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What can I do to minimise any potential impacts of a tough Brexit process?

By Chris Webb - Topics: BREXIT, Madrid, Spain
This article is published on: 26th February 2018

26.02.18

This is a question many expatriates are mulling over, now positioning for the upcoming negotiations has started. First and foremost, I remind my customers that the process to leave the EU is widely anticipated to take the full two years set out in article 50, so the only immediate areas people should focus on are changes in the U.K. and Spanish budgets.

As the negotiations progress however, there are steps you can take which will ensure that any effects to you are minimised:

1. Does your adviser work for a Spanish registered company, regulated by the Spanish authorities?
Working with an adviser who operates and is regulated already under Spanish finance laws means that any change in the UK’s ability for financial passporting will not affect you.

2. Are your investments held in an EU country, not part of the U.K?
Again, any issues the U.K. may have to solve regarding passporting are negated by ensuring your investments are already domiciled in another EU country.

3. Have you reviewed any U.K. Company pension schemes you hold, which are due to mature in the future?
The recent U.K. Budget saw the government levy a new tax on people moving their pensions to countries outside the EU. There is no certainly that this tax will not be extended to EU countries once the U.K. has left the union. The process of leaving the EU is very much unchartered waters and whilst I certainly do not recommend anyone acts hastily, a review of your financial position in the next few months may avoid future headaches.

If you want to review your personal financial position please call or email me on the contacts below.

Cash Is Not King….

By Chris Webb - Topics: Interest rates, Madrid, Spain, wealth management
This article is published on: 23rd February 2018

23.02.18

I think that it is fair to say that the global economy has been ill for some time! Central banks throughout the developed world have tried to cure the illness in the form of ultra-low interest rates and other extraordinary measures, aimed at stimulating economic growth.

The outcome is that it has ‘dethroned cash from its former place as king’
For all of us today, wealth preservation is key to the decisions that we make regarding the investment of our financial assets. This is even more important if you are approaching retirement and no longer have the possibility of increasing your wealth by saving from disposable income.

For risk-averse investors, the traditional way of saving has usually been bank deposits, feeling this is the safest and most secure way. Understandably, when you could get a decent rate of interest – especially if index-linked – then this was often sufficient for their needs. However, today, this is no longer a viable solution, particularly if the investor needs to supplement their pension income from their investment income. Even for those who do not need to take the income from their capital, the real value of their capital is not being protected in the low-interest rate environment that we are experiencing.

I am not saying that cash is entirely bad, only that the role of cash has changed and it can no longer be depended on to provide income or protect the real value of capital
I am finding more and more that negative investor sentiment, during the last year or so, has led to a situation whereby many investors are holding too much cash, i.e. in excess of what can be considered as prudent, given the very low level of interest rates. Keeping too much cash – beyond what someone may need to meet short-term capital and emergency needs – can be disastrous for savers. The decline in income generated by deposit accounts and some other ‘perceived safe-haven’ fixed interest investments have all but completely dried up. The decline is not imaginary or hypothetical and the lost income means less money to meet the household needs. Combined with a stronger Euro, which we are also currently experiencing, this can make it more difficult for the expatriate to meet their income needs.

So how do we avoid the ‘cash trap’?
The simple answer is to invest part of your financial assets in investments that are delivering a real rate of return (i.e. after allowing for inflation).Naturally, this means taking some risk, but there are different types of risk. What is clear is that investing in cash for the long-term is not a risk-free strategy.

Cash no longer delivers a ‘risk free rate’ but instead creates a ‘rate free risk’
Hence, finding the appropriate risk strategy will depend entirely upon the investor’s individual circumstances. If you need to take income from your capital, since bank deposit returns no longer meet your requirements, you need to cast a wider net than was historically needed. This will result in a move up, not down, the risk spectrum.

For the year to the end of December 2012, Headline CPI (Consumer Price Index) in the Eurozone was 2.2%, despite the fact that the European Central Bank target is to be below 2%.With cash only earning say 0.5%, this is a negative real rate of return of -1.70%. By comparison, the FTSE 100 dividend yield was 3.7% in 2012; emerging market debt and high yield debt yielded 4.5% and 6.7%, respectively, compared to UK gilts yielding 1.8%.

Looking over a longer period, the annualised change in the dividend yield of companies included in the ‘MSCI Europe ex UK Index’, over the period from December 1999 to 2012, was 4.1%. Dividends have generated constant income over decades for investors, as well as long-term capital growth.

