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The Changing Financial World

By Alan Watson - Topics: common reporting standards, France, Investments, ISAs
This article is published on: 18th October 2019

18.10.19

It was December 15th 1996; my wife and I were happy to be in Morzine and were enjoying dinner at hotel Les Airelles. Jean-Claude, the owner, was very attentive – we were his only guests! Heavy snow was falling, so the drive back to our home in Le Biot was a slow one, spotting just one other vehicle parked suspiciously in St Jean D’Aulps, the Gendarmes, who looked bemused that a Dutch plated car should mess up the untouched snow cover.

During Christmas I worked as usual in my IFA business covering Europe, but it was a stress free time; international clients had little to bother them, the main concern being market direction. The FCA did not exist; tax people were only after the big fish; even the Financial Ombudsman, for complaints, was years from formation; regulation was unheard of; QROPS transfers were an age away. The Isle of Man, Guernsey, Jersey, and of course Switzerland were the favourite hiding centres. Clients were happy to deposit large sums resulting from their global company contracts. Banks happily took in and paid out in cash, accepted transfers from third parties, and asked minimal questions to new arrivals in the beautiful French Alps; they were simply hungry for this amazing new flow of business. The financial world was a relaxed place, where large sums of “tax free” money could be transferred to the Notaries, who would inform the local land sellers that they had become wealthy; keys were given, dreams were realised and that much expanded supermarket just out of town saw the wine shelves emptying like never before. Travel businesses sprung up with sexy names like, “Utah snow and sun”, and their chalets were full the whole winter. The French tax people started to scratch their heads. Not only were local people driving back and forth through the Swiss border every day, but now a new irritation had arrived in town and some serious checking was necessary. The French Fisc. suddenly had many more employees, serious computer power, and somebody could apparently speak ENGLISH !

It’s now October 2019, my wife and I still love to eat in Morzine, but things have changed. Conversations with my clients all over the Rhone Alpes region take on a very different and focused tone. A global directive of information exchange requirements has shaken up the old world called CRS, “Common Reporting Standard”, which means the UK will exchange all financial, bank account, insurance policy and investment account information with France. Even that renowned haven of Swiss Private Bankers are happy to flood Europe’s tax offices with full financial disclosure information on former residents and clients. If that’s not enough, I regularly hear of clients being pestered by cold calling IFAs based in Paris, the south of France, even Dubai. The pleasure of being seen on social media! But now the approach is somewhat different, we have tight European regulation, or do we?

Making life changing investment decisions is a delicate operation. If somebody tells you they are part of XX group in Gibraltar, but due to “flexible” European financial regulation, they can passport, operate in France – beware: if things go wrong the UK, FCA or French regulator Orias will be unable to help you. A fully regulated French company holds the correct licenses and your chosen adviser should know French rules and regulations, preferably from many years experience in the region. Some individuals choose to keep a leg in the old country, just in case, but this half-half decision could cost you dearly. “Is a UK ISA tax efficient in France?” “My money is 100% Sterling, so impossible to move it over here.”

Your chosen IFA should know a great deal. Test their knowledge on markets, tax issues, currency movements/history, inheritance. Can they introduce you to competent local professionals? Moving from one country to another is a big step. Do make sure all fits into place, you should enjoy this wonderful region for years to come.

UK Investments & ISAs – Tax Treatment in Spain

By Chris Burke - Topics: Barcelona, Captial Gains, dividends, Investments, ISAs, Premium Bonds, Spain, Tax, UK investments
This article is published on: 16th April 2018

16.04.18

With automatic exchange of financial information between most countries now standard practice, most of us already recognise the importance of declaring our assets properly and fully. In the UK, if your accountant or tax adviser declares your assets incorrectly, they are liable; however, that is NOT the case in Spain. I have been contacted by many people with various stories of how their accountants in Spain have reported assets. Sometimes it feels like people are speaking to numerous accountants until they find the one with the answer they want – if the declaration is incorrect though, and leads to an investigation, you are personally liable. Therefore, it is essential to have your assets reported correctly.

It is quite straightforward to understand the Spanish tax treatment of your UK assets. If they are NOT Spanish compliant – that is to say, not EU based and regulated AND the company holding these assets doesn’t have a fiscal representative and authorisation in Spain – then income and investment growth are taxable annually. Note that investment growth on assets such as shares, ISAs and premium bonds is taxable regardless of whether you have taken any income or withdrawals.

