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Some alternative BREXIT thoughts and why Italy could be next

By Gareth Horsfall
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:

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
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
And lastly, Renzi leaving his post would would leave a big void and allow parties with an anti European sentiment to fill the space

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
This article is published on: 14th June 2016

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
This article is published on: 13th May 2016

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
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.

Rendita catastale

By Gareth Horsfall
This article is published on: 10th November 2015

10.11.15

I admit it! I have been confused for years about the rendita catastale. I have never been sure about its role in the economy and how it benefited the individual or economy. Until now! (Care of Bloomberg online)

So, the story goes something like this:

The rendita catastale represents the amount of ‘theoretical rent’ that a householder pays him/herself as a measure of economic consumption.

In other words:

If a householder owns their house outright, i.e no mortgage or other debt, then that person is actually a ‘imputed’ consumer and investor of the ‘invisible’ rent money that they would have received should they be renting a similar house. This money is then assumed to be spent and go back into the economy.

And this is considered a growing financial benefit that property owners enjoy from not having to pay rent.

So, whilst the financial crisis shrank the economy more than 8 percent and unemployment doubled in the seven years of the crisis, property, proportionately, made up more of the gross domestic product. The weighting of property in Italian GDP jumped 2.1% from 2007 despite falls in property prices and transactions. (which gives you an idea of how big the falls were in other parts of the economy).

And given that the financial benefit from housing, i.e the rendita catastale, is taking up a larger proportion of a property owners income, then it comes as no surprise that Renzi has recently promised to abolish IMU on the prima casa from 2016. This also seems to imply that Renzi realises that Italians homeowner spending habits are more important than foreign buyers as a means to sustain property prices.

The Italian economy strongly relies on home ownership. Just by residing either in debt free housing or paying no rent (living in family houses) or a paying a below-market rent, Italians contribute to more than 8 percent of the nation’s GDP, up from about 7 percent in 2007. In a country where more than 73 percent of the population live in owned residences, this is a valuable contribution to economic growth.

Disclaimer
The views expressed here are my own. They are not necessarily shared by The Spectrum IFA group or any other company named or implied. They are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities or companies are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.

Full exchange of financial account information is on the doorstep.

By Gareth Horsfall
This article is published on: 9th November 2015

09.11.15

I have written in previous articles about the fast approaching days when all financial information will be available to all tax authorities. In fact, my last piece on the subject explained that the OECD had signed up approximately 53 members countries and were working on a standardised format (Common Reporting Standard, CRS) with which to exchange financial information across borders.
This email expands on this subject as more information has now become available.

The CRS, formally the Standard for Automatic Exchange of Financial Account Information in Tax Matters, (SAEFAITM – this abbreviation just flows off the tongue!) seeks to establish a global methodology for the sharing amongst tax authorities of relevant data in relation to financial assets. The transparency created by the CRS is meant to be a deterrent to taxpayers use of offshore accounts and to non-declaration of assets in other states/countries.

So far 100 countries signed up and committed to implementing this Standard and it is ‘likely to’ become (Sorry! I meant, ‘will become’) the most powerful tool of tax authorities worldwide.

There are nearly 60 “early adopters”, (see list below) and for these countries the Automatic Exchange of Financial Account Information will commence from 2017 on an annual basis between participating countries in respect to their tax residents, and in certain cases domicile persons. But here is the catch….It will relate to all account information of 1 January 2016.

Reporting will have to be made by all individuals who own or control accounts in financial institutions either directly or through companies, trusts, foundations and in certain cases insurance policies.

Financial institutions include, but are not limited to, banks, collective investment vehicles, custodians and insurance companies.

Financial institutions in each country will basically collect and report information to their local tax authorities regarding their clients who are resident in another participating country.

And the local tax authorities automatically exchange this information on an annual basis with their counterparts in the other participating countries.

Account information to be reported will generally include
* account number
* account balances
* gross earnings in respect of any payments through the account, including but not limited to any investment income such as dividends or funds from insurance companies
* income earned from assets and sale profits from financial assets

The exact nature of information to be exchanged between each participating country must be defined in the intergovernmental agreement between the two countries, but I think we can safely expect that all European states and the USA will be sharing data in a standardised format.

