SpanishPropertyBuyer.com

If your mortgage has a minimum interest rate, or mortgage floor, it can cost you money.

What is a mortgage with a minimum interest rate?

HelpMyCash.com, a mortgage portal, explains that a mortgage floor is a mortgage in which there is a lower limit on the amount of interest you pay on your mortgage each month, which means that if the Euribor falls below a certain level you do not benefit from the fall, even though, in these times of crisis, there are a lot of families whose monthly mortgage payments have been greatly reduced thanks to reductions in the Euribor.

Mortgage contracts which have a minimum interest rate also have a variable interest rate (Euribor + differential) and this means that banks can use the two rates in the following way:-
- If the Euribor + differential is below the minimum interest rate, the bank charges the minimum interest rate
- If the Euribor + differential is higher than the minimum interest rate, the bank charges the Euribor + differential.

This means that banks will always charge the higher amount, whatever the rates.

When does a mortgage floor constitute an unfair clause?

Although there are multiple irregularities regarding mortgage floors (confusing publicity, banks failing to provide sufficient information, being deemed unfair under Article 49 of the Consumer Act etc), from a legal point of view, mortgages with a minimum interest rate can only be considered to be unfair when they fulfill at least one of the two following conditions:-

1. The contract with a minimum interest rate does not have a cap. That is to say, the bank protects itself against reductions in the Euribor, but does not offer the mortgager any protection if the Euribor goes up.

2. There is no legally binding mortgage offer (document drawn up by the bank which contains the exact mortgage conditions agreed upon by the parties), the mortgage offer does not mention a floor, or it is not signed by the customer. For this reason, it is always best to start by negotiating with your bank. There are various ways to try and remove, or at least reduce, a mortgage floor.

Recommendations on how to remove a mortgage floor from your mortgage:-

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1. Negotiate with your bank before the periodic mortgage review.
As a result of the complaints made by several consumer associations and bank customers over recent months, banks are coming to realise that the era of “anything goes” is coming to an end. For this reason they are increasingly willing to remove these controversial clauses from the contracts, or at least reduce them, if customers ask them to do so before the periodic mortgage review. If you have a good financial reputation and an excellent payment history, the bank should do everything in its power to keep you as a customer.

2. Consider a mortgage subrogation (change of bank).
If the bank is unwilling to modify or negotiate the mortgage floor, you can consider the possibility of changing banks. If the new bank offers you better terms by removing the minimum interest rate, and puts this offer into writing in a legally binding mortgage offer, you can use this offer as a negotiating tool with your bank. It will only have two options: match the offer to keep you as a customer, or let you sign the better option.

3. Demand your rights through legal means.
If the negotiations with the bank are not successful, you can still claim your right to a mortgage with no unfair clauses by making a complaint. There are 3 main ways of doing this: (1) making a formal complaint by submitting an extrajudicial complaint to Banco de España (although Banco de España’s decisions are not legally binding); (2) taking private legal action against the bank, and; (3) becoming a member of an association such as ADICAE, ASUAPEDEFIN or similar organisations and becoming part of a joint complaint. As of the time of writing, these actions have prompted several banks against which complaints had been lodged into calling the affected parties, and offering them a reduced interest rate in exchange for withdrawing the complaint.

Recommendations from ADICAE when taking out a mortgage:-

The Banks and Insurance Consumers Association of Spain (ADICAE) recommends that all homebuyers should calculate how much they will pay for the mortgage on the basis of the whole mortgage term, and not just the first five years, as it believes that the latter approach is misleading. To help people avoid the worst mortgage traps, the Association offers several recommendations for anyone thinking of taking out a mortgage.

1: Customers should avoid any binding conditions which are unfair. It is important to take into account the fact that many financial institutions offer loans with a differential over the Euribor of less than 0.5%, but that this offer is conditional to contracting products, pension plans, or investment funds, all of which makes the mortgage much more expensive

2: The requirement for loan guarantees should not be accepted at any time, as it is the borrower, with the property, that is responsible for the loan, and not the guarantor.

3: Toxic products such as minimum interest rate clauses or swap contracts are high risk, and should be avoided. ADICAE thinks that a fair minimum interest rate clause would be one which had a 2% floor, and a 6% cap. If your mortgage has a floor, read these recommendations.

