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Are you au fait with Exchange Rates?

By Occitanie - Topics: Currencies, France, Occitanie
This article is published on: 9th October 2020

09.10.20

Welcome to the sixth edition of our newsletter ‘Spectrum in Occitanie, Finance in Focus’.

The Covid-19 pandemic is still dominating our thoughts and lives and will probably continue to do so for some time yet. Life must go on though, and we need to make sure that we are looking after our finances, as well as ourselves and our loved ones. Today we are going to take a slightly deeper than usual look at something that we might take for granted – exchange rates.

As a reminder, we are Rob Hesketh, Philip Oxley, Sue Regan and Derek Winsland. Together we form Spectrum’s team in the Occitanie, formerly of course the Languedoc Roussillon and Midi Pyrenees.

What is an exchange rate?

What is an exchange rate?
Ok, let’s start with the easy questions. It will get tougher as we go on. Obviously, the exchange rate is the rate at which one currency can be exchanged for another. Currently the rate at which holders of sterling can buy euros is 1.1100. Or is it 1.1000? or maybe 1.0925? It might even be less than 1 if you buy it at the wrong place. Then again, 0.9010 might be a very good rate. How can that possibly be right? How can 0.9010 be better than 1.1000? The answer lies in the fact that there are always two versions of every exchange rate.

We Brits tend to take the view that sterling is more important to us than any other currency, so we always want to know how much of any given currency we can get for £1. The rest of the world however are prone to taking a different view, so if you ask a French bank for the rate to convert sterling to euros you will get a rate that reflects how many pounds you can get for one euro. Confused? I do not blame you. To keep things simple, I recommend that when you see a rate expressed in that way, all you need to do is divide it into one. Thus 1/.9010 = 1.1099

Why so many different rates?
Well, obviously the rate can keep on changing every minute. The law of supply and demand applies here, but there are also many different rates at the same time. That is because volume plays a huge part. An exchange rate is a compromise between two parties, one of whom wants to sell, and the other to buy. Basically, if you are an international bank dealing in hundreds of millions of pounds per deal, you are going to get a very good rate; in fact, the best there is. Players (to many it is in fact a game) can either make a price or request a price. If the latter, they will never say to the market ‘I want to buy euros’. They will always ask for a two-way price, the idea being that the bank being asked for the rate does not know which side of the deal the other bank wants. The spread between the two prices may be a little as 3 basis points. That’s the fourth decimal point to you and me, so the rate quoted might be 1.1000 to 1.1003. The quoting bank sells euros at 1.1000 and buys them at 1.1003. Those three basis points represent the market spread, or profit margin on the deal. Still with me? If you are it will come as no surprise that the profit margin gets wider and wider as the amount you are dealing in gets smaller and smaller. At exactly the same time as a big bank is dealing at 1.1000, you might find that the rate you get for your €500 will be more like 1.0700, and if you go to a kiosk at an airport and ask for €500 cash for your weekend away in Paris, you might well get less than 1:1, so you would end up spending more than £500.

Why should I be wary of exchange rates?

Why should I be wary of exchange rates?

Quite simply because if you do not give them due care and attention, they can cost you a lot of money.

The indisputable fact is that whilst most of us arrive in France (or any other new home abroad for that matter) declaring that wild horses wouldn’t drag us back to the UK, or if they did we’d be in a box, the fact is that many of us end up back where we came from. We might hate the idea, but the facts are there. That means that there are four general phases that we will go through where exchange rates are going to have great bearing on our lives. Firstly the initial move phase, where we need to have enough euros to move here and buy property; secondly the sustenance phase, where we need to invest lump sums or exchange regular income such as pensions based in sterling; thirdly dealing with possible influxes of capital through inheritance or UK property sales, and fourthly the reversal of all of the above if we decide to go back.

What is exchange rate risk?

What is exchange rate risk?

Best think of this as ‘‘damned if you do and damned if you don’t’’. If I do a currency deal, would I be better off waiting for a better rate?

If I don’t do it now, will it be worse when I have to do it?

Often, the answer is yes to both questions.

The aim should always be to eliminate exchange rate risk, but it is a lot harder to do that than it seems. Yes, if you sell your property in the UK and move to France, you are going to need to convert a sizeable part of the proceeds into euro to buy a property here, but what if there is a good chunk of money left over? What if you were fortunate enough to get £800k for your des-res in Surrey, and managed to find the ideal pied-a-terre in the Aude for €300k? That leaves you with a decision to make about the £530k or so that you have left. Is the answer that you are going to live in euroland so your money should be in euro? – Yes. Is the answer that eventually you may want to go back to the UK so your reserves should stay in sterling? – Yes. Is the answer that the current exchange rate is terrible, and you should at least wait and see what happens? – Yes. So, which ‘Yes’ is the right one? You can have the same conversation about your pension funds if you are looking to consolidate them outside of UK jurisdiction (and political meddling). You can also have that same conversation when or if you decide to sell a second property that is currently let out, or Mum’s house which she left to you.

What is the answer?
Quite simply, the answer is planning; serious discussion with your partner/family about what the future will bring, and where it will be, and then serious discussion with your financial adviser (that’s us by the way) about how to manage the resulting risk. The inescapable fact is that no-one can accurately forecast exchange rate movements. In much the same way that financial/economic projections by experts are notoriously unreliable, so too are those made by F/X forecasters, but do you really want to convert all your assets into euro at 1.10 only to find that in fifteen years’ time you want to relocate to the UK and the rate is 1.50? In case you don’t have a calculator handy, that would result in an f/x loss of over £140k in the above scenario. What you really need is someone to help you decide where your future requirements will lie, not what the exchange rate will be when it happens.

