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Pensions Time Bomb

By Gareth Horsfall - Topics: Final Salary Pension, final salary schemes, Italy, Pensions, QROPS, Uncategorised, United Kingdom
This article is published on: 3rd November 2016

03.11.16

It could be said that uncertainty is the nemesis of good long term financial planning and living in today’s world you could be forgiven for throwing your hat in and tucking yourself away for a few years: Hard Brexit, Soft Brexit, Donald Trump, Italian Constitutional Referendum, German and French elections, the rise of nationalism, and the list goes on.

However, time always marches on and we either get left behind or plan forward. No one has ever complained to me (yet) about finding ways to legally save tax, finding ways to save money, getting better investment returns, or having more money then they had planned for.

So with this in mind I want to return to a subject which I have touched on a few times before but which has been hurled back to the top of the financial planning priority charts:  UK Final Salary Pension Schemes.

This article is specifically for anyone who holds any type of corporate final salary pension plan. (It does not relate to the UK state pension or UK government pension schemes, eg Teacher, Doctor, Army etc).

Starting with the bad news

I want to break some bad news to holders of those historically ‘gold plated’, final salary pensions schemes. The schemes that promise you a certain level of income based on your last few years salary level with your employer.

They are no longer gold plated!

This is quite a complex area to try and explain, but let me try and sum it up in a nutshell.

When the population starts living longer and the pension scheme can’t ask anymore contributions from the new members (without crippling them financially), then the cost of looking after the existing retirees for a much longer time than the scheme had anticipated (due to medical advances), becomes much greater than the net new money being put into the scheme.

If this were a family, it would be in debt. A mortgage, it would have defaulted. A company, it would have gone bankrupt.

Another problem is that these pension schemes need such a secure income stream to pay the retirement incomes of the retirees that they have to invest the scheme assets in safe, but incredibly low yielding asset such as Government Bonds.

And there you have the problem. If you make very attractive promises to retirees, based on your calculations many years ago, but the financial landscape changes dramatically during that time, then your original calculations are now totally obsolete. More money out than coming in spells TROUBLE!

Examples:
If you want to know how bad this situation is, then take a look at these figures. (These show the market value of the company in billions, versus the liability of their long term pension obligations, ‘IN BILLIONS’. The figures are staggering)

      VALUE       PENSION LIABILITY
BAE Systems       £15.802bn       £29.236bn
RSA Insurance       £4.332bn       £7.126bn
British Telecom       £36.657bn       £51.210bn
Sainsbury       £4.946bn       £7.696bn
Rolls Royce       £10.572bn       £11.564bn
RBS       £39.954bn       £35.152bn

These are the worst in the UK. If these companies had to legally honour their pension liabilities, they would be bankrupt.

But, let’s not be silly about things. The Government would never let companies like this go bankrupt, so they allow them to continue to operate the pension funds off their balance sheets.

And, to make it even more enticing they allow them another ‘get out clause’…outright default!, right into the UK Pension Protection Fund. A UK Government run scheme which guarantees to pay the pensions (up to certain limits) in the event that the company says it can no longer do so.

The burden moves to the taxpayer!

However, as low interest rates and retirees living longer wreck their long term calculations, more and more pension schemes are opting to close down and place their members under the Pension Protection Fund. As more and more members apply, the burden becomes greater on the UK public purse.  Do they cut the maximum amount of pension you could receive? What about the benefits you might lose?

These are all very serious questions for people who are currently members of final salary pensions.

However, there is some potential light at the end of the tunnel. A transfer away from the scheme, with a lump sum from which you can invest and take income from, as though you had your own personal pension.

The advantages and disadvantages have to be weighed up but with more schemes in financial difficulty there is a distinct possibility that it might be worth your while.

NOW! is the time to find out the value of your pension

Low interest rates and stress on the pension fund means that transfer values out are at historical highs. The companies are happy to rid themselves of you and will pay handsomely to do so, and the low interest environment means the transfer out values are much higher than you might imagine.

But low interest rates will not continue forever. Brexit and the fall of GBP will create inflation and that means interest rates will have to rise.

Get the information now before it is too late

Lastly, let’s leave things on a good note. If the benefit of transfer out is clear and present after an analysis of the situation, then you can also pass your income onto your spouse/partner, and/or leave the asset to your family on death. The benefits are not lost when you die.

