Broadly speaking, recent market volatility has split investors into one of two categories; those that are willing to take advantage of the opportunities that market movements represent, and those that are unsure of the future and instead wish to focus, primarily at least, on preservation of their wealth.
Capital protected funds serve as a solution to each type of investor, providing exposure to the upside of equity markets, whilst maintaining a level of protection that gives the investor peace of mind in the knowledge that not all of their investment is at risk.
An 'Investment Sentiment' survey conducted towards the end of 2009 by the UK's Investment Management Association found that almost 70% of investors still want to put money into capital protected funds. For 2008 and 2009, sales by fund type, via an investment bond (as opposed to direct investment into the fund), show that such funds rank as the second and third most popular choice respectively.
The basic principle of most capital protected funds is that the majority of the investors' money goes into an active 'basket' of equity stocks (the basket of many funds available will have a specific focus, e.g. emerging markets), with an amount being kept aside for investment into a capital protection solution; it is this element of the fund that is used to protect a proportion the fund's value, the amount set aside determining the amount of protection available (e.g. 90%, 80% etc).
On this basis, investors in such funds should bear in mind that they will not benefit as much from an increase in value of the active portion of the fund, as they would have done if they were instead invested in a traditional, 100% equity fund. However, the relatively small sacrifice of growth potential, in return for capital protection is what makes such funds so particularly appealing to investors that are approaching retirement, or simply unsure about future volatility.
It is common practice for capital protected funds to be managed by two distinct parties; an investment manager to maximise growth from the active element of the fund, and a specialist provider of capital protection solutions. The latter will have experience in trading sophisticated financial instruments which, ultimately, provides the 'safety net' element of the fund.
Colin Graham of BlackRock, managers of the active element of the Hansard Multi-Asset Protector fund commented "Of the other positions held in the portfolio, the recent strong performance of the BGF (BlackRock) US Flexible Equity Fund has been driven by the Fund's focus on quality stocks, with an emphasis on healthcare and energy, at the expense of financials and consumer staples. Meanwhile, the performance of the BGF World Health and Science Fund was well supported by strong stock selection of the vast majority of sub-sectors, including healthcare providers and services.
While we remain focused on the improving economic outlook, our positions are relatively modest, reflecting the risks to these views and our anticipation of a moderate, rather than buoyant, prospective return environment. As such, and in the expectancy of ongoing economic and market volatility, we continue to allocate risk in a diversified fashion."
Tuesday, 16 February 2010
Thursday, 11 February 2010
Where should I retire to?
Where should I retire to?
Tax regimes around the world vary enormously. The majority of countries levy tax on pension income at your highest marginal income tax rate.
While some countries have a top rate the same or higher than Britain’s forthcoming 50% — Belgium’s is 50% and Sweden’s is 55% — others are far kinder on your pocket, figures from Gary Heynes at Baker Tilly, the accountant, show.
Hong Kong has a top rate of only 16% and Singapore has 20%. In America, the top rate of income tax is 35%, and in Cyprus it is 30%.
Pensioners living in Cyprus and drawing an overseas pension can opt to pay a fixed rate of 5% on income above a small tax-free personal allowance of €3,420 (£3,136). Alternatively, they can pay the normal rate of up to 30%, in which case the first €19,500 is tax free — so the smaller your income, the better off you are under the normal system.
France and Spain can be less attractive than the UK — unless you expect retirement income of £150,000 or more, which would mean you would be hit with Britain’s 50% tax. France levies a top rate of income tax of up to 40% and Spain 43%.
In New Zealand and Australia income tax is charged at up to 39% and 45%. However, Australia does not charge tax on pension income, provided you are over 60.
Heynes said: “Recent changes to pension rules in Australia allow you to contribute more to your pension if you move there before you retire, and since July 2007, income drawn from retirement savings has been tax free if you’re over 60.”
Consider other aspects of tax regimes around the world, too. Capital gains tax (CGT) is levied at a flat rate of 18% in Britain. However, in places such as New Zealand and Hong Kong there is no charge. In America, CGT is 15%.
In Australia it is a hefty 45% — although residents are eligible for relief on their main home as in the UK.
