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Expat Investor : January February 2008
had passed between the UK bank and the Maltese bank, during their subsequent attempts to trace the money. It concluded that Mr J's UK bank branch had made several errors at the outset, when sending information about the transfer to the processing centre. Some of the international identification numbers for the Maltese bank had been transposed. The UK bank branch had also made some mistaken assumptions about the name in which the Maltese bank account was held. So although the money had arrived at the international branch of Mr J's Maltese bank the day after he requested the transfer, the staff there were unable to identify either which specific branch the money was destined for, or to which customer it belonged. They contacted the UK bank for further details. However, it was not until several days after Mr and Mrs J had arrived back in the UK that the Maltese bank finally had the information it needed -- and was able to allocate the funds to the couple's account. The Ombudsman was satisfied that it was a mistake by the UK bank that had caused the problem. It said it should reimburse Mr and Mrs J's travel and out-of-pocket expenses (totalling around £400). And that it should also pay the couple £250 for the worry and inconvenience they had been caused. The Ombudsman added that were its investigation to conclude that the Maltese bank had been at fault, it would have been able to forward the complaint to the relevant ombudsman service in Malta, through the new European financial redress network (FIN-NET) of which it is a member. WRONG CURRENCY EXCHANGE RATE Miss A could not believe her luck when she won a newspaper competition for a fortnight's holiday in Barbados. She couldn't usually afford holidays of any kind and she had only been abroad once before, on a school day-trip to Belgium. OFFSHORE MONEY TRANSMISSION January/February 2008 EXPAT INVESTOR 19 www.expatinvestor.com The state of the UK economy is putting a strain on families as Brits are increasingly becoming financially indebted to their nearest and dearest. According to fresh research from Skipton Building Society, Britons are currently owed ove r £25bn by their families -- an increase of 82% on the £14bn they were owed 10 years ago. Unsurprisingly, this financial debt is having an adver se affect on relationships with nearly one in five (17%) falling out with loved ones as a result. Borrowing large sums of money from those close to you is quite common -- half (51%) of Brits have given a hand-out to a member of their family during the last 10 years with 11% of these lending over £5,000 and 4% ove r £10,000 as a single payment. And while it's often parents financially supporting their offspring - with 47% lending the largest single amount of money during the last 10 years to their son or daughter - the tables are tur ning for many grown- up children with more than one in 10 (12%) lending funds to their mum and dad. Coming to the rescue of their parents, a third (31%) of children who have lent money are paying off bills their mums and dads have accumulated, with 8% shelling out for household repairs. The cash is also being used for investment purposes, with 5% lending their parents money to purchase a property and 7% to buy a car. However,loaning money to family members does make people feel they should have a say in how it is spent -- and how it shouldn't be spent. One in 20 (6%) said they felt disheartened as they believed their money had been used unwisely. Fe eling as though their relatives have taken advantage of them, nearly one in 10 (7%) said they felt it took too long for them to get the money back with 7% reporting that their family had made no attempt to repay them at all. Brits' generosity to their nearest and dearest is certainly causing resentment to fester. One in 10 (10%) said they felt their family took them for granted with 9% admitting they were reluctant lender s in the first place and were pressured into the loan. STATISTICS AND ANALYSES Cash quarrels put pressure on families A rose-tinted financial future? A medley of statistics and analyses revealing much about our responses to saving, investing and spending our money. 8.5m risk financial future to start second life Honesty the only policy as insurers uncover more frauds More than 8.5m Brits are risking their savings, pensions and financial future when they split with one partner and begin a 'second life' with someone else, according to a major new report from Standard Life. The research found the financial cost of such a major life change to be substantial, setting people back an average of £20,000 purely to 'start again'. And for more than three- quarters of Brits affected (83%), the financial impact of ending a relationship and starting again was as stressful as -- or more stressful than -- the emotional fall-out. The research found that after a live-in relationship came to an end, a third of 35- to 65-year-olds had no pension to their name. Ofthose with a pension, on e in 10 either had to give away part of their retirement nest-egg, or received some from their ex-partner. A small number of women come off far better than men when inheriting a pension from their partner, but nearly half of the women questioned confessed to having no pension at all when splitting from their spouse. The research also revealed that six in 10 of second lifers had sold their shared home and split the proceeds. The money, after potentially paying off existing debts and any legal fees from the separation, then became the means to start their new life. More than half (55%) of those who have started afresh have entered a new relationship.Athird of those cohabiting (33%) have started a new financial commitment by buying a property with their new partner. Standard Life lists these key points to consider before starting a 'second life': don't take your pension before you need to. The sooner you take it, the longer it will have t o last and the smaller it will be. if you dream of taking a career break at some stage, try putting more into your pension while you are working so the break does not have such an impact on your final pension fund. if you have moved jobs frequently it is easy to lose track of your pension benefits. Write to old employers, or contact the Pensions Tracing Service to find out what you might be entitled to. if you are nearing retirement, or your circumstances have changed, it's useful to get an idea of what you can expect to receive when you reach state pension age. You can get a state pension forecast from The Pension Service. there are many demands on your finances - a mortgage, car, credit cards, debt, savings. Working out when, how and the best way t o save can be daunting. Taking professional financial advice can help clarify