There are benefits on both sides of the argument and we provide a FREE analysis to advise our client whether to transfer or not. If you want to look into this area of your retirement plans and potentially secure your long term income stream, then you can contact me

 

The Brexit or Invoking the Law of Unintended Consequence.

By David Hattersley - Topics: BREXIT, Spain, Uncategorised, United Kingdom
This article is published on: 28th October 2016

28.10.16

Since the Brexit vote most news has been about potential Trade deals, and Sterling’s fall. However it perhaps has gone unnoticed, that from a variety of differing scenarios with outcomes by no means certain, a Constitutional crisis could be gathering steam.

It all stems back to the European Referendum Act 2015, that didn’t consider the variety of outcomes and was legally non binding. In addition, the power of the Royal Prerogative that was curbed when King John signed the Magna Carta in 1215 is being used by the Government, and in essence his successor Theresa May, to make or break treaties with other countries including the EU, in this case invoking Article 50 without the need for it to be passed into law via an Act of Parliament.

Critics of this say that the 1972 Act (based on the UK joining the Common Market) ceded power from the UK Parliament and allowed EU law to pass into UK law. This gave the British people protection under a new constitution based on EU law (based on Napoleonic Law). The UK has never had a written constitution that protects it citizens and gives them certain rights. It is being argued by a variety of bodies via legal challenges against the PM for using the Royal Prerogative to take away rights bestowed to Parliament. Some go as far to say “enforced removal” of citizenship rights from 65 million people would be “completely unprecedented “in modern democracy. Expat campaigners are also arguing that the “rights enjoyed by British citizens beyond these shores are so fundamental that legislation is required to take them away”.

The legal challenge has been mounted to the process of withdrawing the UK from the EU without a vote in Parliament and is going to the High Court, to be heard within the next two weeks. If the government lose due to Judges imposing their will (note unelected!), it would then be ironic for this eventually being heard by the European Court of Justice, the UK’s next step .

If the UK government win this current legal challenge on the basis “ Respecting the outcome of the referendum and giving effect to the will and the decision of the people “, that too could lead to further challenges for whom the right to vote was taken away i.e. a large percentage of Ex Pats and those Europeans citizens in the UK.

Additionally, working on that basis could give credence to Scottish Independence should they have a 2nd referendum and vote to remain in Europe. The same could be said of Northern Ireland, which has its own Parliament as well, and perhaps even Gibraltarians, as they overwhelmingly voted to remain.

The other major crisis in the making is the “Great Repeal Bill” debate that is due to be put to the House next year. A number of scenarios could occur. Many M.P.’s supported remain and the government still has deep divisions within its ranks. With only a majority of 10 seats in the House, a loss could force a vote of confidence, an early election, and a greatly disenchanted and potentially a disenfranchised electorate that voted to leave.

If they win then it passes to the House of Lords, who overwhelmingly wished to remain in the EU, and should they vote against it, take note Leave campaigners, an unelected body voting against the wishes of the majority!!

The Law of Unintended Consequence reigns supreme, or quite simply chaos. It makes Spain’s recent political turmoil insignificant, and I wonder how many of those that voted to leave or indeed did not vote at all, would have wanted these potential outcomes.

What would be even more ironic would be that the UK Government, in its current format, with many of the Ministers that supported the Leave campaign in positions of power, having to go to the European Court of Justice to overrule either singularly or both the UK Judges or the House of Lords to push through the Brexit, whilst at the same time preside over the breakup of the Union.

Dread and Brexit

By John Hayward - Topics: BREXIT, Costa Blanca, Inheritance Tax, Spain, Uncategorised, United Kingdom
This article is published on: 24th October 2016

24.10.16

Fear causes thousands to hold off making decisions pre-Brexit

Uncertainty over what will happen once the UK has left the European Union has led people to make one important decision. Not do anything until it happens. This means delaying actions for around two and a half years. This could be a really disappointing, if not dangerous, decision to make. As much as we intend being around in two and a half years, there is no guarantee we will be. Who knew two and a half years ago what was going to happen next week?

Brexit is another event in our lives. None of us, not even the politicians, know exactly what is going to happen but you can plan for all eventualities. If there is a full-on Brexit, then you need to be in a position whereby your money is not exposed to future monetary restrictions. You need to do this BEFORE the shutters come down. Waiting two and a half years may be too long and too late.