Below you will see the main list of investments that need to be declared and the tax rates that apply annually:

Type of Assets/Investment Tax Payable Type of Tax
Investment funds/stocks/shares Yes, on growth Capital Gains Tax (19-23%)
ISAs Yes, on growth Capital Gains Tax (19-23%)
Premium Bonds Yes, on gain/win Income Tax (19-45%)
Interest from Banks Yes, on growth Capital Gains Tax (19-23%)
Rental Income Yes Income Tax (19-45%)
Pension Income Yes Income Tax (19-45%)

Expenses may be able to offset some of the tax on gains, and for long term property rentals you can receive up to 60% discount on net rental income. However, tax reliefs and allowances that applied in the UK are not available to you in Spain.

There are ways of reducing these taxes, by having your finances organised correctly, and in many cases there is also scope to defer tax. This means there is no tax to pay if you are not taking an income or withdrawals from your investment. In fact, the more your money grows, the greater the potential tax saving.

The first thing you should do, and any financial adviser or tax adviser should do, is consider ways of mitigating your tax, both now and in the future. Otherwise you could end up with a ‘leaking bucket’. Many accountants are starting to increase charges for declaring UK assets, which need to be listed individually and where there is often lack of familiarity with the assets held. By the time you have paid the tax for NOT drawing your money, paid your accountant and lost any tax relief that applied in the UK, in most cases there are more cost effective, tax efficient, Spanish compliant options available. Furthermore, for those returning to the UK, there is still generous tax relief which applies to certain Spanish compliant investments.

For an initial discussion regarding your finances and practical guidance on planning opportunities, please get in touch – my advice and recommendations are provided free of charge without obligation – chris.burke@spectrum-ifa.com

Taper Relief on Capital Gains from the Sale of Shares

By Derek Winsland - Topics: Captial Gains, France, ISAs, taper relief on capital gains, Tax
This article is published on: 16th November 2017

16.11.17

My colleague, Sue Regan, in her last article, gave details of a number of tax changes currently being debated in Parliament and which are expected to come into force by the end of the year. On a positive note, wealth tax (Impot de Solidarite sur la Fortune) is to be abolished, to be replaced by a tax on the value of property (Impot sur la Fortune Immobilier) or IFI. This can have real benefit to those with investments outside of property.

Less positive is the intention to abolish taper relief on capital gains from the sale of shares, which includes equity investment funds. This can have serious connotations for those investors holding investment portfolios outside of an Assurance Vie. Portfolios held within equity Individual Savings Accounts (ISA’s) in the UK, for example, will be affected. For UK residents, ISA’s represent an excellent savings and investment vehicle, with ‘income’ drawn from the ISA tax free in the hands of the investor. Growth in the investment attract no capital gains tax charge, irrespective of whether the gains are extracted or allowed to roll up within the ISA.

In the hands of a French tax resident though, ISA’s don’t enjoy any of the tax benefits UK residents take for granted. It is as if the ISA wrapper doesn’t exist. Instead, in France, taper relief is granted on gains made from equities (shares) where the holding is greater than two years. Where shares have been held for two years and up to eight years, the relief is 50%; after eight years the relief rises to 65% under the current system. Crucially, this relief also applies to collective investments where a minimum of 75% is invested in equities.

If you then factor in the fact that all gains are calculated in euros, shares and equity collectives in the UK held for a long time can be further reduced because the purchase price will be converted into euros using the exchange rate on the day of purchase. Likewise, the euro value is calculated on the day of sale. With the value of sterling currently low, the amount of any gain can therefore be further reduced if the exchange rate on the day of purchase is higher than the rate on the sale date.

All of this means that if you are resident in France, holding on to stocks and shares ISA’s in the UK, it really is time you thought about cashing them in, reinvesting the proceeds in the far more tax efficient Assurance Vie. Time really is of the essence.

If you feel you could be affected by this, or have personal or financial circumstances that you feel may benefit from a financial planning review, please contact me direct on the number below. You can also contact me by email at derek.winsland@spectrum-ifa.com or call our office in Limoux to make an appointment. Alternatively, I conduct a drop-in clinic most Fridays (holidays excepting), when you can pop in to speak to me. Our office telephone number is 04 68 31 14 10.