The information on each reportable person generally includes:
* name
* address
* country of residence
* tax identification numbers
* place and date of birth

Financial institutions will also need to disclose not only the account holder but also any beneficial owners, controlling persons or even in certain cases “relevant persons” of entities and trusts.

Data protection is also going to be a very interesting issue and the OECD do say that information exchanged in this way, i.e through the common reporting standard, cannot be provided to other governmental institutions once shared. I have my doubts whether that will happen!

So what can we take from this? Well I think it is becoming more and more self explanatory. Big brother has finally arrived and there are no more hiding places. As I have been ‘preaching’ for many years now: if you are a resident in Italy and have still not arranged your financial affairs ‘in regola’ then you have about 2 months to do so until all financial information will become available to tax authorities: 1st January 2016.

I have found the key to living in Italy is knowing that there is a difference between tax reporting and tax planning. Your commercialista is there to help you report your taxes through the overly complicated tax reporting system in Italy. However they are not there to help and discuss ways to plan around the Italian tax system. That is where the role of the financial planner comes in and with the extensive knowledge I have built up over the 11 years I have been living and working in Italy, I can sometimes identify areas where you can save tax, increase incomes and restructure your affairs in a compliant manner, not always, but I am happy to give it a go!

So, if you would like to contact me about this then feel free to do so on gareth.horsfall@spectrum-ifa.com or on cell 3336492356.

If you are also interested to know who are the early adopting countries, then the list is below. You will note that Italy and the UK appear on that list. The USA does not because it has already commenced its own International tax reporting standard known as FATCA.

Early adopter countries – undertaking first AEI by 2017 in respect of 2016 information
Anguilla, Argentina, Austria, Barbados, Belgium, Bermuda, Bulgaria, British Virgin Islands, Cayman Islands, Chile, Colombia, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos, Uruguay, United Kingdom.

Reflecting on Gains

By Gareth Horsfall
This article is published on: 12th July 2015

12.07.15

I was recently struck by the ‘musings’ of a fund manager based in London and his take on the world of global economics.

The funny thing is that what we read in the papers, online and listen to from so called experts can literally be taken with a piece of salt. It really doesn’t have a lot of value for the man in the street and it all just goes to prove that no one really knows what is going on. That includes Janet Yellen of the FED and Mario Draghi of the ECB. They seem to be playing a game of ‘trial and error’ to achieve the best short term outcome in the race to make consumers consume again and for economic growth to start apace once again. The indiscriminate use of quantitative easing has only served to push up the cost of asset prices (property, shares, Bonds). In fact it has taken all these 3 asset prices to new highs in recent months and so now might be time to look at reviewing your investments once again.

We, at The Spectrum IFA Group, have been, for some time, looking at the investment fund space, given that stock markets have been moving upwards for the last couple of years. This often signifies that volatile times are ahead.

We are now starting to look at the markets with a more negative stance and believe that it might be the right time to start taking profits from your funds that have made good capital gains during this time and secure those in a less volatile investment.

(For our clients who are using Rathbones Investment Managers and Tilney Best Invest Discretionary fund management services, profit taking and reinvestment will be being taken care of at a micro managed level on a day to day basis).

We, The Spectrum Group, have identified a range of Absolute return funds which are designed to protect capital in volatile markets. And in addition, we believe that cash and Gold will have great value in the next market meltdown.

Absolute return funds, whilst not perfect, aim to protect against market falls and can allow for reinvestment back into undervalued assets at the right time, such as equities, which may be valued considerably less in a crisis. We have to accept that despite Greece and other world worries, the markets could keep on advancing for some time to come (at least while quantitative easing continues from the ECB) and therefore to remain largely un-invested due to fear, could be to lose out on further capital protection opportunities. Absolute return funds offer the option to stay invested with reduced risk.

