody else gives for you, to an independent body (a trustee) who will look after that money for you and let you have it back in sensible tranches so that it will support you for the whole of your post working life. Not everyone has one, but if you don’t you have to rely on independent means, and the UK State pension. You’d better have both, because the State pension isn’t going to fund much of a lifestyle.
What will happen from next April is a projected boom in capital spending, and the idea is that it’s you who will be spending your capital. Stand by for a blitz of promotional activity, in the UK at least. Car port; house extension; conservatory; double glazing; new driveway, new car; new anything, you’ll be urged to buy it. If you can’t face all the pressure, you’ll be offered a world cruise to get away from it all. Anything that means you spend money, and in the process pay more tax.
To my mind, this is madness. Back in the old days (showing my age here), you could rely on GAD to act as a moderator, controlling how much money you could sensibly use. GAD stands for The Government Actuarial Department, and is manned by an army of very clever qualified actuaries, basically expert mathematicians. Their job was to work out how much you could draw from your pension, whist at the same time ensure that your pension would outlive you. In other words, the pension would always support you. You were allowed to draw any percentage of ‘GAD’, as this figure became known; any percentage that is up to 100%. Don’t confuse that with 100% of your pension, which is what we’re looking at now. This 100% meant the maximum you could take out of your pension without it bleeding to death.
As the brake cable was gradually severed, that GAD figure became 120%, then 150%, and now we have the next logical step in the descent into eventual poverty.
I’m having none of this nonsense. I decided in 2006 to transfer my personal pension out of the UK into a QROPS, and I’m very glad I did. Last year I discovered that a smaller pension, which had been awarded to me as a result of the mis-selling scandal in the 1980s (interestingly I didn’t think that I had been mis-sold anything), had grown to a reasonable size, and was due for payment (another age clue).
In line with strict Spectrum IFA Group standards, I have sent all the details of this scheme to my pension team in head office, who are conducting a full review of all the terms and conditions relating to it. They will shortly provide me with a full report, and unless there is anything in that report to indicate that a transfer would be unwise, my pension will follow the original one out of the UK jurisdiction to a safer haven, free from meddling politicians and pushy salesmen.
Remember pension busting? That was all about rogue financial advisers, if you can call them that, urging you to take your pension abroad, where you would be shown weird and wonderful ways to access (illegally) your pension fund. How times have changed. Now you are being urged to at least consider taking your pension abroad with a reputable financial adviser, in order to protect it from the biggest pension buster of all time, the UK government.
If you have any questions on this, or any other subject, please don’t hesitate to contact your local adviser
How much is Inheritance Tax in Spain?
By John Hayward
This article is published on: 23rd October 2014
There are two sets of rules that could apply; one by the autonomous region and one by the State. For these purposes I will focus on my region, the Valencian Community, which covers the provinces of Castellón, Valencia, and Alicante.
There are several factors which determine how you or your estate is treated. These include;
- Your relationship to the deceased or the beneficiaries.
- Country and/or region the different parties are resident.
- How much pre-existing wealth the beneficiary has.
Unlike the UK, where the total estate of the deceased is taxed after allowances, in Spain it is the individual inheritor who is taxed.
State rules
- Basic allowance of €15,956.87 for those who qualify.
- 95% reduction on the value of the main residence (max. €122,606.47). The property cannot be sold for 10 years from the date of death to retain this reduction. If sold within 10 years, the tax will be recalculated. This reduction only applies to married couples and close family.
Valencian Community rules
If you are resident in the Valencian community you, or your beneficiaries, can benefit from much higher allowances and less restrictions.
- 95% reduction on the value of the main residence (max. €150,000). This cannot be sold for 5 years from the date of death to retain this reduction. If sold within 5 years, the tax will be recalculated. Again, this reduction only applies to married couples and close family.
- €100,000 allowance for each qualifying individual. The allowance is more for younger children.
- 75% reduction on the final tax bill.
Example (Husband (deceased) and wife resident in Valencia)
Main residence value €350,000
Wife inherits husband´s half €175,000
less 95% reduction (up to €150,000) €142,500
Net value € 32,500
less Tax allowance €100,000
Result? NO TAX TO PAY*
If the property was sold within 5 years, or the wife did not want the restriction of having to keep hold of the property for 5 years, the tax bill would work out to about £8,500. However, this would then be reduced by 75% (as she is resident) giving a net tax bill of just over €2,000.
For a non-resident, the tax bill would be around €23,000.
This is a simplified example but it illustrates the enormous difference in tax treatment for residents and non-residents. For a resident couple, there is not likely to be a huge potential tax bill. The problem comes after this when the non-resident children and grandchildren inherit. Spain is under pressure to equalise the rates charged for residents and non-residents and there could be changes in 2015.
If you would like to know how much inheritance tax you or your loved ones could be obliged to pay, and look at ways at reducing or even negating the tax, contact your local adviser.
Please note that these rules are subject to alteration. We are not employed as tax advisers.
*There could be capital gains tax to pay.
