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Are you thinking of selling your UK property or have you sold one recently?

By Sue Regan - Topics: CGT, France, Income Tax, Residency, tax advice, tax tips, UK property, Uncategorised
This article is published on: 13th January 2017

13.01.17

I decided on the topic for this month’s article after having had a couple of very similar conversations recently with expats relating to the sale of property in the UK. In each case they were badly let down by their UK Solicitors who failed to inform them of a change in UK legislation that was introduced in April 2015. As a result, they received unexpected and not insignificant late payment penalties from HMRC for failure to complete a form following the sale of their UK property which could have been avoided if they had been made aware of this change in the law.

Recap of the new legislation

Prior to 6th April 2015 overseas investors and British expats were not required to pay Capital Gains Tax (CGT) on the sale of residential property in the UK, providing that they had been non-resident for 5 years. New legislation was introduced on 6th April 2015 that removed this tax benefit.

The rate of CGT for non-residents on disposals of residential property is the same as UK residents and depends on the amount of taxable UK income the individual has i.e. 18% for basic rate band and 28% above it, and it is only the gain made since the 6th April 2015 that is subject to CGT for non-UK residents.

Reporting the gain

When you sell your property, you need to fill out a Non-Resident Capital Gains Tax (NRCGT) return online and inform HMRC within 30 days of completing the sale, regardless of whether you’ve made a profit or not. This applies whether or not you currently file UK tax returns. You can find the form and more information on the HMRC website at hmrc.gov.uk

Paying the tax

If you have a requirement to complete a UK tax return then payment of any CGT liability can be made within normal self-assessment deadlines. However those who do not ordinarily file a UK tax return will be required to pay the liability within 30 days of completion. Once you have submitted the form notifying HMRC that the disposal has taken place, a reference number will be issued in order to make payment.

As a French resident you also have to declare any gain to the French tax authority. The Double Taxation Treaty between the UK and France means that you will not be taxed twice on the same gain, as you will be given a tax credit for any UK CGT paid (limited to the amount of French CGT). The French CGT rate is 19% and any taxable gain is reduced by taper-relief over 22 years of ownership. You will also be liable to French Social Charges on the gain, at the rate of 15.5%, and the gain for this purpose is tapered over 30 years (rather than 22 years).

At Spectrum we do not consider ourselves to be Tax Experts and we strongly recommend that you seek professional advice from your Accountant or a Notaire in this regard.

There is little that can be done to mitigate the French tax liability on the sale of property that is not your principal residence. So it is important to shelter the sale proceeds and other financial assets wherever possible to avoid future unnecessary taxes. One easy way to do this is by investing in a life assurance policy, which in France is known as a Contrat d’Assurance Vie, and is the favoured vehicle used by millions of French investors. Whilst funds remain within the policy they grow free of Income Tax and Capital Gains Tax. In addition, this type of investment is highly efficient for Inheritance planning as it is considered to be outside of your standard estate for inheritance purposes, and you are free to name whoever and as many beneficiaries as you wish. There are very generous allowances for beneficiaries of contracts for amounts invested before the age of 70. Spectrum will typically use international Assurance Vie policies that fully comply with French rules and are treated in the same way as French policies by the fiscal authorities.

International Assurance Vie policies are proving highly popular in light of Loi Sapin II, which has now been enacted into law. More details about the possible detrimental effects of the ‘Sapin Law’ on French Assurance Vie contracts, in certain situations, can be found on our website at www.spectrum-ifa.com/fonds-en-euros-assurances-vie-policies/. Thus, when also faced with the prospect of very low investments returns on Fonds en Euros – in which the majority of monies in French Assurance Vie contracts are invested – it is very prudent to consider the alternative of an international Assurance Vie contract, particularly as you would still benefit from all the same personal tax and inheritance advantages that apply to French contracts.

Portugal’s Non-Habitual Resident (NHR) Tax Code & Golden Visa Regime

By Spectrum IFA - Topics: golden visa regime, non-habitual resident, Portugal, Residency, Tax, tax advice, Uncategorised
This article is published on: 5th August 2016

05.08.16

It is not an exaggeration to say that Portugal’s NHR and Golden Visa regimes offer two of the most beneficial tax and residence arrangements available in the world.

