Tax Efficient Savings in Luxembourg
Two of the main concerns many of my clients have whilst living in Luxembourg are:
- The low interest rates they receive from saving in the bank.
- How can they save in a tax efficient way?
At the moment, as most of you will already know, whilst leaving your funds to accrue in a bank account in Luxembourg you can receive interest of around 1%. However, due to the European Savings Directive, you lose 10% of this as a tax, thus you will receive around 0.9% interest net.
Putting this in perspective, most of us have to save for the future, either for our pension provision or for our children’s further education. Based on the Liverpool Victoria Study in November 2007, it said that University costs increase at approximately 7.5% per annum (the current level of inflation for educational costs). This was further supported by an article in The Sunday Telegraph, (26th August 2007), which stated:
“School fees have risen 41% in the past 5 years”
Fees at many universities in the UK now stand at £9,000 per annum.
So the question we have to ask ourselves is whether or not by leaving our money in the bank, will we be able to meet all of our future goals?
One solution is to look at saving through a Life Assurance wrapper.
A wrapper is effectively an “investment platform” through which an enormous range of underlying investments can be purchased. Whilst the wrapper will be provided by a life assurance company, it is important to note that you are not paying a premium to purchase additional life assurance. It is, to all intents and purposes, an investment contract.
So what are the benefits of saving within a wrapper here in Luxembourg?
- All investments grow within the wrapper free of income tax and capital gains tax.
- As the wrapper is considered a life assurance contract it is not affected by the European Savings Directive.
- The premiums you pay could be tax deductible (subject to personal circumstances).
- You have access to investments perhaps only available to institutional investors.
- Lower minimum entry levels in underlying investments.
- Access to some of the top fund managers in the world.
- The flexibility to change your investment strategy at any time.
- The ability to access your funds if required.
- Higher bank rate. For example, there are currently bank rates offered within the wrappers of 4.25% per annum.
Every person’s circumstances are different and you should always seek Independent Advice before making any investment decision. Here at The Spectrum IFA Group we offer a no obligation Financial Review before offering any advice.
Savings solutions in Spain
Stockmarket falls and low interest rates
Have you seen your investments fall by over 4% in the last month? This could be the case if you have been invested in the stockmarket. Most people know that investments can go down as well as up. Over time, stocks and shares can make significant gains. However, it still hurts when one sees a loss of this amount in such a short period. Some people prefer to keep their money in cash but then we have another risk. Interest rates are low and, even with the suggested increases in 2015, they could remain low relative to inflation. What many people want, and probably need, is a steady increase in the value of their savings with as little risk as possible. So what is the solution?
The low risk solution
We at The Spectrum IFA Group have access to an insurance bond offered by arguably the largest insurance company in the UK and one of the largest in Europe. Their investment model has allowed consistent returns of over 4.5% a year (after deducting charges) whilst exposing the investor to a fraction of the risk of a stockmarket such as the FTSE100. Whilst the FTSE100 has fallen by more than 4% over the last month, this low risk approach has produced a gain of almost 1%.
Tax friendly in Spain and the UK
No tax is payable on the pure growth of the insurance bond. Even if withdrawals are made, the tax treatment is vastly more favourable when compared to bank accounts or other non-compliant arrangements (see an example of how tax is calculated here). If you are currently Spanish resident, but you subsequently move back to the UK, the bond can follow you and benefit from the advantageous tax treatment awarded to these policies in the UK.
Outside Spanish inheritance tax (IHT)
With Wills correctly drafted and you are deemed domicile the UK, this insurance bond is outside Spanish IHT because it is not based In Spain. With IHT in Spain extremely punitive for non-residents (law possibly to change in 2015), this is a huge benefit to the non-resident beneficiary. It can be written in joint names so as to avoid Spanish IHT on the resident owner.
No Modelo 720 declaration
As this bond is Spanish compliant, there is no obligation to declare it as an overseas asset on the Form 720. This is because the insurance company declares it to Spain each year.
To find out more about how we can help you arrange your savings in a more beneficial way, contact your local adviser or fill in the contact form below.
Tax efficient saving in France with Livret A & Assurance Vie
When I was a UK resident I was able to take advantage of tax free savings schemes. Are there French products that will allow me to save, tax free, now I live in France?
There are two main tax efficient saving products you can take advantage of as a French resident, Livret A & Assurance Vie.
Livret A is a deposit based account which all banks and the post office offer. It gives you instant access however this is balanced by a modest rate of interest of around 1% p.a. There is also a maximum amount of 22,950 Euros per person you can hold within a Livret A.
An Assurance Vie is an investment which again all banks and financial institutions here in France offer.
I have written about this before yet I think a reminder of the important aspects of the mechanism of “assurance vie” is probably in order here:
- An Assurance Vie (“AV”) is a type of insurance however unlike a life insurance policy you may have experienced in the UK, these policies shield any investments from virtually all forms of tax while the funds remain inside the AV. (some funds receive dividend income that has had withholding tax deducted).
- AV’s become more tax efficient over time. After 8 years funds can be withdrawn from the AV and taxed at just 7.5% on the gain element only. Funds can be accessed at any time before that, with the gain declared on your annual tax return. Standard social tax remains payable on all gain, but only when drawn.
- After eight years your gain is not only tax efficient, but it can be offset against a tax free allowance of (currently) €4,600 per person (€9,200 per couple) per annum. I would be happy to run through this with you as part of a free financial health check.
- AV policies are not subject to succession law. Proceeds from an AV policy can be shared amongst any number of beneficiaries. Although the succession tax benefit is reduced when the subscribers are aged over 70, there are still worthwhile benefits to be gained in this area.
What should I ask for in an Assurance Vie?
- Portability – Can I take it with me if I move back to England or to another country?
- Regulation – Is the company advising me on an Assurance Vie regulated in France?
- Fees – No up front entrance fees apart from the money I use to establish the policy?
- Social Charges – If & how are Social Charges applied to my AV ?
- Currency – Can I invest in Sterling? Euros?
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.
ARE YOU PAYING TOO MUCH TAX ON YOUR SAVINGS?
Offshore Spanish-tax-compliant investments
All financial planning advice provided by us is done so using and within insurance contracts that are highly tax efficient in Spain.
For residents of Spain, there is an opportunity to save thousands in tax by structuring investments in the right way. These investments need not, and through us will not, be based in Spain. However, they are recognised by the Spanish as being legitimate for Spanish tax purposes.
Under normal circumstances, if you have a bank deposit, tax will be deducted at source. This is irrespective of whether it is an onshore account, where the local savings tax will be applied, or if it is offshore, and undeclared, where the EU Savings Directive tax kicks in. However, whereas you might be paying 20% tax on the onshore account, you could be having 35% tax deducted from an undeclared offshore account.
Within a Spanish tax compliant investment, you only get taxed when you make a withdrawal. This means that you can defer paying tax for as long as you live. In addition, the rate of tax applied is capital gains tax, currently at a base of 21%.
Also, the amount of the withdrawal which is taxable is very small, especially in the early years, as it is deemed that the majority of the money you are withdrawing is your original capital.
Unlike capital gains tax in the UK, no further tax will be payable if you are a higher rate tax payer. The tax payable is based on the gain, not on your overall income.
These calculations are based on our understanding of Spanish tax law which is subject to alteration.
For more information contact your local adviser or use the contact form below.