Expats receive a tax uplift on their worldwide assets based on their date of arrival, so if you bought a painting, for example, for £5,000 and it had appreciated in value to £20,000 by the time you moved to Australia, you would be liable for CGT on growth only from that point.
Australia does not charge inheritance tax (levied at 40% in the UK), but France has rates of up to 60%.
Tax regimes around the world vary enormously. The majority of countries levy tax on pension income at your highest marginal income tax rate.
While some countries have a top rate the same or higher than Britain’s forthcoming 50% — Belgium’s is 50% and Sweden’s is 55% — others are far kinder on your pocket, figures from Gary Heynes at Baker Tilly, the accountant, show.
Hong Kong has a top rate of only 16% and Singapore has 20%. In America, the top rate of income tax is 35%, and in Cyprus it is 30%.
Pensioners living in Cyprus and drawing an overseas pension can opt to pay a fixed rate of 5% on income above a small tax-free personal allowance of €3,420 (£3,136). Alternatively, they can pay the normal rate of up to 30%, in which case the first €19,500 is tax free — so the smaller your income, the better off you are under the normal system.
France and Spain can be less attractive than the UK — unless you expect retirement income of £150,000 or more, which would mean you would be hit with Britain’s 50% tax. France levies a top rate of income tax of up to 40% and Spain 43%.
In New Zealand and Australia income tax is charged at up to 39% and 45%. However, Australia does not charge tax on pension income, provided you are over 60.
Heynes said: “Recent changes to pension rules in Australia allow you to contribute more to your pension if you move there before you retire, and since July 2007, income drawn from retirement savings has been tax free if you’re over 60.”
Consider other aspects of tax regimes around the world, too. Capital gains tax (CGT) is levied at a flat rate of 18% in Britain. However, in places such as New Zealand and Hong Kong there is no charge. In America, CGT is 15%.
In Australia it is a hefty 45% — although residents are eligible for relief on their main home as in the UK.
Expats receive a tax uplift on their worldwide assets based on their date of arrival, so if you bought a painting, for example, for £5,000 and it had appreciated in value to £20,000 by the time you moved to Australia, you would be liable for CGT on growth only from that point.
Australia does not charge inheritance tax (levied at 40% in the UK), but France has rates of up to 60%.
QROPS: Advantages and Disadvantages
What are the potential benefits of QROPS?
Tax efficiency. Subject to the laws of the overseas country in which you become resident, it may be possible to receive income from your retirement fund at lower tax rates than would apply in the UK.
Investment choice. There is no need to buy an annuity, so you can retain control of your pension savings capital, and you can hold assets such as residential property, which are not usually allowed in UK pension funds.
Passing wealth between generations. QROPS enable you to pass the portion of your pension savings that you do not spend to your heirs and, depending on the tax laws of the country where you choose to become resident, there may be a lower rate of Inheritance Tax to pay or – as is the case in Cyprus – be no local equivalent of this tax.
Avoid or diminish exchange rate risks and costs. You can take income and capital from your QROPS in the currency of your choice.
What are the potential disadvantages of QROPS?
Costs. Legal and administrative fees involved in setting up and maintaining QROPS vary widely and need to be considered carefully in advance. Take account of initial and annual fees when assessing whether their impact on your retirement fund can be justified by increased choice and tax-efficiency.
Investment risk. If you decide not to buy an annuity and to keep your QROPS invested in stock market-based assets, or any other assets whose value is not guaranteed, there is a risk that your income and capital could fall and you may not get back as much as you invested.
Regulation gap. Some countries with lower tax rates than the UK also offer less investor protection in terms of regulation of financial services and they may not offer any statutory compensation scheme. That is why it is vital to seek pension advice only from professionals who are fully authorised in the UK as well as the overseas jurisdiction to which you are considering retirement.
Fiscal change. Some experts reckon the opportunities offered by QROPS are simply too good to last. Critics claim QROPS enable British savers to obtain generous tax relief while accumulating pension funds and then to avoid British taxes when it comes to enjoying the benefits. If too many people take up these opportunities HM Revenue and Customs may act, subject to European Union rules.
Consider your options carefully but without unnecessary delay
No decision affecting your retirement capital and income should ever be taken in a rush. Remember the old maxim: ‘Act in haste – repent at leisure.’ If any adviser seeks to put pressure on you for an immediate decision, then your answer should be ‘No, thank you.’
