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Tax breaks in Italy

By Gareth Horsfall - Topics: Italy, Tax, tax advice, Tax Relief, tax tips
This article is published on: 7th October 2019

07.10.19

I have been writing these articles for 10 years this year, after sending out my first one in 2009. Looking back at the very first one just the other day, I saw how it had developed and how the concepts I discuss have changed dramatically. This got me thinking about the way that the world has changed as well during this time. Last Friday I joined the Global Climate Strike in Rome. There were about 250,000 students, protesters and concerned people; marching to spread our concern for how we treat the world we live in. It certainly got me thinking about how politics is going to have to change significantly in the coming years to meet the needs and desires of these disgruntled voters.

Which leads us nicely to the new coalition government in Italy and their changes in the Legge di Bilancio which were approved on the 30th September. In the Legge there are many new rules that will come into force from 2020, some eco based (but not enough) and a number which may affect you. Below I have selected a few of the changes in the tax law which might interest you.

1. If you are in the market for a new car, then incentives will be given, up to €6000 for purchasing a new electric, hybrid, small gas or small diesel car.

2. BUT, if you buy an SUV or an ‘auto lusso’, then you will taxed up to €3000.

3. Anyone who is working online might be caught in the trap set to try to tackle evasive tax practices by the big tech companies. Italy is following the French lead and introducing a tax of 3% on web based business revenues generated in Italy.

4. The flat tax of 7% for retirees moving to, and getting residency in Italy is fully approved from January 2019. The main caveat is that you must move to a village of no more than 20,000 inhabitants in any of the following regions:

Sardinia, Molise, Abruzzo, Puglia, Basilicata, Calabria, Sicilia

Other terms and conditions apply, so check carefully before assuming you automatically qualify.

5. Income tax deductions will be available for anyone who carries out invoiced home renovation, purchases eco domestic appliances, completes seismic work on their house, purchases sun curtains for balconies or buys mosquito blocks for doors, amongst other property related deductions. The following article (in Italian) provides a nice summary (once again conditions apply, so make sure you check the small print or speak with a commercialista before going ahead).

www.theitaliantimes.it/economia/proroga-bonus-ristrutturazioni-mobili-verde-ecobonus-legge-di-bilancio_011019/

However, please remember that this work must be ‘invoiced’ work and paid for by electronic means. If you pay for it in the black or in cash (even if invoiced), then it is not deductable. Although paying in the black is illegal, it will often mean you can negotiate a discount on the full price. Whilst this might make paying in cash may seem attractive, it won’t afford you any income tax deduction so may turn out to be more disadvantageous.

6. The canone RAI (TV licence fee) has been reconfirmed as €90 per annum. No price increase will be applied, at least for this year.

7. And the pièce de résistance … if you thought that IMU and TASI were hard enough to get your head around, the latest news is that they are going to be unified. No prizes for anyone who can come up with the new acronym. TASIMU???

Tax Advice in Spain for Expats

By Chris Burke - Topics: Barcelona, Spain, Tax, tax advice, Tax Relief
This article is published on: 24th September 2019

24.09.19

Whenever someone gets in touch with me, the first, most important thing I suggest they do is to make themselves and their family as tax efficient as possible, i.e. tax planning. There is no point having a ‘leaky bucket’: their money earning interest but more than needs to is pouring through the ‘tax holes’ they haven’t plugged or planned for.

So, apart from the obvious reason of minimising the current tax you pay, why is it important to review your tax situation? It is to make sure you are aware of ‘stealth taxes’. Stealth taxes are those which are not easy to detect and that many people are not aware of.

If you are a government, you want to win as many votes as possible to be elected (or re-elected). You need money to spend, but raising taxes on the upper echelons will damage your votes, raising taxes on the working classes will also damage you votes, and both will be very vocal. Therefore, what has become increasingly popular with governments is to increase taxes that won’t necessarily hurt voters’ pockets on a day to day basis, but which could do in the future.

A good example of this is something called the lifetime allowance. This is the ‘ceiling’ under which the value of your UK private pension will be in the regular tax bands. However, if your pension pot overshoots this limit, you will pay increased tax of up to 55% on anything over that ceiling. Never heard of this tax? Well, I can assure you there are some very normal, everyday, hard-working people who are not in the upper echelons of society and who, due to long pension contributions and having good investment advice, will reach this limit in their lifetime.

