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The Spectrum IFA Group representing Expats in the ‘Exiting the EU Select Committee’

By Gareth Horsfall - Topics: BREXIT, EU Select committee, europe-news, Italy, Spectrum-IFA Group, Uncategorised
This article is published on: 2nd January 2017

02.01.17

Gareth Horsfall from The Spectrum IFA Group in Rome, Italy, will be one of four UK citizens living in the EU who will be representing us at the House of Commons, Westminster, in the ‘Exiting the EU Select committee’, which will be broadcast live on the BBC Parliament and also streamed live over the internet on January 18th between 9am and 12pm. GMT

What is this?

The ‘UK Exiting the EU Committee’ (consisting of 20 MP’s) is appointed by the House of Commons to examine the expenditure, administration and policy of the Department for Exiting the European Union and matters falling within the responsibilities of associated public bodies.

Why have I been considered as a witness?

I have been involved with a few people in Italy who have been taking a very active part in working behind the scenes to try and safeguard our present rights as UK citizens residing in Europe.  A couple of these people thought that because of my particular situation: Italian wife, Italian child, providing financial advice to, mostly, British people living in Italy, being the legal representative of an Italian Ltd company and passporting my UK qualifications into Italy on an equivalence basis, that I might be a good candidate to sit before the select committee and explain the problems that I will face when the UK exits from the EU. I agreed!

It is also an opportunity to explain some of the problems that you will also be facing.

This will be quite an experience and an opportunity for me at the same time. I would be lying if I said it wasn’t a little overwhelming. However, there are human and economic rights that I feel we must make an effort to try and retain as part of the UK divorce from the EU. On that basis I was willing to put myself forward.

So with this in mind, I would invite you to write to me at gareth.horsfall@spectrum-ifa.com and let me know what your worries are about the UK’s exit from the EU. I will read everything before I leave next Tuesday (I may not get chance to reply to everyone, but thank you in advance for any views/opinions you have) and I will use whatever information I can to present a strong case for everyone in Italy and all other British citizens living in Europe.

Time to Unite……

….and Wish me luck!

EU Citizenship Rights for Brits?

By Gareth Horsfall - Topics: eu citizens, Italy
This article is published on: 17th November 2016

17.11.16

The EU Parliament is to discuss the possibility of EU membership for citizens of countries that vote to leave the EU. A proposal was made by an MEP in Luxembourg.

The idea is to guarantee those who want the same rights as full EU citizens, including the right of residence in the EU, to be able to vote in European elections and be represented by an MEP.
I have to admit that the proposal sounds a nice idea but I don’ t see it being accepted.

Human capital will be a big political maneuvering tool in the BREXIT negotiations and if they offered any UK citizen the opportunity to have EU rights then I don’t see how this would aid the UK’s bargaining position. Equally, it may be a incentive for other EU countries to vote to leave as well.

I will follow developments and report them as they arise…

SANCTIONS FOR UNDECLARED ASSETS IN ITALY
This is a subject which I haven’t touched on for some time. What are the penalties for undeclared, and subsequently discovered, assets for residents of Italy?
The penalties for non declaration range between 3% and 15% of the value of the asset, plus any fines for late payment. The percentage is determined by the investigating tax officers depending on the gravity of the misdemeanour.

If you have undeclared money in tax privileged regimes or countries where there is not an adequate exchange of fiscal information then the sanctions are doubled: 6% – 30%, plus fines for non declaration.

This is relevant given the automatic exchange of financial information which is now in force under the OECD Common Reporting Standard.
I know that a number of you have been receiving letters from non ItalIan banks asking you to quote your Tax Identification Numbers (TIN) for reporting purposes. This is your Codice Fiscale for Italian residents. By completing this letter it allows the foreign financial entity to report your information, automatically, to the Italian authorities.

Pensions Time Bomb

By Gareth Horsfall - Topics: Final Salary Pension, final salary schemes, Italy, Pensions, QROPS, Uncategorised, United Kingdom
This article is published on: 3rd November 2016

03.11.16

It could be said that uncertainty is the nemesis of good long term financial planning and living in today’s world you could be forgiven for throwing your hat in and tucking yourself away for a few years: Hard Brexit, Soft Brexit, Donald Trump, Italian Constitutional Referendum, German and French elections, the rise of nationalism, and the list goes on.

However, time always marches on and we either get left behind or plan forward. No one has ever complained to me (yet) about finding ways to legally save tax, finding ways to save money, getting better investment returns, or having more money then they had planned for.