4: ADICAE advises against going to debt consolidators. The OCU also advised against using them because they earn substantial commissions from acting as intermediaries between clients and banks, and because the solutions they provide are the same ones that you would get by negotiating directly with the bank.

 Credit: Fuster & Associates. www.spainsolicitors.com

 

Many British expatriates arrive in Spain to live without fully understanding the local tax situation or any obligations that may remain to the UK taxman. There are quite a few myths around and unless you are properly informed you may get your tax planning wrong. This article looks at some of the common misconceptions and separates fact from fiction.

I am resident in Spain but complete a full tax return in the UK

►        You become resident for tax purposes in Spain if:

-       you spend more than 183 days in one calendar year in Spain (the days do not have to be consecutive), or

-       your “centre of economic interests” is in Spain, or 

-       your “centre of vital interests” is in Spain, or

-       your spouse is resident in Spain unless you can prove you are resident in another country.

►        As a resident of Spain you are liable for income and capital gains taxes on your worldwide income.

►        If you receive a gift or inheritance as a Spanish resident, you may be liable to Spanish succession tax.

►        You must complete a Spanish tax return in respect of your worldwide income.

►        A UK tax return only needs to be completed in respect of certain non-exempt income, such as rental income from UK property.

I am taxed at source on my UK assets and therefore I am not liable to tax in Spain on these assets

►        You are entitled to double tax relief if you have income subject to tax at source in the UK which is also taxed in Spain.

►        You can usually make arrangements for tax not to be deducted at source in the UK on certain types of income. This income would then be received gross and taxed solely in Spain.

I am taxed at source on my offshore bank accounts under the EU Savings Tax Directive and therefore am not liable to tax in Spain

►        Paying withholding tax on offshore interest payments does not mean that you have no further tax liabilities on the same income in Spain. 

►        You still must declare such earnings on your Spanish tax return. 

►        If you pay the withholding tax and declare the income in Spain you are unlikely to receive any tax credit in Spain and could pay tax twice.

I can withdraw 5% of my UK/offshore insurance bond per year for 20 years without any liability to Spanish tax

►        The 5% rule only applies to UK residents.

►        As a Spanish tax resident, your offshore insurance bond will be taxed according to the Spanish rules. 

There is no tax to pay if I have not taken withdrawals from my insurance bond

►        The taxation of insurance bonds in Spain depends on whether the bond is ‘qualifying’ (issued by an EU country and compliant with Spanish regulations) or ‘non-qualifying’.

►        Non-qualifying bonds are valued at 31^st December each year and any increase in value from 1^st January is taxed in full as income, even if there has been no withdrawal. The taxable income is taxed as savings income, so at 19% on the first €6,000 and 21% on any balance.  For example, if an investment bond increases in value by 10% from €200,000 to €220,000 in any one year, the tax payable in Spain is €4,080 (€6,000 x19% = €1,140, + €14,000 × 21% = €2,940).

►        Any fund located in a ‘tax haven’ (eg Isle of Man, Jersey, Guernsey) is non-qualifying and will receive this unfavourable tax treatment.

A withdrawal from a qualifying offshore bond will be taxed at 19% on the first €6,000 and 21% on any balance

►        There is no tax to pay until a withdrawal is made from qualifying bonds in Spain.

►        The taxation is very favourable because only the growth in value element is taxed, not the whole withdrawal. Using the above example, if you withdraw €20,000 you will only need to pay tax on roughly 10% of it.  The taxable income is therefore €2,000 and your tax liability (at 19%) is only €380.

UK investment bonds are tax free in the UK for Spanish residents

►        A UK investment bond is taxed at source in the UK.

►        The tax deducted can be set against your tax liability in Spain, so you do not pay tax twice on the same income.

►        If you have either a non-qualifying insurance bond or a UK investment bond it will be advantageous to transfer it to a qualifying, non-UK, bond.

I am a UK national and not liable to Spanish succession tax (SST)

►        SST is payable if the inheritor or recipient of a gift is resident in Spain, or the asset being gifted or passed on death is situated in Spain.

►        The tax rate can be as high as 34% for inheritances or gifts within the immediate family or higher for more distantly related recipients.