Even funding a house purchase needs planning. In France it can take months before you can finally pay for and move into your new home. The exchange rate can move a long way in that time, and strangely, it usually moves against you! There is a way to eliminate that risk though, and it is called a Forward Contract. If you have a set date for your final payment, your financial adviser may well suggest that you speak to a good Foreign Exchange company who will be able to fix a rate for you, valid for that date, so that you know exactly how much your villa in the sun is going to cost you in sterling terms. These are legal contracts though, and you will have to accept that rate even if the market goes up. What you are doing is buying peace of mind against it going down, which could make your purchase uncomfortably more expensive.

Another product that may be useful to you is the Limit Order. If for example you decided to buy land abroad, and have a property built on it, you might well find yourself needing to make stage payments to your builder. If the rate goes up during this process you will be happy, but if it goes down markedly…?? You can place an order for a set period with your F/X company to buy a set amount at a chosen higher or lower rate. So, you might decide that you want to buy your euro at 1.25 if it gets there, but also if it starts going down, you don’t want to get a rate any lower than 1.05. This is basically a ‘take profit’ and ‘stop loss’ strategy combined, but you can just do one side of it if you choose to.

our services

Part of our service to you is to monitor these companies and make a suitable introduction to you.

Our responsibilities don’t end there though…

We will discuss with you the choices you have regarding the investment of any left-over lump sums. Those discussions should leave you in no doubt that cash left uninvested is a loss-leader. Leaving your surplus cash invested in the UK in non-French tax compliant instruments such as ISAs is not the answer.

In France, the clear leader in terms of tax efficiency for capital gains, income and succession taxes is Assurance Vie, but you can make all those mistakes listed above by investing in the wrong policy. Flexibility is the key, along with portability.

What if we could offer you an Assurance Vie
that could start life in sterling?

Then change into Euro if the exchange rate moved up, and back again if it went down.

What if you could invest in both sterling and euro in the same policy?

And what if that policy could simply change into an ordinary investment bond if you went back to the UK, fully compliant with UK tax law?

Strangely enough…

We’d love to hear from you with any comments and/or questions, as well as suggestions as to future topics for discussion. Please feel free to pass this on to any friends or contacts who you think might find it interesting.

Taxe Foncière – Do you qualify for exemption?

By Katriona Murray-Platon - Topics: France, tax tips, Taxe Foncière
This article is published on: 8th October 2020

08.10.20

Although it hasn’t felt like it, because we have had such gloriously warm and sunny September, autumn is officially here! October is a special month in my household because it’s my son’s birthday and also Halloween which my very French husband has officially and fully adopted as his favourite annual event (the children rather like it too)! However I feel that two topics that must be covered this month are taxe foncière which needs to be paid by 15th October and of course banks.

Taxe foncière is a tax paid by property owners on the 1st January of each tax year. Note that it is paid by the owner not the occupant and applies to both buildings (houses or apartments) and land (agricultural or constructible).

If you sell your property or land, the tax liability for that year is apportioned to each party, by the notary, according to the timing of the sale.

You may qualify for an exemption if:

  • the property is a new construction used as a main residence (the exemption is for 2 years)
  • you are in receipt of disability allowance
  • you are in receipt of old age allowance
  • you are over 75 (depending on level of income)

The tax office may also allow an exemption for unoccupied property which is habitable and normally rented, provided that:

  • it is unintentionally unoccupied
  • it is unoccupied for at least 3 months
  • part or all of the building is unoccupied

However, as the tax reduction is not automatically granted, you have to apply for it and demonstrate that you qualify (with reference to the specific points above).

For more details on the taxe foncière please read the rest of my article on our website HERE.

UK Banks closed

As I’m sure you will have heard some people have received letters from their banks informing them that some services will not be continued for those resident in the EU. Not all banks are going to discontinue their services but customers of Barclaycard in particular have been told that this service will no longer be available to them.

If you find yourself in this situation or you are concerned about having a UK sterling account when you move to France and after 31st December 2020, please do get in touch. Spectrum has worked with Standard Bank for many years and they provide an excellent service to expats living in the EU.

Some key points to note are that:

  • They do not charge to receive funds into the bank
  • UK Sterling to Sterling transfers are done by BACS so there is no charge
  • Clients can set direct debit transactions up from their debit card at no charge
  • Standing orders can also be set up on the account and again there is no charge for Sterling to Sterling in the UK

As with any financial decision it is always best to get advice and recommendations from a certified, regulated financial adviser. So if you want to know more about Standard Bank please do get in touch or if you know anyone who is worried about their UK banks after Brexit, feel free to pass on my details.

Fun fact of the month:
In France a popular savings account, in addition to the very popular Livret A account is the LDD or Livret de Development Durable. This savings account actually began in 1983 and was called a CODEVI which stands for an account for industrial development, it allowed clients to put away short term savings which the bank used to lend to the French industries to ensure funding and modernisation. At the time the interest rate was 7.5%!!! In 2007 this account changed its name to become the LDD and it now only makes 0.5% interest. Since 1st October 2020 those with these accounts can request that part of their savings be used to benefit social economy and solidarity organisations.

Finally, if you haven’t seen the article that I wrote last month on the Spectrum website about Assurance Vies in France, you can find it on my page HERE.

