Viewing posts categorised under: Retirement

Should I stay or should I go?

By Spectrum IFA
This article is published on: 25th November 2014

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
This article is published on: 18th November 2014

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
This article is published on: 13th October 2014

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
This article is published on: 18th August 2014

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 https://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 9^th 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 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
This article is published on: 29th July 2014

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

Are you thinking about starting a pension in France?

By Amanda Johnson
This article is published on: 15th July 2014

I have been working in France for several years and feel I should now be looking at long terms plans & pensions, but don’t know where to start. Can you help me?

There are many people who, like myself, have come to France to work. Once your business is established it is sensible to start to think about your longer terms financial goals:

At what age would I lie to retire or reduce the number of hours I am working?
What UK pension can I expect to receive bearing in mind I am no longer paying National Insurance contributions?
What can I do with any private UK pension pots I have from my time working in the UK?
How much income do I think I will need once I retire in France?
What can I do to maximise my income & minimise my tax when I retire?

A free financial consultation will allow us to cover all of the above questions and look at options based on your personal circumstances, which will allow you to best plan ahead. Several small decisions now, can make a great difference to your future quality of life.

There are no consulting fees for providing you with advice or ongoing service. Our Client Charter outlines how we work and what you can expect from us. Please do not hesitate to ask for a copy of this.

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 & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.

QROPS Pension Transfer

By Chris Webb
This article is published on: 4th July 2014

If you ever worked in the UK, no matter what your nationality, the chances are you were enrolled in a private pension scheme. The UK government continues to tweak legislative changes affecting the expat’s ability to move this pension offshore. On the surface, these changes appear to limit transfer options, but in reality they have strengthened the legal framework offering expats continuing advantages.

Background

When you leave the UK, if you have a Final Salary pension, then your fund remains valid but is deferred and any increases will usually be limited to inflation until you reach retirement age. The pension income you then receive is taxable in the UK no matter where you are based in the world, you may be entitled to a tax credit if there is a Double Taxation Treaty in the country you reside. Once you die the pension will continue in the form of a spouse’s pension if you are married; otherwise it will cease. When your spouse dies, all benefit payments come to an end.

With a personal pension, if you take any part of your fund and then die before you fully retire, a lump sum can be paid to your spouse. Although this is exempt from inheritance tax there is a special lump sum benefits charge, also known as “death tax”, payable on the remaining fund. This is at the rate of 55% of the benefit amount, although the recent budget changes have advised that this is likely to be reduced in the near future.

In April 2006 Her Majesty’s Revenue and Customs (HMRC) introduced pension ‘A’ day. This liberalised UK private pensions and allowed people leaving the UK to transfer them overseas, often to a new employer. In doing this the UK complied with European legislation which allows all citizens the freedom of movement of their capital. Thus ‘Qualified Recognized Overseas Pension Schemes’ (QROPS) were born.

Implementation

QROPS are not necessarily the right thing in every single case. In order to decide whether it would be advantageous to transfer your pension or leave it in the UK, with the intention of drawing the benefits in retirement, please contact me so that I can carry out a personalised evaluation. There may be compelling arguments, outside of the evaluation alone, which are often overlooked and may affect you in the future.

One of these is that a large number of UK schemes are currently in deficit to the point that they will be unable to pay future projected benefits. This would mean that even though it looks as though there are arguments to leave your UK pension in situ it may actually be wiser to transfer it.

In order for you to make the best decision you need professional advice on what would be the best solution for you. This will entail seeking details of the current UK schemes, including transfer values, the types of benefits payable to you and options going forward when you get to a retirement date and when you die.

I have detailed below some advantages & disadvantages of a QROPS pension transfer, using the jurisdiction of Malta as a reference point.

Advantages

1. Lump Sum Benefits

If you transfer your benefits under the QROPS provisions to a Malta provider, in accordance with the rules of this jurisdiction, you may be able to take a pension commencement lump sum of up to 30% (unless you have already taken this lump sum from the UK pension). Under the current HMR&C (Her Majesty’s Revenue and Customs) rules to qualify for the lump sum option you must be age 55 or over. Your remaining fund is then used to generate an income without having to purchase an annuity. The 30% pension commencement lump sum is only available once you have spent 5 full consecutive tax years outside of the UK (in terms of tax residence), if you are within the first 5 years, we strongly advise you to limit the pension commencement lump sum to 25%.

