Viewing posts from: November 2000

Ignorance is not always bliss…………..

By Sue Regan
This article is published on: 17th July 2017

………..and, in the context of not structuring your investments to the tax regime of the country in which you reside, it can prove to be very costly.

Let’s take the scenario of the savings conscious UK investor who, over the years, has used some of their available cash to build up a nice portfolio of tax-free investments in ISA wrappers, but then decides to take up residency in France. From the date of moving to France the tax-free status of UK ISA is not recognised in France and any income or capital gains arising from the ISA portfolio become liable to French tax.

Not everyone is aware of the tax efficient structures available in France for longer term savings, the most popular of which is far and away the Assurance Vie, and, as a consequence, suffers the pain of incurring tax liabilities where there were none previously, not to mention the extra administrative burden (and accountancy costs) associated with completing the end of year tax return. In addition, they are missing out on the compounding effect that any unnecessary taxes would have on the growth of the portfolio, which, in itself, is a crucial factor which should not be underestimated.

It’s not only the tax-efficiency of ISAs that is affected but, if you have a UK financial adviser advising you on the management of your investments, then it is unlikely that they will be able to continue to give you appropriate advice due to your change in residency and tax regime. You probably wouldn’t have sought the advice of a French regulated IFA to manage your UK investments when you lived in the UK so it doesn’t make sense to expect a UK regulated IFA to advise you when living in a different tax jurisdiction to the one in which they are qualified and regulated.

Of course, making the switch from UK tax efficient savings to French tax efficient savings may not be without some cost at the beginning – but the longer term benefits are highly likely to far outweigh any initial cost. If you have not yet become French resident, by taking the initiative and disposing of your ISA portfolio beforehand, there would be no tax implications whatsoever.

An added attraction to the Assurance Vie is that there is no limit to how much can be invested and the longer you hold them the more tax-efficient they become. In addition, this type of investment is highly efficient for mitigating the potential French inheritance taxes so that your heirs can receive more of your wealth, instead of the French State.

The very popular Tour de Finance is once again coming to the stunning Domaine Gayda in Brugairolles 11300, So, if you are concerned about your investments and pensions in a post-Brexit world why not join us at this very popular event where you can meet the team in person and listen to a number of industry experts in the world of financial advice. This year’s event will take place on Friday 6^th October 2017. Places are by reservation only and it is always well attended so book your place early by giving me a call or dropping me an email. Our speakers will be presenting updates and outlooks on a broad range of subjects, including:

Brexit
Financial Markets
Assurance Vie
Pensions/QROPS
French Tax Issues
Currency Exchange

With a newly elected French government now in office and the forthcoming publication of the French Projet de Loi in the Autumn, the seminar will be an ideal opportunity to find out how any potential French tax changes may affect you, particularly as President Macron has promised changes to the wealth tax regime.

Smoothing out the bumps of market volatility

By Sue Regan
This article is published on: 9th June 2017

09.06.17

In today’s environment of very low interest rates, is it wise to leave more than “your rainy day fund” sitting in the bank, probably earning way less in interest than the current rate of inflation, particularly after the taxman has had his cut…..?

In the above scenario, the real value of your capital is reducing, due to the depreciating effect on your capital of inflation. So, if you are relying on your capital to grow sufficiently to help fund your retirement or meet a specific financial goal, then you should be looking for an alternative home for your cash that will, at the very least, keep pace with inflation and thus protect the real value of your capital.

In order to achieve a better return than a cash deposit, by necessity, there is a need to take some risk. The big question is – how much risk should be taken? In reality, this can only be decided as part of a detailed discussion with the investor, which takes into account their time horizon for investment, their requirement for income and/or capital growth, as well as how comfortable they feel about short-term volatility over the period of investment.

Although inevitable, and perhaps arguably a necessity for successful investment management, it is often the volatility of an investment portfolio that can cause some people the most discomfort. Volatility often creates anxiety particularly for investors who need a regular income from their portfolio, and for this reason some people would choose to leave capital in the bank, depreciating in value, rather than have the worry of market volatility. However, this is very unlikely to meet your needs.

There is an alternative, which is to have a well-diversified investment portfolio that provides a smoothed return by ironing out the peaks and troughs of the short-term market volatility. Many of our clients find that this is a very attractive proposition.

What is a smoothed fund?

A smoothed fund aims to grow your money over the medium to long term, whilst protecting you from the short-term ups and downs of investment markets.

There are a number of funds available with differing risk profiles, to suit all investors. The funds are invested in very diversified multi-asset portfolios made up of international shares, property, fixed interest and other investments.