Wishing you all a wonderful October!

The 21st annual International Investment Awards 2020

By Spectrum IFA - Topics: Belgium, France, International Investment Awards 2020, Italy, Luxembourg, Portugal, Spain, Switzerland, The Spectrum IFA Group
This article is published on: 7th October 2020

07.10.20
Anne Ollerenshaw

International Investment announced six new categories as part of a relaunched International Investment Awards to celebrate the event’s 20th year. The II Awards are the longest-running event of their kind and this year saw a record number of categories and entries.

Of particular interest to The Spectrum IFA Group is the new category of ‘Woman of the Year’.

We are delighted to announce that our very own Director, Anne Ollerenshaw has been nominated for this coveted award due to her Anne’s long standing contributions to the industry over the past years.

The 21st annual International Investment Awards 2020 take place on Thursday 8 October at 1500 BST.

This new award for 2020 is one of the final three awards and another which was selected via a combination of judges’ comments and, by votes of the readers of International Investment.

From the shortlisted entrants below they will select two winner awards with advisers and industry leaders judged separately.

The shortlist for Woman of the Year (new for 2020) is:

• Anne Ollerenshaw, The Spectrum IFA Group

• Paris Jordan, Virtuvest

• Kim Jarvis, Canada Life Limited

• Durreen Shahnaz, Impact Investment Exchange

• Tanya McCartney, Bahamas Financial Services Board

• Aida Feriz, Wimmer Family Office

• Paule Ansoleaga Abascal, Rothschild & Co Asset Management Europe

• Michele Carby, Holborn Assets

• Jackie Evans, Holborn Assets

• Claire Walker, deVere Group

• Louise Bracken-Smith, Fairway Group

We wish Anne the very best of luck.

The virtual ceremony will be held at 1500 BST on Thursday 8 October, with a repeat showing on this site a few hours later. Make sure that you tune in to find out who has been successful at this year’s event.

International Investment Awards 2020

Which Assurance Vie is best?

By Katriona Murray-Platon - Topics: Assurance Vie, France
This article is published on: 7th September 2020

07.09.20

In answer to the question of where do you put your money for maximum tax efficiency, an assurance vie is certainly the best place to put it. The French have continued to favour this investment over the years. According to the French Insurance Federation (FFA), in 2019 the premiums paid into assurance vies increased by 3.5% in 2018, to a total of €144.6 billion. I subscribe to a French financial magazine and every year they do an article on the best assurance vies in the market. This gives me an interesting insight into which products are recommended for the typical French investor.

What is interesting to note is that it is very rare for bank assurance vies to appear in this list. Banks have several assurance vie products under different names with different offers and it can be hard for the consumer to understand and compare performance and costs. Every member of my household, including my children, has an assurance vie, because even after social charges on the part in Euro funds, they are more likely to outperform any cash savings accounts. For example, the Livret A (the preferred savings account of the French) and the LDDS now only pay 0.5% interest per year and any other savings account offered by banks only generally offer between 0.2-0.3% interest which is not exempt from tax and social charges.

assurance vie

The French tend to favour investments in Eurofunds, believing them to be a safe option. Whilst this may be true if the investment horizon is less than three years, in the longer term inflation has a negative effect. The days of glory of the Eurofunds was around 2013-2014 when rates reached 2.5%. In 2019 the average rate on Eurofunds was 1.5% compared with 1.8% (net of fees) in 2018. However when compared with inflation, which was 1.8% in 2018 and 1.1% in 2019, there wasn’t much ‘real’ growth. Social charges are taken at source on such investments which further impacts performance. If your investment horizon is over three years and closer to between five and eight years then you should be investing at least partly in equities to produce a positive return above inflation. If it’s security you are looking for, the more diversified your assets, both in terms of asset classes and geographical location, the better your portfolio will be to weather market fluctuations.

The advantage with bank assurance vies is that you can start with smaller amounts to invest and build up with regular monthly amounts. However as a financial adviser with a high level of French, even I find it difficult to understand what exactly is in these assurance vies and where the underlying investments are held. Usually you are given the option of eurofunds and euro equities. It is rarely possible to hold assets in a different currency. We work with assurance vie providers who can allow you to hold assets in sterling and dollars as well as euros, which would allow you to leave this money to beneficiaries living in the UK or the US and avoid transferring the money into euros at today’s exchange rate. If you wanted to invest in euros but are holding sterling, over time it can be switched into euro funds at the appropriate time and with advice from your financial adviser.

It is not easy to change assurance vies. The French government changed the rules at the beginning of last year allowing people to change contracts but only with the same insurer. However this depends on whether the insurer will allow you to change contracts and whether they have anything better to offer.

Assurance-Vie-France-English

If you are in your 40s, 50s or 60s and your investment horizon is longer than eight years, and if you find that your assurance vie is not performing as it should, or you no longer get the proper advice/service from your financial adviser/assurance vie provider, you could consider encashing the policy and finding a better investment. Professional guidance from an authorised financial adviser is essential to determine whether this this option is appropriate for your circumstances.

If however you are over 70 and set up the assurance vie before 70, or you set up the assurance vie over eight years ago and are benefitting from the income tax abatements of €4600 per person (€9200) per couple, it may not be in your interest to change assurance vie providers. There are still many benefits of setting up a small assurance vie after 70 to benefit from other abatements, but that will depend on your situation and you should discuss options with your financial adviser.

