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The Financial Implications of Moving Abroad

By Chris Burke - Topics: Barcelona, europe-news, Habitual Residence, Residency, Retirement, Spain, Tax, Uncategorised
This article is published on: 30th January 2015

30.01.15

Moving abroad can be a stressful and confusing experience and starting from scratch in a new location can often be overwhelming.

If you have recently decided to up sticks and move to Barcelona, or if you’re a recent arrival in the sunny Catalan capital, then you will have many choices to make. Aside from the immediate practicalities of moving to a new country, such as choosing schools, buying or renting property, and setting up residency for you and your family, there are many other (often overlooked) factors to take into consideration:

Pensions:
Unlike the UK, most companies in Spain don’t provide a private pension scheme or private health insurance. However, as an Expat, you may have unique opportunities available to you. An adviser will be able to discuss each of the options enabling you to make a decision.

Banking:
Having the right banking arrangements is a key part of life overseas. It’s best to sort your finances out before you go, as local banks usually require a credit history and proof of address to set up an account – which you won’t have when you arrive.

Tax:
Dual-Country financial arrangements are complex and should not be taken lightly, as even the most innocent transaction can be costly if not well planned.

Savings and Investments:
There are many factors that go into determining the best country in which to locate your investments. Bear in mind that you may have access to, and potentially benefit from, onshore and offshore savings and investment assets.

ISAs:
If you currently have an ISA and are planning to move abroad, they are not tax efficient in Spain. You also need to be fiscally resident in the UK to pay into one.

Will & Testimony:
Your Will (and those of your family members) will need to be updated so that it is compliant in Spain

Financial Advice:
The complexities in managing currency risk, an investment portfolio, and dual-nation tax reporting are many. It is important for expats to have a trusted adviser who understands the financial nuances of living an international lifestyle.

Looking forward to your pension

By Rob Hesketh - Topics: France, Pensions, Retirement, Uncategorised
This article is published on: 21st January 2015

21.01.15

Welcome to 2015. Let’s all hope for a prosperous and, maybe optimistically, safe year to come. This is my 60th year on the planet, and the cracks are starting to show. Many thanks indeed to the many well-wishers who sent me messages of goodwill following my hip replacement in December. They were much appreciated. I am up and about again now and, whilst I may leave it a few more weeks before I resume training for the triple-jump, it is good to be able to get around freely. Bear with me, I will get to the financial stuff soon.

With the physical recovery going well, my mental state did take a knock however on an early foray back into the big wide world. Congratulating myself on being able to get around with only one crutch, I decided to take myself off to my local Bricomarché to buy some light fittings. With only one checkout open, I resigned myself to a long wait at the back of the queue. I suddenly realised that the people in front of me were moving aside, and I was being beckoned to the front by the cashier. How utterly charming and, yet, completely crushing. When I protested, I was told that this was normal treatment for ‘handicapped’ people. I was appalled. Not that a DIY chain should treat its clients this way, but at the fact that they should regard me as a ‘client in need’. It was like peering into my dotage. How many years before I will have a long grey beard, waving a walking stick, being pushed in a wheelchair?

Looking back on that day recently, it struck me that there is probably a link with my recent focus on old age and pensions. I know I’ve said before that the older you get, the more interesting pensions become, but I really think that it is true. What is worrying me now is the growing list of younger people who are getting very interested in our pensions, for all the wrong reasons. The younger crowd I’m referring to are politicians who are gleefully rubbing their hands and salivating over our pension assets. There seems to be no political argument over the new pension reforms due in April that are to sweep away all forms of prudent financial planning for old age. They’ve all got their eyes glued on the same pot.

Please allow me to get slightly technical for a moment and explain GAD to you. The initials stand for Government Actuarial Department. Actuaries are very clever people, mathematicians basically, who walk around wired into computers. One of their jobs used to be to come up with a formula that worked out how much you could draw from your personal pension per year without reducing your pension pot too quickly. In short, they were there to make sure that your pension outlived you. 100% GAD meant the maximum you could safely draw from your pension.

