LEARN MORE ABOUT YOUR SPESE DEDUCIBILI FROM YOUR DETRAIBIL!

 

DO YOU KNOW YOUR SPESE DEDUCIBILI FROM YOUR DETRAIBILI? In one of my recent newsletter I explained the difference between imposte and tasse. In this newsletter I go one step further to help you understand your expenses and how they can reduce those imposte e tasse. Everything depends on whether your expenses are categorised as deducibile or detraibile.  So what is the difference?  Deductable (deducibile) expenses are simply those which reduce your overall taxable income (redditto complessivo) before tax is calculated on the final amount. Simply imagine that you have taxable of income €20,000 and an expense of €1000 which is deductable: your income is reduced to €19,000 before tax is calculated.  Detractable (detraibile) expenses on the other hand are those which reduce your tax bill, once calculated. A simple example in Italy would be the usual medical and pharmacy expenses. Most of these types of expenses do not benefit from a 100% detraction from your income, but might be mainly detractable at 19% of the cost. So, if you have an expense of €100 then you will only be able to detract €19 from your income tax bill.  If your income tax bill on that €20,000 income, in the example used above is €4,000, then you would be able to detract the €19 from the tax bill itself.     If you are interested in what expenses you can deduct or detract then Sole24Ore created a nice table which I included in a previous newsletter and which you can look at HERE.  As I said in my previous newsletter, this complicated system of detractions and deductions may come under review with the Mario Draghi government with a view to simplification of the overall system. As yet we are awaiting any details, but as soon as I know then I will pass it on.    There are a few points in this newsletter which may interest you and as always if you require further information or clarity on any of the topics aforementioned then please feel free to get in touch on gareth.horsfall@spectrum-ifa.com or text/call on +39 333 649 2356

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Pensions, bank accounts and more...

 