If there is a “soft” Brexit, as I suspect there will be, with deals being done over a gin and tonic in Le Chien et Le Canard, it will still be important that your investments are recognised as being tax compliant in the country you live in. It will also be important that any financial planning advice you are receiving is coming from a company registered in your country. Some financial advisers in Spain are allowed to operate using a UK licence because the UK is in the EU. The professional indemnity insurance which they (may) have could become invalid.

Another change likely to cause a big problem post-Brexit is Spanish inheritance tax. UK inheritors are benefiting from Spanish rules introduced in 2014. These rules only apply to EU residents. Therefore, it is now time to look at how to distribute wealth in readiness for these changes.

Interest rates are low and will stay that way for some time to come, probably for at least two and a half years. The pound has collapsed in value meaning that income in euro terms has reduced dramatically. Banks have little or nothing to offer. We can help you with this NOW. We do not charge for a chat, or even for investigating what you have. We tick all the boxes regarding licences and compliance and we live in Spain.

 

Will BREXIT have an effect on your Pension Plans?

By Susan Worthington - Topics: BREXIT, Defined benefit pension scheme, Final Salary Pension, final salary schemes, Mallorca, Pensions, QROPS, Spain, Uncategorised, United Kingdom
This article is published on: 20th October 2016

20.10.16

 
Brexit could have an effect on your Pension whether it is a Private Plan or Final Salary Scheme that is waiting to be paid. There are many various pension plans these are just two examples

Do you have a Private Frozen Pension in the UK?

Pensions are driven by HMRC ruling not EU Membership and a QROPS (Qualifying Recognised Overseas Pension Schemes) which allows you to transfer your pension overseas. This option may not be available in the future as there is talk that HMRC may pull the plug, make restrictions or even insert transfer tax.

Do you have a Final Salary Pension Scheme in the UK?

There have been a number of recent changes within the UK economy and UK pension world that make a review of any pension(s) essential for those living or planning to live outside the UK.
Final Salary pension schemes (also referred to as Defined Benefit schemes) have long been viewed as a gold plated route to a comfortable retirement, however there are likely to be large changes ahead in the pension industry. The key question is; will these schemes really be able to provide the promised benefits over the next 20+ years?

Why Review now?

Record high transfer values

  • Gilt rates are at an all-time low. This has caused transfer values to be at an all-time high, some transfer values have increased by over 30% in the last 12 months.

TATA Steel/BHS

  • Recent examples show that very large deficits in pension schemes cause a number of problems, in particular no one wants to purchase these struggling companies as the pension deficits are too big a burden to take on
  • Could the Government be forced to change the laws to allow schemes to reduce benefits? A reduction in the benefits will reduce the deficits and make the companies more attractive to purchasers

Pension Protection Fund (PPF)

  • This fund has been set up to help the schemes that do get into financial trouble, two points are key. Firstly it is not guaranteed by the Government and secondly the remaining final salary schemes have to pay large premiums (a levy) to the PPF in order to fund the insolvent schemes. As more schemes fall into the PPF there are less remaining schemes that have to share the burden of this cost.
  • It is likely the PPF will end up with the same problems as the final salary schemes, they won’t have the money to pay the “promises” for the pensioners
  • In April 2015 unfunded Public Sector pension schemes have removed the ability for transfers, so schemes for nurses, firemen, army personnel, civil service workers etc. can no longer transfer their pensions. Now these are blocked, it will be easier to make changes to reduce the benefits and no one is able to respond by transferring out of the scheme

Autumn Statement (Budget)

  • This is on 23 November 2016. Could the Government make any further changes to Pension rules? When Public sector pensions were blocked there was a small window of time to transfer, however most people couldn’t get their transfer values in time as the demand was so high. People who review their pensions now may at least have time to consider options

What could happen in the Future?

  • An end to the ability to transfer out of such schemes
  • Increase the Pension Age, perhaps in line with the increase of the State Pension
  • Reduction of Inflation increases, (already started as many now increase by CPI instead of RPI)
  • Reduction of Spouse’s benefit
  • Increase of contributions from current members
  • Lower starting income

Act now! Review your pensions

Susan Worthington of The Spectrum IFA Group has been giving investment advice here in Mallorca and Menorca since 1994.
If you wish to have a chat with Susan about any frozen or paid-up pension.
Contact: susan.worthington@spectrum-ifa.com or telephone 670 308987.