This can be seen in the table below, which shows the proportion of the average annualised return made on the S&P 500 Index since the 1920’s that has come from dividends and capital appreciation.

 Period Dividends % Capital Appreciation % Total %
 1926-29 4.7  13.9  18.6
 1930’s 5.4 -5.3 0.1
 1940’s 6.0 3.0 9.0
 1950’s 5.1 13.6 18.7
 1960’s 3.3 4.4 7.7
 1970’s 4.2 1.6 5.8
1980’s 4.4 12.6 17.0
1990’s 2.5 15.3 17.8
2000’s 1.8 -2.7 -1.9
2010 – 2012 2.1 8.5 10.6
1926 – 2012 4.1 5.6 9.7

So despite any short-term volatility in stock markets, which may result in a short-term reduction in the value of the capital, income can still be delivered in the form of dividends.If income is not needed and instead the dividends are re-invested, the compounding effect will increase the amount of capital growth.

For example, the FTSE 100 actually resulted in a negative return of -15% during the period from December 1999 to 2012, based on the index prices. However, where the dividends were re-invested, this resulted in a positive return of 32% over the same period. Clearly, it is not a good idea to ‘put all eggs in one basket’. Therefore, it is very important to have a diversified portfolio of investments that is structured to meet the objectives of the individual investor. Avoiding the ‘cash trap’ is an essential part of that process.

If you would like more information about investing or saving on a tax-efficient basis for Spain (whether for investing an amount of capital and/or saving on a regular basis), or any other aspect of retirement and inheritance planning, please contact me by telephone on + 34 639 118185 or by e-mail at chris.webb@spectrum-ifa.com to discuss your situation, in confidence.

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 to mitigate the effects of Spanish taxes.The Spectrum IFA Group advisers do not charge any fees for their time or for advice given, as can be seen from our Client Charter

How safe is your UK pension?

By Chris Webb - Topics: Madrid, Spain, UK Pensions, United Kingdom
This article is published on: 9th February 2018

09.02.18

In days gone by the UK’s private pension schemes were the envy of the world, considered superior to other nations’ schemes. Alas, those days of world class company pension schemes are gone…………..

It is surprising just how many people are still members of their final salary or defined benefit schemes. Considered a “golden pension”, these schemes offer the best retirement promise, a promise to pay you the benefits that are defined in their pension schedule. Not a personal pension wholly dependant on the investments made, but a “fixed in stone” promise.

But how many of these people should be worried about how safe the promises are?

We recently witnessed the collapse of Carillion, a construction and outsourcing company with over 40,000 employees. They were just the latest in a high profile list of companies that have brought the subject of “pension safety” to the fore.

What happens to their workforce who are members of their pension scheme? The chairman of trustees of Carillion’s pension scheme, Robin Ellison, has suggested in a letter to a committee of MPs that there was a funding shortfall of around £990m with Carillion’s defined benefit pension scheme*. YES, £990 MILLION !!!

Many of the UK’s largest companies are running pension deficits that would bring a tear to the eye. The exact amount of pension deficit is hard to ascertain, but sources claim these numbers to be around £103 BILLION* with over 3,700 schemes in deficit compared to 1,800 in surplus.

Many household names find themselves in the same situation with their pension schemes. Names like BAE, Royal Dutch Shell, The Royal Mail and British Telecom to name a few. It is only a matter of time before one of these names, or another “big player” joins the list of collapsing pensions.

So, if you’re in a pension that is in deficit is that a problem? Well, there are close to 11 MILLION people holding defined benefit pensions. Out of that number they estimate that 3 MILLION (3) will encounter problems and potentially have only a 50% chance of receiving their promised pension.

The UK Government runs a special fund aptly called The Pension Protection Fund, the aim being to bail out companies with a pension crisis. The Pension Protection Fund (PPF) was set up on 6 April 2005 to protect members who had defined benefits (i.e. final salary type benefits) in a workplace pension scheme, where the employer became insolvent on or after this date and the pension scheme could not afford to pay those benefits promised to members on wind up.