To explain this a little more, the lifetime allowance ceiling was introduced in 2006 and was £1,800,000 at its maximum. Over time, it has been reduced and reduced to its present rate of £1,055,000. During that same time inflation has increased, people’s earnings have increased, contributions to pensions have increased; so why should the ceiling go down? Stealth tax.

Moving forward, stealth taxes are likely to be the most popular way for governments to increase their income without the majority of people noticing.

Let’s think about this. What else could the government do along these lines to increase revenue? How about tax those British people living outside of the UK more? They don’t live there, they don’t have the same rights as everyone that does, so are they not an easier target? So, what could they do? Tax UK state pensions (currently they do not tax non-UK residents, although they are taxable in Spain)? Or how about tax those with UK private pensions a ‘non-resident tax’? Or tax those who move their UK pensions outside of the UK and not into a place where the UK government has an agreement with? In fact, the last one they do already!

What can you do? Well its quite simple really; plan now so that should any of the above or anything like this happen, your assets or monies are arranged to be as tax efficient as possible to mitigate these circumstances. If your assets are working just as effectively as they are now, but are much more tax efficient, it could save you and your family a lot of money in taxes in the future.

Perfect preparation prevents P*** P*** performance I believe is the phrase!

Spain/Gibraltar Tax Treaty – tax residency of individuals

By Charles Hutchinson - Topics: Gibraltar, Spain, Tax
This article is published on: 5th June 2019

05.06.19

On 4 March 2019, Spain and the UK (acting on behalf of Gibraltar) signed an international agreement on taxation and the protection of mutual financial interests.

This is the first agreement on Gibraltar with Spain since the 1713 Utrecht Treaty. However it does not imply any modification of the respective legal status of Spain and the UK with regards to sovereignty and jurisdiction over Gibraltar.

It is important to note that this treaty has not yet been ratified by the two respective national parliaments.

The treaty incorporates the provisions for tax residency of natural persons:
1- Whereby natural persons are deemed resident in Spain and Gibraltar according to their domestic law,
(i) They shall be tax resident only in Spain when any of the following circumstances exist:
a) they spend over 183 overnight stays of the calendar year in Spain, from which sporadic absences from either Spain or Gibraltar shall not be deducted,
b) their spouse (not legally separated) or partner and/or dependent ascendants or descendants reside in Spain,
c) the only permanent home at their disposal is in Spain, or
d) 2/3 of their net assets held directly or indirectly are located in Spain.

(ii) They shall be tax resident only in Spain when the above provisions are not conclusive, unless they are able to provide reliable evidence that they have a permanent home to their exclusive use in Gibraltar and remain in Gibraltar over 183 days per annum.

2- Spanish nationals who move their residency to Gibraltar after the date on which this agreement is signed shall in all cases only be considered tax residents in Spain.

3- Non-Spanish nationals who provide proof of their new residency in Gibraltar shall not lose tax residency in Spain within the tax period when the change is made and during the four subsequent years, unless they spend less than one complete tax year in Spain or are registered Gibraltarians (generally British citizens that have resided in Gibraltar for over ten years) that spend less than 4 years in Spain.

4- HNWI, Cat 2, HEPSS or any other equivalent Gibraltar tax schemes shall not by itself constitute proof of tax residency in Gibraltar.

In conclusion
You will be considered tax resident in Spain if you meet any of the conditions where you are deemed resident in Spain (183 days, family ties, permanent home, 2/3 net assets) or you cannot prove that you spend more than 183 days in Gibraltar and own a house at your exclusive disposal there, or if you are Spanish national in all cases (Spanish domestic law currently is more restrictive because nationals do not lose tax residency when moving to a tax haven in the tax period and subsequent four years).

Non-Spanish nationals who have been tax resident in Spain for more than one year and have moved to Gibraltar will be deemed tax residents in Spain for the following four years after they moved. Gibraltarians who have been resident in Spain for more than four years will continue to be resident for four years more.

The rules for Spanish nationals will come into force as of 4 March 2019 if the Treaty is formally ratified.

The rules for non-Spanish nationals will come into force for the taxable periods after the ratification date, the earliest being on 1 January 2020.

Non-Spanish nationals may use this window to consider their position.

In spite of claims for historical Spanish sovereignty over The Rock, Spain (PSOE) has recognized the existence of both a separate tax authority in Gibraltar and the existence of registered Gibraltarians. Moreover, it is proposed that once the treaty is ratified, Gibraltar should be removed from the Spanish blacklist of tax haven jurisdictions.