►        Depending on which region you live in, there are usually deductions available according to the closeness in relationship between the recipient and the deceased, and other exemptions may be available.  

►        SST can often be avoided through use of an offshore trust.

Contact an experienced international tax and wealth management adviser like Blevins Franks for advice on tax mitigation strategies in Spain. 

Note that the tax treatment(s) detailed above are current at the time of writing and may change in the future.

By Bill Blevins, Managing Director, Blevins Franks

 www.blevinsfranks.com

Few expatriates used to think twice about opening an offshore account.  They provide a means of keeping Sterling outside the UK (useful to help prove your UK-non residency status); you can usually open and use them from anywhere in the world; interest rates were often higher than their onshore counterparts and they have also been popular for ‘tax planning’ purposes.

While the first two benefits listed above still apply, offshore banks do not necessarily offer the same interest rate advantages that they used to, and from a tax planning point of view the situation is very different today, with more developments on the horizon.

Following the collapse of Icelandic banks in the Isle of Man and Channel Islands, savers also began to question how safe their savings were, even through the jurisdictions did then implement or improve depositor protection schemes.

As a result of these changes, more savers today are considering alternative homes for their wealth.

Offshore banks were often used by people to hide capital and interest earnings away from the taxman.  While they were legally obliged to declare worldwide income, the taxman had no means of tracing their account so there was little pressure to report it.  Interest was usually paid gross and as offshore banks were not bound by the laws of your country of residence it was a case of ‘what the taxman doesn’t know about he can’t tax’.

The introduction of the EU Savings Tax Directive in 2005 served to change this.  All Member States are required to operate automatic exchange of information on interest payments on accounts held by residents of other States.  However, Belgium, Luxembourg and Austria were allowed to operate a withholding tax system with a view to change to automatic exchange of information after a transitional period.

The Isle of Man and the Channel Islands also operate withholding tax with the option for exchange of information.  The withholding tax option effectively maintains banking secrecy.  Although the interest earnings now have tax deducted at source, it still falls to the owner to declare it in his country of residence.

By this time next year this will have changed.  In June the Isle of Man parliament agreed that from 1^st July 2011 it will withdraw the withholding tax option and only operate automatic exchange of information – there will be no more banking confidentiality for EU residents.  This was an endorsement of the commitment it made at the Organisation for Economic Co-operation and Development (OECD) Forum in June 2009.  It was the first offshore jurisdiction to do this and the decision will impact on all expatriates who have not declared their Isle of Man accounts in their country of residence.  Anyone affected by this will need to ensure that they have reported all their interest to their local tax authority … or bear the consequences.

Following quickly on the Isle of Man’s heels, on 28^th July Guernsey’s Chief Minister announced that the jurisdiction will introduce automatic exchange of information, thereby abolishing the current option to pay a withholding tax and avoid disclosure.  A government announcement said that Fiscal and Economic Policy Group has recommended to the Policy Committee that institutions in Guernsey should move to automatic exchange of information from 1^st January 2011, and no later than 1^st July 2011.

Following the announcement, other European jurisdictions which operate the withholding tax option, eg Switzerland, could come under increased pressure to follow suit.  In any case, the withholding tax rates jumps from 20% to 35% next July.

High interest rates a distant memory

Currently interest earned in offshore banks is not generally more beneficial than onshore banks.  The days have passed when they were in a position to offer high returns to attract investors. 

With the money markets expecting the Bank of England base rate to stay low for some time, many offshore banks have cut the rates they offer on fixed rate bonds.  In June, Michelle Slade of Moneyfacts warned that now that demand for savers’ money has eased, rates are being cut as banks readjust back to more normal margins.  “Banks do not want to pay more than they have to on savings, so once a few cut rates, others will invariably follow,” she said.

While a couple of banks did increase rates on fixed term bonds in July, there are still very few attractive rates available to those who do not want to tie up their money for too long. 

Who owns your bank?

Do you really know who owns the offshore bank you may be using and in which jurisdiction it is based?  Since the credit crunch more countries have set up depositor protection schemes but you would need to check with the bank exactly what protection they offer.  Banks are no longer considered to be 100% safe and in the event of another failure it could take a long time to receive compensation.