Many smaller UK defined benefit pension schemes have already fallen into their basket, as well as some larger organisations. BHS and British Steel are two of the largest organisations to be in the pot. You can view all of the companies listed at the PPF website; it makes for horrid reading when you see the true amount of company pensions that have already owned up to and admitted they can’t afford to pay their promises………

The Pension protection fund isn’t exactly a guaranteed scheme anyway, whilst it runs within its parameters it can provide its own level of promises (below what the original pension company was offering), however if too many large company pension schemes start running to it for protection, it will put the protection fund under its own strain……

So what can you do about it?
Well, here at The Spectrum IFA Group we work closely with some of the worlds leading pension providers and can not only offer you completely independent advice but we can also provide you with a technical analysis on your pension. We can advise whether your pension is in deficit or surplus, we can advise on the pro’s and con’s of your existing pension provision and furnish you with sufficient information to actually understand what you may receive. We can also compare that information to the alternative options available to you, whether that be a transfer out of your scheme to a QROPS or an International SIPP option. This service is available for defined benefit and defined contribution (personal) pension plans.

It’s better to be aware of all the options available to you, it’s your retirement and it’s your choice to decide what the best option for your circumstances is.

*Sources: BBC News January 2018.

Modelo 720 Reporting

By Chris Webb - Topics: Madrid, Modelo 720, Spain
This article is published on: 1st February 2018

01.02.18

Modelo 720 – WHAT’S IT ALL ABOUT?
In 2013, the Spanish Government launched an “anti-fraud” plan to prevent tax evasion. Although aimed at discovering assets bought by Spanish nationals with irregular money, it also affects members of the international community living in Spain that hold assets abroad.

It is important that you don’t ‘bury your heads in the sand’ regarding this requirement, hoping that you won’t get caught………because eventually you will.

The Modelo 720 reporting requirement is based on tax residency; if you are deemed to be a tax resident in Spain, then this requirement affects you. In general, you will be deemed tax resident if you are in living/working in Spain for more than 183 days a year, and remember that the onus is on you, the individual, to be able to prove otherwise to the authorities, should they decide to investigate. The reality is that in most cases, it would be very difficult to demonstrate this to the Spanish Tax Authorities and so most people would be deemed Spanish tax resident by them.

WHO HAS TO REPORT?
Any person, permanent establishment or company who is tax resident in Spain and is the owner, titleholder, representative, authorised person, beneficiary, or has disposal powers of assets located outside of Spain worth more than €50 000 (see assets below), must report the value of these assets. Any assets held in other currencies must have that value converted to Euros to gauge whether it exceeds the Euro limit imposed.

WHEN DO YOU REPORT?
Between 1 January and 31 March of each tax year, you must submit details of assets from the previous year. If you have previously reported your external assets on the Modelo 720, then there is no need to resubmit a report every year unless the value of any of the asset classes has increased by €20 000 or more.

WHICH ASSETS MUST BE REPORTED?
There are three main asset classes that need to be reported if the total value of each class is over the €50 000 limit:

  1. Bank/Building Society accounts located outside of Spain – It is important to note that if you hold several bank accounts and THE TOTAL amount held exceeds the €50 000 limit, then ALL the accounts need to be reported, regardless of whether each one is under the limit.
  2. Investments / Life or disability insurance policies – If you are the owner or policyholder of an investment or insurance policy then these will need to be declared if they exceed €50 000. Again, there is a requirement if you have multiple investments or policies, that if the total value exceeds the limit then they will all need reporting.If you are holding Life Insurance Bonds, then the surrender value of the policy is deemed as the value. If you hold “pure life” policies that only pay out a benefit in the event of death and have no physical surrender value these do not have to be reported.Interestingly if you are holding what we describe as Spanish compliant Life Insurance Bonds, then the onus of reporting on the Modelo falls to the institution themselves. They have their own version of the Modelo to comply with meaning they do not necessarily have to go on your individual report.
  3. Property – Owners or part owners of an overseas property where the value exceeds the limit must report these properties.


WHAT IF YOU DON’T REPORT IN TIME / CORRECTLY?

The Spanish Tax Authority has implemented a series of penalties for those who do not comply with this regulation. These penalties can be imposed for late filing, incomplete/inaccurate filing and even for presenting the information to them in a way not deemed acceptable; basically, it must be done online. These are considered very serious offenses and the penalties in these cases are fixed, generally to an amount of €5 000 per item or “set of data” on the same asset, with a minimum of €10 000. The amount is reduced to €100 (with a minimum of €1 500) if the information is filed late without prior notification from the government. Speaking to some accountants and Gestors, they believe and have seen fines to be around €150 if you file late without any notification, but the law states differently so in reality the exact fine is questionable.