Source: JC&A Abagados, Marbella

Watch out for your uber-rich neighbours

By Gareth Horsfall - Topics: Italy, Tax
This article is published on: 18th May 2019

18.05.19

As the rest of the world is starting to talk more frequently about closing in on the uber-rich and making them pay more tax, Italy has gone the other way.

2 years ago Italy introduced a new ‘flat tax’ regime designed to attract the super rich into the country. Anyone can register under this regime whereby they pay a one-off payment of €100,000 per annum to the tax authorities and become resident in Italy without the requirement to declare any of their other worldwide incomes, gains or assets.

Whilst the uptake for this tax regime was slow, Italy has now started to market it more aggressively overseas and they have seen a 30% increase of requests to register, year on year, mainly from the UK (che sorpresa! The super rich are leaving the country with the threat of Brexit) along with Americans, North Europeans and Russians. They now get to keep their money and live ‘La Dolce Vita’

Providing a way out for the uber-rich has never been more popular!

New Tax Laws in Italy

By Gareth Horsfall - Topics: Italy, Tax, tax advice
This article is published on: 14th March 2019

14.03.19

If you have been reading my previous articles, you may have read about tax breaks that are in the pipeline for Italian residents.

They have been proposed by Matteo Salvini and his party La Lega. The proposals that are the most interesting from my point of view are the following:

FLAT TAX OF 7% FOR RETIREES MOVING TO ITALY

This was introduced into the ‘Legge di Bilancio 2019’. In short, anyone who moves to Italy and is in receipt of a pension income from abroad, can benefit from a flat tax of 7% on their income for a period of 5 years after becoming resident, based on the criteria that:

a) you must establish residency in one of the following regions, Sicilia, Calabria, Sardegna, Campania, Basilicata, Abruzzo, Molise e Puglia,

b) the town/village must have less than 20,000 registered inhabitants.

c) you must NOT have been resident in Italy in the last 5 full tax years prior to taking the offer.

d) you can opt out of the regime if you feel it does not fit your circumstances.

The idea is to re-populate the southern regions of Italy which have been decimated over the last 20 years due to lack of employment opportunities and mass migration to the large Italian cities and Northern Europe. The aim is to try and draw in foreign money and also Italians abroad who may wish to move to Italy in retirement.

CHANGES TO THE INCOME TAX BANDS

From calendar year 2020 there are proposals afoot to reduce and simplify the current income tax bands. Currently there are 5 tax bands in Italy:

On the first $15000 23%
€15001 – €28000 27%
€50,000 – €75,000 41%
+75,000% 43€

The initial proposal was to reduce the rate of taxation to 15% on the first €65000 of income and then 20% above. Whilst that has been introduced in 2019 for self employed people on a partitia IVA, the proposal on personal income has been scaled back somewhat since the initial proposals, mainly due to concerns over balancing the books. The latest proposal doing the rounds is to reduce the number of income tax bands, but the rates do not move much:

On the first €28,000 23%
€28,000 – €75,000 33%
€75,000 43%

An income of €28000 per annum gross would amount to an annual saving of €520pa.
An income of €50000 per annum gross would amount to €1620pa

These are not figures that are going to change many people’s lives in a big way, but something is better than nothing. However, all this is hypothetical at the moment as we wait to see the final proposals and implementation of the law. It is unlikely that we will know more at this point since Salvini is quite likely to force another general election this year in lieu of his gaining popularity and the demise of M5S. Since the flat tax was his proposal, if he becomes PM, then further changes could be in the pipeline. Watch this space!

So, all in all I don’t see any great game changers for you or me, but who knows. At least we have the sun, sea, mountains, food and ‘la dolce vita’.

Taxes affecting residents in Italy

By Gareth Horsfall - Topics: Italy, Tax
This article is published on: 13th March 2019

13.03.19

Well, before I start this article I thought I should let you know that I am now a citizen of Italy. My citizenship journey is almost over. I received confirmation that my application for cittadinanza has been approved and in their words, ‘ definitivo’.

All I can tell you is that it was all a bit of an anti-climax at the prefettura. I was hoping for a band, a hug from the chap who had administered my application and a bowl of pasta con sugo di pomodoro e basilico….nothing!