However, as mentioned earlier, the sooner you start to plan for retirement, the easier it will be to ensure that this really is the holiday of a lifetime. The earliest pounds you invest in a pension will have the longest to accumulate for your benefit. The sooner you begin to consider how – and where – you enjoy the fruits of your prudence, the more likely you are to reach the right decision for you and, where relevant, your family.
Quicker, cheaper and more comfortable international travel has widened everyone’s choice about where to live. People who retire overseas need no longer wave goodbye to friends and family forever.
QROPS extend that choice into one of the most important financial choices many people ever make: how to fund and enjoy retirement. Make sure you consider your options carefully and in a timely manner with a specialist pensions professional who is fully authorised to advise on all the options you enjoy today.
Tax efficiency. Subject to the laws of the overseas country in which you become resident, it may be possible to receive income from your retirement fund at lower tax rates than would apply in the UK.
Investment choice. There is no need to buy an annuity, so you can retain control of your pension savings capital, and you can hold assets such as residential property, which are not usually allowed in UK pension funds.
Passing wealth between generations. QROPS enable you to pass the portion of your pension savings that you do not spend to your heirs and, depending on the tax laws of the country where you choose to become resident, there may be a lower rate of Inheritance Tax to pay or – as is the case in Cyprus – be no local equivalent of this tax.
Avoid or diminish exchange rate risks and costs. You can take income and capital from your QROPS in the currency of your choice.
What are the potential disadvantages of QROPS?
Costs. Legal and administrative fees involved in setting up and maintaining QROPS vary widely and need to be considered carefully in advance. Take account of initial and annual fees when assessing whether their impact on your retirement fund can be justified by increased choice and tax-efficiency.
Investment risk. If you decide not to buy an annuity and to keep your QROPS invested in stock market-based assets, or any other assets whose value is not guaranteed, there is a risk that your income and capital could fall and you may not get back as much as you invested.
Regulation gap. Some countries with lower tax rates than the UK also offer less investor protection in terms of regulation of financial services and they may not offer any statutory compensation scheme. That is why it is vital to seek pension advice only from professionals who are fully authorised in the UK as well as the overseas jurisdiction to which you are considering retirement.
Fiscal change. Some experts reckon the opportunities offered by QROPS are simply too good to last. Critics claim QROPS enable British savers to obtain generous tax relief while accumulating pension funds and then to avoid British taxes when it comes to enjoying the benefits. If too many people take up these opportunities HM Revenue and Customs may act, subject to European Union rules.
Consider your options carefully but without unnecessary delay
No decision affecting your retirement capital and income should ever be taken in a rush. Remember the old maxim: ‘Act in haste – repent at leisure.’ If any adviser seeks to put pressure on you for an immediate decision, then your answer should be ‘No, thank you.’
However, as mentioned earlier, the sooner you start to plan for retirement, the easier it will be to ensure that this really is the holiday of a lifetime. The earliest pounds you invest in a pension will have the longest to accumulate for your benefit. The sooner you begin to consider how – and where – you enjoy the fruits of your prudence, the more likely you are to reach the right decision for you and, where relevant, your family.
Quicker, cheaper and more comfortable international travel has widened everyone’s choice about where to live. People who retire overseas need no longer wave goodbye to friends and family forever.
QROPS extend that choice into one of the most important financial choices many people ever make: how to fund and enjoy retirement. Make sure you consider your options carefully and in a timely manner with a specialist pensions professional who is fully authorised to advise on all the options you enjoy today.
QROPS and Pensions: Retiring Abroad
Deposits, bonds, shares and investment returns - all these will boost your pension plan during your retirement as a British expat.
Rising numbers of people now spend a quarter or even more than a third of their lives in retirement, enjoying what is – quite literally – the holiday of a lifetime.
However, just like any other holiday, you need adequate funds to make the most of it. As the novelist Somerset Maugham observed: “Money is like a sixth sense; without it, you cannot make full use of the other five.”
Planning ahead and seeking specialist advice sooner rather than later will make it much easier for you to achieve your retirement objectives.
For example, the sooner you start to save and invest for retirement, the better the chances are that you will accumulate the large sums of capital needed to provide an adequate income in today’s economic environment of low interest rates.