So with this in mind I want to return to a subject which I have touched on a few times before but which has been hurled back to the top of the financial planning priority charts:  UK Final Salary Pension Schemes.

This article is specifically for anyone who holds any type of corporate final salary pension plan. (It does not relate to the UK state pension or UK government pension schemes, eg Teacher, Doctor, Army etc).

Starting with the bad news

I want to break some bad news to holders of those historically ‘gold plated’, final salary pensions schemes. The schemes that promise you a certain level of income based on your last few years salary level with your employer.

They are no longer gold plated!

This is quite a complex area to try and explain, but let me try and sum it up in a nutshell.

When the population starts living longer and the pension scheme can’t ask anymore contributions from the new members (without crippling them financially), then the cost of looking after the existing retirees for a much longer time than the scheme had anticipated (due to medical advances), becomes much greater than the net new money being put into the scheme.

If this were a family, it would be in debt. A mortgage, it would have defaulted. A company, it would have gone bankrupt.

Another problem is that these pension schemes need such a secure income stream to pay the retirement incomes of the retirees that they have to invest the scheme assets in safe, but incredibly low yielding asset such as Government Bonds.

And there you have the problem. If you make very attractive promises to retirees, based on your calculations many years ago, but the financial landscape changes dramatically during that time, then your original calculations are now totally obsolete. More money out than coming in spells TROUBLE!

Examples:
If you want to know how bad this situation is, then take a look at these figures. (These show the market value of the company in billions, versus the liability of their long term pension obligations, ‘IN BILLIONS’. The figures are staggering)

      VALUE       PENSION LIABILITY
BAE Systems       £15.802bn       £29.236bn
RSA Insurance       £4.332bn       £7.126bn
British Telecom       £36.657bn       £51.210bn
Sainsbury       £4.946bn       £7.696bn
Rolls Royce       £10.572bn       £11.564bn
RBS       £39.954bn       £35.152bn

These are the worst in the UK. If these companies had to legally honour their pension liabilities, they would be bankrupt.

But, let’s not be silly about things. The Government would never let companies like this go bankrupt, so they allow them to continue to operate the pension funds off their balance sheets.

And, to make it even more enticing they allow them another ‘get out clause’…outright default!, right into the UK Pension Protection Fund. A UK Government run scheme which guarantees to pay the pensions (up to certain limits) in the event that the company says it can no longer do so.

The burden moves to the taxpayer!

However, as low interest rates and retirees living longer wreck their long term calculations, more and more pension schemes are opting to close down and place their members under the Pension Protection Fund. As more and more members apply, the burden becomes greater on the UK public purse.  Do they cut the maximum amount of pension you could receive? What about the benefits you might lose?

These are all very serious questions for people who are currently members of final salary pensions.

However, there is some potential light at the end of the tunnel. A transfer away from the scheme, with a lump sum from which you can invest and take income from, as though you had your own personal pension.

The advantages and disadvantages have to be weighed up but with more schemes in financial difficulty there is a distinct possibility that it might be worth your while.

NOW! is the time to find out the value of your pension

Low interest rates and stress on the pension fund means that transfer values out are at historical highs. The companies are happy to rid themselves of you and will pay handsomely to do so, and the low interest environment means the transfer out values are much higher than you might imagine.

But low interest rates will not continue forever. Brexit and the fall of GBP will create inflation and that means interest rates will have to rise.

Get the information now before it is too late

Lastly, let’s leave things on a good note. If the benefit of transfer out is clear and present after an analysis of the situation, then you can also pass your income onto your spouse/partner, and/or leave the asset to your family on death. The benefits are not lost when you die.

There are benefits on both sides of the argument and we provide a FREE analysis to advise our client whether to transfer or not. If you want to look into this area of your retirement plans and potentially secure your long term income stream, then you can contact me

 

Pensions Time Bomb

By Gareth Horsfall - Topics: Company Pension Schemes, Final Salary Pension, final salary schemes, Italy, Pensions, Retirement
This article is published on: 27th October 2016

27.10.16

It could be said that uncertainty is the nemesis of good long term financial planning and living in today’s world you could be forgiven for throwing your hat in and tucking yourself away for a few years: Hard Brexit, Soft Brexit, Donald Trump, Italian Constitutional Referendum, German and French elections, the rise of nationalism, and the list goes on.