2. No Liability to UK Tax on Pension Income

A non UK resident drawing a UK pension remains subject to UK tax on the income, unless he or she resides in a country that has a Double Tax Treaty (DTT) with the UK, which contains an article on pensions that exempts the pension from UK income tax. Transferring under the QROPS provisions ensures that, if tax is due on pension income, it will only be taxable in the country of your residence.

3. No Requirement to Purchase an Annuity

There is no longer a requirement to ever purchase an annuity with either your UK pension or in the event you make a transfer under the QROPS provisions.

Whilst the UK Government changed its pension rules in April 2011 so that you can now delay taking your pension indefinitely, in the event of your death after age 75 you are treated as if you had already taken benefits (whether or not you have actually done so) and there would be a 55% tax charge on the funds paid out to heirs. With a Malta QROPS there is still no need to purchase an annuity, however you must start to draw an income from age 70. The Pension commencement Lump Sum must be taken by this age or the option to take it after this age is lost.

4. Secure Your UK Pension Pot

Some defined benefit schemes in the UK are in deficit. Since the deficit forms part of the balance sheet of the company, this can present a huge risk to your pension fund. Transferring your UK benefits under the QROPS provisions could enable you to have full control of these funds without worrying about the financial situation of your previous employer.

5. Ability to Leave Remaining Fund to Heirs

Standard UK pension legislation significantly restricts the member’s ability to leave the pension fund to their heirs on death, except if death occurs before age 75 and no benefits have been paid to the member. Otherwise if a member has started to draw benefits prior to age 75, the remaining fund can still be paid as a lump sum to heirs, but less a tax charge equal to 55% of the lump sum (increased in April 2011 from 35%). If the member dies after age 75, then the tax charge remains at 55% (reduced in April 2011 from 82%) whether or not the member has received any benefits.

A transfer under the QROPS provisions will allow the member to leave lump sums without deduction of tax to heirs as can be seen more easily from the table below.

UK Pension

Age	Benefits from Pension	Tax On Death
55+	PCLS	55%
55+	Income*	55%
55+	PCLS & Income**	55%
55+	No PCLS, No Income***	0%
75+	PCLS, Income or nothing	55%

QROPS – Malta

Age	Benefits from Pension	Tax On Death
55+	PCLS	0%
55+	Income*	0%
55+	PCLS & Income**	0%
55+	No PCLS, No Income***	0%
75+	PCLS, Income or nothing	0%

PCLS – (Pension Commencement Lump Sum)

This table is based on the aim of paying out the remainder of the pension fund as a lump sum death benefit. There may however be other options than providing a lump sum death benefit.
*This is based on the remaining lump sum being paid out as a death benefit. A spouse could transfer the pension into their name and continue the income drawdown.
**There is an option of phased drawdown where you could take part of your PCLS allowance and part income. The remaining portion of the fund that you have not taken the PCLS or income from could continue to be paid out with no tax up to the age of 75.
***There will be no tax up to the age of 75 if you have not taken any benefits from your plan.

6. Currency

A standard UK pension will usually only be invested and pay benefits in Sterling, which means the member runs an exchange rate risk in respect of pension income, in addition to incurring charges in converting the pension payments to the currency of their country of residence.

A transfer under the QROPS provisions means that the pension payments can be made in the local currency, thus potentially eliminating exchange rate risk

7. Lifetime Allowance Charge (LTA)

This is a restriction on the total permitted value of an individual’s total accrued fund value in UK registered pensions, currently £1.5m. Those who exceed this value face a potential tax liability of 55% on the excess funds on retirement at any time when there is a “benefit crystallisation event” that exceeds the LTA. A benefit crystallisation event is any event which results in benefits being paid to, or on behalf of, the member and so includes transfer values paid to another pension scheme, as well as retirement benefits.