The NHR Tax Code

  • The NHR tax code is designed to attract foreign individuals to Portugal to entice investment and increase employment opportunities in Portugal
  • NHRs are Tax Residents of Portugal but they can benefit from preferential tax rates and in many cases, receive income and interest, which is totally exempt from Personal Income Tax (PIT)
  • Any person who has not been resident in Portugal in the past 5 years and who subsequently becomes resident of Portugal may be entitled to apply for this status
  • The NHR is valid for 10 years – and may well be extended in the future
  • Individuals who qualify must apply by 31st March in the year following registering as a resident of Portugal

Tax Treatment of *Foreign Source Income (generated outside Portugal)

Category Taxation in Portugal
Pension Tax Exempt
Real Estate Rentals Tax Exempt
Interest Tax Exempt
Employment Tax Exempt
Capital Gains Tax Exempt
Self employment Exempt-as long as obtained from abroad

* Sources of income from any of the 81 “Black Listed” territories will not qualify under the NHR tax code

Portugal Source Income

Any income generated in Portugal will be taxed at a flat rate of 20% instead of at the normal progressive rates: up to 48%

Certain professions, such as architects, engineers, doctors, university professors, auditors and tax consultants and other esoteric occupations may also obtain a favoured tax status.

In essence then, anyone who qualifies for residence in Portugal and who can meet the NHR criteria can obtain the these tax privileges .

Importantly, as well as taking tax advice in Portugal, candidates for the NHR tax Code should ensure that they have informed their home country’s tax authorities that they are leaving to avoid any risk of double taxation.Please note, however, that other countries may challenge such residency status by arguing that in accordance with their domestic rules the relevant person should be considered resident in such jurisdiction. If that becomes the case, i.e. if there is a conflict of residency where two countries consider the same individual resident in both their respective jurisdictions, the tie-break clause established under the tax treaties will apply.

In the case of the United Kingdom, the new Statutory Residence Test (SRT) “maze” can exclude a claim of non UK residence, or inhibit the number of days one can visit the UK in the first three years of non-UK Residence unless certain steps are taken.

How can we help?

  • We can advise and assist in obtaining NHR with suitably qualified Portuguese associates and assist in obtaining applying for the NHR tax code treatment
  • We can refer clients to our UK tax advisors who will ensuring that the correct procedures are adopted so that the SRT non-resident status is met. This will ensure, with the agreement of HMRC, no UK tax returns being necessary in the future
  • Likewise, our qualified Portuguese associates, will provide the necessary forms under the Portugal Double Tax Agreements to ensure any UK non- Government pension income is paid gross

Golden Visa

Who Can Apply for the Golden Visa
Third State citizens involved in an investment activity, either individually or through a company conducting, at least, one of the following operations in national territory for a minimum period of five years:

I) Capital transfer with a value equal to or above 1 million Euros;
II) Creation of, at least, 30 job positions;
III) Acquisition of real estate with a value equal to or above 500 thousand Euros.

It covers shareholders of companies already set up in Portugal, or in another EU State, with a stable residence in Portugal and with tax obligations fulfilled.

  • The investment function established for the Golden Visa has to made and maintained for a minimum of 5 years from the date of which the Golden Visa is established
  • The Golden Visa is initially valued for 1 year, renewable for each 2 year period required
  • Holders of the golden visa may need to evidence that they have stayed on Portuguese territory for at least 7 days in the first year and 14 days in the subsequent 2 year renewal periods
  • After the 6th year, the Visa holder is eligible to apply for Portuguese citizenship, if they so desire

How can we help?

In conjunction with our Portugal Legal associates we can guide applicants through all aspects the process of obtaining the Golden Visa permit.

An overview of tax treatment in Portugal 2016

By Robbin Davies - Topics: Portugal, Tax, tax advice, tax tips, Uncategorised
This article is published on: 28th July 2016

28.07.16

The Portuguese tax year runs from 1 January to 31 December and the tax system comprises of state and local taxes which are generally calculated based on income, property ownership and expenditure.

Portuguese residents are taxed through IRS (Personal Income Tax) on their worldwide income and on a self assessment basis. The income of married taxpayers is based on the entire family unit, and married couples must submit a joint tax return. However, spouses of individuals residing in Portugal for fewer than 183 days in the calendar year, and who are able to prove that their main economic activities are not linked to Portugal, may file a tax return in Portugal disclosing the tax resident individual’s income and their part of the couple’s income.

Income is split into the following categories: revenue from employment, business and professional income, investment income (including interest), rental income, capital gains and pension income. Defined tax deductible expenses are deducted from gross income for each separate category – giving a net taxable income for that category.

A splitting procedure applies to married couples by dividing the family income by two prior to the applicable marginal tax rate being determined. Total taxable income is taxed at progressive rates varying from 14.5% on income under €7,000 to 48% for income over €80,000 to arrive at a final tax liability, then multiplied by two in respect of married couples. There has existed a “Solidarity Tax” of 2.5% which is charged on income over €80,000, and progressively up to 5% for income over €250,000, but this will cease at the end of the 2016 tax year.