However, time always marches on and we either get left behind or plan forward. No one has ever complained to me (yet) about finding ways to legally save tax, finding ways to save money, getting better investment returns, or having more money then they had planned for.

So with this in mind I want to return to a subject which I have touched on a few times before but which has been hurled back to the top of the financial planning priority charts: UK Final Salary Pension Schemes.

This Blog is specifically for anyone who holds any type of corporate final salary pension plan. (It does not relate to the UK state pension or UK government pension schemes, eg Teacher, Doctor, Army etc).

STARTING WITH THE BAD NEWS
I want to break some bad news to holders of those historically ‘gold plated’, final salary pensions schemes. The schemes that promise you a certain level of income based on your last few years salary level with your employer.

THEY ARE NO LONGER GOLD PLATED!
This is quite a complex area to try and explain, but let me try and sum it up in a nutshell.

When the population starts living longer and the pension scheme can’t ask anymore contributions from the new members (without crippling them financially), then the cost of looking after the existing retirees for a much longer time than the scheme had anticipated (due to medical advances), becomes much greater than the net new money being put into the scheme.

If this were a family, it would be in debt. A mortgage, it would have defaulted. A company, it would have gone bankrupt.

Another problem is that these pension scheme need such a secure income stream to pay the retirement incomes of the retirees that they have to invest the scheme assets in safe, but incredibly low yielding asset such as Government Bonds.

And there you have the problem. If you make very attractive promises to the retirees, based on your calculations many years ago, but the financial landscape changes dramatically during that time, then your original calculations are now totally obsolete. More money out than coming in spells TROUBLE!

Examples:

If you want to know how bad this situation is, then take a look at these figures. (These show the market value of the company in billions, versus the liability of their long term pension obligations, ‘IN BILLIONS’. The figures are staggering)

 

These are the worst in the UK. If these companies had to legally honour their pension liabilities, they would be bankrupt.But, let’s not be silly about things. The Government would never let companies like this go bankrupt, so they allow them to continue to operate the pension funds off their balance sheets.And, to make it even more enticing they allow them another ‘get out clause’…outright default!, right into the UK Pension Protection Fund. A UK Government run scheme which guarantees to pay the pensions (up to certain limits) in the event that the company says it can no longer do so.The burden moves to the taxpayer!
However, as low interest rates and retirees living longer wreck their long term calculations, more and more pension schemes are opting to close down and place their members under the Pension Protection Fund. As more and more members apply the burden becomes greater on the UK public purse? Do they cut the maximum amount of pension you could receive? What about the benefits you might lose?These are all very serious questions for people who are currently members of final salary pensions.However, there is some potential light at the end of the tunnel. A transfer away from the scheme, with a lump sum from which you can invest and take income from, as though you had your own personal pension.The advantages and disadvantages have to be weighed up but with more schemes in financial difficulty there is a distinct possibility that it might be worth your while.NOW! is the time to find out the value of your pension
Low interest rates and stress on the pension fund means that transfer values out are at historical highs. The companies are happy to rid themselves of you and will pay handsomely to do so, and the low interest environment means the transfer out values are much higher than you might imagine.But low interest rates will not continue forever. Brexit and the fall of GBP will create inflation and that means interest rates will have to rise.Get the information now before it is too late
Lastly, let’s leave things on a good note. If the benefit of transfer out is clear and present after an analysis of the situation, then you can also pass your income onto your spouse/partner, and/or leave the asset to your family on death. The benefits are not lost when you dieThere are benefits on both sides of the argument and we provide a FREE analysis to advise our client whether to transfer or not. If you want to look into this area of your retirement plans and potentially secure your long term income stream, then you can contact me on gareth.horsfall@spectrum-ifa.com or on cell: +39 3336492356

VALUE PENSION LIABILITY
BAE Systems £15.802bn £29.236bn
RSA Insurance £4.332bn £7.126bn
British Telecom £36.657bn £51.210bn
Sainsbury £4.946bn £7.696bn
Rolls Royce £10.572bn £11.564bn
RBS £39.954bn £35.152bn

For Brexiteers and Remainers alike

By Gareth Horsfall - Topics: BREXIT, Euro, europe-news, Italy, Uncategorised, United Kingdom
This article is published on: 17th October 2016

17.10.16

It was only a matter of time before I got onto the subject of Brexit once again. I have been trying to avoid it like the plague and certainly will refrain from offering any views in this article.

However, I do want to inform you about some very important developments for UK citizens who are living in Italy.