The smoothed funds are available in different of currencies, including Sterling, Euro and USD. Thus, if exchanging from Sterling to Euros at this time is a concern for you, an investment can be made initially in Sterling and then exchanged to Euros when you are more comfortable with the exchange rate. All of this is done within the investment and so does not create any French tax issues for you.

As a client of the Spectrum IFA Group, this type of fund can be invested within a French compliant international life assurance bond and thus is eligible for the same very attractive personal tax benefits associated with Assurance Vie, as well as French inheritance tax mitigation.

Stop Press!!! Since writing this article the UK Election has taken place resulting in a hung parliament that brings with it more political uncertainty, but also the possibility of a softer Brexit or even a second election. This makes for a testing time for investment managers and the option of a smoothed investment ever more attractive.

A sad time for some…….. whilst others embrace the change

By Sue Regan
This article is published on: 5th April 2017

05.04.17

Now that Article 50 has been triggered, the UK has two years to negotiate its exit. There’s been plenty of speculation as to what may or may not happen and how the Brexit process will work, but the truth is no one really knows. Whatever your feelings are about the historic event of 29th March 2017, it is clear that there will be changes ahead. However, for the time being we are all EU citizens governed by EU law, and as far as we are concerned, it’s business as usual.

And, for those of us resident in France, at this time of year, it’s the Tax Return (Déclaration des Revenus) that is at the forefront of our minds.

As in previous years, the deadline date by which the declaration needs to be submitted to the French tax authority varies by department. For 2017 (income received in 2016) the dates for on-line returns are as follows:

Departments 01 to 19 – 23rd May
Departments 20 to 49 – 30th May
Departments 50 onwards – 6th June

If this is your first income tax declaration in France, a paper return is obligatory and these should be available from your local tax office or to print off on-line from early April. There is a single date for paper based returns, regardless of where you live in France, which for 2017 is 17th May.

For those of you who came to live in France during 2016, then you will need to make your first French tax declaration and declare all your worldwide income and gains, but only for the period since becoming resident in 2016.

Income and gains that might be tax-free in another country, for example, UK ISAs, premium bond winnings and Pension Commencement Lump Sums, must be declared, as all are taxable in France. Even for income that is taxable in another country, for example a UK government type of pension (i.e. civil service, military, police and teachers pensions, but not State pensions) and/or UK property rental income, the amount must still be reported in France and it will be taken into account in calculating your French income tax. You will then be given a tax reduction to take into account the fact that the income is taxable elsewhere.

It is also obligatory to declare the existence of bank accounts and life assurance policies held outside of France, even bank accounts with nothing in them! There are large penalties for not doing so.

Common Reporting Standards
Hopefully, many of you will now be aware of the existence of the CRS, which has been in operation since 1st January 2016 (not least because you may have been asked by your UK bank, or perhaps the institution that pays your private pension, for your French fiscal reference number). This basically means that all EU fiscal authorities and many others throughout the world (including the popular offshore jurisdictions of Isle of Man, Channel Islands and Gibraltar) are exchanging information on pretty much all things financial, concerning taxpayers living in one country who have assets in another country and/or income arising in another country. This includes investment income (e.g. bank interest and dividends), pensions, property rental income, capital gains from financial assets and real estate, life assurance products, employment income, directors’ fees, as well as account balances of financial assets.

No-one is exempt and therefore, it is essential that when you complete your French income tax return, you declare all income and gains – even if this is taxable in another country by virtue of a Double Taxation Treaty with France.

Finally, if anyone finds that they need to complete the pink 2047 form, this means that you have foreign income and/or gains to declare. If this is for any reason other than pension income and earnings, then perhaps you may benefit from a discussion to see if your financial situation can be improved by investing in something that is more tax-efficient for French residency.

Reasons to Wrap

By Sue Regan
This article is published on: 3rd March 2017

03.03.17

It’s no secret that the Assurance Vie (AV) is by far and away the most popular investment vehicle in France……….and for good reason! Most of you will already be familiar with these investments, or at the very least, have heard of them, but it doesn’t harm to be reminded now and again as to why they are so popular.

What are they? – An AV is simply a life assurance wrapper that holds financial assets, often with a wide choice of investments, and there is no limit on the amount that can be invested.

