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Sterling or euro?

By Rob Hesketh - Topics: Currencies, France, Pensions, Retirement, Uncategorised
This article is published on: 31st March 2015

31.03.15

My monthly articles appear principally in the Flyer and on the Spectrum website, although I have seen them crop up in all sorts on unlikely places on the internet. Thankfully, they create a steady stream of calls or emails from readers who have many and varied financial issues to address. Quite often these issues can be well beyond my capabilities as a financial adviser to address, but I will always try to help as much as I can. I do hope for example that my assertion that French motorway petrol stations open on Christmas day was correct; and I would love to know whether the gentleman planning to start selling ice cream from a van outside the Old Cité gates in Carcassonne succeeded in his venture. I also felt truly sorry that I was unable to lend one gentleman €30,000 to buy a plot of land to enable him to fish from the river Aude.

Last month I ended my article with the following paragraph: Clients who have Sterling assets do not need to convert them to Euro to make use of the products available to them outside the UK. Those clients who have transferred their assets in Sterling are most probably quite pleased that they did not convert, but what about now? What if we hit 1.40, or 1.45? For my money the only way is down from there, back to my preferred levels. If we do get to 1.40, I will certainly be looking long and hard at my Sterling funds, with my finger hovering over the deal button.

Well, it did indeed happen, and as I write this sterling is worth over 1.40 Euro. Did my finger hover over the ‘deal’ button? Yes it did. Did I press that button? No I didn’t. I need to make two things perfectly clear here. Firstly, what I’m about to type must not be regarded as advice. I’m just telling you what thought process I went through. Secondly, we’re not talking mega bucks (or pounds) here, certainly not for the meagre amount that is lurking in our one and only UK bank account anyway.

It’s quite difficult to express the reason for not changing that sterling into Euro, but I’ll give it a go, at the risk of sounding somewhat deranged. Every one of my pounds somehow feels to me to be worth more than €1.40. That is of course irrational. Anyone who thinks the true rate should be in the region of 1.25 should bite the hand off anyone who offers him 1.40 or better. Yet I didn’t want to do it; I just couldn’t bring myself to sell my shiny £1 coins in exchange for what looks like a bunch of supermarket trolley tokens. Immediate apologies to ‘le Tresorie’ at this point. I suspect that part of me is being a bit greedy looking for a Euro collapse, but would that necessarily persuade me? Potentially not. The weaker a currency becomes, the less inclined I might be to buy it. In essence, I think I’m more likely to buy Euros at 1.40 when the rate is on its way down than when it’s on the way up. I did tell you that I used to be a foreign exchange dealer; funny bunch they are.

The other hot topic at the moment is of course pensions. I know that there is a risk that you might be getting fed up of hearing this, but I am largely opposed to the ‘pension freedom’ that is just around the corner for the UK pension market. I am opposed to virtually all kinds of tax grabs, and I see this as just another example, albeit dressed up as a fabulous opportunity for the over 55’s Or maybe that opportunity is for anyone who can take advantage of the over 55’s, including conmen, salesmen, and taxmen.

For me, the writing is on the wall regarding UK based pensions. They are ‘in play’. Shedding all access restrictions is designed to provide a huge tax income boost for the UK coffers. If it doesn’t work, they will look for another way to get their hands on our savings. Even if it does work there will come a time when more cash is needed to bale out the UK economy. Pensions will then come under more fire, and more ways will be found to raid the coffers.

I will not be a part of either process. My pension funds are safely housed away from the UK jurisdiction. They will be used as pension funds should be used; to provide an income when I retire, whenever that might be. Hopefully that won’t be any time too soon as I’m enjoying myself too much to stop, but when the time comes I won’t be relying on a UK state pension alone. That would not be an attractive proposition.

QROPS is an extremely welcome result of the European freedom of movement of capital. We should all grasp the concept and use it to ring-fence our future incomes.

Living in France with assets in Sterling

By Rob Hesketh - Topics: Currencies, France, Investments, Residency, Uncategorised, wealth management
This article is published on: 19th March 2015

19.03.15

Last month I ended my article with the following paragraph:  Clients who have Sterling assets do not need to convert them to Euro to make use of the products available to them outside the UK.  Those clients who have transferred their assets in Sterling are most probably quite pleased that they did not convert, but what about now?  What if we hit 1.40, or 1.45?  For my money the only way is down from there, back to my preferred levels.  If we do get to 1.40, I will certainly be looking long and hard at my Sterling funds, with my finger hovering over the deal button.