WHAT IF YOU DON’T REPORT AT ALL?
Should the Spanish Tax Authorities discover that you have assets with a cumulative value over €50 000 in any of the above asset classes and deem that you have wilfully not disclosed this information, penalties are imposed. In some cases the fines issued are as high as 150% of the value of the undeclared assets!!!! It is also important to note that there is no statute of limitations when it comes to the Modelo 720 so there is no limit to how far back they can go…………

There have been numerous complaints about the unfairness of the Modelo 720 and the fines being imposed. The European commission has been in discussion with the Spanish Tax Authority to reduce the fines. The latest I have heard is that the 150% penalty of undisclosed assets would not stand and would be reduced to the lower fine levels, providing the assets were reported voluntarily, which just means it falls from the undisclosed category to the late reporting category and doesn’t help those caught not declaring. The Tax Authority is pushing for people to report their assets voluntarily, maybe there will be softer sanctions in the future but for now, this is how it stands.

If you want to discuss how to report the Modelo 720 please feel free to get in touch. I work closely with a qualified accountant in Madrid who can file on your behalf if there is a requirement to do so.

Keeping On Track

By Chris Webb - Topics: Estate Planning, Financial Planning, Madrid, Pensions, Retirement, Saving, wealth management
This article is published on: 5th May 2017

05.05.17

Speaking with my many clients one of the most talked about topics is “I wish I had done something sooner” or “I wish I had put a plan in place”.

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. In our 20’s we tend to spend, spend, spend. In our 30’s we try to save, but starting a family or purchasing property make it difficult. In our 40’s we’re still suffering the hangover from our 30’s and inevitably the work required to provide for your financial future becomes increasingly harder.

But if you adopt a marathon approach to money (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 in your 20’s

1. 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. As you go through the 20’s cycle, additional costs will start being considered, like starting a family or purchasing a house therefore the ability to clear your debts just doesn’t materialise.
This is why now is the time to work on breaking the credit card debt or loan cycle for good.

2. Start An Emergency Fund
While you’re busy paying down your debt, don’t forget that you should always be planning on having 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 your 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 take-home pay saved up in your emergency fund.

3. Contemplate Your Future – Retirement

At this point in your life, retirement is far off, but it can be 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 in 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.

1. Continue Reducing Debt
If you’re still paying down 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.

2. 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.

3. Assess Your Insurance
The thing that most people forget. Big life events such as getting married, having kids, 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.

4. 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 in 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.

1. 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”.

2. 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 there is a purpose or goal behind the investments you have done. 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.

3. 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 on 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 in your 50’s

You may find yourself being pulled in different directions with your money. Do the children still require financial support, do 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 clear down before retirement age.

1. 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.

2. Prioritise – Your Future V Kid’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 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…….

3. 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 off your life……..have a great time !!!

QROPS Pension Transfer

By Chris Webb - Topics: Company Pension Schemes, Final Salary Pension, final salary schemes, Pensions, QROPS, Retirement, Spain, United Kingdom
This article is published on: 20th March 2017

20.03.17

If you ever worked in the UK, no matter what your nationality, the chances are you were enrolled in a private pension scheme. The UK government continues to tweak legislative changes affecting the expat’s ability to move this pension offshore. On the surface, these changes appear to limit transfer options, but in reality they have strengthened the legal framework offering expats continuing advantages.

Background

When you leave the UK your private pension fund remains valid but is frozen, or deferred, until you reach retirement age. The pension income you then receive is taxable in the UK no matter where you are based in the world. Once you die the pension will continue in the form of a spouse’s pension if you are married; otherwise it will cease. When your spouse dies, all benefit payments come to an end.

If you take any part of your fund and then die before you fully retire, a lump sum can be paid to your spouse.
In April 2006 Her Majesty’s Revenue and Customs (HMRC) introduced pension ‘A’ day. This liberalised UK private pensions and allowed people leaving the UK to transfer them overseas, often to a new employer. In doing this the UK complied with European legislation which allows all citizens the freedom of movement of their capital. Thus ‘Qualified Recognized Overseas Pension Schemes’ (QROPS) were born.

Recent Chamges 2017

During the March UK budget there was a very unexpected announcement regarding pension transfers out of the UK. The headline was :

“HM Revenue & Customs (HMRC) has announced that Qualifying Recognised Overseas Pension Schemes (QROPS) transfers for individuals not in the European Economic Area (EAA) will be hit with a 25% tax charge”.