What’s inside the wrapper?
There is no particular magic to the word pensions - whether they are QROPS, SIPPs or any other sort of retirement savings – they are only a tax-efficient wrapper to hold assets which can deliver income, capital growth or a mixture of both. So, it is vital to consider carefully, in conjunction with your financial adviser, the different risk and reward characteristics of various assets or means of storing wealth.
No single answer will be right for everybody because individual and family circumstances vary so widely, but it is worth considering investment returns from the main asset classes in the past when deciding which components should play some part in your pension portfolio.
For most people, the appropriate advice will be to hold a mixture of different assets, with the proportions varying on the individual or family requirement for security, income or growth and how long they can afford to remain invested.
Deposits: low-risk, low-income
There is no need to take any short-term risk to enjoy the tax advantages of pensions; you can hold all of your contributions in cash deposits. However, while that might be a reasonable, cautious strategy in the final year or two before you intend to retire and draw benefits – because it will protect you from stock market setbacks - it would be wrong to imagine that this option is risk-free.
The explanation is that inflation tends to erode the real value or purchasing power of money over time. Even with today’s low levels of inflation, this is worth considering because, when planning retirement, you may want to protect the purchasing power of your pension decades into the future.
Banks and building societies promise to return your capital in nominal or face value terms; they do not promise to preserve its real value or purchasing power.
Perhaps unsurprisingly, low-risk deposits have tended to provide lower returns than the other two main types of asset which can be held in British pensions.
Bonds: higher-risk, higher income
Large companies issue IOUs to investors called corporate bonds, which usually promise to pay a fixed rate of interest for a fixed period of time before repaying the original sum invested. Countries also issue bonds and those issued by the British Government are called gilt-edged stock or gilts.
Both types of bond usually pay higher interest than deposits but entail a higher degree of risk; for example, bonds are not covered by the £50,000 per person statutory safety net that protects deposits with banks and building societies registered with the Financial Services Compensation Scheme.
By contrast, no bond is any better than its guarantor or the company that issued the bond. As a general rule, the higher the yield – that is, the income paid by a bond expressed as a percentage of the price for which it can be bought – the higher the risk of the bond.
This could be a specific risk – for example, the risk that the bond issuer might default or fail to pay income and/or capital; or it could be market risk – for example, that inflation is expected to rise and erode the real returns from all fixed interest bonds.
Quantitative easing - an economic policy intended to prevent the recession turning into a slump in Britain and elsewhere - increases the risk of inflation, as that is what has happened on previous occasions when governments printed more money to solve current problems.
Shares: high risk in pursuit of high returns
Shares – also known as equities – are higher risk than deposits or bonds, because they make no promises about repaying investors’ capital or income and enjoy no statutory safety net. However, despite recent setbacks, shares have tended to provide higher returns than other asset classes over most periods of five years or more in the past.
That historical fact is set out in the table, Shares versus Bonds and Deposits. Barclays Capital – a subsidiary of the high street bank – measures returns from these different stores of wealth going back to 1899 and updates its analysis annually. Before going on to consider those statistics in detail, it is important to understand that the past is not a guide to the future. Share prices can go down and you may get back less than you invest.
Investment returns: how long have you got?
According to the Barclays Capital Equity Gilt Study 2009, shares broadly reflecting the composition of the London stock market delivered greater returns than bonds or deposits in about three quarters of all the periods of five consecutive years in that sample of more than a century. To be precise, shares beat deposits on 74 per cent of those five-year periods and beat bonds 75 per cent of the time.
However, it can be seen that if the period of investment was shortened to just two consecutive years, the probability of shares doing best fell to nearer two thirds. In other words, there was a one-in-three chance that bonds or deposits would do better. This demonstrates the risk that short-term setbacks can hit share prices and explains why many advisers say shares are only suitable for money you can afford to remain invested for at least five years.
Over longer periods of time, such as 10 consecutive years, the historical probability of shares doing best increased to 92 per cent relative to deposits and 81 per cent compared to bonds.
Diminishing risk by diversification
Many pension savers remain understandably wary of the risks entailed in bonds and shares, despite the fact that bonds generally pay higher interest than deposits today and that shares have tended to deliver higher total returns than either bonds or deposits over the medium to long term in the past.