Then the politicians started to get interested. Wouldn’t it be a good idea if we let the old fogeys have more of their pensions to spend? That way we can boost the economy for the rest of us and we can tax them as they do it. It won’t be a problem because they’ll probably still die before the pension runs out! Let’s try 120% GAD and see how we get on? Well, OK, it helped a bit but we still need more capital spending. Let’s see how we get on with 150% GAD? The next logical step is of course about to take place in April. Forget GAD! You can have the lot. Use your pension as a bank account. Treat yourself to something special. A yacht? Ferrari? The world is your lobster.

This is, in my view, tantamount to criminal recklessness. You and I may be completely confident in our ability to run our own finances, and I trust that that is in fact the case, but who is going to protect the vulnerable amongst the older generations? Who is going to protect pensioners from double glazing salesmen; roofing contractors; cowboy builders; money grabbing children looking for early access to their supposed inheritances?

And then there are the annuities. These are financial instruments that you used to have to buy with your pension funds. These gave you a guaranteed income for life. You are no longer obliged to buy an annuity with your pension fund.   I do agree with this. The fall in long term interest rates meant that annuity rates fell quite dramatically over the years, and the income you bought became less and less. I suppose then it should come as no surprise when we hear that pensioners are to be allowed to sell their annuities, and receive lump sums instead. More money to spend! More tax to pay! In twenty years’ time this could turn into a monumental national scandal, but by that time our current batch of politicians will be retired, enjoying their protected pensions.

My own personal pensions are now safely housed well away from further potential meddling. I will not be drawing out huge (I wish) sums to finance cars or cruises, and barring worldwide financial calamities there will be enough money to see me out. If I do last another 15 years, whatever is left will also go to my chosen beneficiaries without any tax deducted. Did I mention the 45% tax that will be payable in the UK?

UK Pensions Reform Overview

By David Odonoghue - Topics: europe-news, France, Pensions, QROPS, Retirement, Uncategorised
This article is published on: 31st December 2014

31.12.14

This year brings about major changes in UK pension rules. Under the reform of ‘Freedom and Choice in Pensions’, people will be provided with more choice about how and when they can take their benefits from certain types of pension arrangements.

Following proposals first made in March last year, subsequent consultation resulted in the Pensions Taxation Bill being published in August, with further amendments being made in October. Additionally, some provisions were clarified in last month’s UK Autumn Budget Statement. Therefore, subject to there not being any further changes before the eventual enactment of the legislation, we can be reasonably certain of the new rules.

To understand the reform, you need to understand the two main different types of pensions. The first is the defined benefit pension (DBP), where your employer basically promises to pay you a certain amount of pension, which is calculated by reference to your service and your earnings. DBPs are a rare breed now, as employers have found this type of arrangement too costly to maintain. This is because the liability for financing the scheme falls upon the employer (after anything that the individual is required to contribute) and if there is any shortfall in assets to meet the liabilities – perhaps because of poor investment returns – the employer must put more money into the scheme.

The second type of pension is what is known as a money purchase plan (MPP). You put money into an MPP, perhaps your employer does/did also, as well as the government in the form of tax rebates and in the past, national insurance contribution rebates. Maybe your ‘MPP’ was not through an employer at all and you just set up something directly yourself with an insurance company. They are several different types of MPP arrangements, but they all result in the same basic outcome, i.e. the amount of the pension that you get depends on the value of your ‘pension pot’ at retirement and so the investment risk rests with you. There is no promise from anyone and therefore, no certainty of what you might receive.

The proposed reform is all about the MPP, although there is nothing to stop a person from transferring their private DBP to a MPP, if they have left the service of the former employer.

The majority of the changes will be effective from 6th April 2015 and these will apply to ‘money purchase’ pension arrangements only. Therefore, people with deferred pension benefits in funded defined benefit plans, who wish to avail themselves of the changes, must first of all transfer their benefits to a money purchase scheme. Members of unfunded public sector pension schemes will not be allowed to have such a transfer.

Under the new rules, people will be able to take all of their ‘pension pot’ as a one-off lump sum or as several separate lump sum payments. For UK resident taxpayers, 25% of each amount will be paid tax-free and the balance will be subject to income tax at the marginal rate (the highest tax rate being 45%).

Alternatively, it will be possible to take 25% of the total fund as a cash payment (again, tax-free for UK residents) and then draw an income from the remaining fund (taxed at marginal rate). The commencement of income withdrawal can be deferred for as long as the person wishes. Furthermore, there will be no minimum or maximum amount imposed on the amount that can be withdrawn in any year.