The UK Government have advised that the LTA will be reduced to £1.25m from 6 April 2014. (This was reduced in 2012 from £1.8m to £1.5m).

There is no LTA within a QROPS so transferring larger plans to a QROPS may not be caught in this reduction in the future. Careful planning will be needed with your adviser if you are close to the limit in the UK.

Disadvantages

1. Charges

If you have a pension(s) with a combined transfer value of less than £50,000 then the charges may be prohibitive.

2. Loss of Protected Rights

A transfer under the QROPS provisions may result in the loss of certain protected rights, including Guaranteed Annuity Rates, Guaranteed Minimum Pension, a protected enhanced lump sum, or rights accrued under a defined benefit scheme. (These are shown in the section “Analysis of Your Existing Pensions”).

3. Returning to the UK

If you return to the UK, then the QROPS administrator will have to report this ‘event to HMRC and the pension scheme will become subject to UK pension regulations again.

If it is your intention to return to the UK in the near future then a transfer under the QROPS provisions is usually inappropriate.

QROPS and expats living in France

By Spectrum IFA
This article is published on: 12th June 2014

As part of the March 2014 budget substantial changes to UK pension legislation have been proposed by the UK government, and here our Financial Expert Steven Grover a Partner with the Spectrum IFA Group will guide you through these proposals and what consequences they could have for expats.

So what are the changes that have been proposed and which of these changes have already been adopted ? The majority of the proposed changes are already effective as of the 27 March 2014 which include the following:

New higher income drawdown limits – Drawdown investors have a yearly limit to the income they can draw which is from zero up to the maximum, The maximum amount has increased by 25% (from 120% to 150% of a broadly equivalent annuity) So for instance, an investor aged 65 with a £100,000 pension starting drawdown before these changes could draw a maximum income of £7,080 a year. However if they start from 27 March 2014 this will rise to £8,850.

Flexible drawdown made more accessible – Flexible drawdown allows investors to make uncapped, unlimited withdrawals from their pensions. There are, however, strict qualifying criteria. The main one is that you must already have a secure pension income of at least £12,000 (prior to £20,000 before).

However the £12k income must be “relevant income” so only the following will count:

State Pension, Scheme Pension (so a final salary pension which is fixed), Lifetime annuities, Overseas Pensions (but only overseas state pension or final salary), Pension income provided by the Financial Assistance scheme.

And the following income would not be included as they can change, capital can be spent, investments sold, drawdown income can finish – Rental income, Dividends, Interest, Drawdown pension income, QROPS income, Part time salary.

More flexibility for investors with pension small pots – Now investors aged 60 or over with total pension savings under £30,000 (formally £18,000) will be allowed to draw them as a lump sum. The first 25% will be tax free (in the UK but this may not be the case for French tax residents), and the remaining amount will then be taxed as income. This can only be done once. Investors with individual personal pension pots smaller than £10,000 (formally £2,000, twice) will be allowed to draw them as a lump sum from age 60, which will be taxed as above but can only be done three times.

The following changes have however not come into force and are still in consultation:

Pension Investors will be able to take the whole of their pension as a lump sum (Potentially effective from April 2015) – Currently most investors aged 55 or over can take up to 25% of their pension as tax-free cash (in the UK but this may not be the case for French tax residents), and a taxable income from the rest. There are, however, rules that determine the maximum income most people can draw each year. These restrictions will be removed in April 2015 so pension investors will be able to take the whole of their pension as a lump sum if they so wish, subject to consultation. The first 25% will be tax free (in the UK but this may not be the case for French tax residents), whilst the rest will be taxed as income. Should this come to fruition, it takes away one of the most cited objections to funding a pension.

Lump Sum Death Benefits – The 55% tax charge on certain lump sum death benefits will be reviewed. The Government believes that a flat rate of 55% will be too high, and will engage with stakeholders to review the rules to ensure that taxation of pensions on death is fair under the new system.

QUESTIONS & ANSWERS

What exactly is the government consulting on?