One way to square that circle is to consider pooled funds which seek to diminish risk by diversification.
These include unit and investment trusts, open-ended investment companies (OEICs) and other managed funds which bring together individual investors’ money to spread these funds over large numbers of underlying shares, bonds and other assets. This should give investors exposure to income and growth from the underlying assets while setting out to reduce their exposure to setbacks or failure at any one company, country or sector of the stock market.
The value of expert advice
In addition to diminishing risk by diversification, pooled funds also enable individual investors to share the cost of professional fund management. In other words, dedicated staff spend their days trying to keep abreast of today’s fast-moving money markets to make the most of your investments while you get on with making a living or enjoying retirement.
However, with more than 2,000 pooled funds authorised to be marketed in the United Kingdom and many more overseas, it is difficult to know which ones to choose. Just as do-it-yourself investment will not suit everybody, with many people preferring to pay professional fund managers, it may make sense to pay a professional financial adviser to recommend appropriate funds – and to make sure your portfolio of pension investments remains appropriate to your changing needs in the years ahead.
Flexible strategies for the future
For the reasons set out earlier, there is no single portfolio that will suit everybody and no substitute for seeking fully authorised financial advice which will be tailored to your individual – and, if relevant, family – circumstances.
This will entail a fact find procedure, where the adviser will seek information about your attitudes to risk and reward as well as other factors such as your requirements for income, growth or a mixture of both.
This may seem a bit of a chore but should enable the adviser to recommend an appropriate asset allocation or financial strategy to suit you. You should not regard this as a decision to file and forget but as a strategy that should be reviewed regularly.
For the reasons set out in the final chapter, it makes sense to choose your financial adviser carefully and to keep in touch with him or her during your retirement.
There is no single portfolio that will suit everybody and no substitute for seeking fully-authorised financial advice which will be tailored to your individual – and, if relevant, family – circumstances.
By Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189808/QROPS-and-pensions-retiring-abroad.html
Rising numbers of people now spend a quarter or even more than a third of their lives in retirement, enjoying what is – quite literally – the holiday of a lifetime.
However, just like any other holiday, you need adequate funds to make the most of it. As the novelist Somerset Maugham observed: “Money is like a sixth sense; without it, you cannot make full use of the other five.”
Planning ahead and seeking specialist advice sooner rather than later will make it much easier for you to achieve your retirement objectives.
For example, the sooner you start to save and invest for retirement, the better the chances are that you will accumulate the large sums of capital needed to provide an adequate income in today’s economic environment of low interest rates.
What’s inside the wrapper?
There is no particular magic to the word pensions - whether they are QROPS, SIPPs or any other sort of retirement savings – they are only a tax-efficient wrapper to hold assets which can deliver income, capital growth or a mixture of both. So, it is vital to consider carefully, in conjunction with your financial adviser, the different risk and reward characteristics of various assets or means of storing wealth.
No single answer will be right for everybody because individual and family circumstances vary so widely, but it is worth considering investment returns from the main asset classes in the past when deciding which components should play some part in your pension portfolio.
For most people, the appropriate advice will be to hold a mixture of different assets, with the proportions varying on the individual or family requirement for security, income or growth and how long they can afford to remain invested.
Deposits: low-risk, low-income
There is no need to take any short-term risk to enjoy the tax advantages of pensions; you can hold all of your contributions in cash deposits. However, while that might be a reasonable, cautious strategy in the final year or two before you intend to retire and draw benefits – because it will protect you from stock market setbacks - it would be wrong to imagine that this option is risk-free.
The explanation is that inflation tends to erode the real value or purchasing power of money over time. Even with today’s low levels of inflation, this is worth considering because, when planning retirement, you may want to protect the purchasing power of your pension decades into the future.
Banks and building societies promise to return your capital in nominal or face value terms; they do not promise to preserve its real value or purchasing power.
Perhaps unsurprisingly, low-risk deposits have tended to provide lower returns than the other two main types of asset which can be held in British pensions.
Bonds: higher-risk, higher income
Large companies issue IOUs to investors called corporate bonds, which usually promise to pay a fixed rate of interest for a fixed period of time before repaying the original sum invested. Countries also issue bonds and those issued by the British Government are called gilt-edged stock or gilts.