There is nothing like a cold snap to focus the mind and it certainly arrived with a bang this year. In Rome we lost about 20 degrees of temperature in a week. However, I have to confess that I am rather glad that the autumn months are now upon us because the prolonged hot temperatures play havoc with trying to be productive.    In this E-zine, as you will see, there are a number of shorter topics, but ones which I think are relevant for our lives in Italy. During the summer I have been scanning the financial papers and the 'norme e tributi' pages of Sole 24 Ore to see what might affect our lives in the future. Fortunately, the Italian government seemed to give us a break this year and I didn't find much of significant interest. However, a number of other matters have arisen in the last few weeks.   How should my pension be taxed in Italy?    Let's start with one of the more interesting matters that arose during the summer. I was contacted by a client who was enquiring about taking money out of her QROPS pension (a QROPS is a UK pension that has been moved away from the UK but still operates like a UK pension - useful when living abroad!).   I have always advised my clients that any withdrawals from a UK personal pension are taxed at income tax rates in Italy but over the last few years I have come across a number of clients whose commercialista has been declaring the pension as a 'previdenza complementare'. This is the Italian equivalent of a UK personal pension. The main reason for choosing this route seemed to be a preferential flat tax rate of 15%. My argument has always been that the two structures have fundamentally different characteristics and therefore a UK personal pension should be considered an irrevocable trust, hence withdrawals are subject to income tax. In fact as far back as June 2018 I wrote the following in an E-zine: I have heard stories from various people over the years that their commercialisti declare their UK pensions as ‘previdenza complementare‘, which loosely translated means complementary pension. However, the definition does not accurately complete the story. The reason for declaring it in this manner is that it is taxed at a preferential tax rate of 15%. I must admit here that I don’t think is the correct way of declaring income from an overseas pension / retirement plan. The ‘previdenza complementare‘ is a vehicle used in Italy to complement the pension which is offered through Italian social security (INPS). You may argue that this has the same purpose as that of an overseas pension fund. However, this is where the similarities end. In the case of a UK pension fund your contributions would attract tax relief during the accumulation phase. In the ‘previdenza complementare‘ (PC) the fund is taxable during the accumulation phase. The UK scheme is also not linked to the state scheme in any way and you can withdraw money from age 55 (personal pension) or scheme retirement age (occupational pension). The PC is linked to the Italian state retirement age. Lastly, since the contributions into a UK fund are paid gross into the plan, then the income is instead taxed on the way out, at the normal rates. The Italian PC has a preferential rate of taxation starting at 15% and reducing to 9% depending on how many years you have been contributing to the fund, because it is taxed during the accumulation phase.  In short there are some distinct differences which lead me to believe that declaring a pension fund / retirement fund (which is a trust) as a ‘previdenza complementare’ in Italy, is incorrect. If you are in doubt then speak with your commercialista. In a lot of cases I was informed that the commercialista had contacted the local Agenzia delle Entrate and they had confirmed that this is correct. So, who was I to challenge it? However, I still believed that it was incorrect. Of course, no-one challenged it because it also meant the difference between being paying a 15% flat tax rate on that income or progressive income tax rates starting from 23%.   However, during the summer the client I referred to above contacted her commercialista, who did not accept this definition, but in fact presented an 'interpello' issued by the Agenzia delle Entrate (an interpello is basically an 'opinion' from the Agenzia delle Entrate on a specific case that is presented to them) from May 2020 regarding a UK personal pension holder. In the interpello (which you can find HERE - the interesting part starts on page 7) it indicates that a UK personal pension should not be considered a 'previdenza complementare', but should actually be subject to progressive tax rates in Italy. This is quite an eye-opener because if this is the case, then it flies against the information gained from various commercialisti.   I should add here that the interpello is merely an indicative judgment in this particular case and is by no means a definitive decision for everyone holding a UK personal pension and resident in Italy. However, the fact that the AdE has gone to the trouble to write this gives us a pretty good idea into their thinking, should they choose to follow it up.   What to do?  So what should you do if your commercialista has advised you to declare your UK personal pension as a 'previdenza complementare' and you are now benefitting from the 15% flat tax rate? I would take the interpello to them and ask their opinion based on the new evidence. Or you may choose to do nothing. Whatever your choice or the advice from the commercialista, we are now a little more enlightened into the thoughts of the Agenzia delle Entrate on this topic.      Brexit  It is worth noting here that Brexit is almost upon us and whatever your opinion as to how the UK will exit, a messy unfriendly exit may bring a few matters to light. In particular, the interpello also states that pension funds which 'could' be deemed to qualify are those which conduct business cross border and meet the pension rules of both EU states in which they are operating. I don't know of a UK personal pension provider that does this anyway,  but the mere fact that the UK is in the EU may gloss over some of these finer points. But then, what will happen, once the UK leaves the EU?  Which leads nicely on to the next problem that Brits are now facing in Italy.   Bank account closures for UK citizens living in the EU   By now, I am sure you have read the headlines saying that a number of UK banks are contacting or have contacted their customers living in the EU to close down their UK banks accounts, potentially leaving them without a UK account. To date the main culprits are the Lloyds banking group, which includes Halifax and the Royal Bank of Scotland, Coutts and Barclays. I am afraid to say that the rumours are true and I know of a number of people who have been contacted already.  