Offshore banks closing

At any time and without much warning offshore banks are being closed down, leaving savers with less options.  In June Northern Rock announced that it is closing down its operation in Guernsey on 2^nd September and Irish Permanent said it was shutting its Isle of Man branch by the end of the year.  Other banks may follow as they retrench and reduce peripheral arms of their business.  For example the Yorkshire Building Society is deciding whether to keep Yorkshire Guernsey open or not.

More and more foreign banks are closing their doors to US citizens as the US authorities take ever draconian measures to trace and prevent tax evasion.  France started to close branches of French banks in tax havens from March 2010.

Many of advantages that offshore banks used to offer investors are gradually being eroded.  There are investment structures available which can reduce tax liability, and offer the potential for capital growth and higher rates of return.  Speak to an experienced tax and wealth manager like Blevins Franks for the most suitable tax planning and investment strategy to meet your specific circumstances.

By Bill Blevins, Managing Director, Blevins Franks

www.blevinsfranks.com 

On 23^rd July the results of the much anticipated stress tests on European banks were published.  There were no surprises, with just seven out of the 91 banks tested across the 27 EU Member States failing.  But does this mean that European banks are safely out of the woods?  While the results will hopefully give the markets more confidence, there are concerns that the tests were too lenient.  

The stress tests were carried out by the Committee of European Banking Supervisors (CEBS) in close cooperation with the European Central Bank (ECB).  They tested Tier 1 capital ratios (the percentage of a bank’s equity capital to its risk weighted assets and a common measure of a bank’s resilience to shocks)   under a benchmark scenario for 2010 and 2011.

The aim was to assess how resilient the EU banking system would be to another economic downturn and to what extent banks could absorb adverse movements in the sovereign debt and credit markets.

The regulatory minimum for Tier 1 capital is 4%, but for the purpose of the exercise it was set at 6%.  Tests were carried out for the two-year period ending 31^st December 2011 for an adverse scenario assuming a 3% deviation of gross domestic product for the EU compared to the European Commission’s forecasts cumulated over the period.

The seven banks whose Tier 1 capital ratio fell below 6%, with a capital shortfall of €3.5 billion, were Germany’s Hypo Real Estate, Greece’s ATE bank and five regional savings banks in Spain (Unnim, Cajasur, Diada, Espiga and Banca Civica).

There has been widespread criticism that the conditions were too easy. 

A commentary released by Aberdeen said: “Arguably more banks would have failed had the CEBS adopted more strenuous modelling.  Rather than a 3% deviation in the EU’s growth forecast they could have factored in a greater than 5% double-dip.  Furthermore the CEBS assumed no sovereign default, with the worst case scenario a 23.1% haircut on Greek sovereign debt.”

Other analysts believe a 7% Tier 1 capital radio would have been a more credible benchmark.  In this case Allied Irish Banks, Germany’s Postbank (one of its largest), Italy’s Monte del Paschi, Portugal’s Espirito Santo and Greece’s Piraeus would all have failed.

Credit Suisse pointed out that the tests based just on core Tier 1 would have been a more reliable test – and would resulted in the whole of the Greek banking system, plus many other lenders, failing.

The tests also assume that all States would contract at the same rate in a downturn, whereas the ‘Club Med’ states and Ireland would probably contract more if a downturn comes on top of their current fiscal tightening and debt-leveraging. 

According to research by the Royal Bank of Scotland (RBS) at the end of May, Greece, Spain and Portugal had issued public and private debt worth €2.16 trillion between them, equating to 22% of the region’s gross domestic product. 

Other responses to the stress tests were most positive.  In its half yearly global outlook the Bank of America said they marked the “beginning of a return to normality”, with its chief European economist commenting:  “Greece is staging an impressive fiscal turn-around.  Spain has come through its July peak funding with flying colours.  Europe can and will get its problems under control.”

Aberdeen’s communication concluded by saying that the European banking system appears reasonably well placed to withstand a conventional downturn… but the results tell us little about how banks would cope in more extreme scenarios.  It called for greater disclosure by banks on the nature of their asset bases and liquidity profiles to help foster confidence in the banking system.

Confidence in European banks will not have been helped by an article entitled “Europe’s €30 trillion headache” published in The Telegraph on 29^th July. 