Well, it did indeed happen, and as I write this sterling is worth over 1.40 Euro.  Did my finger hover over the ‘deal’ button?  Yes it did.  Did I press that button?  No I didn’t.  I need to make two things perfectly clear here.  Firstly, what I’m about to type must not be regarded as advice.  I’m just telling you what thought process I went through.  Secondly, we’re not talking mega bucks (or pounds) here, certainly not for the meagre amount that is lurking in our one and only UK bank account anyway.

It’s quite difficult to express the reason for not changing that sterling into Euro, but I’ll give it a go, at the risk of sounding somewhat deranged. Every one of my pounds somehow feels to me to be worth more than €1.40.  That is of course irrational.  Anyone who thinks the true rate should be in the region of 1.25 should bite the hand off anyone who offers him 1.40 or better.  Yet I didn’t want to do it; I just couldn’t bring myself to sell my shiny £1 coins in exchange for what looks like a bunch of supermarket trolley tokens.  Immediate apologies to ‘le Tresorie’ at this point.  I suspect that part of me is being a bit greedy looking for a Euro collapse, but would that necessarily persuade me?  Potentially not.  The weaker a currency becomes, the less inclined I might be to buy it.  In essence, I think I’m more likely to buy Euros at 1.40 when the rate is on its way down than when it’s on the way up.  I did tell you that I used to be a foreign exchange dealer; funny bunch they are.

The other hot topic at the moment is of course pensions.  I know that there is a risk that you might be getting fed up of hearing this, but I am largely opposed to the ‘pension freedom’ that is just around the corner for the UK pension market.  I am opposed to virtually all kinds of tax grabs, and I see this as just another example, albeit dressed up as a fabulous opportunity for the over 55’s  Or maybe that opportunity is for anyone who can take advantage of the over 55’s, including conmen; salesmen, and taxmen.

For me, the writing is on the wall regarding UK based pensions.  They are ‘in play’. Shedding all access restrictions is designed to provide a huge tax income boost for the UK coffers.  If it doesn’t work, they will look for another way to get their hands on our savings.  Even if it does work, there will come a time when more cash is needed to bale out the UK economy.  Pensions will then come under more fire, and more ways will be found to raid the coffers.

I will not be a part of either process.  My pension funds are safely housed away from the UK jurisdiction.  They will be used as pension funds should be used; to provide an income when I retire, whenever that might be.  Hopefully that won’t be any time too soon as I’m enjoying myself too much to stop, but when the time comes I won’t be relying on a UK state pension alone.  That would not be an attractive proposition.

QROPS is an extremely welcome result of the European freedom of movement of capital.  We should all grasp the concept and use it to ring-fence our future incomes.

The currency exchange rate

By Rob Hesketh - Topics: Currencies, europe-news, France, Inflation, Uncategorised
This article is published on: 17th February 2015

17.02.15

Time to revisit an old friend this week, the exchange rate. Long term sufferers of my monthly missives will possibly recall that in my dim and distant past I used to be an international banker, and for part of that time a foreign exchange dealer. It was so long ago that we used to have exotic currencies such as the French Franc; Italian Lire, and even the Deutschmark. Heady days indeed! By the time I escaped from the banking world in 2002 these currencies were dead or, perhaps more accurately, held in a cryogenic state, ready to be reheated if need be. The exchange rate between Sterling and the new super-currency, the Euro, was in the mid 1.60s in 2002, and had declined to the mid 1.50s when I finally got to France in 2003. By the time I bought property here in 2004, I averaged 1.45.

The trend was set, but few people were prepared for it. During the financial meltdown in 2007 and 2008 ‘la merde a vraiment frappé le ventilateur’, and the pound plummeted almost to parity with the Euro by the end of 2008. In 2009 I stupidly agreed to start a weekly column for an internet magazine, giving my predictions for the week to come. I struggled with this millstone for nearly three years. My basic message was that large F/X movements like this are always exaggerated. Parity was plainly nonsense, and the pound ought to recover to between 1.25 and 1.30. It takes some ingenuity to deliver this basic message 130 times, and in 2012, with the pound at 1.25, I called it a day. I still remember the sense of relief when I realised I wouldn’t have to sit down at 4pm on any more Fridays to write about why the previous week’s forecast had been so wrong.

It was a good time to stop, as the rate fell again during the second half of 2012 to 1.15 before slowly resuming its upward trend. Interested parties, and by that I mean all expats, probably didn’t take too much notice as we clawed our way back up through 1.20s and on to 1.25 once more. Then, at the start of November last year, a big market move started, and people began to sit up and take notice. Two months later, and as I write, we are at a shade under 1.35. So what is going on?