The government is consulting on “Freedom and choice in pensions”. The consultation relates to whether the proposed changes will happen and how. The main points which affect investors with private pensions are:

Ability to take unlimited income from pensions (from age 55, rising to 57 in 2028). The first 25% remains tax free, whilst the rest is taxed as income.
Review of the 55% tax charge on death in drawdown/post 75.
Review of the tax rules that prevent individuals aged 75+ from claiming pension tax relief.
Increase in minimum pension age from 55 to 57 from 2028 and further rises after that so it remains 10 years below state pension age.
A consumer’s right to financial guidance at retirement. • Potential use of (yet to be developed) pension products for social care.

What is the timetable of the consultation?

The consultation will close on 11 June 2014 and the government aims to confirm any changes by 22 July 2014, these changes will potentially be effective from April 2015.

Can I take my pension as a lump sum?

Potentially, yes you could. However it will depend on your individual circumstances and the decision made after the consolation period has closed.

From 27 March 2014 some investors aged 60 or over will be able to take their pension as a lump sum if:

▸ Their total pension savings are under £30,000 (only once), or

▸ They have individual personal pension pots smaller than £10,000(maximum three times)

From 27 March 2014 some investors aged 55 or over will be able to take unlimited withdrawals from their pension (through flexible drawdown) if they can prove they have a secure pension income of at least £12,000 a year (including state pension), instead of 20,000 a year.
From April 2015, if the changes above are confirmed after the consultation, everyone will be able to take their pensions as a lump sum.

What happens to investors already in drawdown?

Investors who started income drawdown before 27 March 2014 will remain on their current maximum income until their next annual review date. If the three yearly GAD calculation is due at that review, their maximum income will be recalculated based on the current fund value and that month’s GAD rate. They will then be eligible to take 150% of the new GAD limit. Clients not due a GAD calculation will simply move from 120% to 150% of their existing GAD rate at their next annual review. These same existing drawdown clients may potentially have their maximum income restrictions removed completely in April 2015 if the proposed changes are agreed following consultation.

What happens to investors who have already bought an annuity?

An annuity cannot usually be cancelled once set up, so you are unlikely to have any further options. However, you typically have 30 days to cancel (cancellation period). The start date of the cancellation period will depend on the terms set out by your annuity provider. Some providers are extending their cancellation period.

So with all of the above changes potentially changing drastically changing the UK pension in Industry, will a QROPS now be less relevant to Expats living in France?

First of all what is a QROPS?

QROPS (Qualifying Recognised Overseas Pension Scheme) was brought about following changes to UK pension legislation on April 5, 2006. This scheme has been specifically designed to enable non-UK resident individuals who have accrued pension benefits in the UK, to transfer these out once they have left the UK. Provided that the UK Registered Pension Scheme and the QROPS provider both have the appropriate transfer authority, individuals who leave the UK and establish a QROPS are able to request a transfer of their UK benefits as long as they can provide evidence they are no longer a UK resident.

Due to the fact that this scheme is an international contract, future benefit payments can potentially be received without deduction of UK tax, however individuals will be responsible for declaring the income in their own country of residence. So those who have moved to France to retire or are thinking about moving to France in the future, and have private or work pension benefits that would have normally been left behind in the UK can benefit from a QROPS Transfer.

What are the key benefits of a QROPS over leaving the pension in the UK?

Pension Commencement Lump Sum – With a QROPS approved scheme the amount of PCLS available at retirement can be up to 30 percent, compared to the 25 percent allowed with a UK pension however this does depend on which one of the approved jurisdictions is used.

Inheritance tax planning – Most people would like to think that, upon their death as much of their assets as possible would be passed on to their heirs. It is a complex issue, however, by transferring to a QROPS the taxation of pension benefits on death can be much less punitive. With the current UK pension rules a UK pension scheme could be a taxed up to 55 percent of the fund value before being passed on. By bringing the pension out of the UK and using a QROPS approved scheme, this tax liability can be greatly reduced or in some cases even wiped out completely.

Age benefits can be taken – Some QROPS jurisdictions will allow you to start taking benefits from your pension at the age of 50, as apposed to 55 years old in the UK.