Investment income (such as capital gains, interest and dividends etc,) is currently taxed at a rate of 28%. Likewise, rental income is also taxed at 28%, but in both cases tax residents in Portugal may elect for the scale rates to be applied, but once this method is chosen, it will be applied to all income sources. Any tax withheld is considered to be a payment on account against the final total tax liability.

Income from self employment is category B income and is taxed either under a ‘simplified regime’ or based on the taxpayer’s actual accounts. If a taxpayer has earnings below a certain ceiling, they are liable to taxation according to the ‘simplified regime’ whereby 20% of income from sales of products or 80% of income arising from other business and professional services is taxed with a minimum taxable amount due. No expenses deductions are permitted under the simplified regime. If the simplified regime is not applicable then net profits or gains made by an individual are assessed in accordance with the same rules that apply to company tax assessment. Earnings from self-employment or independent activities in Portugal are subject to tax, whether or not an individual is tax resident in Portugal, and may be withheld at source. Tax credits are potentially available for medical expenses, school fees, life and health insurance premiums and where appropriate, mortgage interest, but they are subject to certain conditions. There are other credits available, for example for contributions into retirement schemes and the purchase of eco-friendly renewable energy. Deductions are also available for limited donations to charities, and for payments of alimony that has been determined by a court decision.

It should be noted that with effect from 2010, all foreign bank account holdings are required to be disclosed on income tax returns. In addition, Portugal has a list of of jurisdictions that it considers to be “tax havens”. This list includes the Channel Islands and the Isle of Man, and income from these jurisdictions is taxed at the higher rate of 35%. There do exist alternatives to these jurisdictions which are approved by the Portuguese Tax Authority. Likewise, whilst Trust income is considered liable to taxation, this varies depending on whether the payments from such entities arise from distribution by, or dissolution of, the trust. Nevertheless, where estate planning is concerned, this can be of considerable interest.

Non-Habitual Resident scheme
This attractive regime for new residents with substantial assets is still available for those persons who have not been tax resident in Portugal during the previous five years, whether employed or retired. It provides for substantial tax exemptions during the first ten years of residence. Spectrum IFA Group would be pleased to discuss the structure and implications of the scheme.

Disclaimer
This is not an exhaustive list of taxable items, and changes may occur during the current tax year, but it is designed to give an overview of the most import and key issues. Taking professional advice from a designated tax-advisor is essential, and Spectrum IFA Group is well positioned to assist in finding the appropriate institution or individual to provide such advice.

Planning for Certainty in an Uncertain World

By Spectrum IFA - Topics: europe-news, France, tax advice, Uncategorised
This article is published on: 17th June 2016

17.06.16

At the time of writing this article, the UK Referendum on membership of the EU is only a week away. As the polls swing from one side to the other, uncertainty increases, in part driven by sensationalist media reporting. It seems that even football hooliganism might have the potential to affect the outcome of the Referendum, if England is disqualified from Euro 2016.

If the vote is to remain, in theory, life should go on as we know it. In practice, the schism created within the government over the EU question could make things unworkable. The next UK general election is scheduled for May 2020, but could we see this brought forward?

If the vote is to leave, no-one knows at this stage what this will mean in practice, as it will depend on any exit terms negotiated. If nothing is agreed within two years, then the UK will just exit the EU without any special terms at all, unless all the remaining countries agree to extend the deadline. However, will any of the Member States be favourable to granting special ‘club membership terms’ to any country that leaves the club?

For those of us living outside of the UK, how do we plan for our financial future, amidst all this uncertainty? Well the saying, “when in Rome, do as the Romans do”, comes to mind here. As difficult that thought may seem to be now, financial planning is for the long-term and part of that planning is managing through ‘events’ that occur – including the big political and economic ones.

So whether the UK is in or out of the EU, what really should be considered in planning for a secure financial future is what works best for us according to our country of residence. We already have many clients who are non-EU nationals living happily in France (and in the other countries in which we are based). Whilst there may be some different home tax issues to consider, the financial planning that we carry out for these clients is no different to what we do for our British clients.

Last month, I wrote about tax-efficient savings and investments in France and if you did not see this, the article can be found at www.spectrum-ifa.com/tax-efficient-savings-investments-france/. All the savings and investment products mentioned are widely used by people of all nationalities – being an EU national or not, makes no difference.