(A word of warning. Not all are made equal, and absolute return funds need to be carefully assessed to their exposure to underlying assets which may not serve to protect capital so well in volatile markets)
If you would like to know more about these funds, protected capital investments or other low volatility investments then you can contact me on gareth.horsfall@spectrum-ifa.com or on my cell 0039 3336492356.

And so onto the musings of a London based Fund Manager. This makes for interesting reading.

There is approximately $3.6 TRILLION of government debt, in other words nearly a fifth of all global government debt that is now trading with a negative yield (basically you pay the Bond holder for the right to hold the Bond as an investment, rather than them paying you an interest payment to hold it) and yet money is still being invested in Bonds to the tune of roughly $16 BILLION – the highest investment in Bond funds on record going back to at least 2008.
€1.5trn of euro area government bonds over one-year maturity have negative yields, and yet Mario Draghi thinks if he can just get interest rates down a bit further, he can turn the European economy around.
The fact that the American stock market closed on highs recently would tell you the US economy is firing on all cylinders, and yet the Federal Reserve seems frightened to raise interest rates seven years in to the recovery.
In 2007, global debt of $142 TRILLION was enough to nearly blow the financial system to smithereens but, seven years later, global debt stands at $199 TRILLION, and nobody seems to believe this is such an issue.
This year British Telecom issued shares to buy EE for £12.5bn, a firm it previously owned before it spun it off in 2002 (a year in which it also issued shares).
You can now see another coffee shop from the window of nearly every coffee shop in London, and yet Costa Coffee owner Whitbread is valued at 25x earnings.
In 2009, General Motors emerged from government backed Chapter 11 with a final cost of the GM bailout to the US taxpayers of $12bn. A group of hedge funds have recently taken a stake in the company and have come up with the brilliant idea of GM gearing itself up again.
If there is any value left in the UK stock market it is certainly in the large-company part of the index and yet many fund managers have little exposure to this area.
As two thirds of the world might be close to deflation, oil demand has naturally dropped causing a fall in the price. However, most investment bank economists seem to think this fall in the oil price will lead to an increase in demand.
While bond yields, commodity prices, the Baltic Dry Index, and inflation expectations are all collapsing and suggest deflation could be an issue, equities continue to rise, suggesting it is not. Inflation on the way?
As the yield on corporate bonds of companies such as Nestlé and Royal Dutch Shell goes negative, money continues to flow in to corporate bond funds.

It is always good to have a contrarian opinion about markets. I hate reading the usual financial press which leads you to believe that which is probably in the interests of some large corporation/person and not our own (the conspiracy theorist in me).

Whilst we are on this topic, my own personal experience (and which could be of no merit whatsoever) is that when I first started out in this business I attended many seminars which were frequently attended by big fund managers, one of which was the then respected HSBC Bank. I have to admit that there were 3 occasions when they were marketing very specific investment funds in specific sectors which, very shortly afterwards, seemed to be the assets which were in crisis. Whether it was HSBC pushing something they wanted to dump at the top of a market or whether it was purely them following the crowd we will never know. What this has taught me is to never never follow the crowd!

All this is why at The Spectrum IFA group we have a fund selection committee who are constantly in touch with fund managers from the big investment houses that we work with (including HSBC). If you would like to read more about our selection criteria for our clients then you can do so Here.

A rough guide to submitting your tax information in Italy

By Gareth Horsfall
This article is published on: 8th July 2015

It is around June each year that your Italian tax bill should have been presented and been paid for. If it is more than you had expected then hopefully this article can explain some of the ‘how’ that came about and ‘what’ solutions are available.

One of the main questions I am asked on a regular basis is ‘what are my obligations in terms of declaring foreign income and assets in Italy?”.

Of course, your commercialista may be doing it for you, but what exactly are they reporting, or should they be reporting? With the help of Andrew Lawford at SEB Life International, I managed to go through the instructions on how to fill in an Italian tax return (interesting reading I can tell you).

What I want to look at in this article is how financial assets, (excluding property) i.e funds, managed portfolios at the bank or with an asset management group, ETF’s, shares, Bonds, Money market accounts etc should be declared properly in Italy.