Since Brexit, it has become apparent that whatever stance you took at the vote, that UK citizens living in Italy may very well lose the right to universal access to healthcare, pensions, the right to acquire citizenship and running a business. Equally we may lose the right to freely move across other European states and we will almost certainly, the ways things are presently moving, lose the right of permanent residence in Italy without a permesso di soggiorno.

I am certainly worried about all the UK negotiations with the EU and whether you voted for Brexit or not and/or if you are a resident in Italy or intend to be, then they will surely affect you. One way of getting round this is to try and attain cittadinanza, (you can find out how , HERE. The page is in Italian!) if you are eligible. The other way is for us to try and get our rights as UK citizens, who are already living in and resident in Italy, recognised by either the UK and/or Italy.

In France, Spain, Belgium and Germany there are big movements afoot by politically inclined and connected individuals who are writing to their respective EU states and negotiating with them on behalf of all UK citizens already living in these countries and the rest of the EU.

Here is a little of what they say:

Brexit should not have a retrospective effect on individuals. UK citizens currently resident in the EU and EU citizens currently resident in the UK should be expressly treated as continuing to have the same rights as they had before Brexit. This is not confined to a right of continued residence but extends to all related rights such as the acquisition of citizenship, the right to continue to work or run a business, the right to healthcare, pensions etc.

These citizens from both sides of the Channel all made their decisions on where to live and work in genuine and reasonable reliance on the UK’s membership of the EU. Whatever the rights and wrongs of that membership, it cannot be right for millions of people to have their lives turned upside down when that could easily be avoided by a mutual agreement that the status quo prior to Brexit should continue to apply to this group.

Rumblings in Italy

I am happy to say that, in Italy, there is now a similar group of people who are campaigning to represent UK citizens in Italy. They are a UK/Italian solicitor based in Rome, retired barristers and journalists who are aiming to gather recognition in the UK, and in Italy, at a political level and fight to retain EU rights for UK citizens living in Italy.

The subject of this E-zine is to spread the word of this to as many British people living in Italy, or intending on moving to Italy, as possible.

They have a Facebook group. If you are interested in ongoing developments they will be posted regularly on their page. You can ‘Like’ it from the link below. And don’t forget to send this link to as many other UK citizens living in Italy, as you know.

www.facebook.com/UKcitizensinItaly/

(If you are unable to join this group, or do not use Facebook, then you can register your presence with the group at their email address: britsinitaly@gmail.com. You may also contact them if you have any specific skills or contacts, or want to get involved in some way).

The group is closely affiliated with www.britsineurope.org who are a group of UK citizens living in Berlin and who are fostering co-ordination between the various groups around Europe.

It would appear that this group of people in Italy are the ONLY group which is actively campaigning in Italy and ideally it should stay this way. A lot of the campaigning will have to be directed at the Italian government and we all know what a headache that can be. One focal point will be a useful way of making contact with you, when required, and also informing the group of any hurdles you may be facing already, or start to face, as a result of Brexit.

The group is an open group, subscription free, and welcomes any ideas, comments or information you might be able to offer.

Please spread this onto as many UK citizens in Italy as you may know and ask them to sign up to the Facebook page, if they have the possibility to do so. Otherwise I will, as usual, be updating you with ongoing developments here. I am in regular contact with the group of individuals mentioned above and will aim to send out messages when necessary, alongside my usual ramblings.

This has been more of a public service notification than one of my usual E-zines but I hope you are reassured that there are people out there who have the ability and connections to try and make our life easier in Italy, depending on the outcome of the Brexit negotiations.

Coveting the shiny stuff – Gold

By Gareth Horsfall - Topics: BREXIT, Investment Risk, Investments, Italy, Saving, Uncategorised
This article is published on: 7th September 2016

07.09.16

Dear Readers, please forgive me for I have sinned. It has been quite some time since my last post and during this time I confess I have been having impure thoughts.

I have been dreaming that the UK did not vote to leave Europe. I have been dreaming that Sterling had not fallen 12% against the Euro since June 23rd and that pasta was not now 10% more expensive in the UK, I have been having impure thoughts about low(ish) inflation in the UK and not rampant price increases after BREXIT. Lastly, I have been dreaming that interest rates would rise and not fall further into negative territory, basically charging customers to hold money with them.