At first glance it sent shockwaves through all concerned with pension transfers, after a moment to digest the news it became much clearer that there were exceptions to the rule, detailed below:
1. The QROPS Trustee is in the EEA and the client/member is also resident in an EEA country (not necessarily the same EEA country);

2. The QROPS and the member is in the same country; or

3. The QROPS is an employer sponsored occupational pension scheme, overseas public service pension scheme or a pension scheme established by an International Organisation (for example, the United Nations, the EU, i.e. not just a multinational company), and the member is an employee of the entity to which the benefits are transferred to its pension scheme.

It is also important to understand that if a client was to move outside of the EEA within 5 years of the transfer then the tax rate would apply.

In most of the cases I deal with this new tax ruling will not affect the transfer. Since moving to Spain all but one of the transfers I have implemented are EU based.

Implementation

QROPS are not necessarily the right thing in every single case. In order to decide whether it would be advantageous to transfer your pension or leave it in the UK, with the intention of drawing the benefits in retirement, please contact me so that I can carry out a personalised evaluation. There may be compelling arguments, outside of the evaluation alone, which are often overlooked and may affect you in the future.

One of these is that a large number of UK schemes are currently in deficit to the point that they will be unable to pay future projected benefits. This would mean that even though it looks as though there are arguments to leave your UK pension in situ it may actually be wiser to transfer it.

In order for you to make the best decision you need to professional advice on what would be the best situation for you. This will entail seeking details of the current UK schemes, including transfer values, the types of benefits payable to you and options going forward when you get to a retirement date and when you die.

Advantages & Disadvantages of a Transfer Between a QROPS and a SIPP

Advantages

Lump Sum Benefits
QROPS – If you transfer your benefits under the QROPS provisions to a Malta provider, in accordance with the rules of this jurisdiction, you may be able to take a pension commencement lump sum of up to 30% (unless you have already taken this lump sum from the UK pension). Under the current HMR&C (Her Majesty’s Revenue and Customs) rules to qualify for the lump sum option you must be age 55 or over. Your remaining fund is then used to generate an income without having to purchase an annuity. The 30% pension commencement lump sum is only available once you have spent 5 full, consecutive tax years outside of the UK (in terms of tax residence), if you are within the first 5 years, we strongly advise you to limit the pension commencement lump sum to 25%. From 6 April 2017 this 5 year period has been extended to 10 years.

SIPP – The maximum Pension Commencement Lump sum from a SIPP would be 25%.

No Liability to UK Tax on Pension Income
QROPS – This will be paid gross and you declare the income in the country you are resident in as long as the QROPS jurisdiction has a Double Tax Treaty (DTT) with the country that you are resident in. Transferring under the QROPS provisions ensures that, if tax is due on pension income, it will only be taxable in the country of your residence.
SIPP – This should be able to be paid gross, although many clients find this to be a very awkward process to solve as the pension company does not always talk to the HMRC and therefore at least for the first year or two the pension is paid net of basic rate tax and sometimes even on an emergency tax basis. This can be reclaimed, but will involve more paperwork than that of a QROPS.

No Requirement to Purchase an Annuity
There is no longer a requirement to ever purchase an annuity with either your UK pension or in the event you make a transfer under the QROPS provisions. Therefore the rules below are the same for a QROPS and a SIPP.

With both a QROPS and a SIPP the maximum age you must start to draw an income is from age 75. The Pension commencement Lump Sum must be taken by this age or the option to take it after this age is lost.

The budget changes in the UK has meant that from April 2015 the restrictions imposed from drawing a pension income from a UK Pension Plan will be scrapped. This means that investors will be able to take the whole of their pension as a lump sum if they wish from age 55. The first 25% would be the standard Pension Commencement Lump Sum but the remaining amount would be subject to your marginal rate of income tax. The Malta QROPS have now followed these changes to allow full flexibility also.
This would not be possible with a Final Salary pension. It would need to be transferred to a SIPP or QROPS to utilise these options.

Secure Your UK Pension Pot

Some defined benefit schemes in the UK are in deficit. Since the deficit forms part of the balance sheet of the company, this can present a huge risk to your pension fund.
Transferring your UK benefits to a SIPP or QROPS provisions could enable you to have full control of these funds without worrying about the financial situation of your previous employer.

Ability to Leave Remaining Fund to Heirs

QROPS – All death benefits will be paid out from the Malta QROPS with 0% death tax no matter what age an individual is.
SIPP – The recent UK Budget has changed how death benefits will be paid to their heirs in the future. If death occurs before age 75 then any remaining balance in a pension fund can be paid tax free to any beneficiary. Otherwise if a member passes away after the age of 75 then there would be a tax charge, any lump sum benefit would be subject to the beneficiaries marginal rate of income tax.