What’s so good about them?…..quite simply, their huge tax advantages, such as:

Tax-free growth – funds remaining within an AV grow free of French Income and Capital Gains tax

Simplified tax return reporting – considerable savings in terms of time and tax adviser fees

Favourable tax treatment on withdrawals – only the gain element of any amount that you withdraw is liable to tax. There is an additional benefit after eight years in the form of an annual Income tax allowance of €4,600 for an individual and €9,200 for a married couple

Succession tax benefits – AV policies fall outside of your estate for Succession tax and the proceeds can be left directly to any number of beneficiaries of your choice (not just the ones Napoleon thought you should leave them to!). There are very generous allowances available to beneficiaries of contracts taken out before the age of 70.

Why invest in an International Assurance Vie?

There are a number of insurance companies that have designed French compliant international AV products, aimed specifically at the expatriate market in France. These companies are typically situated in highly regulated financial centres, such as Dublin and Luxembourg. Some of the advantages of the international AV contracts are:

The possibility to invest in multiple currencies, including Sterling and Euros.

A large range of investment possibilities available.

The majority of international AV policies are portable, which means that should you return to the UK, it will not be necessary to surrender the bond.

The documentation for international bonds is available in English.

At Spectrum, we only recommend products of financially strong institutions and domiciled in highly regulated jurisdictions. If you would like to know more about these extremely tax efficient investments, or would like to have a confidential review of your financial situation, please feel free to contact me.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at spectrum-ifa.com/spectrum-ifa-client-charter

Are you thinking of selling your UK property or have you sold one recently?

By Sue Regan
This article is published on: 13th January 2017

13.01.17

I decided on the topic for this month’s article after having had a couple of very similar conversations recently with expats relating to the sale of property in the UK. In each case they were badly let down by their UK Solicitors who failed to inform them of a change in UK legislation that was introduced in April 2015. As a result, they received unexpected and not insignificant late payment penalties from HMRC for failure to complete a form following the sale of their UK property which could have been avoided if they had been made aware of this change in the law.

Recap of the new legislation

Prior to 6th April 2015 overseas investors and British expats were not required to pay Capital Gains Tax (CGT) on the sale of residential property in the UK, providing that they had been non-resident for 5 years. New legislation was introduced on 6th April 2015 that removed this tax benefit.

The rate of CGT for non-residents on disposals of residential property is the same as UK residents and depends on the amount of taxable UK income the individual has i.e. 18% for basic rate band and 28% above it, and it is only the gain made since the 6th April 2015 that is subject to CGT for non-UK residents.

Reporting the gain

When you sell your property, you need to fill out a Non-Resident Capital Gains Tax (NRCGT) return online and inform HMRC within 30 days of completing the sale, regardless of whether you’ve made a profit or not. This applies whether or not you currently file UK tax returns. You can find the form and more information on the HMRC website at hmrc.gov.uk

Paying the tax

If you have a requirement to complete a UK tax return then payment of any CGT liability can be made within normal self-assessment deadlines. However those who do not ordinarily file a UK tax return will be required to pay the liability within 30 days of completion. Once you have submitted the form notifying HMRC that the disposal has taken place, a reference number will be issued in order to make payment.

As a French resident you also have to declare any gain to the French tax authority. The Double Taxation Treaty between the UK and France means that you will not be taxed twice on the same gain, as you will be given a tax credit for any UK CGT paid (limited to the amount of French CGT). The French CGT rate is 19% and any taxable gain is reduced by taper-relief over 22 years of ownership. You will also be liable to French Social Charges on the gain, at the rate of 15.5%, and the gain for this purpose is tapered over 30 years (rather than 22 years).

At Spectrum we do not consider ourselves to be Tax Experts and we strongly recommend that you seek professional advice from your Accountant or a Notaire in this regard.

There is little that can be done to mitigate the French tax liability on the sale of property that is not your principal residence. So it is important to shelter the sale proceeds and other financial assets wherever possible to avoid future unnecessary taxes. One easy way to do this is by investing in a life assurance policy, which in France is known as a Contrat d’Assurance Vie, and is the favoured vehicle used by millions of French investors. Whilst funds remain within the policy they grow free of Income Tax and Capital Gains Tax. In addition, this type of investment is highly efficient for Inheritance planning as it is considered to be outside of your standard estate for inheritance purposes, and you are free to name whoever and as many beneficiaries as you wish. There are very generous allowances for beneficiaries of contracts for amounts invested before the age of 70. Spectrum will typically use international Assurance Vie policies that fully comply with French rules and are treated in the same way as French policies by the fiscal authorities.