For Brexiteers and Remainers alike

By Gareth Horsfall - Topics: BREXIT, Euro, europe-news, Italy, Uncategorised, United Kingdom
This article is published on: 17th October 2016

17.10.16

It was only a matter of time before I got onto the subject of Brexit once again. I have been trying to avoid it like the plague and certainly will refrain from offering any views in this article.

However, I do want to inform you about some very important developments for UK citizens who are living in Italy.

Since Brexit, it has become apparent that whatever stance you took at the vote, that UK citizens living in Italy may very well lose the right to universal access to healthcare, pensions, the right to acquire citizenship and running a business. Equally we may lose the right to freely move across other European states and we will almost certainly, the ways things are presently moving, lose the right of permanent residence in Italy without a permesso di soggiorno.

I am certainly worried about all the UK negotiations with the EU and whether you voted for Brexit or not and/or if you are a resident in Italy or intend to be, then they will surely affect you. One way of getting round this is to try and attain cittadinanza, (you can find out how , HERE. The page is in Italian!) if you are eligible. The other way is for us to try and get our rights as UK citizens, who are already living in and resident in Italy, recognised by either the UK and/or Italy.

In France, Spain, Belgium and Germany there are big movements afoot by politically inclined and connected individuals who are writing to their respective EU states and negotiating with them on behalf of all UK citizens already living in these countries and the rest of the EU.

Here is a little of what they say:

Brexit should not have a retrospective effect on individuals. UK citizens currently resident in the EU and EU citizens currently resident in the UK should be expressly treated as continuing to have the same rights as they had before Brexit. This is not confined to a right of continued residence but extends to all related rights such as the acquisition of citizenship, the right to continue to work or run a business, the right to healthcare, pensions etc.

These citizens from both sides of the Channel all made their decisions on where to live and work in genuine and reasonable reliance on the UK’s membership of the EU. Whatever the rights and wrongs of that membership, it cannot be right for millions of people to have their lives turned upside down when that could easily be avoided by a mutual agreement that the status quo prior to Brexit should continue to apply to this group.

Rumblings in Italy

I am happy to say that, in Italy, there is now a similar group of people who are campaigning to represent UK citizens in Italy. They are a UK/Italian solicitor based in Rome, retired barristers and journalists who are aiming to gather recognition in the UK, and in Italy, at a political level and fight to retain EU rights for UK citizens living in Italy.

The subject of this E-zine is to spread the word of this to as many British people living in Italy, or intending on moving to Italy, as possible.

They have a Facebook group. If you are interested in ongoing developments they will be posted regularly on their page. You can ‘Like’ it from the link below. And don’t forget to send this link to as many other UK citizens living in Italy, as you know.

www.facebook.com/UKcitizensinItaly/

(If you are unable to join this group, or do not use Facebook, then you can register your presence with the group at their email address: britsinitaly@gmail.com. You may also contact them if you have any specific skills or contacts, or want to get involved in some way).

The group is closely affiliated with www.britsineurope.org who are a group of UK citizens living in Berlin and who are fostering co-ordination between the various groups around Europe.

It would appear that this group of people in Italy are the ONLY group which is actively campaigning in Italy and ideally it should stay this way. A lot of the campaigning will have to be directed at the Italian government and we all know what a headache that can be. One focal point will be a useful way of making contact with you, when required, and also informing the group of any hurdles you may be facing already, or start to face, as a result of Brexit.

The group is an open group, subscription free, and welcomes any ideas, comments or information you might be able to offer.

Please spread this onto as many UK citizens in Italy as you may know and ask them to sign up to the Facebook page, if they have the possibility to do so. Otherwise I will, as usual, be updating you with ongoing developments here. I am in regular contact with the group of individuals mentioned above and will aim to send out messages when necessary, alongside my usual ramblings.

This has been more of a public service notification than one of my usual E-zines but I hope you are reassured that there are people out there who have the ability and connections to try and make our life easier in Italy, depending on the outcome of the Brexit negotiations.