The article covers a new report by rating agency Standard & Poor’s (S&P) which reveals that European banks have amassed €30 trillion in liabilities and face a serious funding threat over the next two years. 

With European banks, most of their mortgages and personal loans remain on their balance sheets and need funding.  The three month loans offered by the ECB’s emergency lending effectively concentrated roll over risk for large amounts of debt.  Banks will eventually have to refund these loans in a crowded market.  S&P commented:  “ECB loans have contributed to a shortening of liability maturities.  The result is a growing funding mismatch for the European banking industry.  This is happening as regulators prepare to introduce tougher liquidity standards.  This is one of the greatest vulnerabilities of the industry”.

Around €1 trillion of debt in the Eurozone and Britain will become due by 2012.  The stronger banks will cope, but what about the weaker ones? 

Silvio Peruzzo from RBS told The Telegraph: “If down the line the markets start to question the debt trajectories of [Club Med] countries, the banking systems will be tested again.  There is €1 trillion of private debt in Spain linked to just one asset: property.”

In its Financial Stability Report at the end of May, the ECB had also warned that Eurozone banks are now experiencing a second wave of writedowns.  It predicted that they will suffer loan losses amounting to €195 billion over 2010 and 2011 – on top of the €238 billion written off in bad debts by the end of 2009.

None of this necessarily means that there will be more bank failures in future – but nor should we rule the possibility out completely.  The European banking industry is not out of the woods yet.  

Whether it is your bank accounts, insurance policies or your investments, you should always establish to what extent they are protected in the event of institutional failure.  When it comes to your investments, try to use arrangements whereby your assets are not held on the institution’s balance sheet.  This way your assets are segregated from potential creditors of the institution, giving you peace of mind that your capital is protected. 

Seek professional advice from an authorised advisory firm such as Blevins Franks Financial Management Ltd on the arrangements which would provide the highest security for your wealth.

Blevins Franks Financial Management Ltd is authorised and regulated by the UK Financial Services Authority for the conduct of investment and pension business.

By Bill Blevins, Managing Director, Blevins Franks

www.blevinsfranks.com 

British expatriates living in Spain want to feel confident that their wealth will last them for the rest of their retirement and keep them in a comfortable lifestyle.  Paying less tax is one way to protect your assets and legitimate tax planning methods can help with this.  The latest arrangement available to British expatriates is QNUPS (Qualifying Non-UK Pension Schemes) which can reduce taxation in Spain –as well as UK inheritance tax (IHT).

Spanish tax savings which can be made with a QNUPS are:

•  QNUPS can avoid succession tax in Spain as well as succession law. 
• There is no Spanish tax on the transfer into a QNUPS.
• Funds within the scheme will grow free of Spanish income tax.
• If you make a withdrawal in the form of an annuity from the fund itself (as is usually the case), very favourable Spanish tax provisions may apply.
• There is no need to buy an annuity from an insurance company.
• You can withdraw up to 25% as a lump sum from a QNUPS.  If a lump sum is taken Spanish tax is due, but is calculated only on the difference between the capital received and the contributions you made.  The tax rate is 19% (on the first €6,000 of total savings income, including that from other sources) and 21% on the excess.
• The balance of your investment can pass onto your heirs on your death. 
• A QNUPS can avoid wealth tax if a rate is reintroduced in the future.

No UK IHT with a QNUPS

If you are a British expatriate, you may be liable to UK IHT on your worldwide assets, even if you are Spanish tax resident.  This is because liability to IHT is based on domicile and not residency. 

Shaking off your domicile is not easy to do and usually takes at least three years and involves pruning your ties with the UK to the bare minimum.  For example, you would need to sell your UK property or at least not have it available for use; close surplus bank accounts, credit and debit cards and other investments; sell your vehicles and cut down social and business connections in the UK.  You need to be able to provide evidence that you do not intend to return to the UK, and establishing a permanent home in Spain and making a Spanish Will will help.  Even if you do lose your UK domicile status, you would regain it as soon as you move back to the UK to live.

Many Britons who relocate to Spain do so without a thought of moving back to the UK.  But the fact is that as the years go by many do for a variety of reasons, such as on the death of a spouse or partner or to be closer to grandchildren as they grow up. Returning to the UK means returning to a UK liability to IHT, currently at 40% above the nil-rate threshold of £325,000 per person or £650,000 for spouses and civil partners.