The culprit, of course, is Brexit.   These banks have now had to weigh up the benefits of retaining bank account holders in the EU post Brexit, because once they are banks out of the EU market place they will be forced to adhere to individual EU jurisdictional regulations, as well as UK regulations, if they want to continue to service clients in any EU state. Clearly, for a bank which has no intention of developing business in Italy (in our case), nor does it have a sufficiently large client base in Italy already, then they are going to need to look to close down activities in those jurisdictions to ensure they do not fall foul of the regulators.  It is interesting that, in contrast, HSBC Bank has not decided to pull from its EU markets because it has sufficient activities which take place throughout the EU. I have also heard that Nationwide is also not pulling any activities just yet.   For many clients this is going to be a very tough time, as you could lose a bank account in the UK when you may still have bills being paid, or you simply use it when you are in the UK. To make matters worse, because you are no longer a resident in the UK, you can no longer request an account from another UK banking group.   Many of the groups will also offer their international bank account services, of which the majority are based in the Isle of Man. This is also not a  good idea because the Isle of Man is not in the UK, but is a UK dependant territory and is deemed a fiscal paradise. It is currently on the grey list of 'could do better' in global fiscal transparency with the EU. It is anyone's guess what will happen after the UK leaves the EU, but it is certainly not beyond imagination that the EU will look to impose punitive tax measures for anyone holding accounts in UK offshore jurisdictions. Let's not forget that it only came off the black list in 2015!  So, without any other options perhaps one of the better solutions is to look at an Italian bank which can provide a GBP account. I have used Fineco for years, and recommend it to many clients. They offer a EUR current account linked to a GBP and USD account and transfers of cash between accounts are made at spot rate, with no fee. It might be a solution, but will be no consolation for losing your UK bank account. Once again, another downside of Brexit for those of us that have chosen to live in the EU.  Why you should never leave more than €100,000 (or currency equivalent) in your bank account   Still on the subject of banking, does the sound of a bad bank sound appealing to you? A bank that is so bad that it can take all the bad from all the other banks and just keep it there and away from us all. It sounds like a great idea in theory.  On the 25th September the EU had a consultation round table event with a number of European bank leaders, asset management groups and government officials to discuss the possibility of creating a European-wide 'bad bank' which would take all that bad debt (debt which cannot be paid back for one reason or another) and which is currently sat on the balance sheets of a lot of European banks, particularly Italian ones and other Southern European states. The idea being that this bad debt could be whisked away from the banks, freeing them up from the worry of having to manage this debt and giving them the liberty to start lending once again, supposedly to individuals and businesses which pose a better credit risk and would be more reliable at paying the debt back.  So far so good. I would not argue at this point. It seems like a good idea to help stimulate economies especially after the COVID-19 crisis.   But morally, should we accept this?    This is the argument put forward by a number of EU functionaries who argue that the banks are, once again, getting another bail out at the cost of the taxpayer. You and I.   To remedy this, the 'Bank recovery and resolution directive' (BRRD) has proposed that certain parties should also have to meet some of that cost as well as the EU/taxpayer itself. Those parties have been identified as the shareholders of the bank, holders of the banks bonds and lastly, the one that should interest us all: deposit holders with more than €100,000 or currency equivalent held in any banking group. Does this mean that the EU, to fund the COVID-19 crisis, could make a cash grab on deposit holders with more than €100,000 or currency equivalent, in their accounts? At this point it is only a proposal, but I shall be watching this space carefully.  Based on this news, there is probably no better time to look at your financial plans closely especially if you are holding high levels of cash in any banks around Europe.  NS&I slashes rates!    You might be someone who has been investing in NS&I products in the UK as a diversifier to your other holdings, or maybe just someone who likes to 'play it safe' with your money.   National Savings and Investments, NS&I, are backed by the UK government, and due to the COVID-19 crisis, the government has now moved to slash rates on all national savings products to the point where you have to ask yourself, 'are they worth it?.' The rate on on the Direct Saver account has been slashed from 1% interest per annum to just 0.15%.Income Bonds, which have for a long time been considered a best buy, have been slashed from 1% interest rate to just 0.01%pa.   Not only that, but the average interest rate on Premium Bonds (with the chance to win the big prize) will fall from 1.4% to just 1% and the amount of prizes issued will be reduced significantly.   If that is not enough, the Bank of England is also toying with the idea of introducing a negative base interest rate. If they apply that to the NS&I products, then you will be effectively paying the government to hold them.    Time to consider alternatives to protect your capital?  I hoped you have enjoyed this 'return to normality' E-zine. I will be sending out more information in the coming weeks and months to keep you up to speed with the goings on in the financial world and how that might impact our lives in Italy. If any information from this E-zine has interested you and you would like to get in contact, you can reach me on gareth.horsfall@spectrum-ifa.com or on cell phone 333 649 2356 by call, sms or whatsapp.    SIGN UP TO MY EZINE.  If you received my Ezine from family members, friends, or it was forwarded to you then feel free to sign up yourself.  Just click HERE