Warning – UK Pensions

By Pauline Bowden - Topics: Defined benefit pension scheme, Pensions, Retirement, Spain, Uncategorised, United Kingdom
This article is published on: 25th September 2016

25.09.16

In the UK the FCA and HMRC have been making frequent changes to Pension rules and the way pensions are taxed. It has been for this reason that many clients have moved their pensions out of the UK. Now with BREXIT around the corner I suggest we may see even more changes.

Transfers out of most public sector schemes have been stopped– but not all, yet! That means that many former public sector workers; Teachers, Civil Servants, Nurses, Doctors, and many Local Government officers, have been unable to transfer their pensions.

More than 100 company pension schemes in the UK are in deficit i.e. they do not have enough money in them to pay out the expected benefits. Some schemes are good and have sufficient funds. Is yours?

In the past our firm have often advised clients to leave defined benefits schemes (final salary schemes) where they are as they usually provided a guaranteed income. Now that view is changing.

Transfer values are at a high at the moment because gilt returns are very low. This is the time to review your pensions before rules are changed yet again. There may only be a short window of opportunity to make sure you can take control over your existing pension funds.

Make sure you review your personal situation BEFORE article 50 is invoked i.e. before the UK start the process of leaving the EU. It is important to find out if your pension pot sitting in the UK is safe and well-funded.

A consultation with me is free. It will cost you nothing but time – I do not charge for a consultation. Although, I might let you pay for the coffee!!!

I have a long term relationship with a UK regulated financial adviser, why should I speak to French regulated one?

By Amanda Johnson - Topics: France, Residency, Uncategorised, United Kingdom
This article is published on: 14th September 2016

14.09.16

Many of us have banking and financial services relationships from the UK and whilst you may feel a financial review now you are resident in France isn’t urgent or important the benefits can be enormous. A full financial review can be free and you should always ask what costs are applicable to any consultation you arrange. Some of the benefits include:

Capital Gains Tax – Certain tax efficient savings and investments recognised by HMRC would not qualify under French taxation, leaving you with a tax bill on the gain element.

Inheritance Tax – UK inheritance tax planning is very different to that in France and even though you can opt to have your UK will recognised in France, tax on your estate will be based on French tax rates and laws.

Compliance with the French tax system – Knowing how and when to declare your investments and savings can avoid financial penalties for non-disclosure.

It is very important to remember that whilst your UK financial adviser has been of great service whilst you were resident in Great Britain, if they are not trained and regulated in the country you now live the French authorities will still expect your financial affairs to fully comply to French laws and this may mean you are presented with an extra tax bill for any non compliance.

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.

Tin Hat Time at the FCA

By Derek Winsland - Topics: FCA, final salary schemes, France, Pensions, Uncategorised, United Kingdom
This article is published on: 1st August 2016

01.08.16

In the wake of the fourth Parliamentary Review into the Financial Conduct Authority and its handling of high-profile incidents, comes the latest criticism from the Financial Services Complaints Commissioner who accuses the FCA of “an unwillingness to face up to and address its shortcomings”. He went on to say he had seen a tendency at the FCA to find reasons for excluding cases from the complaints scheme in circumstances where they should not have been excluded. Oh dear, smacks of Big Brother getting too big for his boots and believing itself to be above the law?

It is currently squirming with embarrassment over the antics of Sir Phillip Green and the BHS pension scheme, and this is fostering the belief in the industry that it is too focussed on the advisory sector and overlooking the problems that Pension Freedoms is having on occupational pension schemes, especially Defined Benefit (DB) or ‘final salary’ schemes.
You will no doubt be aware that the legislation passed in April 2015 relaxed the rules over how benefits could be taken from pensions. Gone was the insistence that a “pension is a pension – its job is to provide your income in retirement.” Although this is true, the old-fashioned rules take no consideration of lifestyle and personal choices. A casualty of this new form of thinking is the annuity, where you handed over your pension pot to an insurance company in return for an income for the rest of your life. A great concept except that the insurance company kept your money when you died. Under the new rules, you could use your pension pot to draw income off in retirement (or even before retirement now). This ‘income’ could be regular or ad-hoc in support of other income like state pensions for example.

Crucially, the new rules addressed the world in which we live and choose to live. An example of this could be where a member of a DB pension scheme (or a number of schemes over his/her working life) may decide on a change of career, to move to France to buy a property with an attached Gite to rent out. That is a lifestyle choice that perhaps suits that individual. Personal choice.