I would always advise speaking to a financial adviser before going into any investment whether French or foreign. You need to be aware of the past performance of the investment (although this is no promise of future returns), the reputation of the investment company and the costs and how this may affect investment performance. For more information about assurance vies in general please see our guide but if you are considering this type of investment please do contact your local financial adviser.

Investments in the current climate

By Occitanie - Topics: France, Occitanie
This article is published on: 13th July 2020

13.07.20

Welcome to the fourth edition of our newsletter ‘Spectrum in Occitanie, Finance in Focus’.

Last month we focused on the important area of inheritance planning and wills, outlining the value of careful planning, including mitigation of French inheritance tax using the Assurance Vie. This month, to follow on from that, we take a broader look at what options are available for generating a financial return on savings and investments in the current environment of such low interest rates globally.

As a reminder, we are Philip Oxley, Sue Regan, Rob Heskethand Derek Winsland. Together we form Spectrum’s team in the Occitanie.

interest-rates

What are current interest rates?
Most of us in developed economies have lived in a low interest rate environment for over 11 years. In the UK, for example, the base rate was 5.25% in March 2008. One year later, after the start of the global financial crisis, it was 0.5% and remained so for over seven years before a further post-Brexit vote reduction to 0.25% in August 2016. Recent years have seen small incremental increases to 0.75% before the impact of Coronavirus resulted in the rate being slashed to 0.1%. It has been a similar story in the US and the Eurozone, where the ECB base rate is currently 0%.

Why have interest rates been so low for so long?
There are numerous reasons. These include the cutting of rates following the global financial crisis of 2008/9 in an effort by central banks to stimulate economic growth (the same reason rates have been reduced during the Coronavirus pandemic). Beyond these economic shocks, there also seems to be evidence that central banks’ firm commitment to maintaining low and stable inflation has been successful. The primary tool central banks use when inflation threatens to take flight is to increase interest rates. In most developed countries, there has been little sign of this threat and therefore inflation and interest rates have remained at low levels.

Who has benefitted from this low interest rate environment?
In a word – borrowers! Consumers with mortgages, credit card debt or car loans, businesses (many of which rely on borrowings for investment or just day to day cash-flow requirements) and finally, governments, who typically rely on the credit markets to some extent to finance their spending.

Conversely, savers have suffered hugely during this low-interest rate environment, working hard to find some level of return on their funds. It has been particularly hard for those who rely on savings for their income, such as the retired and elderly. Similarly, risk averse consumers who avoid stock market investments, preferring a more cautious strategy to nurturing their savings, have been heavily penalised for this careful approach. And worse, there is no sign of any significant increase in rates in the foreseeable future.

In the search for financial returns, many in the UK have invested in tax-efficient products such as ISAs, Premium Bonds and other NS&I products, EISs and VCTs. But for those who have subsequently become a tax resident in France, it is important to understand that all these products are taxable here.

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How can you achieve a better rate of return on your savings as a French resident?
One product stands clearly above all others, which is the insurance-based investment called an Assurance Vie (AV). The AV is a French compliant life assurance bond which provides numerous tax concessions on investment growth, income and capital withdrawals and significant advantages when it comes to estate planning (which was covered in detail in our last Newsletter).The advantages of this product are numerous and include the following:
• Shelter from tax on all income and gains, and social contributions, whilst funds remain inside the AV. At the point of withdrawing funds, only the gain element is potentially subject to tax and social contributions.
• Access to capital at all times, although as AVs are designed for longer term investment, withdrawals in the early years will reduce tax efficiency and (depending on amounts withdrawn), may incur exit penalties. The tax efficiency increases over time as compound returns accumulate tax free, with the additional advantage after eight years of an annual tax-free withdrawal allowance of (currently) €9,200 for a married couple and €4,600 for a single person.
• The ‘tax clock’ to full tax efficiency starts on day one of the policy and funds added later benefit from this original start date.
• Estate planning flexibility in the form of protection from forced heirship succession law, allowing nomination of beneficiaries in accordance with personal wishes. Proceeds from an AV policy can be distributed between any number of beneficiaries, each of whom can receive €152,500 free of succession tax (so long as the policy was established and funded before the age of 70), with amounts in excess of €152,500 liable at 20% (and at 31.25% for amounts exceeding €700,000).
• Investment flexibility to match individual objectives, risk profile and currency preference (options including Sterling, Euro and US Dollar) and simplified tax reporting and annual declarations.
This tax efficiency is significant, with two simplified examples below illustrating what a valuable product the AV can be as a future source of income:

Example No. 1:
Fran is 52 years old and invests €120,000 into an AV
• 10 years later the fund is valued at €180,000
• Fran is now 62 years old and wants to draw an annual income of €12,000 per year (€1,000 per month)
• The gain on the investment is €180,000 – €120,000 = €60,000. As a proportion of the fund that is €60,000/€180,000 = 33.3%
• The gain element of €12,000 pa is 33.3%, i.e. €4,000
• Because Fran has held this AV for more than 8 years, the effective tax-free allowance for single people applies and is €4,600 per year. The gain element of drawing €12,000 pa is €4,000 (less than the €4,600) and therefore Fran will pay no income tax on drawing €12,000 per year from the AV.