Currency risk – This is a very important consideration for expats who have retired in France with UK pensions that will pay their pension benefit in sterling, because this means they not only run an exchange rate risk but also will incur charges for converting their pension benefit payments into Euros. By putting your pension into a QROPS you can receive your pension benefit payments in Euro’s and therefore eliminate any exchange rate risk, currency conversion charges and have peace of mind that the amount of income you receive each month will be the same.

Investment choice – By moving an arrangement out of the UK there can be a much wider choice of investments available to the pension fund, with a more global focus which is particularly important in the current market conditions as some existing pension schemes can even be limited to just UK investments.

Is a QROPS still relevant to expat’s in France?

This will unsurprisingly depend on your individual circumstances, but some of the changes in the UK like increased drawdown limits have already been adopted by many QROPS jurisdictions. And when you take into account the other advantages mentioned above, using a QROPS still has a many advantages over leaving the pension in the UK. However as part of the proposed changes are subject to UK Government consultation period, for some individuals it might be the case that it is better to wait until these findings have been disclosed.

This information is only provided as a guide and is based on our understanding of current QROPS regulations, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different. If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)687980941, e-mail steven.grover@spectrum-ifa.com

Stick or Twist?

By Spectrum IFA
This article is published on: 6th June 2014

Stick or Twist? Or maybe both? Let me explain.

Thankfully, despite the ups and downs of the UK housing market and the £/€ exchange rate, there are still plenty of new expats arriving in France. It is noticeable though that quite a few of us are taking the decision to return to the UK. At first, this trend surprised me, but then I began to think about it in more detail.

I always have the same conversation with all my new clients. Where do you think you will be living in ten, twenty, or thirty years’ time? The most popular answer is here, in France. ‘Wild horses wouldn’t drag me back.’ ‘I’ve escaped from the concrete jungle, why would I want to go back?’ ‘ I only go back when I have to, to visit relatives. If they weren’t there, I’d never go back.’

That is of course the more entrenched end of the market. A lot of people will qualify their enthusiasm for being here by using the word ‘we’, and it is an important detail, conveying ‘I know where I want to be as long as my spouse/partner is with me, but I don’t know what will happen when that isn’t the case’. And just in the cause of balance, yes, I have met potential clients who said that they were here to try out the lifestyle, and if it didn’t suit, they would go straight back. That stance is however rare.

I then realised that time does, indeed, fly by. I’ve been talking to new expats for over eight years now, and we all get older. Some even wiser. Should I be surprised that some of my early clients have returned to the UK? Probably not. The reasons they give are interesting, and make a lot of sense. Illness and death are way up on the list of reasons to go ‘home’. Not your own death of course, but that of your partner. Widow(er)hood can be a lonely place. And we all know that the French health service is one of the best in the world, but it’s not English, is it? We might feel linguistically comfortable in a restaurant, a garage, or a supermarket, but when it comes to being interned in a foreign hospital with our internal organs at stake, it’s a different matter.

Divorce is another deal breaker, as is debt, but number three in my league table of reasons to be homesick is/are – grandchildren. A natural progression. We have children, they have children, and we feel a very strong emotional tie to those children. Being a thousand miles away doesn’t feel very good, and the pressure grows with them.

Where, you might ask, is this all leading? Am I reading a dissertation on the social demographics of Europe, or is this bloke supposed to be a financial adviser? Fair cop, let’s get back to finance. The reason I’ve been thinking about how and why some clients return to the UK is totally financial. I used to be a corporate foreign exchange dealer. An important part of that job was teaching clients how to avoid exchange rate risk, and how to eradicate it or at least manage it if they already had it. The problem with expats is what is avoiding risk and what is creating it?

If you relocate to France and it is your avowed intent never to leave these shores again, the only way to avoid F/X risk is to move all of your assets into Euro. At the other end of the scale, if you come to France for a three month holiday, you would be mad to change all your sterling into Euro, with the likelihood that you would change it all back again three months later. So where does this leave our undecided expat, who might live in Euroland for twenty years or more, but then return to the UK?

Stick or Twist?