Forgive me for my sins and lead me not into new temptation…………GOLD

There is a lot of talk going around at the moment about gold being the best investment to hold and certainly since BREXIT it has proven its case. However, gold has some signifcant shortcomings alongside other forms of investment. Essentially, it is of pretty much no use and it does not produce any yield. True gold has some decorative and industrial uses but demand is limited and doesn’t really use up all of the production. If you hold a kilo of gold today it will still be a kilo of gold at the end of eternity (taking into account any chance events which may affect the gravitational effects on earth).

THE INVESTMENT CHOICE DILEMMA

PILE A
Today the worlds total gold stores are approximately 170,000 tons. If all this gold was melded together it would form a cube of about 21 metres per side. Thats about as long as a blue whale. At $1750 per ounce, it is worth about $9.6 TRILLION.

PILE B
Warren Buffet, who is not a fan of gold as an investment, is famously quoted as saying that with the same amount of money you could buy ALL US cropland (which produces about $200 billion annually), plus 16 Exxon Mobils (which earns $40 billion annually). After these purchases you would still have $1 trillion left over. (You wouldn’t want to feel strapped for cash after such a big spending spree, so best to leave some spare cash lying around)

So the Investment choice dilemma is who, given the choice, would choose PILE A over PILE B?

In 100 years from now the 400 million acres of farmland would have produced an immense amount of corn, wheat, cotton, and other crops and should continue to do so. Exxon Mobil will probably have delivered back to shareholders, in the form of dividends, trillions of dollars and will hold assets worth a lot more. The 170,000 tons of gold will still be the same and still incapable of producing anything. You can cuddle and hug the cube, and I am sure it would look very nice but I don’t think you will get much response.

So, taking all this into consideration, you would be forgiven for thinking that gold really doesn’t have a place in anyone’s portfolio. I think you would be wrong.

Gold may not produce any yield, but with people in Asia, especially China and India, gold is very popular. In addition, it is also proving very popular for nearly ALL central banks around the world. Are all they all going mad, or do they have specific reasons for holding gold?

Well, despite Warren Buffets’ musings above, gold has to be seen in todays world as another form of money as central governments continue to print more traditional money, uncontrollably, and the paper currencies that we use in everday life become more and more worthless.

We must remember that the history of gold is that it rose, on its own, as a tradeable form of money in the world. No one has been forced into using gold as a form of money, whereas paper money is controlled by the state and has never been adopted voluntarily, at any time.

So this is where Waren Buffets argument falls down, because actual money in itself has exactly the same characteristics as gold. Its value! (Gold has some minor commercial uses, but its true value is in its store of value). Therefore, it should not be considered an investment, but actually another form of money/currency. In its basic form it is a form of barter and exchange.

Unlike paper money which can just be created without limit and at next to no cost, gold is both scarce and expensive to mine. It takes 38 man hours to produce one ounce, about 1400 gallons of water, enough electricity to run a large house for 10 days, upto 565 cubic feet of air under pressure and lots of toxic chemicals, cyanide, acids, lead, borax, and lime. (Just writing this makes me feel sick about the environmental impact of mining gold).

So, in summary the problem with the PILE A and Pile B scenario is that it assumes that gold is a form of investment, whereas in reality it should be considered another form of money.

For 6000 years gold has been an effective store of value.

The correct comparison that should be made is gold versus cash. Imagine a gigantic pile of cash. This pile of cash would be as equally inert and equally unproductive as gold, in itself.

The only way you could earn anything from gold or cash, in this case, is by depositing it with a bank and earning interest, at which point you relinquish your ownership (it becomes the property of the bank) and you then become an unsecured creditor to the bank itself, i.e if the bank fails it has the legal right to take all your gold and cash. Sound familiar? It might be better to hold true gold in a safe at home!

The question is whether you invest directly in gold or the gold mining companies themselves?

Some alternative BREXIT thoughts and why Italy could be next

By Gareth Horsfall - Topics: BREXIT, europe-news, Italy, Residency, Uncategorised
This article is published on: 12th July 2016

12.07.16

The last couple of weeks entertainment have taught me that there are decades when nothing happens in the world and weeks where decades happen. I have bounced from anger to frustration and back again. and am still trying to understand the logic for the BREXIT vote. I am slowly getting to that place and thought I might share some alternative, and thought provoking views in this E-zine.

I also want to write about why Italy could be next in line.
(Any ideas on what to call it, Exaly, ItIt?)

One thing appears to be much clearer to me now and that is that the vote on June 23rd was basically the ordinary people of the UK telling the ‘establishment’ that they have had enough of austerity and want change.