Example No. 2:
Sam and Chris are 60 years old and invest €300,000 into an AV
• 8 years later the fund is valued at €400,000
• They are now 68 years old and want to draw an annual income from the AV of €25,000 per year (€2,083.33 per month)
• The gain on the investment is €400,000 – €300,000 = €100,000. As a proportion of the fund that is €100,000/€400,000 = 25%
• The gain element of €25,000 pa is 25%, i.e. €6,250
• Because Sam and Chris have held this AV for more than 8 years, as a couple their effective tax-free allowance is €9,200 per year. The gain element of drawing €25,000 pa is €6,250 (less than €9,200) and therefore they will pay no income tax on drawing an income of €25,000 per year from their AV.

Social charges apply to the gain element of withdrawals, at either 17.2% if France is responsible for the cost of your healthcare, or 7.5% if you hold an S1 certificate.

To produce a tax-efficient income stream later in life (including to supplement pension income in retirement), and to provide significant estate planning benefits (including protection from forced heirship laws), the Assurance Vie should for most people be a central feature of their financial planning strategy.

Finally, as a short-term solution for holding cash tax efficiently, there are three types of French bank accounts to consider. For general guidance, it is advisable to hold six months of your average monthly outgoings as a contingency fund for unexpected expenses. These accounts are detailed below:

➢the Livret A, available to both residents and non-residents, in which you can deposit up to €22,950 and earn interest of 0.5% per annum.
➢the Livret Développement Durable, available to French resident taxpayers only for deposits up to €12,000, also earning interest of 0.5%.
➢the Livret Epargne Populaire, available to French resident taxpayers only, paying an extra 0.5% interest for deposits up to €7,700 if your income does not exceed a certain threshold.

 

WHAT NEXT?

If you would like to discuss anything we have covered in this month’s newsletter, please do get in touch at Occitanie@spectrum-ifa.com
Next month we are going to focus on pensions, including the subject of drawdowns and portfolio structuring.
The Spectrum IFA Group – Occitainie
occitainie@spectrum-ifa.com

What type of recovery do we foresee?

By Katriona Murray-Platon - Topics: France, investment diversification, Investment Risk, Investments
This article is published on: 29th June 2020

29.06.20

The days are long and sunny and lots of people are looking forward to beginning their life in France! June is a very busy month here in France because with the school holidays starting on 1st July and lasting until the end of August, June is the last few weeks to get everything done before most people go on holiday.

June has felt like a very busy month for me, with lots of meetings with future clients on the telephone, Zoom meetings and webinars. On 12th June I attended the Tilney Women’s Panel Event hosted by Tilney with guest speakers Emma Sterland (Tilney), Zahra Pabani (Irwin Mitchell LLP), Marcie Shaoul (Rolling Stone Coaching) and Charlotte Broadbent (Charlotte Loves), which was a great way to end the week listening to other women’s experiences of lockdown. Then, on 17th June, I took part in a seminar examining financial planning solutions for American expatriates, which was very interesting.

I finally got back on the road again on 18th June to visit a few clients, which was lovely. Whilst the weather wasn’t as great as I might have hoped, I was very happy to see the in-real-life faces of my clients, whilst keeping a respectable social distance during the meetings.

zoom Katriona Murray

During what has become a monthly Zoom meeting with colleagues this month, we were joined by Rob Walker from Rathbones who gave us an interesting view on the three possible scenarios that Rathbones are envisaging:

1) that there will a V shaped recovery
2) that there will be a progressive recovery but no second wave of the virus
3) that there will be a second wave and a second lockdown.

When asked to vote on which of these three scenarios seemed the most likely, about half of us suggested the second scenario and the other half opted for the third scenario. Rob told us that there has been a bias towards “stay at home stocks” with Amazon and eBay doing very well, if not for any other reason than people could not get to the supermarket during the lockdown so tended to favour ordering online. Cleaning products stocks have done very well as one can imagine. National Grid has also done very well and in addition is increasing its attention on renewable energy, which is unsurprising given widespread and growing interest in Environmental, Social & Governance (ESG) investing. Then there are the “Go back to work” sectors, such as retail, commercial property and tourism, which can only thrive if people do in fact go back to work.

In a possible indication of what lies ahead, Berkshire Hathaway (the company founded by renowned and highly successful investor Warren Buffet) has massively sold its holdings in airline companies. If a vaccine is found then these companies will see a rebound, but given the timing for a workable approved vaccine, this may not happen any time soon. Whilst US tech stocks are doing very well and have done very well during lockdown, Rob’s position is “Be defensive. This is no time to be heroic”.

Katriona Murray work revolution

There is no consensus on the way forward. The question is, do we want to go back to working the way we did before? For many workers going to work involves lengthy commutes on packed trains and buses, whereas the last few months have shown that many

of us can do our jobs from the comfort of our homes.

If this is a work revolution and companies decide to change their business models and allow employees to work more from home, what will be the consequences for commercial property ?

During the second part of the year the focus is going to be on Brexit and the US elections. Donald Trump is desperate to be re-elected. However, has the BLM movement hurt his chances? Will this encourage black voters to go out and vote to put Joe Biden in the Whitehouse? And in the UK, once the situation with Covid19 improves, the focus will be back on Brexit and what kind of deal the Prime Minister can agree with the European Union, if at all. The next six months are going to be interesting.

In France, a month after lockdown restrictions started being eased, the number of cases in the south west of the country still remains low. Schools have gone back with so far very few consequences.

Whilst July is a summer month, I will continue to work as normal (new normal). My children will continue to go to a holiday club two days a week. Like many of you, I am waiting to see whether a trip back to the UK to visit family will be possible in August which will determine our summer plans. I will not do a newsletter at the end of July but will probably do one at the end of August/beginning of September.