Politics and economics are of course the answers. They govern supply and demand, which is the final arbiter of the exchange rate. Germany, the powerhouse of Europe, now has a stagnating economy, and Greece, not the powerhouse of Europe, is stirring up political trouble. None of this bodes well for the Euro. So we can all sit back and relax. The pound is heading back to 1.60. Hundreds of thousands of Brits will be pouring into France waving their new cheap wads of Euro, buying up all the property in sight and sending up the values of our houses at the same time.

Does anyone really think that? I certainly don’t. There is no such thing as a safe bet in the currency markets. You must never forget Murphy’s law. Whenever you really want something to happen, Murphy’s law dictates that the opposite will occur.

I think that we are approaching the time when we need to think about selling Sterling. I don’t think we’re there yet, but we need to be careful. We live, after all, in the Euro zone, and thus most of the money we spend is Euros. We may have pensions or indeed other income in Sterling, but that won’t buy your morning croissant. Until you change it into Euro; it is largely useless while you live here. Of course there is nothing you can do about your UK State pension, if you are in receipt of that princely sum. You will just have to be savvy about when and how you convert it. You can however do a great deal with an occupational pension, and you can do a great deal with your savings and investments. There is no better time than now to take a long hard look at your UK pension pot. Savings and investments held in non-French tax efficient bonds are a nonsense. Come and talk to me about them now!

For years now The Spectrum IFA Group have been advising clients on pensions and investments and I have been keen to point out that clients who have Sterling assets do not need to convert them to Euro to make use of the products available to them outside the UK. Those clients who have transferred their assets in Sterling are most probably quite pleased that they did not convert, but what about now? What if we hit 1.40, or 1.45? For my money the only way is down from there, back to my preferred levels. If we do get to 1.40, I will certainly be looking long and hard at my Sterling funds, with my finger hovering over the deal button.

Witholding tax on overseas money transfers to Italy

By Gareth Horsfall - Topics: Currencies, Investments, Italy, Uncategorised, wealth management
This article is published on: 15th April 2014

15.04.14

I would like to bring up the subject of the 20% witholding tax on profit from investment, for Italian residents.  This piece of legislation that Italy was going to introduce in February and has now postponed until July. This seemed to be one of the main causes for concern amongst attendees at the recent Tour de Finance Forum events in Italy and so I thought I would write the little that I know of it to assist in preparation for its, possible, return.

To recap, the introduction of the law was aimed at automatically stopping 20% on any monies brought into Italy, from overseas, (for personal account holders only) on the assumption that this money was ‘profit from investment’ and not other types of income. Profit from investment can be clarified as rental income on properties overseas, sales of shares, bonds, or other types of financial assets.

Of course, stopping 20% on ALL transfers into Italy would also catch those who are legitimately bringing in pension income, income from employment, banks savings etc, and therefore to avoid the fiscal authorities automatically witholding 20% on these monies a self certification, in the guise of a letter, would need to be submitted to your bank to declare that this was NOT profit from investment. If you submitted the letter then your personal details would be passed to the fiscal authorities (who we can assume would then start to track your money movements through Internationally agreed exchange of information controls)

Now it is worth noting before I continue, that in essence the law itself was a smart move from the Italian fiscal authorities, in that it would force those who do not wish to be caught in the witholding tax to announce to the Italian authorities that they are bringing money in and out of the country. Hence, they are more easily trackable. In addition, and I think this is the more likely target, it would also force those who have not yet registered assets overseas with the Italian authorities, to do one of 2 things.

1. Carry on regardless and therefore run the risk that when they are found out they could be fined anywhere from 3-15% of the undisclosed assets, and should those assets be located in black list territories then those fines are doubled from 6 – 30% of the undisclosed value.  Not advisable!

2. They self certify with the bank and as such are submitting a legally signed statement of intent.  Should they then fail to report income from profit, when it enters the country, they have actually ‘knowingly’ broken the law.

Of course, all this is based on the assumption that someone is not declaring assets that they have overseas and for most this is not the case. So what about those of you who are doing what you should be doing?

Then, I believe, it becomes no more than another administrative headache.  What I mean is that with a self certification letter the bank will not stop the witholding tax and so income can move freely into the country as it had previously done. However, let’s assume that you do want to bring some money in from an investment overseas, which has already been declared through the correct channels. Does this mean that you have to go back to the bank and request that this one transaction is treated differently, just this time and what if this is a regular occurence?

Also, what if you fail to declare that money is coming in from overseas profits on investment but this money is, once again, already declared legally on your tax return? Are you in breach of rules and therefore subject to fines?