The Annual Allowance, which is the amount of tax-relieved pension contributions that can be paid into a pension fund, is currently £40,000 per annum. For anyone who flexibly accesses their pension funds in one of the above ways, the Annual Allowance will be reduced to £10,000 for further amounts contributed to a money purchase arrangement.

However, the full Annual Allowance of up to £40,000 (depending upon the value of new money purchase pension savings) will be retained for further defined benefit pension savings.

The ‘small pots’ rules will still apply for pension pots valued at less than £10,000. People will be allowed to take up to three small pots from non-occupational schemes and there is no limit of the number of small pot lump sums that may be paid from occupational schemes. 25% of the pot will be tax-free for a UK resident. Accessing small pension pots will not affect the Annual Allowance applicable to other pension savings.

The required minimum pension age from which people can start to draw upon their pension funds will be set as age 55, in all circumstances (except in cases of ill-health, when it may be possible to access the funds earlier). However, this will progressively change to age 57 from 2028; subsequently, it will be set as 10 years below the State Pension Age.

The widely reported removal of the 55% ‘Death Tax’ on UK pension funds has been clarified. Thus, whether or not any retirement benefits have already been paid from the money purchase fund (including any tax-free lump sum), the following will apply from 6th April 2015:

  • In the event of the pension member’s death before age 75, the remaining pension fund will pass to any nominated beneficiary and the beneficiary will not have any UK tax liability; this is whether the fund is taken as a single lump sum or accessed as income drawdown; or
  • If the pension member is over age 75 at death, the beneficiary will be taxed at their marginal rate of income tax on any income drawn from the fund, or at the rate of 45% if the whole of the fund is taken as a lump sum. From April 2016, lump sum payments will be taxed at a beneficiary’s marginal tax rate.

There will be more flexibility for annuities purchased after 6th April 2015. For example it will be possible to have an annuity that decreases, which could be beneficial to bridge an income gap, perhaps before State pension benefits begin. In addition, there will no longer be a limit on the guarantee period, which is currently set at a maximum of 10 years.

French residents can take advantage of the new flexibility and providing that you are registered in the French income tax system, it is possible to claim exemption from UK tax under the terms of the Double Taxation Treaty between the UK and France. However, there are French tax implications to be considered, as follows:

  •  you will be liable to French income tax on the payments received, although in certain strict conditions, it may be possible for any lump sum benefits to be taxed at a fixed prélèvement rate;
  •  if France is responsible for the cost of your French health cover, you will also be liable for social charges (CSG & CDRS) of 7.1% on the amounts received;
  •  the former pension assets will become part of your estate for French inheritance purposes, as well as becoming potentially liable for wealth tax (i.e. if your net taxable assets exceed the wealth tax entry level).

Therefore, as a French resident, it is essential to seek independent financial advice from a professional who is well versed in both the UK pension rules and the French tax rules before taking any action. Such advice should also include examining whether or not a transfer of your pension benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS) could be in your best interest.

Note, that for those expats who already have transferred pensions to a QROPS or are thinking of doing so? the Pension Taxation Bill makes provision for the proposed UK pension reform to follow through to such schemes.

However, a complication exisits, due to the fact that the separate UK QROPS Regulations do not necessarily allow people to fully cash in their pesion funds in all circumstances.

The Pensions Taxation Bill does already make some provision for the proposed UK pension reform to follow through to Qualifying Recognised Overseas Pension Schemes (QROPS). However, a complication exists, due to the fact that the separate UK QROPS Regulations do not necessarily allow people to fully cash in their pension funds, in all circumstances.

Therefore, before the new flexible rules could apply to QROPS, the UK Regulations must be amended and it is understood that there is on-going work in this regard. Whether this work will be completed before 5th April 2015 is not known.

However, even if the UK does amend the QROPS Regulations, it will then fall to individual QROPS jurisdictions to make the necessary changes to their own internal pension law. For the well-regulated jurisdictions, it cannot be ruled out that their own Regulators may not agree entirely with the UK’s ideas of flexibility! In effect, there could be a preference to ensure that pension funds are used only for the purpose of providing retirement income for life, with the possibility of income continuing to a member’s dependants.