So for now, I wish you all a pleasant summer and look forward to getting back on the road to see even more clients in September!

Inheritance Planning & French Residency

By Occitanie - Topics: France, Inheritance Tax, Moving to France, Succession Planning, Tax, Wills
This article is published on: 9th June 2020

09.06.20

Welcome to ‘Spectrum in Occitanie, Finance in Focus’.

The Covid-19 pandemic still dominates the news and will inevitably remain at the forefront of our thoughts for some time. Last month we focused on the financial consequences of this virus and we may well return to this subject in future editions. However, in this issue we are going to focus on the very important, and often neglected, subject of Wills and Inheritance Planning. Succession laws in France differ significantly from those in the UK and careful planning is required to mitigate French inheritance tax.

As a reminder, we are Sue Regan, Rob Hesketh, Derek Winsland and Philip Oxley. Together we form Spectrum’s team in the Occitanie.

As touched on in last month’s Newsletter, now is probably a good time to revisit the subject of inheritance planning – an integral part of any financial planning review.

Despite the importance of making sure one’s affairs are in order for the inevitability of our demise, very few people actively seek advice in this area and, as a result, are unaware of the potential difficulties ahead for their families and heirs, not to mention potential tax bills which can be quite substantial for certain classes of beneficiary. With some sensible planning you could save your intended beneficiaries a great deal of stress and dramatically reduce their inheritance tax bill.

The basic rule is, if you are resident in France, you are considered also to be domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France, where the tax rates depend upon the relationship to your beneficiaries.

Fortunately, there is no inheritance tax between spouses and the allowance between a parent and a child is reasonably generous, currently €100,000 per child, per parent. For anything left to other beneficiaries, the allowances are considerably less. In particular, for step-children and other non-related beneficiaries, the allowance is only €1,594 and the tax rate on anything above that is an eye-watering 60%!

There are strict rules on succession and children are considered to be ‘protected heirs’ and so are entitled to inherit a proportion of each of their parent’s estates. For example, if you have one child, the proportion is 50% of the deceased parent’s estate; two children, one-third each; and if you have three or more children, then three-quarters of your estate must be divided equally between them.

You are free to pass on the rest of your estate (the disposable part) to whoever you wish through a French will and, in the absence of making a will, if you have a surviving spouse, he/she would be entitled to 25% of your estate.

You may also be considered domiciled in your ‘home country’ and if so, this could cause some confusion, since your home country may also have the right to charge succession taxes on your death. However, France has a number of Double Taxation Treaties (DTT) with other countries covering inheritance. In such a case, the DTT will set out the rules that apply (basically, ‘which’ country has the right to tax ‘what’ assets).

For example, the 1963 DTT between France and the UK specifies that the deceased’s total estate will be devolved and taxed in accordance with the person’s place of residence at the time of death, with the exception of any property assets that are sited in the other country.

moving-to-france

Therefore, for a UK national who is resident in France, who has retained a property in the UK (and does not own any other property outside of France), the situation would be that:

  • any French property, plus his/her total financial assets, would be taxed in accordance with French law; and
  • the UK property would be taxed in accordance with UK law, although in theory, the French notaire can take this asset into account when considering the fair distribution of all other assets to any ‘protected heirs’ ie. children

If a DTT covering inheritance does not exist between France and the other country, with which the French resident person has an interest, this could result in double taxation, if the ‘home’ country also has the right to tax the person’s estate. Hence, when people become French resident, there are usually two issues:

  • how to protect the survivor; and
  • how to mitigate the potential French inheritance taxes for other beneficiaries

Protecting the survivor
There are various ways in which you can protect your spouse:

European Succession Regulation No. 650/2012
Many of you will no doubt have heard about the EU Succession Regulations that came into effect in 2015 whereby the default situation is that it is the law of your place of habitual residence that applies to your estate. However, you can elect for the inheritance law of your country of nationality to apply to your estate by specifying this in a French will. This is effectively one way of getting around the issue of ‘protected heirs’ for some expats living in France.

Adopting a ‘community pot’ marriage regime or family pact
There are other tried and tested French structures available to fully protect the rights of a spouse, that don’t rely on the notaire having an understanding of the succession laws of other countries.

You could choose to have the marriage regime of ‘communauté universelle avec une clause d’attribution intégrale au conjoint survivant’. Under this marriage regime, all assets are owned within a ‘community pot’ and on the death of the first person, those community assets are transferred to the survivor without any attribution of half of the assets to the deceased’s estate.

However, adopting a ‘community pot’ marriage regime would not be suitable for families with step-children. This sort of arrangement could be subject to a legal challenge by the survivor’s step-children as they could miss out on their inheritance due to the fact that there is no blood relationship with the step-parent.

In this situation, a family pact (pacte de famille) could be the solution, whereby families agree in advance who will inherit and when. Of course, this would only really work where there is an amicable relationship between parents and children, as the children are effectively waiving all or some of their right to inherit.

There are a number of other ways in which you can arrange your affairs to protect the survivor, depending on your individual circumstances, and we would always recommend that you discuss succession planning in detail with a notaire experienced in these matters.

Mitigation of inheritance tax
On whichever planning you decide, it is important to remember that the French inheritance tax rules will still apply. So, even though you have the freedom to decide who inherits your estate, this will not reduce the potential inheritance tax liability on your beneficiaries, which, as mentioned above, could potentially be very high for a step-child. Hence, there will still be a need to shelter financial assets from French inheritance taxes.