DISCLAIMER The views expressed here are my own. They are not necessarily shared by The Spectrum IFA group or any other company named or implied. They are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. Neither should this be considered tax advice. If in doubt we always recommend that you consult a suitably qualified tax consultant. References to specific securities or companies are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities FOR LEGAL INFORMATION ABOUT THE ITALIAN BRANCH OF THE SPECTRUM IFA GROUP CLICK HERE Copyright © *2018* *The Spectrum IFA Group*, All rights reserved. Want to change how you receive these emails? You can update your preferences or unsubscribe from this list.

Your cash is under attack...

I have been writing these blogs 10 years this year, after sending out my first one in 2009. Looking back at the very first one just the other day, I saw how it had developed and how the concepts I discuss have changed dramatically.

An intro to the friend you didn't know you had...

Buon Anno...I hope you had a relaxing Christmas and New Year and are ready for the shenanigans of politics which await us in 2019. 

Tax Reporting or Tax Planning?

REPORT /rɪˈpɔːt/ verb gerund or present participle: reporting give a spoken or written account of something that one has observed, heard, done, or investigated.   PLANNING /ˈplanɪŋ/ noun the process of making plans for something.

TAX REPORTING OR TAX PLANNING WHAT SHOULD YOU DO?  I am often contacted online for help on calculating Italian tax liabilities for English speaking 'stranieri' living or thinking of living in Italy, but I have a confession to make:  I am NOT a commercialista.

My soap box moment on taxes!

I love my soap box moment. You see, I have been wanting to write this formally for a long time but never really had the opportunity to do so. I would go on record as saying that I am actually in favour of the radical overhaul of the Italian tax system and whilst I see this proposed flat tax regime as being a little unequally distributed, I do think it’s necessary and despite what the bankers, economists and bureaucrats tell us, I actually think it would be a good thing for Italy. 

All this talk of a flat tax

The current political environment in Italy is one which I find very interesting, notably in how it is perceived in foreign media and presented to us through the usual media outlets.

Are taxes in Italy really 'that' complicated?

As I walk my son to school in the morning we have the opportunity to walk through the palazzo of an 'Archivio di Stato' in the centre of Rome. 

SELLING UK PROPERTY AS AN ITALIAN RESIDENT

Selling UK property as an Italian resident.  It’s always good to review certain subjects again and I was recently talking to someone about selling rental / second home property in the UK and the potential tax consequences of doing so. If you have held the property for more than 5 years, from acquisition or inheritance (and excluding any emotional or sentimental attachment to the property for the purposes of this discussion) then the sale of a property could be a tax planning opportunity rather than a consequence.

RICHARD BURTON AND HMRC

The actor Richard Burton who was born in Wales had lived in America for 27 years and died in 1984 at his Alpine retreat near Geneva, where he was buried.

Thinking about taxes?

It has been a whirlwind few weeks for me after appearing at the House of Commons UK Exiting the EU committee in January.  Since then I have given a speech in Castiglione del Lago to over 80 UK Nationals who wanted to hear about the proceedings and also been involved with a number of initiatives that have been going on in Italy and around Europe.  

Common Reporting Standard goes into force

You may remember me reporting that the Common Reporting Standard, an internationally agreed tax reporting mechanism, has now fallen into place and that sharing of financial information has started, retroactively to 1st January 2016.

Time Bomb!

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

Exchange rate volatility...what can you do?

Let's face it, the British pound is not going to appreciate to pre BREXIT levels against the euro anytime soon. We are in for the long run, and it could get worse.  

Some alternative BREXIT thoughts and why Italy could be next.

The last couple of weeks entertainment have taught me that there are decades when nothing  happens in the world and weeks where decades happen. I have bounced from anger to frustration and back again. and am still trying to understand the logic for the BREXIT vote. I am slowly getting to that place and thought I might share some alternative, and thought provoking views.

Tax Cuts......?

Before you have to steady yourself at the mere thought of tax cuts in Italy, I have to warn you, (sorry, I am so used to warning people about tax increases that it comes naturally to use the word, 'warn'), or I am pleased to inform you that if you can hang in there a little longer they may be on their way. 

 

And 'I am' talking about 'Income tax Cuts' (IRPEF)!

Exemption from the canone RAI if you do NOT own a TV.

I wrote recently that the law had changed regarding the TV licence and if you did not own a TV then you would still have to pay the licence fee, in your electricity bill in July,  if you were 'connected' in some way.  

...nothing can be said to be certain except death and taxes.

"In this world nothing can be said to be certain except death and taxes".  

You, no doubt, have heard this said many times. I have! But where does it originate from?  Doing a quick online search I find that it has been attributed to quite a number of individuals but the most famous seems to be Benjamin Franklin. 

Declaring under 'Voluntary Disclosure' in Italy.

It is not an uncommon occurrence for me to be approached by people who have been living in Italy for quite a number of years, but who are yet to declare their assets abroad.  

More Brits abroad need to register for the upcoming Referendum!

UK expats urged to back Cameron’s decision and vote ‘remain’ in 23rd June EU referendum