A very important part of planning for a secure financial future is to have an appropriate investment strategy for financial assets. Your attitude to investment risk and objectives for your capital are major factors to be taken into account when recommendations for any investments are made. For expatriates, it is also important to consider currency and mobility needs. Investment recommendations should only be made following an in-depth review of your personal situation. Everyone’s situation is different and there is no ‘one plan fits all’ facility.

In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you would like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at limoux@spectrum-ifa.com or by telephone on 04 68 31 14 10. Alternatively, drop-by to our Friday morning clinic at our office at 2 Place du Général Leclerc, 11300 Limoux, for an initial discussion.

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 the 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 here.

 

Working in Gibraltar but living in Spain

By Pauline Bowden - Topics: Gibraltar, Income Tax, Residency, Social Charges, Spain, tax advice, tax tips, Uncategorised
This article is published on: 3rd June 2016

03.06.16

Thousands of people cross the border from Spain to Gibraltar every day to go to work. Many of these people feel that they are in a kind of “Limboland” because they are not fully part of either state’s systems. Even though they pay tax and social security to the Gibraltar government, they are not entitled to free education for their children, nor automatic free health care. If they do not pay tax and social security in Spain, they are not always entitled to the facilities in that country either.

Contrary to popular belief, the two countries do co-operate in many areas. Social security and health care are areas of great co-operation between the two. They also have a reciprocal arrangement for income tax.

Each individual working and paying social security in Gibraltar can elect for those payments to be transferred to their local social security office in Spain. It is a fairly easy procedure, in that you go to the social security office in Gibraltar and ask to fill in the form to transfer your social security payment to the seguridad social of your area of residence. The Spanish office then send confirmation of receipt of payments and issue you with a Spanish social security card.
You are then entitled to Spanish state health care, unemployment benefit, sick pay etc, and once enough contributions have been made, the Spanish state pension.

Many people worry that if they do this, then they would not be entitled to any health care in Gibraltar should they have an accident or fall ill while at work or visiting Gibraltar. Gibraltar is part of the European Union’s health care system and once you have your Spanish social security card, you can go to your local officina de seguridad social and ask for a “Tarjeta Sanitaria Europea” which is produced on the spot once a check is made to ensure that your social security payments are up to date in Spain. This card is valid in all EU countries and Switzerland (including Gibraltar).

To be fully legal, if you live in Spain for more than 183 days in any one year, you should also make a tax return in Spain. Unless you are a high rate tax payer in Gibraltar then you should have no more tax to pay. All it will cost you is the Gestor’s fee for submitting your annual tax return.

Rental Income from properties overseas and how to declare it in Italy

By Gareth Horsfall - Topics: Italy, Property, Residency, tax advice, taxation of rental property, UK property
This article is published on: 25th January 2014

25.01.14

One of the questions I am asked regularly is how income from property held overseas is taxed in Italy. Is it exempt from Italian tax because tax has been paid on it overseas first and is it subject to the same taxes as Italian rental income?

I would like to dispel any myth and confirm that you do have to pay Italian tax on the profit from any rental income on properties held overseas as a resident in Italy. (if it was really ever in doubt. Out of interest the arrangement is reciprocal, and any if you were resident in another country with rental property in Italy then it need to be declared as well).

The best way to organise your rental income
The law for Italian tax residents states clearly that the net profit (after expenses) from property overseas, must be declared in the Italian end of year tax return. The net profit is then assessed as income, added to the rest of your income for the year and tax paid at your highest rate of income tax (that could be as high as 43%).

Let’s not forget the IVIE tax as well which is 0.76% of the property council/cadastrale/rateable income (whatever you choose to call it) value of the property.

If tax has been applied in the country of origin, it is the law in Italy to declare the funds here as well and so annual declarations need to be made.

As an aside, it is relevant to note that in 2012 I received a deluge of enquiries from people who had been contacted by the Guardia di Finanza who had obtained information from HMRC (UK tax authorities) about people who have/had rental properties in the UK, were legitimately declaring tax in the UK, but who had failed to then declare that income in Italy. In some cases they were fined substantial amounts for merely this simple mistake.

However, all is not lost because there is a way to limit your Italian tax liabilties. If the property income is declared in the country of origin and all the costs are deducted from the income, still within the country of origin, then ONLY the net profit needs to be declared in Italy. In some cases it might also be necessary to declare the rental income in the country of origin even when that country no longer requires you to, for example the UK. If you have rental income under the basic allowance of approx the first GBP 10500 of income and therefore the UK no longer requires a declaration, it may still be wise to insist on making a declaration because the UK allow for multiple expense offsets for tax purposes. By following this process you are showing the Italian authorities your expense declarations and therefore it is acceptable for Italian tax purposes.