Tax treatment of diversified financial assets.
The first, and most obvious point is that foreign investment income is taxed in Italy due to the principle of worldwide taxation. The basis of the Italian tax system. Once you have established residency in Italy, you must declare all of your income, wherever in the world it was produced.

Dividends and interest
Typically, an investment portfolio will produce periodic income in the form of dividends and interest, especially if you are looking to live from the income stream generated from the very same portfolio.

These need to be declared by converting any foreign currency amounts into euros at the exchange rates designated by the Banca d’Italia for the day the dividend or interest was paid.

The amounts received, duly converted into euros, are taxed at a rate of 20% (up to 30th June 2014) or 26% (from 1st July 2014 onwards).

The relevant section in the Modello Unico is the RM.

***You should declare the net amount received (after withholding taxes) and pay the 20/26% income tax on that. The amount which should be taxed is commonly called the “netto frontiera”.***

Capital Gains
Capital Gains are taxed at the same rates as dividends and interest income (see above), but with the complication that the amount of the capital gain must include the variation in foreign currency over the holding period.

So, what does that mean? As an example, if a fund was purchased on 1st March 2010 and sold on 15th November 2014, it will be necessary to have both the purchase and sale prices (information you will need to provide to your commercialista) and to convert these into euros at the exchange rates for those days (as established by the Banca d’Italia).

This gets relatively complicated when you have a portfolio of assets that are managed by you, the bank or an asset manager and multiple trades have taken place over the year. Checking annual statements to find purchase costs for every trade can become quite onerous. In addition there may have been corporate actions, such as share splits, demergers, capital returns etc, which compound the issue.

Where partial sales and purchases have occurred, the LIFO (Last-In-First-Out) principal needs to be applied.

It is also the case that when you become a resident in Italy you cannot simply use the value of the investments on the day when you arrive and become tax resident, you must use the historical cost from when the asset was bought for the purposes of capital gains tax. (This actually makes a lot of sense if you think about it, because it would mean disposing of any historical tax liability when moving countries and a lot more people would move if it were possible).

The relevant section in the Modello Unico is the RT

Foreign Asset Declarations and IVAFE
The fun really starts in the Italian tax return when the Quadro RW is contemplated. This section has more to do with a monitoring requirement than it does to do with taxes, although the changes brought in for the 2013 tax year mean that the Quadro RW is also used for calculating the foreign assets tax (IVAFE), which is currently due in the amount of 0.20% on the year end market value (with a difference for bank accounts, which are generally taxed at a flat rate of 34.20 euros).

The Quadro RW requires the Italian resident with foreign assets to declare their value each year; this doesn’t sound too bad, as you would think that you would only have to list your assets at year end as per the statements provided by your bank or broker. However, the Quadro RW actually requires you to declare exactly for what portion of the tax year you have held each asset and then to apply the foreign assets tax on that basis.

e.g. calculate the number of days the asset was held for in the year and then pay 0.20% on a pro rata basis. Once again this becomes onerous with multiple trades in the year.

***And unfortunately an end of year tax statement will not provide you with the information needed to accurately complete the tax return. You would need to go back through a year’s worth of trading statements to identify book cost and when they were traded. ***

WHAT I THE SOLUTION TO THIS HEADACHE?

Very simply, it’s the humble Italian compliant Investment Bond. It allows you to do everything you want to do without the fuss. All of the tax is worked out for you, your asset manager can make as many trades as he needs without immediate liability to tax and there is no need to track movements of money in the portfolio or declare when dividends and interest were paid. In addition, when monies are withdrawn from the Bond and a tax liability is incurred then the tax is paid at source on your behalf.

There isn’t even a need to declare the portfolio, trades, interest payments or anything else to your commercialista each year.

Life couldn’t be simpler

If you have found collating your tax information a little ‘heavy’ this year, or you think you may not have been submitting the right information based on what you have read above, and youwould like to make financial life in Italy a bit easier then contact me directly by the link below or fill in the contact form.

Does my foreign Will cover my Italian property on my death?