In any event, the taxation outcome of someone fully cashing-in their pension fund (whether whilst still in a UK pension arrangement or if later allowed, from a QROPS) is likely to be a sufficient practical deterrent for anyone actually wanting to do this. Therefore, for someone who has left the UK, a QROPS should continue to be a viable alternative to retaining UK pension benefits, particularly since the advantages of a QROPS have not changed. However, everyone’s situation is unique and this is why seeking advice from a competent professional is essential.

Saving for Retirement in Spain

By Chris Burke - Topics: Barcelona, Investments, Pensions, QROPS, Retirement, Spain, Uncategorised
This article is published on: 28th December 2014

28.12.14

How do you save for retirement in Spain and what are the best options for expats?

These days there are quite a few choices on how to receive your pension as a British expat and, if you qualify for a UK state pension, you can claim it no matter where you live. The money can be paid into a UK bank or directly into an overseas account in the local currency. If you move to Spain before retirement and work there for a number of years, it may also be possible to receive a state pension from more than one country.

If you’ve qualified for a state pension from the UK, it will be paid (and taxed) in Spain but uprated every year in the same way as the UK. The personal tax allowance in Spain is €6,069 (£4,923) compared with £10,000 in the UK. The basic rate of tax is also higher, at around 24% compared to 20% in the UK. And in Spain there is no 25% tax free lump sum available when retiring, and any Isa’s you have in the UK will be liable for tax if you become resident in Spain.

A lot to consider…

Saving for Retirement: Tips

Plan Ahead: Pay off debts and take advantage of tax free personal allowances.

Do Your Homework: Before sitting down with an independent financial adviser, make sure you have a clear picture of your current finances and what you need to consider in order to achieve the lifestyle you want over the years ahead.

Consider Your Saving Options: The recent Budget announced radical changes to pension schemes – good news for savers. From April 2015, individuals may withdraw as much or as little from their pension fund in any year with 25 per cent being withdrawn free of tax.

Regularly Review Investment and Retirement Plans: Review your investment and retirement plans every six months to ensure any advice received is up to date and relevant.

 

Prudential: Flexible Savings for Retirement

The Prudential Flexible Retirement Plan gives access to a range of flexible retirement and investment solutions to suit your changing needs and priorities. Whether you are approaching retirement or some way off, the flexibility provides an easy transition from saving for retirement, through to approaching retirement and then taking an income.

 

Professional Advice for Expats

The earlier you get your financial planning in order, the better. Make a mistake with your pension, and you could end up paying for it for the rest of your life.

A pensions expert will be able to point you in the right direction. You will need to take Spanish rules into consideration, so taking advice from an adviser conversant with both UK and Spanish pension and tax rules is essential.

UK Pension Transfers – Update for Expats

By Chris Burke - Topics: Barcelona, Pensions, QROPS, Retirement, Spain, Uncategorised
This article is published on: 24th December 2014

24.12.14

The rapidly changing landscape of pension schemes in the UK has led to a great deal of confusion, and it’s not just UK pensioners who are affected: the rule changes also impact expats living outside the UK, especially those considering the benefits of a Qualifying Recognised Overseas Pension Scheme.

As an expat, it’s hard to know which route to take. Should you transfer to a QROPS or leave your pension in the UK? What are the benefits and drawbacks? What impact have recent changes had on your options?

Let’s look at the facts…

Reasons to transfer

● Pension Commencement Lump Sum of 30% of the fund. This is tax-free if UK resident but could be taxable if resident outside of the UK.

● No pension death tax, regardless of age, in Gibraltar and Malta

● Greater investment freedom, including a choice of currencies

● Retirement from age 50 (Malta), and 55 in Gibraltar and Isle of Man

● Income paid gross from Malta (with an effective DTT), and only 2.5% withholding tax in Gibraltar

● Removal of assets from the UK may help in establishing a Domicile outside of the UK (influences UK inheritance tax liability)

 

What will happen if you leave your personal pension in the UK

● On death over the age of 75, a tax of 45% on a lump sum pay-out.

● Income tax to be paid when receiving the pension, with up to 45% tax due, likely deducted at source,

● Registration with HMRC and the assignment of a tax code.

● Proposed removal of personal income pension allowance for non-residents. Although this is still on the agenda, it has been confirmed that there will be no change to non-residents’ entitlement to personal allowance until at least April 2017.