International Assurance Vie policies are proving highly popular in light of Loi Sapin II, which has now been enacted into law. More details about the possible detrimental effects of the ‘Sapin Law’ on French Assurance Vie contracts, in certain situations, can be found on our website at https://spectrum-ifa.com/fonds-en-euros-assurances-vie-policies/. Thus, when also faced with the prospect of very low investments returns on Fonds en Euros – in which the majority of monies in French Assurance Vie contracts are invested – it is very prudent to consider the alternative of an international Assurance Vie contract, particularly as you would still benefit from all the same personal tax and inheritance advantages that apply to French contracts.

Investing in turbulent times

By Sue Regan
This article is published on: 12th January 2017

12.01.17

In the words of Bob Dylan….The Times They Are a-Changin’

Well, 2016 certainly saw its fair share of change on a global scale, both politically and economically. A few notable events in the year’s calendar being:

A slump in Chinese economic growth and heavy selling-off of stock causing its stock market to close for 3 days in January and wider global market turbulence
The oil price crash early in the year which, although a welcome bonus at the petrol pumps, had a largely negative effect on the global economy which now relies far more on emerging economies that are oil and commodity rich than it did 15 or 25 years ago – the last periods of ultra low oil prices
Interest rates are at an all time low and could go even lower, even though inflation is on the up. Whilst this is a good thing if you are a borrower, it’s not good news for savers
BREXIT – as well as the political chaos left in its wake the vote to leave the EU sent sterling into a downward spiral taking it to its lowest level against the US dollar in over 30 years. Although the UK stock market rallied initially because UK exports looked cheap, and the fall of the pound against the Euro has been a little softer, it has dramatically reduced the income for anyone transferring their pensions from sterling to euros
Donald Trump’s victory in the US presidential election took most by surprise, but the president-elect continues to defy expectations. Contrary to the predictions of many experts, stock markets have rallied strongly since his victory, with the three major US indices reaching record highs while the dollar has soared. What effect this will have on the longer term outlook for the US and the rest of the world is yet to be seen but a hike in US interest rates now seems very likely

Sometimes change is positive and sometimes it is negative. When things appear to be bad it is often tempting to allow emotion to intervene and bad investment decisions can be made. To say that the future is uncertain is an understatement, but when is the future ever certain? As the old adage goes “the only things certain in life are death and taxes”. During times of increased uncertainty, it feels “safe” to leave your hard earned cash to sit in a bank account where it won’t be affected by market falls and “at least it will earn a bit of interest” – and that is very often the case BUT that isn’t to say that it won’t lose any value. With interest rates at an all time low and inflation on the rise you don’t need to be a mathematician to work out that if the rate of inflation is higher than the rate of interest your cash is earning then the real value of your capital is falling, not to mention the Income tax payable on savings interest. The thing most investors want above all else is to grow their capital.

Market timing is difficult at best – even the professionals can get it wrong. Every market cycle has days when it rises and days when it falls, known as market volatility. The herd instinct as well as our emotions can sometimes lead us to buy when markets are on the rise or, as is often the case, when they are at a peak, and sell when they are low. Often a few good days account for a large part of the total return on an investment but trying to predict when these days will be is virtually impossible. By staying in the market you ensure that your investments will benefit from the good days.

The key to reducing market volatility is diversification. Although it does not guarantee against loss, diversification is the most important component to achieving your long-term financial goals whilst minimising risk. A well diversified portfolio will include investments across a broad range of asset classes (e.g. cash, bonds, property and equities) and investing in several different industries; sectors; geographical regions; and incorporating different fund managers.

Good portfolio managers will monitor and analyse closely the changes and trends going on in all aspects of the investment universe and will find opportunities even when things are generally perceived to be “bad”. Choosing the right fund manager(s) to manage your money is crucial. Although The Spectrum IFA Group is completely independent and is free to recommend any and all investment providers out there – we don’t. We place huge importance on our rigorous selection process before adding a fund to our Preferred Funds List, considering such things as the strength and security of the fund house; its regulatory environment; the experience and track record of the fund manager(s); the team and resources available; the investment process and the fund mandate. After undertaking the detailed selection process our specialist Investment Committee put together a comprehensive list of funds and investments to suit different risk profiles, time horizons and financial objectives.

Financial Review

It is at times like this that people need financial advice more than ever. If you would like to have a confidential discussion about your situation, or any other aspect of retirement or inheritance planning, you can contact me by e-mail at sue.regan@spectrum-ifa.com or by telephone on 04 67 24 90 95 to make an appointment. We adopt a highly-personalised approach to expat financial planning. We are here for the long term, and will continue to guide you through all types of financial issues. The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at https://spectrum-ifa.com/spectrum-ifa-client-charter/