In fact, all I got was the door slammed in my face after being handed a brown envelope to take to the comune. To be fair to him I have to now book an appointment with the comune to go and do the ‘giuramento’, which means changing my carta d’identita into one for an Italian citizen, and to swear on the Italian constitution. I assume it will be a little more pomp and circumstance than the prefettura office, but I shall keep you informed. However, it is official!

I had never dreamed of getting ‘cittadinanza’ in Italy until the big ‘B’ word arrived in my life. Without wishing to get hung up on that particular subject, it has changed my life and I know many of your lives have changed as well. One of those is, of course, taxation. For many it has meant deciding between the UK and Italy for residency purposes. That has implications and I have been a long time advocate of planning your financial life before making the leap of residency into another country. Italy is a higher tax country but the burden can be reduced, or ways can be found to make sure you can enjoy ‘la dolce vita’ without getting hung up on tax matters.

What is most important is understanding, and so every year I like to run a summary of the tax laws which mainly affect us and any proposed changes. There will also be some changes for UK home owners, post Brexit, which I will touch on and the proposed changes to the existing tax rates and the potential tax incentives.

A summary of the taxes which affect most residents in Italy

The first thing you need to remember, as a fiscally** resident individual of Italy is that you are subject to taxation on your worldwide earned and non-earned income, capital gains and assets (including property). It is your job to make sure that you report these to your commercialista each year to complete your tax return. But before you do it for the first time, a financial planning exercise can come in useful.

** Fiscal residency generally means being registered as a resident at your local comune/municipio.

TAX ON INCOMES

EMPLOYMENT
If you are employed or self employed then there are multiple options available, from partita iva, partita iva regime forfettario, rientro di cervello, amongst others. I won’t go into detail here as these really need to be looked at on a case by case basis, but needless to say that there are financial planning opportunities if you are working, or intending to work in Italy. If you have any questions in this area you can contact me on gareth.horsfall@spectrum-ifa.com

PENSIONS
Most of my clients are in, or close to retirement and so understanding how your pension will be taxed as a resident in Italy is of paramount importance.

PRIVATE PENSIONS AND OCCUPATIONAL PENSIONS
If you are in receipt of a pension income and it is being paid from a private pension provider overseas / occupational pension provider or you are in receipt of a state pension / social security, then that income has to be declared on your Italian tax return. If you have paid tax already on that income then a tax credit will be given for the tax paid in the country of origin (assuming that the country has a double taxation agreement with Italy), but any difference between the tax rates in the country of origin and Italy will have to be paid.

I often hear stories of people who are told by their commercialista that their state pension / social security pension is not taxable in Italy. This is absolutely NOT the case. The UK state pension, as an example, is 100% taxable in Italy as is US social security. It is not excluded from the double taxation treaties and therefore must be declared in Italy. Failure to declare could mean fines and penalties.

GOVERNMENT DERIVED PENSIONS
It is a good idea to define what is meant by government paid pensions. The definition according to the Italy/UK double taxation convention1988 is, paid from:

” a political or an administrative subdivision or a local authority”

This generally means civil servants of any kind and foreign office employees but would also include teachers, NHS workers, military personnel, police men and women, fire service etc. In these cases, the pension awarded is taxable only in the state in which it originates, and tax is generally deducted at source in that country of origin.

But there are some tax idiosyncrasies to look out for here. On the positive side, this income is not taken into account when calculating the tax on your other income sources in Italy, e.g. rental income, and it is not declared on your tax declaration in Italy.

On the negative side, for those of you who are thinking of becoming citizens of Italy, these pensions are only taxed in the state of origin UNLESS you become a citizen of Italy and then they are taxable in Italy as well. So for anyone thinking about cittadinanza, plan before you leap!

INVESTMENT INCOME AND CAPITAL GAINS
As of 1st January 2017, interest from savings, income from investments in the form of dividends and other non-earned income payments stands unchanged at a flat tax rate of 26%. Realised capital gains are also taxed at the same rate of 26%.

(Interest from Italian Government Bonds and Government Bonds from ‘white list’ countries are still taxed at 12.5% rather than 26%, as detailed above. This is another quirk of Italian tax law as this means that you pay less tax as a holder of Government Bonds in Pakistan or Kazakhstan, than a holder of Corporate Bonds from Italian giants ENI or FIAT).