Under current (and out of date) FCA thinking, the default assumption is that it would not be appropriate for that individual to transfer the accrued benefits from such DB pension schemes, unless it can be proven that such a transfer is in that client’s best interest. How is this tested? Through the Transfer Value Analysis System or TVAS. Results are shown in the form of critical yields and hurdle rates. Sound complicated? You bet! Except it doesn’t allow for lifestyle choices or individual circumstances, which to the member are of far more importance. As advisers we’re told we must advise and inform the client of what’s in his or her best interest, even if it doesn’t gel with that person’s view. Believe me, those conversations are not easy. The FCA, meanwhile, sits in Canary Wharf, navel-gazing while all this is going on. The more cynical amongst us think the FCA has far more on its plate like finding ways to boost its coffers now it’s been told to stop bank-bashing and fining them for their latest misdemeanours.

There is hope on the horizon, however. The new chief executive of the FCA, Andrew Bailey has promised a greater focus on pensions, hopefully this won’t be an exercise in covering their backsides, but rather a genuine attempt to move with the times, providing much-needed and valuable guidance to the people they serve, the consumer. Let’s all hope that this is sooner rather than later and that the FCA doesn’t get distracted too much wrestling with the bear called Brexit.

If you would like more information on our view of how the investment markets are likely to play out into the future, ring for an appointment or take advantage of our Friday Morning Drop-in Clinic, here at our office in Limoux. And don’t forget, there is no charge for these meetings.

Concerns over effect of BREXIT on expat pensions

By Graham Keysell - Topics: BREXIT, europe-news, France, Pensions, QROPS, Retirement, Uncategorised, United Kingdom
This article is published on: 5th July 2016

05.07.16

The decision by UK voters to leave the European Union could have far-reaching consequences for pensioners living abroad.

This is especially the case for those receiving UK state pensions, but who are living in another EU member state.

The main uncertainty is whether state pensions will continue to benefit from annual increases.

As at September 2014 there were 1.24 million people receiving British state pensions but living outside the UK.

Approximately 560,000 expat pensioners live in countries such as Australia, New Zealand, Canada and South Africa, where their state pension is frozen at the amount it was when they left the UK.

Is it going to be the case that British expats living in EU countries such as France or Spain will find themselves in a similar position?

Since 1955, pensions have been paid worldwide, but there was never any mention of annual increases.

However, in the period to 1973, reciprocal arrangements were made between the UK and 30 other countries, which allowed for annual increases to be paid in certain countries. This was seen as making it easier for people to move freely between countries during their working life without suffering penalties in retirement for doing so.
Very few new agreements have been signed since, possibly because the EU rules meant that there was no need for them between EU countries.

Pension increases

Pensioners living in the EU, Norway, Iceland and Liechtenstein do get increases, but there is no guarantee that this will continue following Brexit.

Inevitably, the UK government will be tempted to save money by ending the increases to pensioners living in the EU.

It is already estimated that the Treasury saves around half a billion pounds a year from pensioners excluded from the increases. This could easily double if pensioners in the EU were to be treated similarly.

The number of overseas voters still on the UK electoral register is negligible, so the government might decide that upsetting these people would have a very modest negative effect. One result could be that more expats would get themselves back on to the UK electoral register (if it were possible for them to do so).

There is also the question of people who are planning to retire to a EU country in the future. They might show their dissatisfaction at the ballot box.

Another reason for the government might not stop the increases is the possibility of large numbers of pensioners living in the EU finding that they have no choice but to return to the UK

If access to free healthcare in the host country was also abolished, the UK government could easily find that significant numbers of pensioners return to the UK, which is a situation it would want to avoid.

For this reason, it is to be hoped that state pension increases will be paid, and there will almost certainly be considerable pressure on the government to find a way to preserve the existing system.

UK Inheritance Tax V French Succession Tax

By Lorraine Chekir - Topics: Assurance Vie, France, Inheritance Tax, Succession Planning, Uncategorised, United Kingdom
This article is published on: 19th May 2016

19.05.16

This is an area that many expats find very confusing: what and where to declare, what and where to pay, where to even start!