● Any amounts withdrawn will be moved into the client’s estate for IHT purposes, if this is retained and not spent.

● As the client will be able to have access to the funds as a lump sum, these could potentially be included as an asset for care home fees/bankruptcy etc.

● No opportunity to transfer from many Civil Service pension schemes from April 2015 (Only five months remain for public sector workers to review their pension and then make their own informed decision)

What Does All This Mean?

Regardless of the proposed legislation amendments, transferring to a QROPS still provides certain benefits that the UK equivalent would not be able to offer, although it’s fair to say that both still hold a valid place in expatriate financial planning. The answer to which pension is more suitable for you will ultimately depend on your individual circumstances and long term intentions.

Should I stay or should I go?

By Rob Hesketh - Topics: France, Inheritance Tax, Investment Risk, Investments, Pensions, Residency, Retirement, Uncategorised
This article is published on: 25th November 2014

25.11.14

Quite frankly I’ve been struggling to think of what to write about this week, but then it suddenly struck me that there has been a recurring theme in a number of my client meetings recently. That theme put simply is, ‘Where will I end my days; in France, or in England?’ This isn’t a popular topic of conversation amongst vibrant, exuberant, middle aged expatriates, but we’re not the only people here. We are in the company of many seasoned expats who’ve been here longer than we have; seen it all; done it before we did, and are feeling a bit tired. Many of them are ‘going home’.

We should pay a lot of attention to this group, because we are going to inherit their shoes. We need to learn from their experiences, and take the opportunity to plan for the time when we will experience what they are going through.

Five years ago, when writing on a similar theme, I think I proffered the theory of the three ‘D’s as the principal reason to return to the UK: death, divorce and debt. I still think that they are valid causes, but I now think that there are many subtle variations to be taken into account, and the biggest addition to the equation is age. Age changes your perceptions; often for the better, but age often also brings insecurity and loneliness. Add to that illness, and maybe bereavement, and you have a powerful reason to examine your reasons to continue to live hundreds of miles away from a family that (hopefully) continually worries about you. In short, no matter how much we pooh-pooh the idea now, the chances are that we may eventually end up being cared for in our final years in the UK rather than in France.

OK, that’s enough tugging at the heartstrings. Why is a financial adviser (yours truly) concerned about where you live, and where you may live in future? The answer is currency, specifically Sterling and Euro. In a previous existence, I was responsible for giving advice to corporate and personal clients of a major High St bank regarding exposure to foreign exchange risk. The basic advice was simple – identify and eliminate F/X risk wherever you can. F/X risk is for foreign exchange dealers; it is gambling. Don’t do it unless you know what you’re doing, and even if you do, prepare to lose money.

On a basic level, eliminating exchange rate risk is easy. Faced with a couple in their 50’s relocating to France with a healthy investment pot behind them and good pensions to support them in the future, I will always ask ‘Where do you intend to spend the rest of your days?’ The answer is usually an enthusiastic ‘France, of course. We have no intention of going back to the UK. In fact wild horses wouldn’t drag us back.’ I know this for a fact – I’ve said it myself.

The foreign exchange solution is simple. Eliminate your risk. Convert your investment funds to Euro (invest in a Euro assurance vie). Convert your pension funds to Euro (QROPS your pension and invest in Euro). Job done! Client happy, for now! But what happens 25 years later, when god knows what economic and political shenanigans have transpired, and the exchange rate is now three Euro to the pound and the surviving spouse wants to ‘go home’?

As it happens, I will no longer be his or her financial adviser. The chances are that I will have popped my clogs years ago, but If not, I will most likely be supping half a pint of mild in a warm corner of a pub somewhere in the cheapest part of the UK to live in. (In fact that is poetic licence, as I know full well that I’d probably be being spoiled rotten in my granddad flat in one of my sons’ houses). To draw this melancholy tale to a close, I’d just like to round up by saying that things are rarely as simple and straightforward as they seem. My job is not always to take what you tell me at face value. I know people who’ve been here longer than you. My advice may well be ‘hedge your bets, spread your risk’. I will give you the best possible investment tools for your money and pensions, but I might just surprise you with my recommendation as to what currency those funds should be invested in.