By Gareth Horsfall
This article is published on: 2nd July 2015

In May I held a joint event nr Lucca, with a firm of Anglo/Italian lawyers called Studio Legale Internazionale Gaglione. They are a firm I met whilst in London presenting at The Place in the Sun event. I was impressed by their knowledge but more importantly their long term view of the Italian legal profession and their moves to proactively model their business accordingly.

This swayed me into giving them a chance to present at a joint event and I have to say that it went very well indeed. All the participants gave excellent reviews for the speakers and hopefully the issue of preparing a will, or not, for these Italian property owners became a little more understandable.

In an effort to provide you with the information I thought I would write a summary. However the event itself was far too detailed and technical to give a full synopsis of the morning, but here are the highlights:

Should I make an Italian Last will and Testament as an Italian property owner or is it covered by the will in my home country?

Well the simple answer is that the will ‘might’ be covered by your home country will. But as is always the case in legal matters the situation is not exactly that straight forward.

Let’s take the 3 types of Italian will to start with.

1. THE HANDWRITTEN WILL (also known as the holographic will)

Key Points

It must be 100% handwritten
It must be signed and dated

A handwritten will is as simple as that. However, there are things to be careful of which were explained.

* The hologrpahic will is very easy to do, but just a bit too easy. If somebody contests it, this may lead to court proceedings in which the handwriting has to be examined for authenticity.

* This type of will could be lost, burnt, destroyed or stolen very easily and therefore it is wise to have more than one original. A possibility is to give one or more originals to the heirs.

* Any new will made after the date of the previous makes the oldest version invalid. Therefore, if you update the will it is wise to destroy old copies.

* You can add codicil’s (amendments) to this type of will, but it is preferential to add the wording on the same document in your own handwriting. Adding on separate sheets of paper can cause confusion and questions over the validity of the additions.

* NO witnesses are required

* No legal wording is required

* And lastly, and very importantly it is much better if the will is written in Italian. Roberta Moretti pointed out that a UK will (as an example) would stand in Italy for a UK domiciled individual. However a UK will is made under UK law and it could cause some impracticalities when trying to apply it in Italy. The biggest question of course is the cost of making a will in Italian, but the cost of having a UK will translated and made public through an Italian notary would far outstrip the cost of making an Italian will in the first place. And at approx €500 + for an Italian will (the cost rises depending on complexity of circumstances) then it is probably worth it.

2. A PUBLIC WILL
This is a will that is made in front of a notary public in Italy. You will require 2 witnesses and have to pay taxes on the will (approx €200 + Notary fees)

* This type of will would not normally be used where you expect multiple changes to your will during your lifetime as each change requires payment of the relevant taxes. In addition, each change must be witnessed.

* If you were to make a handwritten will after making a Public will then the Notary would ultimately have to define which was the last will made after the public one. More complications which cost time for the beneficiaries of your estate and money to pay the notary and taxes

* If the testator (you) does not speak Italian, the Notary will need two Witnesses who speak English to make sure that the testator is aware of what the notary reports on the will.

3. A SECRET WILL
This is a very uncommon and rarely used will, even by Italians. But it can be typed and written by a third person and 2 witnesses are required.

The notary keeps the will in an envelope and the contents are not disclosed.

This is so rarely used in Italy that it is only worth a quick mention, but it was explained that this might be used in those circumstances where a small community have an interest in knowing the wishes of someone in a village and therefore that person wants to keep those wishes secret.

Those are the 3 types of will and some interesting points that came out of the discussion.

SUCCESSION RULES
The rules of forced succession in Italy are always an issue that cause confusion. These rules apply on your Italian property when you die only if the beneficiaries live in Italy.

* If the beneficiary is NOT resident in Italy then the rules of forced heirship do not apply to them. I,e the property/asset can be distributed in whichever way you wish. (assuming that the laws of the country in which they live do not apply forced heirship rules).

* Of course, if there are beneficiaries who live in Italy and those that live in another country then Italian law regarding the Italian resident beneficaires will apply first.