This shouldn’t come as a surprise after 8 years of government and central banks supporting bailed out banks (TARP, LTRO, LTRO2, QE, ZIRP, NIRP to name a few of the easing programmes that have been employed!) allowing huge corporate bonuses to continue, destroying income from savings with low interest rate policies and more austerity/taxes for you and I. Conversely the uber rich and corporates have seen asset price rises, an increase in offshoring and consistent tax breaks. Warren Buffet is quoted as saying that he would be happy to pay higher taxes and cannot understand why he pays a lesser percentage of personal tax than a nurse. It seems that since the financial crisis of 2008 there has been one objective: to save the financial industry at all costs.

With all this in mind is it any wonder that the average working man in Northern England is ‘not’ concerned about the consequences of BREXIT; a possible fall in house prices, a loss of jobs in the City, a 10% fall in share prices. These people are immune to this kind of pain. For this person BREXIT probably seems like a bonus. An opportunity to put a finger up to the establishment and David Cameron who have not protected their interests as they should have.

The working class man from Northern England may be immune to the pain of people who have assets, but financial markets are not, and they have reacted as you would expect. (Admittedly they have rebounded in the last few days). This affects the middle class, who also have assets. Expect more volatility to come.

This could all signify an end to economic policy being controlled by academics and economists.

BREXIT: In two minds

Continue with the status quo; economic tranquility and pushing the economic pain further down the road, in reality to the next generation or, should I be a supporter of BREXIT’s ‘economic’ possibilities and what it could ultimately deliver: higher interest rates, debt defaults, inflation, possible asset price falls (no one really knows what will happen here), higher taxes in the short term, vast privatisation of public assets and reduced benefits, with the aim of normalising world economic affairs through short term pain, long term gain. My problem with BREXIT is that I don’t think that the average man in Northern England who voted out actually understands that this is what it actually signifies and if they did then would they really have voted out?

In the end that decision will be made by the people, but let’s not think it is only isolated to the UK. Donald Trump is making similar inroads into the old industrial heartlands of America. Don’t be surprised to see him as President of the USA later in the year. Marine Le Pen in France and Movimento 5 Stelle in Italy (although they have now come out in support of the EU, but with radically changed policies).

Which brings me nicely onto Italy. I have had the BREXIT conversation with many people since then and I have been surprised to hear the reactions from Italians. I can give 5 cases when each person considered their future better outside the EU. A fascist man running a stabilimento (no surprise there then!); a right leaning hairdresser from Naples, devout catholic and openly critical of the influx of immigrants (in my opinion you could call him racist with some of the views on non Italians); a centre right voting physiotherapist with 3 children and self employed; a self confessed communist psychiatrist (with 3 houses and a house in the centre of Rome paid for by her father); and a cartoon animator, living hand to mouth, who is an open supporter of M5S and a vote to exit from the euro and the EU.

All have their own reasons but essentially the same rationale. When the euro was introduced everything doubled in price and wages halved. They seem to think a vote to leave is a way to turn back the clock. That nostalgic feeling…’taking back control’. We have heard that somewhere before!

The reality is likely to be quite different and would reflect the UK’s immediate future if they do exit from EU (I am still not convinced they will). However, the point is that they all feel let down by the EU and would be better off without it.

So, where does this lead us to. A huge inflection point for Italy will come in October. Renzi has proposed a Constitutional change which will essentially liberate the Government from the current two chamber system and allow one party rule for a 5 year period, in much the same way as the UK and the USA.

If this Referendum should fail to be approved by the people then Renzi has stated that he will step down as Prime Minister.

The problem for Italy is that:

  1. It will likely return to less than 1% economic growth, and for a country that has hardly grown since the introduction of the Euro in 1999, that would not be good
  2. Italian banks do not have enough capital to weather a storm of that nature. They are sat on €360 billion of non performing loans (a third of the size of the Italian economy). If Italy voted out of the EU, Banca Italia would have to print that money to re-liquidate the Italians banks and that would lead to some pretty spectacular inflation
  3. And lastly, Renzi leaving his post would would leave a big void and allow parties with an anti European sentiment to fill the space
  4. This is going to be a trying time for Italy, the EU and the UK. I would suggest that this IS the EU’s ‘moment’. If it can survive this then it will pull through, if not then it will fall apart.

    So in all this mess and future potential mess what should we be doing with our money. GOLD and the US Dollar. These are things that will weather the storm. How and in what to invest to get best access to these assets is a subject for another time.

Tax cuts in Italy…?