Both types of bond usually pay higher interest than deposits but entail a higher degree of risk; for example, bonds are not covered by the £50,000 per person statutory safety net that protects deposits with banks and building societies registered with the Financial Services Compensation Scheme.
By contrast, no bond is any better than its guarantor or the company that issued the bond. As a general rule, the higher the yield – that is, the income paid by a bond expressed as a percentage of the price for which it can be bought – the higher the risk of the bond.
This could be a specific risk – for example, the risk that the bond issuer might default or fail to pay income and/or capital; or it could be market risk – for example, that inflation is expected to rise and erode the real returns from all fixed interest bonds.
Quantitative easing - an economic policy intended to prevent the recession turning into a slump in Britain and elsewhere - increases the risk of inflation, as that is what has happened on previous occasions when governments printed more money to solve current problems.
Shares: high risk in pursuit of high returns
Shares – also known as equities – are higher risk than deposits or bonds, because they make no promises about repaying investors’ capital or income and enjoy no statutory safety net. However, despite recent setbacks, shares have tended to provide higher returns than other asset classes over most periods of five years or more in the past.
That historical fact is set out in the table, Shares versus Bonds and Deposits. Barclays Capital – a subsidiary of the high street bank – measures returns from these different stores of wealth going back to 1899 and updates its analysis annually. Before going on to consider those statistics in detail, it is important to understand that the past is not a guide to the future. Share prices can go down and you may get back less than you invest.
Investment returns: how long have you got?
According to the Barclays Capital Equity Gilt Study 2009, shares broadly reflecting the composition of the London stock market delivered greater returns than bonds or deposits in about three quarters of all the periods of five consecutive years in that sample of more than a century. To be precise, shares beat deposits on 74 per cent of those five-year periods and beat bonds 75 per cent of the time.
However, it can be seen that if the period of investment was shortened to just two consecutive years, the probability of shares doing best fell to nearer two thirds. In other words, there was a one-in-three chance that bonds or deposits would do better. This demonstrates the risk that short-term setbacks can hit share prices and explains why many advisers say shares are only suitable for money you can afford to remain invested for at least five years.
Over longer periods of time, such as 10 consecutive years, the historical probability of shares doing best increased to 92 per cent relative to deposits and 81 per cent compared to bonds.
Diminishing risk by diversification
Many pension savers remain understandably wary of the risks entailed in bonds and shares, despite the fact that bonds generally pay higher interest than deposits today and that shares have tended to deliver higher total returns than either bonds or deposits over the medium to long term in the past.
One way to square that circle is to consider pooled funds which seek to diminish risk by diversification.
These include unit and investment trusts, open-ended investment companies (OEICs) and other managed funds which bring together individual investors’ money to spread these funds over large numbers of underlying shares, bonds and other assets. This should give investors exposure to income and growth from the underlying assets while setting out to reduce their exposure to setbacks or failure at any one company, country or sector of the stock market.
The value of expert advice
In addition to diminishing risk by diversification, pooled funds also enable individual investors to share the cost of professional fund management. In other words, dedicated staff spend their days trying to keep abreast of today’s fast-moving money markets to make the most of your investments while you get on with making a living or enjoying retirement.
However, with more than 2,000 pooled funds authorised to be marketed in the United Kingdom and many more overseas, it is difficult to know which ones to choose. Just as do-it-yourself investment will not suit everybody, with many people preferring to pay professional fund managers, it may make sense to pay a professional financial adviser to recommend appropriate funds – and to make sure your portfolio of pension investments remains appropriate to your changing needs in the years ahead.
Flexible strategies for the future
For the reasons set out earlier, there is no single portfolio that will suit everybody and no substitute for seeking fully authorised financial advice which will be tailored to your individual – and, if relevant, family – circumstances.
This will entail a fact find procedure, where the adviser will seek information about your attitudes to risk and reward as well as other factors such as your requirements for income, growth or a mixture of both.
This may seem a bit of a chore but should enable the adviser to recommend an appropriate asset allocation or financial strategy to suit you. You should not regard this as a decision to file and forget but as a strategy that should be reviewed regularly.