By far and away the most popular vehicle in France for sheltering your hard-earned savings from inheritance tax is the Assurance Vie. The assurance vie is considered to be outside of your estate for tax purposes and comes with its own inheritance allowances, in addition to the standard aIllowance for other assets. If you invest in an assurance vie before the age of 70 you can name as many beneficiaires as you like, regardless of whether they are family or not, and each beneficiary can inherit up to €152,500, tax-free. The rate of tax on the next €700,000 is limited to 20% – potentially making a huge saving for remoter relatives or step-children.

Let’s look at a simple example of the inheritance tax position of a married couple with two children, comparing the IHT position with and without investing in assurance vie:

CLICK ON THE IMAGE TO DOWNLOAD PDF

It is clear to see from this example that by wrapping their medium to long term savings in an assurance vie, this couple have saved each child €30,500 in IHT.

Of course, the more beneficiaries nominated, for example grandchildren, siblings, etc, the greater the IHT saving overall. Beneficiaries can be changed or added to the assurance vie at any time. Remember, also, that beneficiary nominations are not restricted to family members, so, whoever you nominate gets the same allowance.

The inheritance allowance on premiums paid to assurance vie after age 70 are less attractive at €30,500 of the premium (capital investment) plus the growth on the capital shared between all named beneficiaries, and the remaining capital invested is taxed in accordance with the standard IHT bands.

Nevertheless, an assurance vie is still a worthwhile investment after the age of 70 as, in addition to the inheritance tax benefits, assurance vie offers personal tax efficiencies to the investor such as gross roll-up of income and gains whilst funds remain in the policy and an annual income tax allowance of €4,600, or €9,200 for a couple, after 8 years.

So, in order to ensure that your inheritance wishes are carried out, some planning may be required and there are investment opportunities to mitigate the IHT for your chosen beneficiaries.

Please contact us if you would like to discuss your particular circumstances.

The Spectrum IFA Group – Occitainie
occitainie@spectrum-ifa.com

Who wants to be a millionaire?

By Victoria Lewis - Topics: Financial Planning, France, Investments, wealth management
This article is published on: 3rd June 2020

03.06.20

Some people are prepared to cheat in order to become a millionaire. Charles Ingram famously cheated on the UK television game show ‘Who wants to be a millionaire’ and was subsequently found guilty along with his wife and friend who coughed during the programme to indicate the correct answers.

Frank Sinatra and Celeste Holm sung ‘Who wants to be a millionaire’ in the film High Society. Frank Sinatra was certainly a multi-millionaire even though he sang that he didn’t want to be!

Incidentally, the word millionaire was apparently first used in French in 1719 to describe speculators in the Mississippi Bubble who earned millions of livres in weeks before the bubble burst.

You may already be a millionaire or you may be planning to become one in the future through hard work, inheritance or good luck. Whatever your current financial situation, it is interesting to consider the millionaire ‘secrets’ of how you can become one.

Of course, millionaires aren’t privy to knowledge and information that no one else has access to. The ‘secrets’ are simply sensible financial habits which we can all use.

Click the headings below to find out more:

  • Decide what you want in the future, set a target and stick to it

    Have you calculated when and how much money you need to retire? Perhaps you want your children/grandchildren to have a university education – have you calculated how much this will cost?
  • Shift your focus from spending to investing

    Most millionaires take advice from investment professionals – tax advisers, lawyers, financial planners and asset managers. Don’t be afraid of them; use them.
  • The 24-hour rule

    If you can’t resist spending, apply this rule that many millionaires use. Even if you can afford an expensive purchase, give it a day’s time before actually making the decision. Impulsive shopping occurs from an emotional trigger and is often unnecessary. Do you want it or do you need it?
  • Set a budget (yes, even the rich have a budget!)

    Look at your monthly bank statement and categorise everything into the following groups:
    Essentials, Personal and Savings. Generally speaking, the split should be 50%, 30% and 20%.

    Living essentials – allocate 50% for monthly expenses such as mortgage/rent, transport, utilities, food etc.

    Personal spending – allocate 30% of your income for holidays, entertainment, shopping, hobbies – anything that makes you happy.

    Savings – 20% of your earned income should go straight into an investment or savings account.

    If your own allocations are different, analyse why and consider how changes could be made.

  • Cash over credit

    We are living in a near cashless society and credit cards are easy to come by, but this environment is not advisable for people who struggle to keep within their budget. Many millionaires prefer cash over a card for this reason.
  • Control

    People who are good at saving and investing are generally also good at controlling their urge to spend. Many people have completed a Dry January or a Meat Free Monday, how about trying a regular ‘no spending’ day – call it Frugal Friday!
  • Bills first, the rest later

    Most banks offer the facility to choose the date you want your regular standing orders to be paid. Choose the day after your income/pension is paid in, so you know exactly how much is left for everything else.
  • Invest in something that makes you happy

    This could be a classic car, a piece of art, perhaps you have a hobby that you enjoy investing in. Happiness can also be found in the investment arena, as more and more investors are choosing ethical or socially responsible funds. These are funds that have positive social impacts or are involved in climate change solutions. You can now express your values in the financial world.
  • Invest in services that save you time

    Many millionaires don’t hesitate in paying for services that save their time – food deliveries and laundry services for example. The same can be said for investment research – a financial advisory firm will do that for you.