* Whatever is written in the will can be challenged by a resident or NON resident beneficiary of an Italian asset (it depends on the reason of the challenge). This is worth consideration if you have family members in Italy and overseas. Also remember that forced heirship rules spread as far as nieces and nephews.

* Family members who you have no further contact with can claim on your estate. (i.e non divorced spouses or estranged family members)

* You have 10 years to challenge a will.

So what can you gain from this information? The general upshot of the meeting was that Italian law is too complicated to leave to chance. Although you may be able to apply your foreign will to your Italian asset, it is likely, depending on your circumstances, that the executors/ beneficiaries of your estate/ property will have to jump through hoops to try and sort matters out which could have been dealt with before.

IN BRIEF:
Make sure you seek the correct legal advice and plan your estate carefully.

I learnt a lot from the meeting and am going to now get my affairs in order as a result. If you would like an introduction to Roberta or Giuseppe at Studio Legale Internazionale Gaglione then just send me a quick message and I can introduce you to them.

Le Tour de Finance, Case Study Sessions in Italy

By Gareth Horsfall
This article is published on: 25th March 2015

25.03.15

CASTIGLIONE DEL LAGO – 20TH APRIL

SAN GINESIO – 21ST APRIL

For those of you who know me well you will be aware that I am always a little preoccupied with our Tour de Finance events and that I am always keen to make sure the audience is not bored to tears with dull presentations. I don’t always get it right and have made some presentation mistakes in the past but improved on those in the ‘Forum’ events over the last 2 years.

Now I am ready to take our Tour de Finance events to another level and start to show you how to use all the tax, residency and financial information that I have been writing about and presenting for some time.

With that in mind, I have decided to make this spring the Tour de Finance 2015
‘CASE STUDY SESSIONS’.

Since 2012 and the introduction of the raft of tax and financial changes in Italy, a new norm of financial planning has evolved. In the ‘CASE STUDY SESSIONS’ I would like to show you how we can all fit into that new norm and make living in Italy that little bit easier.

As usual the events will be FREE open question and answer events. We will also return with our preferred team of experts who will be on hand to answer questions.

If you are interested in attending these events then they are going to be held on the following days and in the following places:

Castiglione del Lago (Umbria)

Monday 20th April
Michele & Co – Pastisserie

San Ginesio (Le Marche)

Tuesday 21st April
Palazzo Morichelli D’Altemps

The events will open for arrival at 10.30am and start at 11am promptly. The session will end at approx 1pm. A FREE buffet with wine and water will be served afterwards where you will have a chance to speak with the experts directly and have a chance to meet your friends and acquaintances.

DUE TO LARGE NUMBERS AT SOME PREVIOUS EVENTS NUMBERS WILL BE LIMITED TO A MAXIMUM OF 25 PEOPLE SO WE HAVE THE TIME TO ANSWER QUESTIONS SUFFICIENTLY DURING THE MORNING.

GARETH HORSFALL (THAT’S ME) , THE SPECTRUM IFA GROUP (ITALY)
Presenting the Case Studies and the best way to plan around the Italian tax system.

ROB WALKER, INVESTMENT DIRECTOR
RATHBONES INVESTMENT MANAGEMENT UK.
Rob will be talking about financial marketss. Greece, the EU, USA and the markets to watch in the coming months and years and how they may all affect us in the near future.

ANDREW LAWFORD,
SEB LIFE INTERNATIONAL.
Andrew will explain the tax benefits of the Life Assurance Investment Bond as a tax efficient vehicle in Italy, what are it’s uses and what purpose it serves.

JUDITH RUDDOCK,
STUDIO DEL GAIZO PICCHIONI (COMMERCIALISTA)
She will be on hand to explain the finer workings of the Italian tax system.

PLEASE BOOK YOUR PLACE EARLY TO CONFIRM YOUR SEAT!!!

If you would like more information on how to get to the venues or to register for this FREE EVENT you can email GARETH.HORSFALL@SPECTRUM-IFA.COM leaving your full contact details or call me on 3336492356, or use the form below.

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