What New Year’s Resolution can I make for 2015?

By Amanda Johnson - Topics: France, Inheritance Tax, Investment Risk, Investments, Pensions, QROPS, Retirement, Saving, Tax, Uncategorised
This article is published on: 18th November 2014

18.11.14

As 2014 draws to an end and we look forward to spending the festive period with family and friends, there is one New Year’s resolution that you can make which will benefit both you and your family and that is to make sure that you review your finances in 2015.

2014 has seen the UK Government make changes to pensions, the French Government levy Social Charges on areas not previously charged and a joint agreement on Wills which is due to come into effect during 2015. On top of this, there is constant media concentration on whether the UK is better off in or out of the EU. Bearing all of this in mind, it is worth taking advantage of a free financial review to ensure your savings, investments & pensions are working for you in the most tax-efficient manner and that they match your goals and aspirations for the future.

A free financial review will include the following areas:

  • Investments – to ensure they are as tax efficient as possible
  • Inheritance tax – to minimise the amount of inheritance tax imposed and increase your say in where you money goes after you die.
  • Pension planning – putting you in better control of planning for your future

Whether it has been a while since you last looked at your finances or you are unaware of how changes both in the UK & France could affect you, a decision to take a free financial review could be one of the best New Year’s resolutions you can make.

Whether you want to register for our newsletter, attend one of our road shows or speak to me directly, please call or email me on the contacts below and I will be glad to help you. We do not charge for reviews, reports or any recommendations we provide.

Have a Merry Christmas and a very Happy New Year.

Planning to retire to France?

By Spectrum IFA - Topics: France, Pensions, QROPS, Retirement, Tax, Uncategorised
This article is published on: 13th October 2014

13.10.14

Retiring to France can be dream come true for many people. The thought of that ‘place in the sun’ motivates us to save as much as we can whilst we are working. If we can retire early – so much the better!

In the excitement of finding ‘la belle maison’ in ‘le beau village’, we really don’t want to think about some of the nasty things in life. I am referring to death and taxes. We can’t avoid these and so better to plan for the inevitable. Sadly, some people do not plan in advance and only realise this mistake when it is too late to turn the clock back. For example:

  • Investments that are tax-free in your home country will not usually be tax-free in France. For example, UK cash ISAs and National Savings Investments, including premium bond winnings would be taxable in France. So too would dividends, even if held within a structure that is tax-efficient elsewhere. All of these will be subject to French income tax at your marginal rate (ranging from 0% to 45%) plus social contributions of 15.5%.
  • Gains arising from the sale of shares and investment funds will be liable to capital gains tax. The taxable gain, after any applicable taper relief, will be added to other taxable income and taxed at your marginal rate plus social contributions.
  • If you receive any cash sum from your retirement funds, for example, the Pension Commencement Lump Sum from UK pension funds, this would be taxed in France. The amount will be added to your other taxable income or under certain conditions, it can be taxed at a fixed rate of 7.5%. Furthermore, if France is responsible for the cost of your healthcare, you will also pay social contributions of 7.1%.
  • Distributions that you receive from a trust would also be taxed in France and there is no distinction made between capital and income – even if you are the settlor of the trust.

As a resident in another country, it would be natural for you to take advantage of any tax-efficiency being offered in that jurisdiction, as far as you can reasonably afford. So it is logical that you would do the same in France.

Happily, France has its own range of tax-efficient savings and investments. However, some planning and realisation of existing investments is likely to be needed before you become French resident, if you wish to avoid paying unnecessary taxes after becoming French resident.

I mentioned death above and as part of tax-efficient planning for retirement, inheritance planning should not be overlooked. France believes that assets should pass down the bloodline and children are ‘protected heirs’ and so are treated more favourably than surviving spouses. Therefore, action is needed to protect the survivor, but this could come at a cost to the children – particularly step-children – in terms of the potential inheritance tax bill for them.

Whilst there might be a certain amount of ‘freedom of choice’ for some expatriate French residents from August 2015, as a result of the introduction of the EU Succession Rules, this only concerns the possibility of being able to decide who you wish to leave your estate to and so will not get around the potential French inheritance tax bill, which for step-children would still be 60%. Therefore, inheritance planning is still needed and a good notaire can advise you on the options open to you relating to property.