Finally, so as not to drag the point out too much, what if the bank mistakenly witholds the tax on pension income, for example, which you need to live on? Can you easily reclaim this back? Doubtful! Or do you have to wait up to 2 years for a tax credit?

As we can see the legislation had some trivial issues which they needed to iron out, but, fundamentally it was an interesting move. The first of its kind that I have seen in Europe, where a direct attack on profit from investment overseas has come under the spotlight. Until now the main focus has been on bank interest payments and rental incomes for homes overseas. On March 24th 2014 the 2nd phase of the EU Savings Tax Directives was submitted for final approval which will now bring monies held in overseas investments funds, OEICS, SICAVs, Unit trusts etc, in the EU and outside, into an automatic exchange of information agreement. Additionally, Luxembourg and Austria will now be subject to full exchange of information agreements as of 1st January 2015 and other dependants states, such as the Isle of Man, Jersey, Guernsey, Dutch Antilles, San Marino etc will be required to share more information with the EU.

Lastly, and most interestingly, the proposed 20% witholding tax in Italy will likely raise its head again in July this year. But, in what shape or form, I cannot say. The report from Brussels in the aftermath of the first proposals was not as you would expect, a damning of the law. But in fact they openly supported the idea and suggested different ways of looking at implementation. Can we expect to see this Italian model being the model that Europe will use in the future?

So, for those who are not quite ‘in regola’ yet, time is of the essence. The transparency agreements are effectively opening the doors to hidden assets, bank account interest is tracked, rental income on overseas properties is tracked, now investment in foreign investment funds is under scrutiny. It is only a matter of time before income payments from direct investment in shares and bonds are fully disclosed, Capital gains, i.e profit on investment, is now under scrutiny, as detailed above and that only leaves Limited companies and other more obscure and substantially more speculative investments.

It is worth noting that one of the speakers on our Tour de Finance Forum events was Andrew Lawford from SEB Life International. He was explaining how it is perfectly possible to keep assets outside Italy, but be compliant with the laws of Italy, and remove the need to keep abreast of these changes in Italian law by employing the use of an insurance wrapper in which to house your assets. It acts like a tax efficient account whereby SEB Life International, in this case, will act as a witholding agent to ensure you do not pay more tax than you need to and that they become legally responsible for reporting the assets correctly.

It removes the worry of reporting error, keeps monies out of Italy and most importantly, whilst the money is held in the wrapper, it is never subject to Italian income or capital gains tax. Only at the point of withdrawal (partial or full) would any Capital Gains tax liability only, (not income tax) occur, which would be paid automatically on your behalf.

Finishing up on the new legislation, in whatever form it takes, will likely be no more than an administrative headache for most, but for those who, as yet, may have undisclosed assets, then more difficult decisions lie ahead. If you think anyone else might find this article useful, please do feel free to pass the information on and if you would like to speak about this or any other financial matter as an expat living in Italy, then plese get in touch.

Looking at financial stability throughout your yachting career

By Peter Brooke - Topics: Currencies, France, Investments, Uncategorised, Yachting
This article is published on: 5th February 2014

05.02.14

polaroid_frame_satbilityWhile I have discussed strategies for individual investments, banking and insurance, I wanted to present what I believe to be the “Basic Rules,” which, if followed throughout your yachting career, will maximize your chances of financial success.

    1. Have a bank account in the same currency as your income.
    2. Have other currency bank accounts if you spend considerable time in other currency jurisdictions.
    3. Use a currency broker account to move money between accounts; this gives you control and saves money on the exchange rate and commissions.
    4. Clear debts as soon as you can, especially those with high interest rates.
    5. Check the medical cover available to you from the yacht; offer to pay a small supplement if it doesn’t cover you during holidays or when not on board.
    6. Conceptually plan out different financial “pots:”
    7. * Emergency: at least three months’ salary in a bank account (preferably six months)
      * Education: when and how much (is it for the next course?)
      * Spending money: limit yourself to a set amount each month
      * Property purchase money: how much will you need for a deposit, and when
      * Long-term money: 25 percent of your salary

    8. Understand your tax residency status: Keep an accurate diary of where you spend your time. The places where you are most likely to be considered resident are:
    9. * Your country of citizenship
      * Where you own real estate
      * Where you spend the most time
      * Where your “dependent family” is based (your home)

    10. Save at least 25 percent of your income for the long term; you don’t pay any social security. If you worked on shore, your salary would be at least 25 percent less due to this.
    11. Invest time in your own financial education. Read my column in Dockwalk every month, look at investment websites, learn about inflation, property leverage, risk and compound returns.
    12. If in doubt, take advice. Understand your limitations and build a team of trusted advisers in different fields; speak to other crew about what they do with their money (but don’t follow just one).

