A recent French law (Loi de Finances Rectificative ) which took effect on 31 July 2011, requires pension fund trustees to report UK personal pension vehicles that have French tax-resident beneficiaries to the French fiscal authorities.
The new law obliges trustees of foreign trusts whose beneficiaries are French tax-resident, and/or any French settlors, to declare, before 17 June 2013, the market value of the assets, rights or capitalized income on all trusts which have been in existence since January 1 of this year.
The wording of the law has resulted in some confusion on the part of financial advisors and pension fund administrators, as it can be interpreted as granting an exemption from the reporting requirements to employer-sponsored pension schemes. The text however makes no mention of personal pension plans. Some experts have suggested that it appears as if the French tax authorities had not considered pensions to be anything other than something that are provided by employers. It is also possible that they may not have considered the fact that the new regulation would cover pension trusts.
At this stage of proceedings, it appears that the new law would apply to personal pensions, whether they are based in the UK, or Qualified Recognized Overseas Pension Schemes (QROPS); the declaration of SIPPS and QNUPS would also fall under the new law requirements.
There has been some discussion by experts as to the nature of the confusion; one thesis being put forward is that trusts are in effect an Anglo-Saxon concept based on common law, and thus alien to the French legal structure, which is based on civil law. Despite attempts by various tax advisors to have the situation clarified by French tax authorities, no definitive answer has yet been forthcoming.
The new legislation appears to be part of a wider campaign to clampdown on undeclared wealth in France. In another move to generate much-needed cash, the French government is also looking to increase property taxes on holiday homes.
UK expats living in France …stay tuned for more on this!
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You couldn’t make it up. ….in Cyprus they just did!
Is anywhere safe from the clutches of the TROIKA? The tripartite committee led by the ECB, the EU and IMF has set a dangerous precedent in Cyprus by forcing the government to tax those with deposits of over €100,000 in local bank accounts by up to 40%. The new legislation has been followed by the enforcement of capital controls therein limiting transfers of bank deposits and cash withdrawals. Such a move is surely against the spirit of the EU and the free transfer of Euros from one Member State to another.
When the initial bill to tax all deposits failed to receive support in the Cypriot parliament, Germany done the math’s and came up with a 40% ‘depositor haircut’ for those with accounts of over €100,000. Although such deposits are mainly owned by Russians, there are also a number of British expatriates who will suffer. There is estimated to be 25,000 retired Brit’s living on the island of Cyprus. As of the end of 2012, British expatriate exposure to Cyprus was said to be in the region of €1.9bn. This move by the Cypriote authorities has wreaked havoc on their pension savings.
Although there is the perception that it is only the wealthy who are being ‘hit’, there is also concern that such a levy on deposits could be repeated at some stage in the future.
The risk of the country defaulting on its sovereign debt and a potential run on the banks may have been averted, but at what cost? This wealth tax on depositors may do irreparable damage to the reputation of the island as a financial hub and retirement destination for British expats.
It is indeed a dangerous precedent that is being set…which country is next? If governments believe that the logical step is for future bank rescues to be co-funded by depositors, it will not be long before depositors decide that the logical step for them is to move their money out of the Eurozone altogether!!
If you are considering relocation to France and becoming a non UK resident, it is important to examine how your pension will be treated in terms of French taxation.
Unlike the UK, where the lump-sum portion of your pension benefit can be taken tax-free, there is a tax levied in France. Pension lump sums are taxable in France if they are received from either a French fund or an overseas pension fund. The tax incidence for the individual depends on whether the original contributions to the pension were tax deductible or not. If the contributions obtained tax relief on the way into the pension fund, as happens in the UK, then the lump sum is eligible to be taxed as pension income in France. Pension that fall into this category would include occupational, stakeholder and personal pensions, where tax relief has been granted against contributions, or the lump sum is tax free.
Under the Double Tax Convention between the United Kingdom and France, ‘government service pensions’ remain taxable in the UK. However, income derived from such pensions needs to be declared and is taken into account when calculating the rate of tax payable on other French source income such as interest on invested capital.
There is a deduction of 10% for the pension fund with a ceiling of £3660 before becoming liable to French tax. There are also social charges applicable to pension income of 7.1%. Such charges are an additional form of income tax on people resident in France that are not yet retired. It is possible for UK nationals to avoid such charges provided they are covered by the UK national insurance system.