For financial assets, fortunately there are easier solutions already existing and investing in assurance vie is the most popular choice for this purpose. Conveniently, this is also the solution for providing personal tax-efficiency for you. There is a range of French products available, as well as international versions. In the main, the international products are generally more suited to expatriates as a much wider choice of investment options is available (compared to the French equivalent), as well as a range of currency options (including Sterling, Euros and USDs).

Exchange rates should not be overlooked. Currently, we are living in an environment whereby, for example, the Sterling Euro exchange rate is strong and so people are feeling fairly relaxed about this. However, it does not seem to be so long ago since the rate was close to parity. Unless you transfer your pension benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS) – which is too broad a subject to cover here – your pension income is always likely to be subject to exchange rate risk.

It is possible to have a UK State pension or US Social Security paid direct to your French bank account (and the exchange rate is usually very good), but this may not be the case for other pensions that you receive. Therefore, you should consider using a forex company, since these companies will usually give a better rate than banks.

It is very important to seek independent financial planning advice before making the move to France. A good adviser will be able to carry out a full financial review and identify any potential issues. This will give you the opportunity to take whatever action is necessary to avoid having to pay large amounts of tax to the French government, after becoming resident.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or on the mitigation of taxes.

UK Pensions and Non-Residents

By Spectrum IFA - Topics: France, Pensions, QROPS, Retirement, Tax, Uncategorised
This article is published on: 18th August 2014

18.08.14

A couple of things have come out of the UK government’s office recently. Both are important, but for some expatriates, one of these is going to have a bigger impact than the other.

The first was the result of the consultation on the UK pension reform, which was published in July (and we can now expect a Pensions Bill in the Autumn). The outcome is that not much has changed from what had already been proposed, which you can read about in my previous article at www.spectrum-ifa.com/proposed-uk-pension-changes/

However, a couple of things have been fine-tuned. For example, the age from which you will be able to take your total pension pot as cash on the grounds of triviality will be possible from age 55, rather than the current age 60. Also for those who still prefer the security of a lifetime annuity, the rules will be changed to allow a longer guarantee period than 10 years but of course, this will reduce the amount of the annuity at start.

One important point that has been clarified concerns pension transfers from Final Salary Schemes to Defined Contribution Schemes (DCS). We now know these will still be allowed, but only from those schemes that are funded. Therefore, members of unfunded public sector defined benefit schemes will not be allowed to transfer their benefits to a DCS. This may not appear to be an issue – after all who would want to transfer their pension benefits out of such schemes? In effect, the government – or in reality, the UK taxpayer – underwrites the cost of these pension schemes.

Well this brings me to the second ‘thing’ …….

……. non-residents could lose their UK tax-free allowance on UK taxable income.

For those of you who have not already picked up this news, this is something that could come into effect in April 2015. A consultation has been launched by the government with a deadline of 9th October for interested parties to respond.

For French residents, this concerns those who are receiving public sector pensions, UK property rental income and/or UK earnings. If it comes into effect, the result will be that for a basic rate UK tax payer, unless your average tax rate in France is at least 20%, then your combined UK and French tax bill will be higher. This is because the method that is used to give relief from double taxation in France, limits the amount of that relief to the amount of French tax attributable to such income. Based on the 2014 rates, for a couple in France this would mean that they have to have combined taxable income of at least €112,000 per annum or for a single person, at least €57,000. If you are below this level, then you would be affected.

My initial reaction to the above was that those with public sector pensions are being treated unfairly. They cannot transfer their pension benefits out of the current scheme and so are forced to be subject to UK tax with the possibility of paying up to £2,000 a year more (based on UK 2014-15 rates), but they are unlikely to get the full relief from France. However, thankfully, the UK government has recognised that as the public sector pensions are, in theory, only taxable in the UK, then it is quite likely that entitlement to the personal allowance will be maintained.

Sadly, not so for property rental income (or earnings), as the UK government considers that people will usually be also liable to tax in their country of residence. However, the method of the calculation used to give relief from double taxation is identical for all these three categories of income, which is based on taking in to account the gross amount of income (i.e. before UK tax deduction). Had the previous method of calculating the relief still been in operation, there would not be any potential issue, since the calculation used the amount of income after deduction of UK income tax.