    When you get to the time when you want to leave yachting (be it after 5 years or 25) it is great to be able to do so because of the way you have managed your own resources… many people cannot leave the industry at the time they want to because they have not taken control of their futures.

    Follow every one of these simple rules and you I am certain that you will get the most out of your yachting career…and will leave it feeling that it not only gave you great memories and friends but helped you look forward to a long and fruitful second career or retirement.

     

    This article is for information only and should not be considered as advice.

Currencies Update 25th November 2013

By Spectrum-IFA - Topics: Currencies, Uncategorised
This article is published on: 25th November 2013

25.11.13

GBP

The pound strengthened against its main rivals last week, inching up against the euro and dollar. Sterling climbed to a two-week high against the euro and moved close to its highest level versus the Greenback since the end of October. Gains were capped on Friday (November 22nd), however, as Bank of England policymaker Spencer Dale said it would be a long time before the UK was strong enough to cope with higher interest rates. Sterling also rose to a three-year high against the Australian dollar ahead of data due this week expected to show UK growth accelerated in the third quarter. The pound was also close to a five-year high against the yen.

EUR

The euro was broadly steady last week, posting some gains later on against the dollar having earlier fallen on signs the Federal Reserve appeared closer to tapering stimulus than previously thought. ECB chief Mario Draghi also played down talk the bank is considering negative deposit rates, further boosting the currency. The euro recouped some losses against sterling later in the week, having dipped to a two-week low. Just like the other majors, the single currency rose strongly against the yen, reaching a four-year high. A big rise in the IFO German business confidence index is expected to drive the euro higher as reports begin to build a picture of recovery in the bloc.

USD

The dollar surged on Wednesday after the Fed said it could taper in the “coming months”, but advances against majors were kept in check by a mixed bag of economic data from the US. The Greenback lost ground on the pound, but moved sharply higher against the yen as the divergence in US and Japanese monetary policy becomes starker. USD/JPY was up around one per cent. And after a volatile week, USD/CHF ended the week almost flat.Speculation the Fed will dial back stimulus saw the dollar move higher against emerging market currencies, which had a tough time last week. Looking ahead, key data on durable goods orders, unemployment figures and home sales will offer investors more clues about when the Fed will see the US eco nomy is ready for tapering.

JPY

The yen suffered a fourth weekly drop against the dollar as the currency slid against all 16 of its major rivals after the Bank of Japan held firm on its massive easing programme. The bank reaffirmed its plan to expand the monetary base by as much as JPY70 trillion yen (USD 69 billion) a year to help spur inflation. The yen was at multi-year lows against the euro and pound, whilst also sliding to a four-month low against the dollar. JPY is down 12 per cent this year.

AUD

The Aussie matched its longest run of weekly losses in seven years, following comments by RBA governor Glenn Stevens, who said the bank was “open-minded” about exchange rate intervention. The Aussie slipped to a five-year low versus its New Zealand counterpart, while plumbing a three-year trough against sterling.

Contact you adviser for further details

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Currencies Update 4th November 2013

By Spectrum-IFA - Topics: Currencies, Uncategorised
This article is published on: 4th November 2013

04.11.13

GBP

The pound ended October on a low note after slipping against the dollar towards the end of the week when the US manufacturing sector enjoyed success. This was largely due to success in the USA, with the Chicago manufacturing purchasing managers’ index rocketing by more than ten points in October from the previous month, hitting a score of 65.9. This is rather impressive when it is considered that anything above 50 indicates growth. The story could have been worse for the pound, as without positive house price data to back it up, losses are likely to have been much more dramatic. However, house prices rose some 0.7 per cent, meaning that investors were reassured, and sterling received the support it needed.

USD

While the dollar may have been up on the pound, a decision by the Federal Reserve saw it slip against the Yen and the euro. The Fed announced it would maintain its asset purchase scheme for the moment, causing the dollar to hit a session low of 98.28 against the yen. It then consolidated at 98.30, making for a fall of 0.22 per cent. As the Fed failed to give any hints as to when it would begin to wind in its $85 billion per month bond-buying programme, investors remain uncertain as to whether the slow down in the US economy due to the government shutdown will mean that measures are relaxed sooner or later.

EUR

The euro did not have a bad week, holding against the dollar on Wednesday (October 30th) at an exchange rate of $1.37. However, results against the dollar could have been better when faltering US consumer confidence data is taken into account. The euro has gained a total of seven cents since September on its US counterpart, however has been unable to breach the $1.3800 barrier due to lukewarm investor confidence.

Contact you adviser for further details

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.