PROPERTY OVERSEAS
Property which is located overseas is taxed in 2 ways. Firstly, there is the tax on the income and, secondly, a tax on the value of the property itself.

1. The income from property overseas.

Overseas net property income (after allowable expenses in the country in which is located) is added to your other income for the year and taxed at your highest marginal rate of income tax.

Where many properties are generating all your income, this can prove to be a tax INEFFICIENT income-stream for residents in Italy. It is better to have a diversified income stream, pensions, investments and property, to maximise tax planning opportunities and allow you to redirect income from the most tax efficient source at any one time. Relying solely on one type of asset for income in retirement is generally not a good idea.

2. The other tax is on the value of the property itself, which is 0.76% of the value. (IVIE)

A) Value must be defined in this instance. For properties based in the EU, the value is the Italian cadastral equivalent. In the UK that would be the council tax value NOT the market value. You will find that the market value will, in most cases, be significantly more than the cadastral equivalent value.

B) In properties located outside the EU the value for tax purposes is defined as the purchase price or value at time of ownership, where this can be evidenced, otherwise the value of the property is defined as the current market value.

** BREXIT TAX CHANGE** Once the UK leaves the EU the definition of value of the property will change as per the explanations above. This will affect any UK national living in Italy, who owns property in the UK post Brexit, and depending on your circumstances you could find yourself paying more or less in taxation on the property.

DISPOSAL OF UK PROPERTY
If you are thinking about moving to Italy and are looking to dispose of second properties in the UK before the move, then you may be entitled to take advantage of a tax break. If you have owned the UK property for more than 5 full tax years then it is no longer deemed a speculative transaction and you will not be capital gains tax liable, as a resident in Italy, on the disposal.

However, you may also qualify for a tax break in the UK as well, because although non-UK residents are liable to taxation on the disposal of UK property, the purchase price of the property is taken at the point at which the legislation was introduced: 6th April 2015 or later, if applicable. So if you have owned the property for a long time and seen some large capital gains, you could dispose of the property and benefit from a largely reduced tax rate as a result of this cross border financial planning loophole.

TAXES ON ASSETS
1. Banks accounts and deposits
A very simple to understand and acceptable €34.20 per annum is applied to each current account you own. This includes fixed deposits, short term cash deposits, CD’s etc. The charge is the equivalent of the ‘imposta da bollo’ which is applied to all Italian deposit accounts each year.

2. Other financial assets
Lastly, we have the charge on other foreign-owned assets (IVAFE). This covers shares, bonds, funds, portfolio assets, gold holdings, art, classic cars etc or most other types of assets that you may hold. The tax on these is 0.2% per annum based on the valuation as of 31st December each year.

Also, remember that if you have a portfolio of managed assets that are NOT held in a suitably compliant Italian investment bond, then all the separate funds/shares/assets are considered “individual” and MUST be reported individually on your tax return each year. That also includes reconciling any income payments that have been made and also any capital gains that have been realised. A reference to the Banca D’Italia EUR/GBP or USD exchange must be made for each transaction on the correct date.

French Tax Changes 2019

By Sue Regan - Topics: Assurance Vie, France, Income Tax, Tax, tax advice, Tax Relief
This article is published on: 31st January 2019

31.01.19

2019 has brought a number of changes to the French tax system. Below is a summary of the principal changes affecting personal taxation.

INCOME TAX (Impôt sur le Revenu)
There has been no change to the rates of income tax of the barème scale, but the tax bands have been increased as follows:

Income Tax Rate
Up to €9,964 0%
€9,965 to €27,519 14%
€27,520 to €73,779 30%
€73,780 to €156,244 41%
€156,245 and over 45%

PAYE (Prélèvement à la Source)
PAYE has been introduced in France with effect from 1st January 2019.
The types of income subject to PAYE include:

  • Income from employment
  • Retirement income, including UK private and State pensions, but excluding certain pensions where tax is already deducted at source, such as UK Civil Service pensions
  • Rental income, including that from French properties owned by people who are not resident in France.

For French source income, the employer or pension provider will deduct the tax at source.

Clearly, where income is generated from outside of France there can be no deduction at source by the French authorities. This means that many expatriates living in France will be subject to a monthly withholding tax on their income. Therefore, starting in January 2019, the tax authorities will collect a sum equal to 1/12th of the tax paid in 2018 (based on income declared for 2017).