Taxation of lump sums
Recent developments in French legislation allow individuals the option of taking the whole of their UK pension in the form of a lump sum with them to France and be taxed at a fixed rate of 7.5%. This fixed rate option is called the prélèvement forfaitaire libératoire. (Article 163 bis Code général des impôts).
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Up and down it goes; where it stops nobody knows…….
The recent downgrade of the UK’s AAA credit rating by Moody’s has brought home to many investors the importance of exchange rate fluctuations when buying a property in France.
Sterling has continued to experience difficulties since the beginning of the year and is now at a low of €1.1489 against the Euro as illustrated on the chart below:
Sterling had started February with a rally to reach €1.1817 on 10th February; however this was followed by the largest one day drop for almost three years when it fell by 1.8% on speculation of the currency downgrade.
Deteriorating economic figures and growing political uncertainty have contributed to an 8% decline of Sterling against the Euro in 2013 and added to the concerns of those seeking to buy property abroad.
On the horizon however, there are concerns about the Italian election results along with the probability of the European debt crisis being reignited; this could cause a reversal in the recent Euro strength.
Lower exchange rates may be good for British exports and economic recovery, they do not bode well however for property investment abroad. The fact that the Bank of England has decided to reject any further stimulus this time around in terms of its quantitative easing program, will hopefully halt the slide in Sterling over the short term.
- 56% of the UK working population is not making adequate preparations for retirement, while 19% are not saving at all.
- On average, people start saving for retirement at 26, but do not start financial planning for retirement until 30
- 57% reported fear of financial hardship in retirement
- 31% worry that they will need to work longer than planned to fund their retirement.
The global downturn over the last 5 years, along with the current low interest rates for savers, has caused many to think again in terms of their retirement planning. For some this may mean beginning to save more, whereas others may choose to work longer. The reality is that if we wish to achieve our retirement aspirations such as holidays, hobbies and more family time, we will be obliged to save more. The solution is same as it has always been; the earlier you start to plan, the better prepared you will be!
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Over the past twelve months there has been evidence of a noticeable fall in house prices in many areas of France. Sales are reported to have fallen by around 20%. The number of new homes being built is also on the wane.
The national association of French estate agents (FNAIM) reported an average fall of 1.3% over the last year. Although property values appear to be showing a significant degree of resistance in the light of the fall in sales, the latest figures show that some regions of France prices have fallen by as much as 8% in 2012, with greater falls occuring in the rural areas.
According to FNAIM, the largest falls took place in Brittany (-7.9%), Lower-Normandy (-6.9%), Lorraine (-6.7%), Champagne-Ardenne (-5.6%) and Upper-Normandy (-4.9%). No region escaped this market correction with even the hotspot of Languedoc-Roussillon showing a 3% drop in house over the year.
With the ongoing economic crisis and fall in living standards, the situation is not altogether surprising. However, this downward trend is presenting opportunities. Given that mortgage rates at near an all-time low of around 3.5%, there are bargains to be had for buyers.
Furnish people with the facts and a more enlightened population will emerge.
QROPS (qualifying recognised overseas pension schemes) were introduced in 2006 as part of a major overhaul of Britain’s pension framework, in order to comply with an EU directive that pensions be free to move across Europe’s borders. They have become extremely popular over the past seven years for individuals who relocate from the UK to counties such as France, Spain and Australia.
During 2012, the use of QROPS by UK citizens retiring abroad came under the spotlight. For some time HMRC had been unhappy with the popularity of QROPS and the territories that were hosting them, which the Revenue suspected were used by some for tax avoidance.
Parking your pension in places where the sun shines may seem an attractive proposition. It can also be a huge mistake if the location turns out to be a ‘black hole’ in terms of being able to access the funds without complications. Given the UK Government’s publicly-stated vows to crack down on all forms of tax evasion, it was of no great surprise to the pensions industry that QROPS would come under some level of scrutiny.
QROPS – HMRC concern
As the new QROPS regime evolved, HMRC decided that it was time to revisit the procedures governing the transfer of pensions overseas that have already received tax-relief in the UK.
On 6 April 2012, HMRC’s amended the legislation and published a list of QROPS providers with approved status. At midnight on 5 April 2012, the existing list was suspended and an “updated” QROPS list posted on the HMRC website. Guernsey, among other jurisdictions, was de-listed by HMRC as it was concerned that certain schemes were paying out benefits gross to clients, without any tax being paid.