You may in some cases be able to reduce your net profit to zero.

To clarify, any rental income from properties held overseas must be declared in Italy, for Italian tax residents. This is the NET income (after expenses). And this net figure is added to your other income to determine at which rate of income tax it is assessed in Italy.

Depending on why you are investing in property overseas the advantages/disadvantages can work in 2 ways: .

  1. If you have high expenses for the property then it can work in your favour as a capital appreciation investment. (assuming the value of the property goes up). Less income means less tax.
  2. The downside of this arrangement is that someone with low expenses and high net income (maybe living from the income in retirement) will be assesed at their income tax rates in Italy (IRPEF) which could go as high as 43%

If you are concerned about your tax situation in Italy and would like an initial meeting to assess your liability then we are here to help. In addition, there might be other more tax efficient and less costly ways to produce income and grow your money. If you are interested in exploring these then you can contact me on gareth.horsfall@spectrum-ifa.com or on cell 333 6492356

Top Tax Tips for Expats in Italy

By Gareth Horsfall - Topics: Income Tax, Italy, Tax, tax advice, tax tips, Uncategorised
This article is published on: 4th March 2013

04.03.13

Here are my top tax tips for living or moving to Italy.

1.  Beware of the DIY approach.
Always discuss your tax situation with an experienced and knowledgeable commercialista.  Taxes in Italy are not that much different to other countries around Europe and you might be surprised at just how littel you have to pay.  The DIY’ers rarely find the tax breaks and end up paying more than they need to.

2.  A Tax Residence of choice does not work.
Just because you are spending 3 months of the year in the UK does not mean you automatically qualify for UK residency when in fact you are actually spending more of your time in Italy.  The double tax treaty will not cover you in this case.

3.  Don’t think you can hide. 
If you an Italian tax resident (i.e you spend more than 183 day here a year), then the Guardia di Finanza can find you.   There is always a paper trial, utility bills, mobile phone records, airline tickets, credit card and bank statements, as well as visual evidence from neighbours, gardeners, cleaners etc.  It is much better to be ‘in regola’ and know that the knock on the door is highly unlikely.

4.  Beware the UK 90 day rule.
Quite a few people I meet try to claim UK residency because they go back to the UK for at least 90 days a year out of the last 3 years.  This is not a law and is ignored by the courts.   The Italian tax authorities would swiftly brush this aside as an excuse if they were trying to determine tax residency in Italy or not.

5.  Don’t rely on a double taxation treaty to protect you. 
A double taxation treaty is merely a statement saying that you cannot be a tax resident of 2 countries at the same time.    So, you have to be resident in at least one country in any one year.    The Italian’s will quite quickly assume that you are Italian tax resident if there are any signs of regular/permanent establishment in the country.

6.  Be very wary of trying to be non resident anywhere. 
If you are claiming to be a non tax resident anywhere then you could misunderstand the rules of the countries that you are living in.   It is possible but most countries will deem you to be tax resident even if you spend less than 6 months of the year in the country.  They just find it hard to accept that you can be non resident anywhere.

7.  Don’t forget to register your presence. 
Some people move to Italy and then decide not to report that they are living there and try and live under the radar.  It is illegal to NOT complete tax returns and and a criminal offence in Italy.  Even if you are paying tax on pensions in other countries, have assets overseas or income from other sources, the tax code in Italy states that as a tax resident you are liable to taxation on your worldwide income and assets.   However you might get some Double tax treaty relief’s from Italy for paying taxes in another country already.

8.  Tax favoured investments in one country do not necessarily apply in Italy. 
The classic example is the UK Individual Savings Account. (ISA).  It is not recognised as a tax free account in Italy and is therefore taxed on income and capital gains.   You might need to re-examine all your old investments and replace then with tax efficient investment for Italy (namely the Life assurance Investment Bond).

9.   Watch out for tax free lump sums from pensions
The UK pension system allows a 25% lump sum pension payment on retirement.   In Italy that lump sum is taxable and therefore it might be advisable to take it before you leave for the country.  You might also consider moving the pension fund to a QROPS ( Qualified Recognised Overseas pension Scheme).  This means you can put the pension outside the UK tax system, avoid having to buy an annuity and potentially avoid the 55% charge on the fund at death.

10.  Don’t be worried about tax planning in Italy. 
Life in Italy is great.  Taxes are not that different to those in other European countries.   If you plan early enough and do things properly you will not pay that much more than if you were a UK resident.   I often tell clients that for a few hundred euros more, it really is not worth taking the risk.