For more detailed information on these financial habits, please contact me on
M: 06 62 50 70 21 or email Victoria.lewis@spectrum-ifa.com

There’s only two things you can be certain of in life…

By Katriona Murray-Platon - Topics: France, Tax, tax advice, Tax Efficient Savings, Tax Relief
This article is published on: 2nd June 2020

02.06.20

In France they have an expression “En mai fait ce qui te plait” which translated means that in May you do as you please. Well clearly this year we haven’t been able to do exactly as we please but we have been allowed a bit more freedom since the end of lockdown on 11th May. I haven’t yet felt the need to take advantage of this new found liberty, but as the children returned to school under acceptable conditions at the end of last week our work/home/school routine is set to change.

May is also tax season. Whilst you can get online to do your tax return in April, I personally have always preferred to do it on 1st May and during the month of May I notice an increase in client enquiries. Even though, in my previous role as a tax adviser, I used to do several hundred tax returns for our English speaking clients, I still find myself getting nervous when I do our annual tax return. There are so many bits of information that need to be assembled and I want to make sure that I have all the income, expenses and tax reductions properly entered before I finally press send.

French Tax Changes 2019

May is a good time to think about not only your tax but also your taxable income. When I worked in the accountancy firm, my colleagues and I didn’t have time to think about whether a client was paying TOO much tax or not. We just took the information provided and entered the figures in the boxes. When I joined Spectrum I realised that, as a financial adviser, I could take the time to sit down and do a full financial review with my clients to look into whether it made sense for them to be paying so much tax. One thing that comes to mind is UK ISAs and investment portfolios.

They are not tax efficient in France and a real headache for anyone or their tax adviser to have to work out. It took hours of entering in each dividend, interest and capital gain. You can still own a well diversified, multi asset portfolio within an assurance vie wrapper and save time and money when it comes to completing your tax return.

If you haven’t done your tax return then there is still time to do so. You can get our free tax guide HERE. In 2020, all households must do their tax returns online if they have internet access at home. If not they can submit a paper return. You have until 4th June if your live in Departments 1-19 or if you are non-resident, 8th June for Departments 20-54 and 11th June for Departments 55 to 974/976.

As regards the markets, global share prices have recovered strongly over recent weeks, with many investors encouraged by central bank interventions, including ongoing financial support and stimulus for individuals and companies. The prospect of successful vaccine development and the easing of lockdown restrictions have also fuelled optimism. Some of this investor enthusiasm, and expectations of a rapid economic recovery, may well be misplaced, but short term stock market direction is of course impossible to forecast.

There is almost certainly more economic difficulty ahead, but there will in time be a recovery (the only question is timing) and, as always, it is important to take the long term view. For now, our priority should be to ensure that our investments and pensions continue to be well managed regardless of the difficult economic circumstances.

In the words of Julian Chillingworth, Chief Investment Officer of Rathbones, one of Spectrum’s approved multi-asset fund managers,
“We think it’s important that investors concentrate on understanding which businesses can survive this current crisis and quickly return to generating meaningful profits and paying dividends. This is where we are concentrating our research efforts, generating ideas for our investment managers to use in portfolios as we work our way through this crisis.”

May has been a busy month with Zoom meetings with colleagues, friends and family and telephone meetings with clients and prospects. However as lockdown has now ended and my children are back at school (for at least two days a week), I will be tentatively making a few face to face meetings in June if my clients so wish whilst taking all the necessary protection measures.

If you want to speak to me about any financial matters or you know of anyone who, having moved to France, would benefit from learning more about managing finances in France, please do get in touch.

The Spectrum IFA Group and Blackden Financial join forces

By Spectrum IFA - Topics: Belgium, France, Italy, Luxembourg, Spain, Spectrum-IFA Group, Switzerland
This article is published on: 26th May 2020

26.05.20

One of Europe’s leading expatriate advisory companies today announced the acquisition of a 50% shareholding in Geneva based financial planners Blackden Financial, the transaction having been concluded on Friday following discussions which began last year.

The move forms part of Spectrum’s ongoing strategic growth in Europe and expands its existing Swiss operation based in Lausanne. Blackden’s name, office and personnel will be retained.

Spectrum, established in 2003, specialises in financial planning for English speaking expatriates across Europe, operating from twelve regional offices in France, Spain, Switzerland, Italy, Belgium and Luxembourg. Blackden (also founded in 2003) operates exclusively in Switzerland from its central Geneva premises, providing investment, pension and savings solutions to a predominantly high net worth expatriate client base.

Spectrum Director, Chris Tagg, commented “Having observed Blackden Financial’s success over many years, we recognise the team’s disciplined advice process, high professional standards and commitment to long term client service. We are pleased to be investing in a company, and in people, knowing that the essential features of good business practice are already in place. We look forward to continuing the growth of our expatriate financial planning services across Switzerland.”

“The stake in Blackden allows Spectrum to further develop its Swiss based expatriate investment and tax planning capabilities, whilst giving Blackden access to locally compliant solutions in some of Spectrum’s EU markets including France, Italy and Spain.”

Chris Marriott, founder and CEO of Blackden, added “Having specialised in advising Swiss based expats for the last 17 years, we are delighted to complete this deal, which complements and strengthens our presence locally, and look forward to Spectrum’s involvement in the next phase of our business development.”

Michael Lodhi, Spectrum’s Chief Executive Officer and co-founder said “I have known Chris Marriott for more than 15 years, we were instrumental in the creation of The Federation of European Independent Financial Advisers (FEIFA) and I am delighted that we can now work together on a commercial basis.”