The other change that is taking place in the UK that affects non-residents who own property is the introduction of capital gains tax for properties sold after April 2015. When combined with the potential increase in UK income tax on any property rental income, this makes holding property for investment purposes a lot less interesting.

Are you affected by these changes? If so, please feel free to contact me if you wish to have a confidential discussion to see if your situation can be improved.

Now is also a good time to mention that we are taking bookings for our Autumn client seminars, which will be taking place across France – “Le Tour de Finance – Bringing Experts to Expats”. Our industry experts will be presenting updates and outlooks on a broad range of subjects, including:

  • Financial Markets
  • Assurance Vie
  • Pensions/QROPS
  • Structured Investments
  • French Tax issues
  • Currency Exchange

The date for the local seminar is Friday, 10th October 2014 at the Domaine Gayda, 11300 Brugairolles. This is always a very popular event and so early booking is recommended.

But if you are reading this further afield, you may be interested in attending one of our other events:
Wednesday, 8th October – St Endréol, 83920, La Motte, the Var

Full details of all venues can be found on our website at Le Tour de Finance

Places for our seminars are limited and must be reserved, in advance. So if you would like to attend one of the events or you would anyway like to have a confidential discussion about any aspect of financial planning, please contact me either by e-mail at daphne.foulkes@spectrum-ifa.com or by telephone on 04 68 20 30 17.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or on the mitigation of taxes.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter

Are you a retired expat in Italy or thinking of retiring to Italy?

By Spectrum-IFA - Topics: Italy, Retirement, Uncategorised
This article is published on: 29th July 2014

29.07.14

If your answer is “yes”, Then this information is important to revisit or think about

Expat guide to Money Management

Part 1: Your money and the cost of living

Maybe you have already relocated to Italy, or are seriously considering doing so. There are many factors which come into play. And nothing is more striking than how the change in the cost of living may impact upon you.

Add to this, changes in other areas – for example climate, salary and social life – all of these will have an impact on a successful stay/move – but the most vital one is to make sure you have control over your living expenses.

Adjusting to how much things cost relative to what you are used to is a key part of expat life and forewarned is forearmed!. The World Bank conducted an exhaustive survey and in its report highlighted the fact that food, housing, energy and healthcare costs continue to account for as much as 89% of annual spending, regardless of your location. It’s therefore vital that your day-to-day financial planning takes this into account, regardless of whether you’re employed, self-employed, looking for work in your new location or even retired or retiring.

I have experienced this myself since moving to Italy, especially insofar as the delicious Italian cuisine is concerned. Fortunately my wife has tracked down a tailor to make my trousers larger, but now I have the added expense of having to employ a personal trainer, something I never thought about in my prior planning on moving to Italy!!

Calculate what you’ll need in advance

If you are planning a move, then you need to know how much money you will need in order to have an equivalent lifestyle to the one you currently have. Also, you will need to gauge comparisons in the housing market as to property prices and/or rentals depending on your “mode of habitat”.

A personal tip: You can do this on the internet by looking at housing agencies and rental companies but you will find, 99 times out of a 100, accommodation at much lower prices if you just come to Italy for that purpose. Our quest via the web was frustrating as most agents have virtually the same properties on their books. But by coming to Italy ourselves (Lucca) we visited a few smaller operations and came away with exactly what we wanted at a rental 30% less than we found on the internet.

And do not forget other “miscellaneous” expenses such as buying a car, removal costs and very high motor car insurance premiums which need to be paid up front – only 6 or 12 months in advance – no monthly payments – and that premiums will reduce yearly as your stay in Italy lengthens.

Consider medical insurance

Healthcare is “non-negotiable” even if you qualify for the Italian state medical protection. As was pointed out in the information regarding finding accommodation on the web, rates quoted are generally quite expensive, but by speaking to a “local” agent/broker (usually with the aid of a translator) much lower rates can be obtained. This also happened in our case.

Think of the small additions

Other additional living costs may include employing a driver or domestic staff where relevant, and joining certain clubs to participate in expat social or business life. And then there is the cost of maintaining assets based in your native country. If your house is let out, for example, management fees will need to be paid to a letting agent.

Book a financial review

Consult a wealth consultant/adviser who can talk you through the opportunities available as an expat and find out why you should book a financial planning review