By Gareth Horsfall - Topics: Italy, Tax, Uncategorised
This article is published on: 14th June 2016

14.06.16

Before you have to steady yourself at the mere thought of tax cuts in Italy, I have to warn you, (sorry, I am so used to warning people about tax increases that it comes naturally to use the word, ‘warn’), or I am pleased to inform you that if you can hang in there a little longer they may be on their way.

And ‘I am’ talking about ‘Income tax Cuts’ (IRPEF)!

Renzi and Padoan have realised that the way that the tax rates are structured in Italy basically choke the sector of society which provides the most, the middle earners i.e any income from €15000 upto €55000p.a

Therefore, proposals to restructure the current tax bands are currently on the table. The proposals are as follows:
1. Lower the tax rates by 1% on the tax bands of gross income from €15000 – €28000 and €28001 – €55000p.a. The bands would effectively lower to 26% and 37% respectively.

On an income of €35000 p.a, this would equate to an annual saving of €210 p.a.

That doesn’t sound very interesting does it? Although it would cover my 6 monthly TARES bill.

The other proposal which is also on the table is to radically alter the existing tax bands from 5 tax bands to only 3, as follows:

  • The first €15000p.a of income to be taxed at 23%
  • Between €15001p.a and €75000p.a taxed at 27%
  • Over €75000p.a. at 43%

Certainly the savings would be much more interesting. Using the same example above, someone with an annual income of €35000p.a would make an annual saving of €770p.a.

In reality the first option, a 1% reduction in the 2 tax bands, is likely to be introduced in ‘la Legge di Stabilità 2017’ and to be actioned from January 2018.

At the end of 2016 a proposed cut in corporation tax and a freeze on IVA is expected to be introduced.

Obviously, we should not hold our breaths because all these cuts are Renzi’s proposals and should the public not vote in favour of his Constitutional Reform in October this year, then he has already stated that he would stand down as Prime Minister and then I would imagine the proposed tax reforms would go ‘out of the window’.

In the meantime let’s all get through the BREXIT vote and take one step at a time.

Overseas rental property – have you thought about this………?

By Gareth Horsfall - Topics: Inheritance Tax, Investments, Italy, Succession Planning, Uncategorised, wealth management, Wills
This article is published on: 13th May 2016

13.05.16

Financial markets are very quiet at the moment. From my view point the financial world appears to be almost at stand still.

The world appears to be awaiting the UK vote on whether to leave Europe or not!

In the meantime, life goes on and whilst the UK celebrates the Leicester City win of the Premier League with a Roman manager, I continue to get contacted by various people asking my opinion on how they should manage their finances as residents and non residents in Italy. The majority of those people also have rental property in their home country as part of their overall financial arrangements.

A review of taxation on overseas rental property for Italian residents

The most common question I am asked is how income from property held overseas is taxed in Italy. Is it exempt from Italian tax because tax has been paid on it overseas first and is it subject to the same taxes as Italian domestic rental income?

I would like to dispel any myths and confirm that, as a resident in Italy, you do have to pay Italian tax on the profit from any rental income on properties held overseas.

The law for Italian tax residents clearly states that the net profit (after allowable expenses in the country in which the property is located) must be declared in the Italian end of year tax return. The net profit is then assessed as income by adding it to the rest of your income for the year and then tax paid at your highest rate of income tax in Italy (that could be as high as 43% depending on your cumulative income for the year).

Let’s not forget the IVIE tax as well which is 0.76% of the property council/cadastrale/rateable value (or whatever you choose to call it) of the property.

If tax has been applied in the country of origin, this can be reclaimed through your tax return. You are protected through a double taxation treaty as long as your country of origin has signed one with Italy.

To clarify, any rental income from properties held overseas must be declared in Italy. This is the NET income (after allowable expenses) and this net figure is added to your other income to determine at which rate of income tax it is assessed in Italy.

But wait a minute. Have you thought about this?

Now, this is all well and good but as most landlords of properties overseas discover, if they are relying on the income from the property to live on then any income benefit can quickly be diminished by additional tax to be paid in Italy.

Do you have useful relatives?

Do you have trustworthy relatives/family members in the country where the property is located? If so, then you might think about gifting the property to them (effectively signing it over to them) and getting them to send the rental income to you as a gift.