Excluded from PAYE is investment income, such as bank interest, dividends, capital gains and gains from life assurance policies.

New residents of France who have not yet submitted a French tax return, will have the option of paying a sum ‘on account’, or be taxed in May 2020, following submission of their first tax return.

Everyone will still be required to submit a French tax return in the May of the following year. Thereafter, the final assessment of tax liability will be carried out, and you will either receive a tax refund or be required to pay any additional tax due, over a four-month period.

If you do not currently pay any income tax, you will not be required to pay provisional monthly payments. Similarly, if you anticipate a significant change to your income during the course of the year you can request that the tax authority alter your tax code. However, if you do so, and your income is 10% greater than advised, you could face a tax penalty of at least 10%.

REFORM OF SOCIAL CHARGES (Prélèvements Sociaux)
Some changes have been introduced to certain social charges, which is good news for some taxpayers.

The main rates for social charges remain the same as for 2018, i.e.:

Source of income Rate
Pension 9.1%
Investment and property rental 17.2%
Employment 9.7%

 

Social Charges on Pension Income
The exemption from social charges on pension income still applies if you hold the EU S1 Certificate or if France is not responsible for the cost of your healthcare.

However, those pensioners who do not satisfy the exemption conditions above, but whose pension income is less than €2,000 per month (or €3,000 for a couple), will now pay a lower rate of 7.4% on pension income.

Social Charges on Investment Income and Capital Gains
From 1st January 2019, individuals covered under the health care system of another EU or EEA country are no longer subject to the existing rate of 17.2% on investment income or capital gains. Instead they will now pay a new flat rate of 7.5%. This new flat rate is known as the ‘Prélèvement de Solidarité’ and represents a saving of 9.7%. It applies to investment income, such as property rentals, bank interest, dividends and withdrawals from ‘assurance vie’ policies, and capital gains realised by both residents and non-residents of France.

In summary, taxpayers can benefit from the new 7.5% rate on investment income if:

  • They hold the EU S1 Certificate
  • They are a non-resident of France earning French source income (i.e. rental income, capital gains on the sale of a French property, etc) and are covered by the health system of another EU or EEA country

ASSURANCE VIE
There are no changes to ‘assurance vie’ apart from the social charges reform detailed above which will benefit some policyholders.
For policies held for more than eight years, the annual allowance remains at €4,600 for individuals and €9,200 for married/PACS couples.

This outline is provided for information purposes only based on our understanding of current French tax law. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.

If you would like to discuss how these changes may affect you, please do not hesitate to contact your local Spectrum IFA Group adviser.

The Gift of Giving

By Katriona Murray-Platon - Topics: France, Tax, United Kingdom
This article is published on: 19th October 2018

19.10.18

In my family, there are a lot of birthdays at the end of the year and before you know it Christmas is upon us. With only limited space for physical gifts like clothes or toys, sometimes cash gifts or contributions to the children’s savings plans are more than welcome! But how much can you give your children, grandchildren, nephews and nieces? As we will see, whilst the rules on official gifts and inheritance allowances are very clear, there seems to be much more flexibility on smaller gifts for special occasions.

Gifts from a UK resident to a French resident – UK tax applies
If you receive gifts from a UK resident, such gifts are generally subject to UK tax rules. However, if the recipient has lived in France for at least six of the ten tax years preceding the year in which the gift is received, French tax rules will apply. Inheritances are covered by the Double Tax Treaty between France and the UK but gifts are not. Inheritances are not taxable even if the recipient has been living in France for more than six years. If a double tax situation were to arise then the tax paid in the UK would be deducted from any tax payable in France. French tax is also payable if a UK resident gifts an asset that is situated in France.

A gift is defined as anything that has a value, such as money, property, possessions. If a person were to sell their house to a child, for less than its market value, then the difference in value would count as a gift.
Gifts to exempt beneficiaries are not subject to Inheritance Tax. These include:

  • Between husband, wife or civil partner, provided that they reside permanently in the UK
  • Registered UK charities (a list is available on the gov.uk website)
  • Some national organisations, such as universities, museums and the National Trust

HMRC also allows an annual exemption of £3,000 worth of gifts to people other than exempt beneficiaries each tax year (6 April to 5 April), without them being added to the value of the estate. Any unused annual exemptions may be carried forward to the next year, but only for one year.