Investing in a QNUPS takes away the worry over whether or not you are still UK domiciled and liable to IHT, or whether you may later return to the UK.  Assets in a QNUPS are immediately exempt for IHT – even if you are UK domiciled.

Other advantages of a QNUPS

•  Investable wealth can be placed in a QNUPS.  You cannot invest a UK pension plan directly into a QNUPS, although it is possible after you have been non-UK resident for five complete, consecutive UK tax years, as long as you go via the QROPS route first.
• There is no maximum age at which you can invest in a QNUPS.
• There is no maximum contribution.
• You do not need to have any earned income from an employment.
• Income and a lump sum can be taken from age 55, or can be deferred until the age of 75 (although if you take income earlier, the lump sum needs to be taken then).
• Assets can be invested and benefits taken in any currency of your choice, giving you the opportunity to remove currency risk.
• Income which is taken is drawn down from the fund, leaving your scheme assets invested and rolling-up free from tax.

A QNUPS provides an opportunity for flexible investing and choice.  It doesn’t matter how old you are or how long you have been retired, investing in a QNUPS will give immediate tax benefits, especially for Spanish succession tax and UK IHT.  Within QNUPS the funds will remain fully invested and will be subject to investment risk, in line with your investment objectives.

Blevins Franks is an established international wealth and tax management firm with full knowledge of the rules of taxation in both Spain and the UK.  Contact an adviser such as Blevins Franks to learn how QNUPS can help you.

Note that the tax treatment(s) detailed above are current at the time of writing; these are based on our understanding of current UK and Spanish legislation and taxation practice, and may change in the future.

By David Franks, Chief Executive, Blevins Franks

www.blevinsfranks.com

Poor bank rates and high charges for foreign exchange transactions mean individuals need to be savvier when transferring money overseas. Research by Moneycorp reveals that Brits are potentially losing over £101m a year by not shopping around for the best deals when transferring money abroad. Furthermore, uncompetitive exchange rates and high bank charges are costing individuals a lot of money, despite a concerted effort by most to reduce their outgoings on luxury and even staple items.

David Kerns, Head of Personal Clients at Moneycorp, comments:

“While many individuals are visiting comparison websites more frequently, checking voucher code sites and consulting online consumer forums before purchasing goods in order to save money, this mindset doesn’t seem to have extended to foreign exchange. As a result, individuals are missing out on a very large sum of money they could be saving, by transferring funds overseas through a foreign exchange specialist rather than a bank. Not surprisingly, high street banks are cashing in as a result of this surprisingly apathetic approach.”

People buying or selling property overseas and people emigrating or repatriating will be particularly affected, though this issue will affect all Brits who are transferring money overseas.

People who own additional properties abroad and make regular mortgage and/or utilities payments will also be badly affected, as every transfer is open to individual transfer charges, in addition to exchange rates.

Data from the UK’s number one property website, Rightmove Overseas, reveals that the average house price in the Costa del Sol in Spain is currently €369,860.68. With a deposit of 10% (€36,986), using a high street bank rather than Moneycorp would cost an individual, on average, an extra £558 on their deposit alone.

An individual who wants to transfer a lump sum of £100,000 to an account in Europe would lose out on an average of €1,690 by using their bank for the transfer into euros.

David Kerns concludes: “Despite the UK coming out of recession recently, individuals shouldn’t be lining the pockets of their bank managers and it’s in their best interest to maximise their investments. Prior to making any overseas payments, we always advocate that people shop around to get the best rates possible.”

Credit: Moneycorp – commercial foreign exchange – www.moneycorp.com

Note:- Follow our link for more information: -

http://www.moneycorp.com/affiliates/microsite/index.cfm?agentid=10082123

From the 1^st July, 2 of the 3 categories of Spanish VAT will rise.

 16% to 18%

   7% to   8%

   4% (is to remain the same).

What does this mean for the Spanish Property market which is already struggling to survive the current climate?

It will certainly increase  the cost of buying and selling property and obtaining a mortgage in an already crippled market.

What is the government thinking?