A transfer under the QROPS provisions will allow the member to leave lump sums without deduction of tax to heirs no matter what age they pass away, so it is clear and simple. (this is not applicable to Defined Benefit schemes). The below table shows the situation more clearly.

Defined Benefit Plans

UK Pension –
(generic pension benefits)
Scenario Death Benefits
SRA Married couple 1st to pass away 50% income to Spouse
Married couple 2nd to pass away 0% of total plan
Single but with grown up children 0% of total plan
Lump sum to future heirs 0% of total plan

 

QROPS- Malta
Scenario Death benefits
SRA Married couple 1st to pass away 100% of fund value to any beneficiary
Married couple 2nd to pass away 100% of fund value to any beneficiary
Single but with grown up children 100% of fund value to any beneficiary
Lump sum to future heirs 100% of fund value to any beneficiary

SRA – Selected Retirement Age

The tables are based on the usual death benefits being taken in retirement. Some plans may have slightly different death benefits which may be higher or lower than 50% income provided on death and guaranteed periods for the first 5 years. Please check the exact benefits within your scheme for a full exact comparison.

Currency
A standard UK pension will usually only be invested and pay benefits in Sterling, which means the member runs an exchange rate risk in respect of pension income, in addition to incurring charges in converting the pension payments to the currency of their country of residence.
A transfer under the QROPS provisions means that the pension payments can be made in the local currency, thus potentially eliminating exchange rate risk.

Lifetime Allowance Charge (LTA)

QROPS – There is no LTA charge within a QROPS so transferring larger plans to a QROPS may not be caught in this reduction in the future. Careful planning will be needed with your adviser if you are close to the limit in the UK. (a transfer to a QROPS is a crystallisation event, so will be tested against the LTA at that stage, any benefits above the LTA at time of transfer will be subject to a 25% tax liability.

SIPP – This is a restriction on the total permitted value of an individual’s total accrued fund value in UK registered pensions, currently £1m. Those who exceed this value face a potential tax liability of 55% on the excess funds on retirement at any time when there is a “benefit crystallisation event” that exceeds the LTA. A benefit crystallisation event is any event which results in benefits being paid to, or on behalf of, the member and so includes transfer values paid to another pension scheme, as well as retirement benefits.

Disadvantages

Charges
QROP & SIPP If you have a pension(s) with a combined transfer value of less than £50,000 then the charges may be prohibitive.

Loss of Protected Rights
QROPS & SIPP – A transfer may result in the loss of certain protected rights, including Guaranteed Annuity Rates, Guaranteed Minimum Pension, a protected enhanced lump sum, or rights accrued under a defined benefit scheme. (These are shown in the section “Analysis of Your Existing Pensions”).

Returning to the UK
If you return to the UK, then the QROPS administrator will have to report this ‘event to HMRC and the pension scheme will become subject to UK pension regulations again.
If it is your intention to return to the UK in the near future then a transfer under the QROPS provisions is usually inappropriate. If this was the case then we can help with our UK SIPP offering which may be more appropriate.

Why Financial Planning ?

By Chris Webb - Topics: Financial Planning, Spain, Spectrum-IFA Group
This article is published on: 17th March 2017

17.03.17

Financial planning is about establishing your future financial goals
and aspirations and working out the best way to achieve them.

 

Financial planning is about having a strategy, instilling discipline
and creating a structure to your financial world.

Over the years the “financial world” has changed significantly. This is great news for the consumer as this means there is now a much wider range of solutions and products to select from. Investments platforms have risen out of nowhere, insurance products have become increasingly more competitive and the choices with what to do with your pension are numerous.

As I mentioned, this is great news for the consumer. However, this also comes with a downside. More solutions equates to more complexity, more time required to understand the options and more time to get to grips with the tax, compliance and regulatory side of things. Quite simply, for some it can be a minefield !

Not everyone has the time, expertise or confidence to get the best value from this ever changing world and for those people independent financial advice / financial planning can be extremely valuable and worthwhile.

The Spectrum IFA Group is an independent financial advisory and through our relationships with our business partners we are able to offer access to the right solutions and products for your own personal circumstances.

Once we have a thorough understanding of your circumstances and requirements, we will conduct a full analysis of your situation and provide you with a tailored plan of suitable recommendations. This may result in one solution, it may result in two or three, but the end result is that this will enable you to start making decisions which can only help you towards your financial goals.