For the reasons set out in the final chapter, it makes sense to choose your financial adviser carefully and to keep in touch with him or her during your retirement.
There is no single portfolio that will suit everybody and no substitute for seeking fully-authorised financial advice which will be tailored to your individual – and, if relevant, family – circumstances.
By Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189808/QROPS-and-pensions-retiring-abroad.html
QROPS Cyprus
British expats could take their pension plans and enjoy a fantastic quality of life in by retiring in Cyprus.
Like Spain and France, Cyprus is proving a popular destination for Britons retiring overseas, not just because of its weather, low cost of living and membership of the European Union but because it has made its tax structure particularly generous to pensioners.
Each individual pensioner can choose whether to pay a flat rate of five per cent income tax on their worldwide income in excess of a small personal allowance, or to be allowed a larger allowance or tax-free band and then pay tiered rates of tax up to 30 per cent on income in excess of the threshold. There is no Inheritance Tax nor any Wealth Tax in Cyprus.
Under the terms of the UK/Cyprus Double Tax Treaty, all forms of British pension – including Government pensions such as the civil service and local authority schemes –can be paid without deduction of British tax to pensioners who are tax-resident in Cyprus.
Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189590/QROPS-and-pensions-Cyprus.html
Like Spain and France, Cyprus is proving a popular destination for Britons retiring overseas, not just because of its weather, low cost of living and membership of the European Union but because it has made its tax structure particularly generous to pensioners.
Each individual pensioner can choose whether to pay a flat rate of five per cent income tax on their worldwide income in excess of a small personal allowance, or to be allowed a larger allowance or tax-free band and then pay tiered rates of tax up to 30 per cent on income in excess of the threshold. There is no Inheritance Tax nor any Wealth Tax in Cyprus.
Under the terms of the UK/Cyprus Double Tax Treaty, all forms of British pension – including Government pensions such as the civil service and local authority schemes –can be paid without deduction of British tax to pensioners who are tax-resident in Cyprus.
Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189590/QROPS-and-pensions-Cyprus.html
QROPS France
British expats abroad find tax breaks in France can match or exceed those in the UK, after compulsory social charges are taken into account.
However, as in Spain, French fiscal law offers favourable treatment to people with annuities.
So, instead of paying income and social taxes - which can be as high as 51 per cent in total - pensioners can enjoy much lower effective rates of tax on annuity income, depending on their age.
For example, up to 70 per cent of the annuity income can be taken tax-free by annuitants who are 70 years or older; up to 60 per cent can be tax-free for those over 60 and up to 50 per cent can be tax-free for those who are 50 or older. Even annuitants who are aged less than 50 can take 30 per cent of their annuity income tax-free.
However, the complexity of French fiscal law makes it vital to take expert advice from professionals who are fully authorised in that country. For example, wealth tax remains an important consideration but the capitalised value of annuities may be exempt from French wealth tax, provided the fund was set up in the context of a professional – that is, paid – activity and the savings period lasted for more than 15 years.
Pensioners who wish to pass wealth to beneficiaries after their death should also seek professional advice on French Succession Tax.
There are too many important differences between this and Inheritance Tax to tackle here – but also valuable opportunities, such as the usufruct (called usufruit in French) to make tax-effective lifetime gifts, while retaining the right to remain in occupation or receive income.
HM Revenue and Customs (HMRC) renders such gifts with reservation ineffective for IHT avoidance purposes in Britain but they can continue to work in France, demonstrating the importance of people who retire overseas taking locally authorised advice.
By Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189353/QROPS-and-pensions-France.html
However, as in Spain, French fiscal law offers favourable treatment to people with annuities.
So, instead of paying income and social taxes - which can be as high as 51 per cent in total - pensioners can enjoy much lower effective rates of tax on annuity income, depending on their age.
For example, up to 70 per cent of the annuity income can be taken tax-free by annuitants who are 70 years or older; up to 60 per cent can be tax-free for those over 60 and up to 50 per cent can be tax-free for those who are 50 or older. Even annuitants who are aged less than 50 can take 30 per cent of their annuity income tax-free.
However, the complexity of French fiscal law makes it vital to take expert advice from professionals who are fully authorised in that country. For example, wealth tax remains an important consideration but the capitalised value of annuities may be exempt from French wealth tax, provided the fund was set up in the context of a professional – that is, paid – activity and the savings period lasted for more than 15 years.