Source: Generalitat Valenciana
Tax efficient saving in France with Livret A & Assurance Vie
By Amanda Johnson
This article is published on: 17th October 2014
When I was a UK resident I was able to take advantage of tax free savings schemes. Are there French products that will allow me to save, tax free, now I live in France?
There are two main tax efficient saving products you can take advantage of as a French resident, Livret A & Assurance Vie.
Livret A is a deposit based account which all banks and the post office offer. It gives you instant access however this is balanced by a modest rate of interest of around 1% p.a. There is also a maximum amount of 22,950 Euros per person you can hold within a Livret A.
An Assurance Vie is an investment which again all banks and financial institutions here in France offer.
I have written about this before yet I think a reminder of the important aspects of the mechanism of “assurance vie” is probably in order here:
- An Assurance Vie (“AV”) is a type of insurance however unlike a life insurance policy you may have experienced in the UK, these policies shield any investments from virtually all forms of tax while the funds remain inside the AV. (some funds receive dividend income that has had withholding tax deducted).
- AV’s become more tax efficient over time. After 8 years funds can be withdrawn from the AV and taxed at just 7.5% on the gain element only. Funds can be accessed at any time before that, with the gain declared on your annual tax return. Standard social tax remains payable on all gain, but only when drawn.
- After eight years your gain is not only tax efficient, but it can be offset against a tax free allowance of (currently) €4,600 per person (€9,200 per couple) per annum. I would be happy to run through this with you as part of a free financial health check.
- AV policies are not subject to succession law. Proceeds from an AV policy can be shared amongst any number of beneficiaries. Although the succession tax benefit is reduced when the subscribers are aged over 70, there are still worthwhile benefits to be gained in this area.
What should I ask for in an Assurance Vie?
- Portability – Can I take it with me if I move back to England or to another country?
- Regulation – Is the company advising me on an Assurance Vie regulated in France?
- Fees – No up front entrance fees apart from the money I use to establish the policy?
- Social Charges – If & how are Social Charges applied to my AV ?
- Currency – Can I invest in Sterling? Euros?
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.
Le Tour de Finance – France, October 2014
By Spectrum IFA
This article is published on: 14th October 2014
The Spectrum IFA Group took part in the recent legs of Le Tour de Finance covering 3 separate events in the South of France – Domaine de Saint Endreol (the Var), Chateau la Coste (Aix en Provence) and Domaine Gayda (nr. Carcassonne).
More than 150 expatriates attended the events to hear from a panel of financial services professionals (pictured) on a broad range of financial issues relevant to those of us living and/or working in France. Topics covered included Investments, Pensions advice (QROPs), Wills, Inheritance planning and Taxation.
The seminar was followed by a Q&A session along with a buffet where attendees had an opportunity to mingle and speak directly to the experts in order to ask specific questions relevant to their personal circumstances.
The companies represented were: Currencies Direct, SEB Life International, Standard Bank, Prudential International and Hent Artwell Avocats (Tax Lawyers). Feedback from those attending has been very positive and plans are already in an advance stage for Le Tour events during 2015.
Le Tour de Finance ‘FORUM’ 2014 – Italy
By Gareth Horsfall
This article is published on: 14th October 2014
Join us in San Ginesio (Le Marche)
and Barga (Tuscany)
The Tour de Finance 2014 is back for its autumn tour and this time we are visiting the East coast of Italy and returning to Tuscany.
Every year we bring a group of financial experts on the road in Italy to talk directly to expats about the financial considerations and concerns that they are facing.
We will be returning on:
23rd October – Palazzo Morichelli D’Altemps San Ginesio, Le Marche
24th October – Nr Bagni di Lucca at La Cantina delle Pianacce (Ghivizzano)
www.lacantinadellepianacce.it
Arrival time: 10.30am for coffee, with start time at 11am. The Forum questions and answers is followed by a FREE buffet lunch, wine and an opportunity to meet your fellow expats.
What is the Forum?
No more powerpoint presentations and structured presentations!
The Forum events are designed to put the speakers on the spot and deliver the answers to the financial questions you need to know, rather than the information we think you should know.
You may be interested in knowing the answers to some of the following questions:
- What are the likely implications of being a resident or non resident and living in Italy?
- What are the benefits of being subject to Inheritance tax in Italy?
- What are the Italian tax rates that my income is subject to?
- With world financial markets rising and falling almost daily, how can I find a way to benefit from these movements without taking too much risk?
- How can I gain more interest on my savings when bank rates are so low?
- As the world economy limps on what can be done to make my money work better for me?
Questions will be asked for one hour before lunch so it is an opportunity to put the experts ‘on the spot’
The Panel of experts will include:
Richard Brown and Julian Hall:
BEST INVEST Leading UK Investment and financial planning firm with over £9 billion of assets under management.
Judith Ruddock:
STUDIO DEL GAIZO PICCHIONI Cross border tax specialists and commercialisti.
Andrew Lawford:
SEB LIFE INTERNATIONAL He will be facing questions about tax efficient savings vehicles for Italy and ways to potentially. reduce your Inheritance tax liabilties.