Individuals who wish to move their UK pensions overseas are advised to seek out EU country-based schemes, where a double-taxation agreement (DTA) framework exists. As such, Malta ‘fits the bill’ in that it has in place 59 DTA’s with other countries. Given that they are EU member states, the UK, France, Portugal and Spain all have DTA’s with Malta.
There are numerous territories which qualify for the hosting of QROPS. However, when making your choice it is always reassuring if you are on the right side of the fence!
Before undertaking any QROPS transfer you should consult with a professional adviser.
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If it seems too good to be true……then it probably is!
- A detailed report which highlights your personal circumstances, covers the costs of the plan, and makes recommendations
- Transferring your pension into a QROPS is more than likely inappropriate if you are intending to return to the UK
- You should consider the income options in your current scheme and compare those with the options upon transfer to a QROPS in France
- Consider the loss of any protected rights should you transfer from a defined benefit scheme to a QROPS
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When playing as a team, the sum is greater than the total of the individual parts…….
If only the future of the Eurozone was as straightforward as picking the winner of The Euro 2012 football championship. If countries worked to their strengths, used a little bit of imagination, and took advantage of the opportunities on their doorstep, then perhaps European leaders would be more successful in steering their economies through these turbulent times. Spain and Italy would put their unique talents to work in designing stylish solar-energy related products that would be as competitive as the matches they fought on pitches across the Ukraine and Poland!
Euro 12 found the English and Irish Exchequers holding out for a boost in consumer spending the longer their teams stayed in the competition. Such is the fragility of treasury finances that even a few days extra in a football tournament can have a significantly positive effect on the national psyche.
The approach to the tournament for England was different on this occasion, with the team taking a leaf out of the Irish book and lowering their expectations at the outset. If only the forecasts for economic recovery were more realistic we probably wouldn’t still be in this financial mess! Alas any ‘feel-good factor’ was short-lived, with both Ireland and England going home with their tails between their legs.
There was also a reality-check for Greece who were exposed for their lack of resources in terms of footballing talent, and the Portuguese who despite showing imagination, were weak defensively. Meanwhile the normally dependable Dutch fielded a team of individuals resulting in them failing to secure a single point. The French on the other hand seemed to lack belief in their ability as a team to progress any further than the quarter-finals.
The semi-finals reflected some level of economic justice in the world, with Spain, Portugal, and Italy persevering. In the end it was flare and creativity that won the day with the measured and diligent football of the Germans being eclipsed by the sparkle of the Italians who in turn succumbed to the dazzling skills of the Spanish. When harnessed correctly artistry can indeed pay dividends!
It is not possible to buy success on the football field at international level; being a team player is the order of the day. Similarly, when it comes to turning around the European economy, there is a need for a concerted effort by all Member States.
On the equity market front, there has been a surge of activity lately. Pension funds had spent the last few months shifting assets to the less risky environments of the UK and German bond markets. However the most recent Brussels summit saw Euro leaders ‘crack open the spinach’ and announce more details on the new rescue fund, designed to bring down the cost of borrowing for Southern European countries. The Spanish and Italian economies have won a reprieve; the move may not be a ‘game changer’ but the Euro is still in play….for now anyway.
Furnish people with the facts and a more enlightened population will emerge.……..
Information that is put out in the public domain can often seem like a spider’s web, with bits of it finding and connecting with one other. The challenge is to find the correct pattern and make sense of it all.
A recent survey by the Dutch insurer Aegon, reported that a growing number of workers have accepted that their retirement is less likely to be more of an “abrupt transition” than a “phased” process: http://www.transamericacenter.org/resources/tc_global_survey2012.html
9,000 workers across Europe and the US were canvassed on their personal expectations for their retirement planning. The survey found that more than 60% of respondents anticipate needing part-time jobs after retiring. Only 18% claimed that they planned to stop working immediately upon reaching retirement age. The survey revealed that:
- 41% of respondents were members of a company ‘final salary’ pension scheme;
- 34% were participants in a ‘money purchase’ scheme with employers making contributions towards their retirement;
- 54% believed that their employers or pension funds were more likely to cut back on workplace pension benefits;
- Of those surveyed, 73% agreed that going forward they would have to actively plan for their retirement;
- The research found that 45% of workers were of the opinion that they needed more financial advice in order to make sense of uncertain investment markets;
- 83% of those surveyed felt that they would need an income of 60% or more of what they currently earn upon retirement;
- Just 36% of respondents believed that they were on course to achieve three quarters or more of their required retirement income.
Putting the pieces together, it all comes down to one thing….a need to increase provision for pension planning!
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