Pensioners who wish to pass wealth to beneficiaries after their death should also seek professional advice on French Succession Tax.
There are too many important differences between this and Inheritance Tax to tackle here – but also valuable opportunities, such as the usufruct (called usufruit in French) to make tax-effective lifetime gifts, while retaining the right to remain in occupation or receive income.
HM Revenue and Customs (HMRC) renders such gifts with reservation ineffective for IHT avoidance purposes in Britain but they can continue to work in France, demonstrating the importance of people who retire overseas taking locally authorised advice.
By Ian Dowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189353/QROPS-and-pensions-France.html
QROPS Spain
Brit expats love the better weather and a lower cost of living make Spain the most popular destination for British expats who retire abroad – and it can also provide a tax haven for the well-advised.
Most British pensions can be paid into Spanish bank accounts without deduction of British taxes after you have obtained a certificate to show that you are resident in Spain and paying tax there. This is called a certificado de residencia fiscal NEN – Espana Convenio.
However, British Government service pensions – including civil service and local authority schemes – are important exceptions to that rule; UK tax will always be payable, even after you are resident in Spain. This does not affect NHS pensions and may not include teachers, police and fire brigade pensions; once again, specialist advisers can provide guidance relevant to your individual needs.
International money transfers As a general rule, Spanish fiscal law provides a personal allowance of between 2,600 euro and 4,000 euro before income tax is applied at rates varying between 24 per cent and 43 per cent on income above the allowance. However, where a personal pension is used to buy a whole of life annuity – known as a renta vitalicia – then much lower rates of tax may apply.
Unfortunately, unless you are in QROPS, the annuity is limited to sterling; and so you are at risk of it losing its local purchasing power in future if the pound continues to lose value compared to the euro.
For example, someone aged between 60 and 65 years old who received 25,000 euro a year from an annuity might only pay 18 per cent tax on 24 per cent of the income.
That could produce a tax bill of just 1,080 euro or an effective tax rate of just 4.32 per cent. Once again, it is worth repeating that it is vital to seek fully authorised pensions advice to steer clear of the potential pitfalls and make the most of the legal opportunities overseas.
Other factors that might be considered include tax-efficient trusts and new opportunities created by the 100 per cent exemption of wealth tax in Spain since the start of 2008. However, it is important to note that wealth tax has not been abolished; the Spanish government could recommence these charges simply by reducing or eliminating the new exemption.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189169/QROPS-and-pensions-Spain.html
Most British pensions can be paid into Spanish bank accounts without deduction of British taxes after you have obtained a certificate to show that you are resident in Spain and paying tax there. This is called a certificado de residencia fiscal NEN – Espana Convenio.
However, British Government service pensions – including civil service and local authority schemes – are important exceptions to that rule; UK tax will always be payable, even after you are resident in Spain. This does not affect NHS pensions and may not include teachers, police and fire brigade pensions; once again, specialist advisers can provide guidance relevant to your individual needs.
International money transfers As a general rule, Spanish fiscal law provides a personal allowance of between 2,600 euro and 4,000 euro before income tax is applied at rates varying between 24 per cent and 43 per cent on income above the allowance. However, where a personal pension is used to buy a whole of life annuity – known as a renta vitalicia – then much lower rates of tax may apply.
Unfortunately, unless you are in QROPS, the annuity is limited to sterling; and so you are at risk of it losing its local purchasing power in future if the pound continues to lose value compared to the euro.
For example, someone aged between 60 and 65 years old who received 25,000 euro a year from an annuity might only pay 18 per cent tax on 24 per cent of the income.
That could produce a tax bill of just 1,080 euro or an effective tax rate of just 4.32 per cent. Once again, it is worth repeating that it is vital to seek fully authorised pensions advice to steer clear of the potential pitfalls and make the most of the legal opportunities overseas.
Other factors that might be considered include tax-efficient trusts and new opportunities created by the 100 per cent exemption of wealth tax in Spain since the start of 2008. However, it is important to note that wealth tax has not been abolished; the Spanish government could recommence these charges simply by reducing or eliminating the new exemption.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189169/QROPS-and-pensions-Spain.html
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