Being independent means we can offer products from a wide range of providers, we are not tied to “selling the same box to everybody”.

We will meet with you to discuss all of our recommendations, we will make sure that they are clearly explained, fully understood and jargon-free, so that you can make informed choices about your future, based on impartial advice.

You can ask as many questions as you like and request more information at any time. We do things at our clients own pace, not our own. There is no obligation to proceed with our advice, however once you have a full understanding of why we are recommending a solution for your needs you can then make the right decision….. for you !

Spanish Succession Tax (Inheritance tax)

By Chris Webb - Topics: Catalunya, Estate Planning, Inheritance Tax, Spain, Succession Planning
This article is published on: 16th March 2017

16.03.17

If you are a resident of Spain it is important to understand that there will be liabilities due to the Spanish government in the event of a death. Whether it’s you that is inheriting part of an estate or it’s your estate being distributed the taxman is going to want his share.

Many British nationals don’t realise that depending on the asset and its location there may also be a claim from the UK taxman. Just because you are a non UK resident it does not eliminate the requirement to settle taxes in both the UK and Spain. Spanish succession tax will be due either when the assets being inherited are located in Spain, such as a property, even if the recipient of the asset lives outside of Spain OR if the assets are based outside of Spain but the recipient lives in Spain.

For example: if you leave your Spanish property to your children who are now UK residents they will be liable to pay succession tax to the Spanish government. On the flip side if you receive an inheritance from the UK and you are a Spanish resident then again you have to pay tax in Spain.

As mentioned above, if you are a British national and are resident in Spain you could be liable to UK inheritance tax as well as Spanish succession tax. In the UK they require all worldwide assets to be declared, as you will be considered “UK domiciled” by the government. It is almost impossible to be considered as anything other than UK domiciled, even if you haven’t lived in the UK for some time.

There is no double tax treaty signed between the UK and Spain when it comes to inheritance, however if tax has been paid in the UK the amount is usually deductible against the Spanish liability.

To complicate matters further, Spain have a standard set of “State Rules” which lay down the rates and allowances for succession tax as well as individual “Autonomous rules” which means things are different from one community to another. Detailed below are these state rules:
The tax rates differ depending on the value of the amount inherited. These range from 7.65% on the first €7,933, up to 34% on €797,555 and over.
Beneficiaries are graded into four different groups and the more remote the beneficiary’s relationship is to the deceased the lower the tax allowance and the higher the tax rates. These four groups are:

  • Natural and adopted children under 21
  • Natural and adopted children aged 21 and over, grandchildren, parents, grandparents, spouses
  • in-laws and their ascendants/descendants, stepchildren, cousins, nieces, nephews, uncles, aunts
  • all others including unmarried partners

Allowances are available between husband and wife or direct line ascendants/descendants, but this is set at just short of €16.000. If an inheritor is also a direct line descendant under the age of 21, there is an additional allowance of €3,990 for each year they are under 21. The total of this additional allowance is restricted to €47,858 per child or grandchild.

For more distant relatives (e.g. cousins) the exemption is set at €7,933. There is no exemption for beneficiaries who are not related.

A main home in Spain may be virtually exempt from Spanish succession tax provided the beneficiaries are either your spouse, parents or children and they continue to own the property for ten years from the date of death.

The exemption can also apply where the beneficiary is a more distant relative over the age of 65 and they have lived with you for at least two years before death. If these conditions are met, the value of the house can be reduced by 95% in calculating the tax base liable, subject to a maximum reduction in value per inheritor of €122,606. It is important to note that this is only applies principal private residence and is owned by a Spanish resident.

Some examples of where the Autonomous rules differ from the state rules:

In Valenciana, spouses and children receive an allowance of €100,000 each. They can also benefit from a 75% reduction in the amount of succession tax payable.

In Murcia, the taxable inheritance for children under 21 is reduced by 99%, while older children and spouses get a 50% reduction.

In Andalucía, spouses and children can benefit from a 100% exemption for inheritances up to €175,000, provided they are not worth more than €402,268.

Cataluña offers a 99% allowance for spouses. Other Group I and II relatives receive a relief depending on the amount of their inheritance. Personal reductions are €100,000 for spouses and children (more for those under 21), €50,000 for other descendants, €30,000 for ascendants and €8,000 for other relatives. The 95% main home relief is up to a property value of €500,000, with the amount pro-rated among the beneficiaries (minimum €180,000 limit each). The property need only be kept five years rather than the 10 year state rule.