I hope you will register your attendance. And I hope that the FORUM event will avoid all the boredom of powerpoint presentations and make the morning much more interactive for you.
If you would like to register for this event then you can do so by sending your full contact details to info@spectrum-ifa.com or call Gareth Horsfall on 0039 333 6492356.
Planning to retire to France?
By Spectrum IFA
This article is published on: 13th October 2014
Retiring to France can be dream come true for many people. The thought of that ‘place in the sun’ motivates us to save as much as we can whilst we are working. If we can retire early – so much the better!
In the excitement of finding ‘la belle maison’ in ‘le beau village’, we really don’t want to think about some of the nasty things in life. I am referring to death and taxes. We can’t avoid these and so better to plan for the inevitable. Sadly, some people do not plan in advance and only realise this mistake when it is too late to turn the clock back. For example:
- Investments that are tax-free in your home country will not usually be tax-free in France. For example, UK cash ISAs and National Savings Investments, including premium bond winnings would be taxable in France. So too would dividends, even if held within a structure that is tax-efficient elsewhere. All of these will be subject to French income tax at your marginal rate (ranging from 0% to 45%) plus social contributions of 15.5%.
- Gains arising from the sale of shares and investment funds will be liable to capital gains tax. The taxable gain, after any applicable taper relief, will be added to other taxable income and taxed at your marginal rate plus social contributions.
- If you receive any cash sum from your retirement funds, for example, the Pension Commencement Lump Sum from UK pension funds, this would be taxed in France. The amount will be added to your other taxable income or under certain conditions, it can be taxed at a fixed rate of 7.5%. Furthermore, if France is responsible for the cost of your healthcare, you will also pay social contributions of 7.1%.
- Distributions that you receive from a trust would also be taxed in France and there is no distinction made between capital and income – even if you are the settlor of the trust.
As a resident in another country, it would be natural for you to take advantage of any tax-efficiency being offered in that jurisdiction, as far as you can reasonably afford. So it is logical that you would do the same in France.
Happily, France has its own range of tax-efficient savings and investments. However, some planning and realisation of existing investments is likely to be needed before you become French resident, if you wish to avoid paying unnecessary taxes after becoming French resident.
I mentioned death above and as part of tax-efficient planning for retirement, inheritance planning should not be overlooked. France believes that assets should pass down the bloodline and children are ‘protected heirs’ and so are treated more favourably than surviving spouses. Therefore, action is needed to protect the survivor, but this could come at a cost to the children – particularly step-children – in terms of the potential inheritance tax bill for them.
Whilst there might be a certain amount of ‘freedom of choice’ for some expatriate French residents from August 2015, as a result of the introduction of the EU Succession Rules, this only concerns the possibility of being able to decide who you wish to leave your estate to and so will not get around the potential French inheritance tax bill, which for step-children would still be 60%. Therefore, inheritance planning is still needed and a good notaire can advise you on the options open to you relating to property.
For financial assets, fortunately there are easier solutions already existing and investing in assurance vie is the most popular choice for this purpose. Conveniently, this is also the solution for providing personal tax-efficiency for you. There is a range of French products available, as well as international versions. In the main, the international products are generally more suited to expatriates as a much wider choice of investment options is available (compared to the French equivalent), as well as a range of currency options (including Sterling, Euros and USDs).
Exchange rates should not be overlooked. Currently, we are living in an environment whereby, for example, the Sterling Euro exchange rate is strong and so people are feeling fairly relaxed about this. However, it does not seem to be so long ago since the rate was close to parity. Unless you transfer your pension benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS) – which is too broad a subject to cover here – your pension income is always likely to be subject to exchange rate risk.
It is possible to have a UK State pension or US Social Security paid direct to your French bank account (and the exchange rate is usually very good), but this may not be the case for other pensions that you receive. Therefore, you should consider using a forex company, since these companies will usually give a better rate than banks.
It is very important to seek independent financial planning advice before making the move to France. A good adviser will be able to carry out a full financial review and identify any potential issues. This will give you the opportunity to take whatever action is necessary to avoid having to pay large amounts of tax to the French government, after becoming resident.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or on the mitigation of taxes.
The Paris Business Lunch
By Spectrum IFA
This article is published on: 11th October 2014
Hosted by Jon Cooper from The Spectrum IFA Group, October’s business lunch was held on Wednesday 8th October at O’Sullivan’s Bar & resturant, Ave Franklin D Roosevelt.
The event was a huge success with 28 attendees from a broad range of Paris based organisations.
The lunch is a monthly networking event for English speaking business professionals and a great opportunity to promote your business and grow your network in a relaxed and friendly environment.
Our guest speaker, Charles Hamilton-Jones from KPMG gave a short talk on “Cross-border M&A – Opportunities and Challenges in the current economic climate”.
Feedback from the attendees was all extremely positive, with a constant flurry of business cards being exchanged. The food was superb and excellent value at only 35 euros per head for entrée, main course, café gourmand and 2 x glasses of wine.
The next Paris Business Lunch is scheduled for Wednesday 12th November. Email andrea@thebizlunch.com to reserve your place.
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