It doesn’t help that UK and France have completely different rules. In the UK the estate pays the tax and the net proceeds are paid to the beneficiaries. In France, the proceeds are paid to the beneficiaries. The beneficiary will then complete a Succession tax form and pay the inheritance tax, the amount of which is based on their relationship to the deceased.

What many expats do not realise is that if you are a French resident and inherit from someone who was a UK resident you need to complete and submit a French Succession tax form to URSAAF within 12 months of their death. No actual tax is payable in France as there is a tax treaty in place between the two countries.

Let’s look at a couple of different scenarios:

You are a UK resident and own a property in France. When you pass away your estate will be taxed in the UK on your worldwide moveable assets. However, your property in France will be subject to French inheritance tax.

If you are a French resident, when you pass away French inheritance tax will apply to your worldwide assets. If you still have UK assets, it may be that you will also pay some inheritance tax in the UK, however there is a tax treaty in place to ensure that you do not pay tax twice on the same assets.

Inheritance Rules:

In the UK the law says you can make a will naming whoever you wish as your beneficiaries. If you have not made a will, then the rules of intestacy apply and the distribution of your estate is based on these. If you have no living relatives, even long lost and distant, then everything you have will go to the Crown. Anyone born in Scotland would have some restrictions on who they could leave their estate to.

In France you cannot freely dispose of “la réserve” which must be held for your children. You are only free to dispose of as you wish the “quotité disponible”. A spouse is not a protected heir in France, however unless you specifically disinherit them, they are entitled to a quarter of your estate. The amount freely disposable from your estate will depend on the number of children you have.

  • If you have one child they are entitled to half of your estate with half freely disposable
  • Two children are entitled to two thirds with one third freely disposable
  • Three children are entitled to three quarters with one quarter freely available

Since August 2015 it has been possible, in your French will, to adopt the inheritance rules of your country of nationality. This means if you are from the UK then you can adopt UK inheritance rules and leave your estate to whoever you wish. However, it is important to note this applies to inheritance rules not tax, French inheritance tax will still apply. I think this change in legislation will be of particular importance to people in second marriages with children from previous relationships and maybe from the current relationship also. For some reason, the UK and Ireland have chosen not to sign up to this change, which means if you are from the EU and living in the UK your estate will be subject to UK inheritance rules and tax.

Inheritance Tax Rates:

In the UK, the first 325,000 GBP of a person’s estate is free of inheritance tax. From the tax year 2017/18 if you have a family home that will pass directly to your children, then an additional allowance of 100,000 GBP will apply, rising to 175,000 GBP by 2020. This means that by 2020, married couples and those in civil partnerships with a family home to pass to children, could pass a total of 1m GBP free of inheritance tax. Inheritance tax in the UK is 40% of everything above your allowance.

In France, each person can leave 100,000 Euro to each of their children free of inheritance tax. Above this there is a sliding scale starting at 5% and rising to 45%. However as a guide, between 15,932 Euro and 552,324 Euro, the rate payable by the beneficiary is 20%.

For siblings, the first 15,932 Euro of what you leave them is free of inheritance tax, then they pay 35% on the next 24,430 Euro and 45% on everything else

Nieces and nephews can have just 7,967 Euro free of tax then pay a whopping 55% on the rest.

Everyone else (including non-married partners) can inherit a measly 1,594 Euro free of tax and will pay a massive 60% on amounts above this.

An important tax planning tool is the Assurance Vie. Providing it is set up before age 70, you can name beneficiaries and each beneficiary can inherit 152,500 Euro free of inheritance tax, amounts between 152,500 Euro and 852,500 Euro will be taxed at 20% and anything over this at 31.5%. As you can imagine, this could make a huge tax saving, especially for non-married partners, nieces, nephews and beneficiaries not related to you, with potential tax savings of up to 60%. The great thing is, it remains your money until you die which means you have full access if you need it, unlike when you put money in a trust in the UK to try and reduce your inheritance tax liability. In addition, it is the nearest thing the French have to an ISA as your money grows tax free.

If you want any more information or would like some advice, please contact me on the number or email below.

I also hold a free financial surgery in Café de la Tour in Les Arcs on the last Friday morning of each month where you can discuss your own situation in confidence over a cup of coffee.

This article is for information only and should not be considered as advice and is based on current legislation. 04/05/2016.