Of course it will generate income for them but may push the market further backwards and no doubt they are hoping that prices will fall still further and generate increased interest from buyers and steady the industry but at what cost? More likely it will force more builders, promoters and agencies out of business with knock on job losses. The banks will come under further pressure and there will be many owners caught in the trap of having mortgages far greater than the value of their property causing an increase in repossessions as people struggle with their own economic crisis, losing jobs and putting more people on the bread-line.

Then there is the knock on effect for furniture and electrical companies and many other suppliers with steady drops in sales already recorded.

Buyers and Investors

No doubt there are people watching the situation with interest and for the general buyer now is the time to buy a property before the IVA increases and with so many properties available at low prices.

For the investor, they will probably sit it out and wait for rock bottom distressed sales and then pounce as the drop in price will by far outweigh the increase in purchase costs.

With the pound rising against the euro, buying a property is looking even more attractive.

Mortgages

As the banks continue to come under pressure they will negotiate on distressed properties in order to clear their overflowing books and are currently making mortgage offers which pre crisis would be unheard of.

If you have the money now is the time to buy Spanish Property.

Admin: 5 May 2010

Over the last three years, the currency story for British expatriates has all been about the Pound Sterling and its fall from grace – it lost around a third of its value against the Euro and a fifth against the US Dollar. 

This year the focus is shifting to the Euro.  Uncertainty over Greece’s financial viability, not to mention concerns over other European economies, is plaguing the single currency.  Some analysts have even queried whether it can survive.

The problems of sharing a single currency across countries with divergent political priorities and economies has been brought sharply into the spotlight, as have the difficulties of getting 16 Eurozone States to agree on a solution. 

At the end of March Eurozone leaders reached agreement on a rescue fund for Greece, if needed.  The Euro briefly strengthened as a result, but the sketchy details of the fund could not sustain the gains. 

Eurozone finance ministers then took further steps to support Greece and prop up the Euro, announcing a €30 billion loans package on 11^th April.  The IMF is also expected to offer financial aid if needed. 

At the time, Jean-Claude Juncker, head of the Eurozone group of finance ministers, said: “This is the step of clarification that markets are waiting for – it shows there is money behind this.”

The loans are available should Greece need them.  Payments would only be made if all 16 Eurozone countries agree – and countries could potentially veto it. 

The Euro hit a one-month high on the announcement, but it has dropped again since.  Following the news that Greece’s budget deficit is worse than expected, and of another credit rating downgrade for the country, the Euro continued to slide towards a one-year low against the US Dollar.

The outlook is looking very challenging for the Euro.  With 16 different nations involved, there are both political and legal restraints to fixing the single currency.  Economists warn that the Eurozone still looks divided and little has been done to address the longer-term underlying problems it is facing. 

Most British expatriates holding Sterling assets would be pleased to see a stronger Sterling and/or a weaker Euro.  The lowest currency risk option for an individual is to match assets (bank deposits, investments etc) and liabilities (day-to-day expenditure) in the same currency.  However, many British expatriates tend to retain a significant amount of assets in Sterling, including private pension arrangements, making them subject to the vagaries of currency exchange rate movements. 

It is impossible to predict future currency movements with any certainty.  However, in my opinion there is a strong possibility that the Euro could weaken further in the short to medium term while the Eurozone problems exist.  I do not subscribe to the worst case scenario of the Euro failing, or of a Member State reverting to their original currency.

As a UBS Bank article reporting on research by its economists says, “Perhaps it would have been better for a number of countries if they had never joined the Euro.  Nevertheless, the European Monetary Union is certainly not about to break up; at this stage, the costs would far exceed the benefits.”

 Uncertainty about the fate of the Euro may be around for a while.  What can you do to protect your assets?  Swapping all your Euros to Sterling or another currency is not the answer.  For a start you should have enough assets in Euros to meet your spending liabilities for a few years, and also there is no guarantee that Sterling or the US Dollar won’t fall more than the Euro.  What you need to aim for, as much as possible, is diversification and flexibility.

When it comes to your savings and investments, you could diversify them over two or three currencies.  Much depends on your individual circumstances, including whether you are likely to live in the Eurozone for the rest of your life, if there is any possibility that you will return to the UK and if you expect to leave an inheritance to heirs in the UK. 