The recipient of a gift is not taxable in Italy and therefore you could have a non taxable income stream

However, before you start looking to sign your properties over to family members you need to think of a number of tax consequences of doing this. Mainly the inheritance tax obligations that it imposes on your estate, any tax considerations and administrative burdens it now places on the holder of the property (they would have to be the sole recipient of the money and the sole named owner of the property). That person would have to receive the money in their accounts and submit their tax returns accordingly. They would have to send the money to you under a word of mouth agreement and you would have to trust the other party implicitly, not to mention a number of other tax questions it may pose.

However, assuming those problems could be overcome you might find that you could have the rental income from your overseas property paid to you in Italy, without detraction of Italian tax but through a gift arrangement.

Cross border financial planning at work!

The Law of Esterovestizione

By Gareth Horsfall - Topics: Italy, Tax, Uncategorised
This article is published on: 19th November 2015

19.11.15

The Law of Esterovestizione.

You are probably wondering with such an elaborate title then what on earth the topic could be about?  Well, this topic came about because in the last few years I have met people who are operating Ltd companies in the UK or in Ireland, but who are living as a tax resident in Italy.    This could present some issues and so I thought I would explain the law of Esterovestizione to highlight the problems of registering a business in one European state but operating from Italy. (There may be other legitimate reasons for operating a Ltd company in this way, but I am aiming to explore the main issue for smaller businesses).

How does it all work?
If you own 100% of the shares in a Ltd company and your are the sole director of the same Ltd company then there could be issues if you are an Italian tax resident.  The risk being  that if the Italian authorities were to interest themselves in your business then they may consider that the business should fall within the Italian rules on ‘esterovestizione’.

What is Esterovestizione?
This is the Italian rule which finds that where an overseas company is controlled by an Italian tax resident it is treated as an extension of their personal assets and therefore becomes subject to the Italian fiscal system and is re-taxed in Italy in accordance with Italian tax laws for corporation tax purposes. What constitutes control is a matter of fact in each case but the authorities look in particular at the board of directors and the shareholdings. What they are looking for is the “place of effective management” of the company, where the decision-making of the company is carried out and if it is by an Italian tax resident it is likely that the rules of esterovestizione would apply.

The authorities look to the substance rather than the appearance, so that the fact that the registered office is outside Italy will not be considered relevant where it is clear that the decisions are in actual fact taken by a person who is resident in Italy.

If you own 100% of the shares and are the sole director of a Ltd company, then this has all the makings of a classic case for the authorities to argue that the Ltd company should be treated as if it were Italian.

If the company is deemed, through your control of it, to be an Italian entity, then the company would effectively be regarded as having failed to meet, for several years, all the usual obligations binding Italian companies, including registering for IVA, filing corporation tax and IVA returns, registering and filing accounts etc.

The fact that you had complied with all these obligations in the UK or Ireland would not be considered relevant.

As the basis on which esterovestizione is applied is the effective control of the company in the hands of an Italian resident you can try and avoid these provisions by appointing trusted non-Italian residents as shareholders/directors – family members, for example – or alternatively to have nominee arrangements whereby a company or individual acts as nominee shareholder on your behalf. Family members and nominee shareholder arrangements of this type are still common, but the situation has become considerably more problematic in relation to both of these arrangements and it is now difficult (and very expensive) to find a professional prepared to accept the responsibility.

However, with the general tightening of the law in relation to nominee arrangements, this kind of structure is no longer effective. The current requirement is to be completely transparent – you need to declare any structure under which you are the beneficial owner – so even if there is a third party who nominally appears to be in charge, but in actual fact they merely operate on your behalf then you are under an obligation to declare your interests in the company in exactly the same way. Failure to do this amounts to making a false statement to the Agenzia.

What is the chance of being found out?
This surely represents a much more complicated area of information exchange than we have seen in recent years for a physical person.  Individuals are for all intents and purposes already under the spotlight and financial information is being shared across European and other borders. Obviously, sharing information on underlying shareholders in a  Ltd company is much more complicated.  However, it is a plan for the EU to action in the very near future.

The EU have been very vocal about transparency of Ltd companies and I have also seen a number of documentaries on Italian TV in the last year, on exactly this subject.  One that springs to mind was ‘Presa Diretta’ which focused mainly on Italian residents who set up Ltd companies in the UK and also Panama. If you would like to see the programme, you can watch it HERE (It is 1hr 27 mins long)

It is anyone’s guess how long a free flowing exchange of information on Ltd companies will take place, but planning to ensure you are not one of the people who are made an example of is probably a sensible long term business decision.  That might be as easy as setting up an Italian Srl.