Each tax year, a UK tax resident may also give:

  • Cash gifts for weddings or civil ceremonies of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • Normal gifts out of their income, for example Christmas or birthday presents, provided that they are able to maintain their standard of living after making the gift
  • Payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • Gifts to charities and political parties

These exemptions may be cumulated, so a grandchild/nephew/niece could receive a gift for their wedding and their birthday in the same tax year. However, if the wedding or civil partnership is cancelled, the gift for this event will no longer be exempt from Inheritance Tax.

There is an unlimited amount of small gifts allowance of up to £250 per person during the tax year provided that the person making the gift hasn’t used up another exemption on the same person (such as the £3,000 annual exemption limit).

In the UK, Inheritance Tax is payable (at 40%) on gifts made in the 3 years before the donor’s death. Any gifts given between 3 to 7 years before death are taxed on a sliding scale known as ‘taper relief’. Gifts given more than 7 years before death are not counted towards the value of the estate. Inheritance tax will apply if the gift is more than £325,000 in the 7 years before the donor’s death.

Gifts from a French resident to another French resident or to a UK resident – French gift tax rules apply
In France, the Inheritance Tax allowances are not as generous as in the UK. The tax relief on gifts is the same as for inheritance tax and depends on the relationship between the donor and beneficiary. A parent may only give their child up to €100,000 tax free, a grandparent only €31,865 to a grandchild, brothers and sisters may receive €15,932, nephews and nieces € 7,967 and great-grandchildren €5,310.

There is no inheritance tax between married couples or those in a civil partnership, however, for gifts made during a person’s lifetime the maximum amount allowed is €80,724.
Gifts made to disabled persons, subject to certain conditions, have an additional exemption of €159,325 per person irrespective of the relationship between the donor and the disabled person. This exemption is in addition to the normal exemptions above.

These exemptions for gift tax (or ‘droits de donation’) may be used several times over during one’s lifetime, provided that there is a 15-year gap between each gift.
As in the UK, financial support given to a child/ex-spouse/dependent relative on a monthly/annual basis is not considered as a gift in French law, but rather as a family duty. Such support, or ‘pension alimentaire’ as it is called in French, is tax deductible for the donor but must be declared as income by the recipient.

A gift (called ‘don’ in French) may be a physical object, a house or property or intangible gifts like shares or intellectual property rights. If the gift is a house or property, a notary will be required, and he/she will make sure that the proper gift tax declarations are filed. The transfer of property must take place immediately and once given is irrevocable.

Cash gifts, (‘don manuel’ in French) – made by hand, cheque or bank transfer – are subject to different rules. A cash gift of €31,865, may be given to a child, grandchild, great-grandchild or, if there are none such, to nephews, nieces, or if the nephews and nieces have died to their children or representatives. The donor must, however, be less than 80 years old and the beneficiary must be over 18 years old on the day the gift is made. This exemption is also subject to the 15-year rule and is in addition to the Inheritance Tax allowances mentioned above.

The cash gift allowance and the normal gift allowances may be cumulated as long as they do not exceed the legal maximum amounts. So for example, provided that in all cases the donor is not yet 80 years old and the beneficiary is over 18; a mother or a father can give their child a total amount of €131,865; a grandparent can give an adult grandchild a total amount of €63 730 (€31,865 + €31,865); a great-grandparent can give an adult great-grandchild a total amount of €37,175 (€31,865 + €5,310) and an aunt or an uncle can give a nephew or niece a sum of €39,832 (€31,865 + €7,967).

Such cash gifts must be declared to the tax office the month after they are made. Cash gifts (above these exemptions) are taxable if they are discovered by the tax authorities during a routine enquiry by letter or during an official tax inspection. When the beneficiary declares the gift to the tax office of his/her own accord, they must pay the relevant amount of tax. If the value of the gift is over €15,000 it may be declared and any tax paid in the month after the donor’s death.

The French have another type of gift called ‘Présent d’usage’ which is a gift for normal ordinary life events like weddings, birthdays, graduations, baptisms etc. Such gifts are not considered taxable gifts provided that they are given on or around a special event/occasion and that they are not disproportionate given the level of income and assets of the donor.

There is no law which defines the exact amount of these gifts so each is considered on a case-by-case basis.

The Cour de Cassation ruled that a gift of €20,000 from a husband to his wife was a ‘present d’usage’ as it was given for her birthday and by way of a loan taken out by the husband. The monthly payments on the loan were less than 20% of his net income.