Now my job starts to get a bit complicated. To give you the best advice on your investments and pension funds, I have to decide what your real expat profile is. Luckily for both me and my clients, the choice isn’t all black and white. There are shades of grey. You can indeed ‘stick and twist’ at the same time. I tend to take a different view of pension assets than I do to investment funds. One of the great selling points of transferring your pension fund outside of the UK is that you can invest it in Euros, but if there is even an outside chance that you will be spending your latter years in the UK, should you desert sterling? Don’t think I’m arguing against transferring your pension though. There are plenty of other benefits, and you can transfer and keep your fund in sterling.

Investment funds I see as being more flexible. I’ll take Assurance Vie as a given here. If you don’t know what it is, send me an email immediately. You don’t however have to make any full term commitment to either currency. You can in fact have both, and a number of clients are now taking that option. You can have as many assurance vie contracts as you like. This offers both flexibility of currency choice, and also of investment method.

To summarise then, my message is that it is important to get your investments into a tax efficient environment, but it is also important to decide what currency to be in at what time. I’d like to think that I’m in a good position to help you make those choices. If you have any questions on this, or any other subject, please don’t hesitate to contact me.

Capital Gains Tax and the Expat Property Owner

By Lorraine Chekir
This article is published on: 28th May 2014

You have realised your dream, bought a property in France, perhaps as a holiday home to start with but now you have moved here, maybe to work, or perhaps you have retired. The big question is what to do with your property or properties in the UK?

When moving to a new country many people are a little nervous about letting go of their old one, rightly so after all holidaying is one thing, but living in a foreign country quite another. So often people keep their property in the UK, for a while at least, however this can have Capital Gains Tax (CGT) implications on a future sale.

A tax treaty signed between France and the UK which became operative on 1^st January 2010, meaning that for former UK residents now resident in France, they are liable for french CGT on the future sale of any property including your former main residence. However no liability will apply in the UK.

Main Residence
If you sell your UK home when you move to France or within a relatively short space of time (usually within a year) then no CGT will be payable in either France or the UK. If however, you hold into it for a while ( then or rent it out) then you will pay CGT on it in France just like any other maison secondaire, with no allowance being made for the fact that it was your main home for a period of time.

Buy to let
If you sell your UK buy to let property when you move to France rather than at a later date then you will pay UK CGT. To work out how much tax you will have to pay, take the selling price of the property, then deduct the buying price. You can deduct the costs of buying and selling, e.g. solicitor’s fees, stamp duty, estate agents fees, advertising etc. You can also deduct the cost of

improvements to the property but not routine maintenance and repairs. There is also an annual exemption allowance (£11,000 for 2014/2015 tax year). CGT rates are 18% or 28% for higher rate tax payers. HMRC website provides a step by step guide.

Any buy to let properties that you own in the UK and subsequently sell after you become a french resident will be liable to French CGT.

Ownership
An important point to note, if you are married, but your UK property is only in one person’s name, it may be sensible to transfer the property into joint names prior to any sale to reduce any potential UK CGT liability. There is no CGT payable between spouses/civil partners and the CGT calculation on sale will be based on the original purchase price for both parties.

In France Gift Tax applies between spouses and applies to gifts made in the previous 15 years so it is sensible to take advice from a professional before taking any action.

French CGT
Like UK CGT, you start with the sale price and deduct the purchase price plus any associated buying and selling costs and costs of improvements (but not repairs or DIY, invoices need to be provided from registered builders etc). If you have owned the property for more than five years the notaire can apply an allowance of 15% of the original purchase price of the property – even if you haven’t done any work!

For EEA residents the starting rate for french CGT is 19% plus 15.5% social charges however these start to reduce on a sliding scale from year 6 of ownership onwards. After a full 22 years have passed the CGT reduces to nil, however it is 30 years before the social charges reduce to nil. Additional charges apply for gains above 50,000 euros.

Working out when, where and how much Capital Gains Tax you should be paying can be quite a headache and the best thing to do is take advice from a professional.

This article is for information only and should not be considered as advice and is based on current legislation. 25/05/2014.