To summarise the key points of succession tax:

  • Tax is paid by each recipient, rather than by the estate
  • Spouses are not exempt
  • Allowances under the state rules are very low – just €15,957 for spouses, descendants over 21 and ascendants, €7,993 for other close relatives and nil for everyone else
  • Under state rules, tax is applied at progressive rates from 7.65% (for assets under €7,993) to 34% (for assets over €797,555). However, multipliers depending on the relationship between the two can increase this rate
  • If you leave assets to your spouse, who then passes them on to your children when he/she dies, succession tax will be due again on the second death
  • Succession tax also applies to pension funds
  • Tax is paid at the time of the inheritance, even if the funds are not accessed at the time. There is a six-month period to pay the tax after the death, although it is possible to apply for an extension in certain cases
  • Succession tax is governed by both state and local autonomous community rules; each community has the right to amend the state rules
  • Whether the state or the local autonomous community rules apply for each case, depends on where the beneficiary and the donor are resident and where the assets inherited/gifted are located
  • If you are UK domiciled you need to consider both the UK inheritance tax rules as well as the Spanish succession tax rules

Whilst the Spectrum IFA Group are not tax advisers, we can help to put you in touch with the right people. It is important to understand the various succession tax rules and how they apply to your situation, as well as how they affect any UK liability. You need specialist advice to understand the intricacies of the two tax regimes, and how to lower both tax liabilities and potentially save your heirs a considerable amount of tax. You can often combine your estate planning with your personal tax planning.

*Sources: Advoco, LegalforSpain, Globalpropertyguide, GovUK, AILO

So What’s Your Strategy ?

By Chris Webb - Topics: Investment Risk, Investments, Madrid, Saving, Spain, Uncategorised
This article is published on: 30th April 2016

30.04.16

Investing is not a sure thing in most cases, it is much like a game – you don’t know the outcome until the game has been played and a winner has been declared.

Anytime you play almost any type of game, you have a strategy. Investing isn’t any different – you need an investment strategy.

An investment strategy is basically a plan for investing your money in various types of investments that will help you meet your financial goals, depending on your time horizon.

Each type of investment contains individual investments that you must choose from. A clothing store sells clothes – but those clothes consist of shirts, trousers, dresses, skirts etc. The stock market is no different, it’s a type of investment, it contains different types of stocks and different companies that you can invest in.

If you haven’t done your research, it can quickly become very confusing – simply because there are so many different types of investments and products to choose from. This is where your strategy, combined with your risk tolerance and investment style, all come into play.

If you are new to investments, we will work closely together to ensure you have a full understanding before making any investments. I will help you develop an investment strategy that will not only fall within the bounds of your risk tolerance and your investment style, but will also help you achieve your financial goals.

Never invest money without having a goal and a strategy for reaching that goal! This is essential.

Nobody hands their money over to anyone without knowing what that money is being used for and when they will get it back! If you don’t have a goal, a plan, or a strategy, then you are essentially handing your money over without any idea of what it can do for you!

How Much To Invest?

By Chris Webb - Topics: Investment Risk, Investments, Madrid, Saving, Spain, Uncategorised
This article is published on: 28th April 2016

28.04.16

Many first time investors think that they should invest all of their savings. This isn’t necessarily true. To determine how much money you should invest, you must first determine how much you actually can afford to invest and, just as importantly, what your financial goals are.

So, how much money can you currently afford to invest? Do you have savings that you can use? If so, great! However, you don’t want to cut yourself short when you tie your money up in an investment. What were your savings originally for?

It is important to keep three to six months of living expenses in a readily accessible savings account – don’t invest that money! Don’t invest any money that you may need to lay your hands on in a hurry in the future.

So, begin by determining how much of your savings should remain in your savings account, and how much you feel you are comfortable to use for investments.

Next, determine how much you can add to your investments in the future. If you are employed, you will continue to receive an income, and you can utilise your surplus income to build your investment portfolio over time.

Together we can work at setting a budget and determine how much of your future income you will be able to invest.

With my help, you can be sure that you are not investing more than you should or less than you should in order to reach your investment goals.

For many types of investments, a certain initial investment amount will be required. This at first glance, may look out of your reach. However I may be able to reduce these entry levels.

If the money that you have available for investments does not meet any required initial investment, you may have to look at others. Never borrow money to invest, and never use money that you have not set aside for investing!