Such gifts are not subject to French gift tax and are not included in the donor’s estate.

So now that you are aware of the rules in both countries you may give or receive gifts knowing exactly what needs to be declared. However, the use of gift tax allowances as a tax planning strategy is something which should only be considered after taking proper advice from a qualified independent financial adviser specialised in cross-border matters.

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

By Tony Delvalle - Topics: France, Property, Tax, UK property
This article is published on: 17th September 2018

17.09.18

Some UK solicitors have failed to inform clients of changes in UK legislation from April 2015, resulting in unexpected late payment penalties from HMRC for failure to complete a form following the sale of their UK property.

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.

Since 6th April 2015, any gains are subject to CGT for non-UK residents. The rate of CGT for non-residents on residential property is, as for UK residents, determined by taxable UK income i.e. 18% basic rate band and 28% above, charged only the gain.

Reporting the gain and paying the tax
You must fill out a Non-Resident Capital Gains Tax (NRCGT) return online and inform HMRC within 30 days of completing the sale.

Those who do not ordinarily file a UK tax return must pay the liability within 30 days. Once you have notified HMRC that the sale has taken place, a reference number is given to make payment.

As a French resident you must also declare to the French tax authority.

The Double Taxation Treaty between the UK and France means that you will not be taxed twice as you will be given a tax credit for any UK CGT paid, but you will be liable to French social charges on any gain.

There is little to mitigate French tax 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 unnecessary taxes in the future.

One easy way is by using a life assurance policy, a Contrat d’Assurance Vie, which 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. This type of investment is also highly efficient for Inheritance planning, as it is considered to be outside of your estate for inheritance purposes and you are free to name whoever and as many beneficiaries as you wish.

Should I make a tax return? If so, why?

By Peter Brooke - Topics: France, Tax, tax advice, tax tips, Yachting
This article is published on: 16th June 2018

16.06.18

By Peter Brooke & Patrick Maflin of Marine Accounts

Understanding tax liability is still a big issue for yacht crew; in fact, the confusion mainly comes from the lack of clarity about being “Resident” or “Non-Resident” somewhere. Many crew members are still putting their heads in the sand and ignoring this issue; in our humble opinion this needs a cross-industry culture change, as the repercussions for continuing to ignore tax are becoming more onerous and punitive.

So why should I bother declaring my income?
• You will avoid massive penalties, fees and interest on the taxes that you ‘might’ owe should you be investigated later.
• Your info is out there: The Automatic Exchange of Information means that all your financial information is already being shared between governments.
• Common Reporting Standards: All financial institutions such as banks, insurance companies, and investment firms are required, by law, to attain, keep and share residency information for all account holders.
• I want a mortgage: Most lenders now require proof of earnings in the form of tax returns.
• I live on a yacht and so am not resident anywhere! Does your home authority agree with your assessment of your situation? Get it in writing!

On this last point, it is a huge misconception that just because you believe that you aren’t resident somewhere, the tax authorities will not be interested in you. The onus is firmly on the individual to prove non-residency, not on the authorities to prove residency. If you can’t present a convincing case, it is highly likely that the tax authority with which you have that link will deem you to be a resident. If you haven’t declared your income to them voluntarily, they will look less favourably at your situation and can apply significant fines and interest.

So where should I declare?
If in doubt look at it in this order:
1. Time spent – if you spend time ashore where are you spending it? Keep a diary/spreadsheet of EVERY day.
2. Assets – where is most of your wealth kept?
3. Family – do you have major links to a certain country (especially important if you have children)?
4. Nationality – if you are not resident in a country due to time spent, assets or family links it is likely you should be declaring your income to your ‘home’ authority – i.e. where you are from originally.

Don’t wait to be called upon by any ‘linked jurisdictions’, be proactive, understand the tax residency rules of all of these ‘linked jurisdictions’ and voluntarily declare to the most strongly linked one. It will help you sleep at night and could save thousands in fees and interest, as well as avoid black marks on your record.

This article is for information only and should not be considered as advice. Marine Accounts assist crew with tax residency in many jurisdictions.

Peter Brooke is a financial adviser to the yachting community with the Spectrum IFA Group. Spectrum has created HORIZONS, a unique financial solution just for yachts and their crew at
www.my-Horizons.com or contact@my-horizons.com or peter.brooke@spectrum-ifa.com