If you invest within an insurance bond choose one which allows currency flexibility, so you can switch currencies if the need arises.  If you are waiting to invest, you could invest now in Sterling and if or when the exchange rate improves, switch some to Euros then. 

The same goes for your UK private pension funds.  If you were to, for example, transfer them into a QROPS (Qualifying Recognised Overseas Pension Scheme), this allows you to choose the currency for the underlying funds and the income.  You can usually set it up in Sterling and switch to Euros later, or, if it is in Euros, have the option to convert to Sterling at a later date if your circumstances (or the fate of the Euro) change.  However you should keep in mind the fact that, exchange rate movements may affect the value of your funds.

There are testing times ahead for the Euro.  What happens to it is out of your control, but you can usually control your choice of savings, investment and pension structures so as to give yourself currency diversification and flexibility.  Ask an experienced international wealth manager like Blevins Franks for advice.

By Bill Blevins, Managing Director, Blevins Franks

www.blevinsfranks.com 

On the 15^th February 2010, a new UK HM Revenue & Customs (HMRC) statutory instrument came into force, the implications of which create significant opportunities for British expatriates to save local taxes in Spain as well as UK inheritance tax (IHT).

 The UK legislation has now created a new type of trust known as Qualifying Non-UK Pension Schemes (QNUPS) – which should not be confused with Qualifying Recognised Overseas Pension Schemes (QROPS).

 As pension schemes are one of the key ways that most governments incentivise their citizens to save for their retirement, the tax rules are generally more favourable than other investment structures. 

 The problem for most retired expatriates is that they believe that their days of being able to put money into pension schemes are behind them; however QNUPS may significantly change many retired expatriates’ view on this.

 Firstly, there is no maximum age at which you can invest in a QNUPS.

 Secondly, you do not need to have any earned income from an employment in order to make a contribution.

 Thirdly, there is no maximum contribution that can be made into a QNUPS.

 The rules are sufficiently flexible to allow someone who is 85 years of age and has been retired for 25 years to put large investments into a QNUPS and immediately create significant tax advantages for themselves. 

 So what benefits do QNUPS give to retired British expatriates?

 The main thing to remember is that a QNUPS is a pension scheme trust and as such you are entitled to take a cash lump sum and income during your lifetime, with the remainder of your fund being able to be passed to your spouse or heirs on your death free from all taxes.

 The following advantages are available to you through a QNUPS:

• As a pension scheme, a QNUPS is very tax efficient in most countries as it can avoid both local wealth taxes during your lifetime and succession taxes on your death.
• A QNUPS also avoids local succession law, so that you are free to choose exactly who inherits your money and in what shares.
• Income can be taken from age 55 (after 6^th April 2010) or it can be deferred as it does not need to be taken until age 75.  In certain countries it can be paid in a manner where a significant portion can be paid to you tax free.
• When income is taken it is drawn down from the fund, thus leaving your scheme assets invested.  Otherwise the assets grow free from tax.
• On death the value of the QNUPS will be exempt from UK inheritance tax and local succession taxes.
• A QNUPS offers considerable investment flexibility and choice.  Furthermore your assets can be invested and any benefits taken in a currency of your choice, giving you the opportunity to remove currency risk.
• The trustees of a QNUPS have no reporting obligations to HMRC unless the scheme also holds any assets transferred from an authorised UK pension scheme.  You can have both a QROPS and a QNUPS.

In essence QNUPS allow retired British expatriates to put their investable wealth into a pension structure and significantly improve their personal tax position as a result.

 Solving the UK inheritance tax conundrum with a QNUPS

 The only way to avoid UK inheritance tax is to become a non-UK domicile, which is NOT the same thing as becoming a non-UK resident.  It can be very difficult to shrug off your UK domicile even though you may have lived overseas for many years and so your estate on death can be liable for tax of 40% (or probably more if a Labour Government is re-elected).

 QNUPS immediately solves this problem even if you were to return to live in the UK.  In fact, it avoids the tax even if you never left the UK to live overseas in the first place.  You do not have to wait seven years to avoid the tax (which is the case under the PET or potentially exempt gift rules), and you do not have to give the assets away either.  You and your spouse or partner can continue to benefit from the assets.  It couldn’t be better!

 By David Franks, Chief Executive, Blevins Franks

www.blevinsfranks.com