your priorities and your short, medium and long-term financial goals. Insurance companies are uncovering and preventing fraudulent insurance claims worth over £1m every day, according to latest research from the ABI (Association of British Insurer s). The ABI's latest research into general insurance fraud reveals that: insurers are uncovering and preventing fraudulent claims worth £480m a year, or £1.3m every day. This is three times the amount detected in 2003. one in 11 claims -- around one million -- are in some way fraudulent Oft h "Insurance cheats are more likely to be caught than ever before. And cheats will pay a high price, as future insurance and credit will be more expensive and harder to obtain." Some of the more unusual fraudulent claims uncovered by insurer s include: a man claimed for 'recovery expenses' following a heart attack suffered while on holiday in West Africa, which was for the services of a local brothel. a woman reported her husband f ng his injuries a ccident hours after ng collected a pensation r footballer able to work injury. His fraud n a local d his picture after is local football year. olicyholder a cliff then stolen so he NVESTOR 5 Plastic's fantastic, say Brits the knife with 17%. The major reason people want to alter their appearance is to gain more confidence in themselves according to 51%,afurther 32% claiming it is for medical purposes. Two per cent go plastic fantastic after being egged on by a friend, and one per cent do so as to stop people teasing them about a particular pa t of their body F Research by AEGON has revealed many people in the UK have a rose- tinted view of their financial futures. The survey has identified a 'reality gap' between what people are expecting in their retirement and what they a re actually saving for. Malcolm Flanders, Director of Individual Pensions at AEGON reports, "Many people are still expecting to retire before age 65 and lead a comfortable lifestyle. The fact is a large swathe of the UK population risks being financially impove rished in retirement. "Our survey suggests that many people are still expecting to rely solely on state benefits, or are gambling on the prospect of their children taking care of them. But we believe it's important that people take action now and plan sensibly for their retirement." It's not just retirement planning that revealed worrying results. When asked about critical illness and life insurance, nearly 40% said they thought protection products are too expensive. Mr Flanders points out, "People can buy some valuable protection for £10 or £20 a month. The more likely reason people are not buying enough protection is because they don't like to think about their own mortality. Our industry must try and get the message across that protection is the bedrock of sound financial planning -- and affordable too." Despite many people acknowledging they are not saving enough to secure a brighter future, the research also found that one third of those surveyed would not seek financial advice on pen sions, investments and protection. "We need to take off our rose- tinted glasses and take responsibility for properly planning our financial futures. We would urge people to act now before it's too late and take control ofyo ur financial future," concludes Mr Flanders. To register for the digital edition, go to Serving expats for more than 16 years J In this issue Te ns of thousands of British expats face having their homes demolished under new plans by the Spanish government to clear up to 500 miles of coastline of what they call "illegal" developments. The areas under threat have been popular with Brits for decades including the Mediterranean coast, the Canary Islands and the Balearic Islands. The homes most at threat from the bulldozers are those which have been Expats' Spanish coastal properties under threat Investor EXPAT g £4.95/ 7.50/US$7.50 Jan/Feb 2008 Bringing advisers and investors toge the r Investor EXPAT Tony Hetherington Our offshore financial investigator exposes a financial scam. Where to invest in 2008 The inside track on the year's investment opportunities. Isle of Man Essential products and services from the Manx money companies. Forex winners and losers The FSA's ombudsman tells the stories behind forex claims and disputes. Regulars 10 Offshore funds 12 Offshore savings accounts 21 Property investment 22 Offshore mortgage market Next issue Practical banking Jersey Healthcare insurance Inheritance tax 6 13 18 4 www.expatinvestor.com A Spanish government initiative which seeks to protect the country's coastline from illegally built developments could affects tens of thousands of home-owning Brits, as Hannah Beecham reports. For more inform ation from our advertisers or about products featured in Expat Investo r enter the Fast Facts number onto the Reader Reply Service coupon on page 20 or go to: expatinvestor.com Fas www.expatinvestor.com "There are those that you know you should read, and then there's the magazine you will read." To register for Expat Investor digital edition, visit the website at www.expatinvestor.com Serving expats for more than 19 years positioned "too close" to the coastline. The Spanish government's new development plan for coastal property, which is contained in a recently published document,A Strategy for Coastal Sustainability,from the environment ministry argues that the country should move away from mass tourism and paid urbanisation. The document states, "It is clear that the coastal development model of recent decades is unsustainable." The report specifically singles out holiday resorts along the Spanish coast which are "no longer pleasant or satisfying in many areas." In conclusion, the document urges that radical solutions are necessary to save the environment and guarantee a sustainable future for the coastal economy. The Spanish government has stressed that it does not seek to expropriate the properties, in the fir st instance. A sum of €5bn has been set aside with which the government intends to negotiate with homeowners over the sale of those properties which are deemed unlawful. The gover nment, likewise, reassures homeowners that it is not seeking mass demolitions. However, such declarations have failed to reassure many Brits who have long feared their homes will be pulled down because they were built without the proper planning permission. Ever since the exposure of a widespread corruption scandal which brought down the Marbella local government, building permits have been hard to obtain. Property developers, too, have fallen foul of the law resulting in considerable financial debt -- all of which has only added to the British property-owning population's woes. Brits have witnessed other land/property controversies. The so-called "land- grab" laws in Valencia which permitted private property to pass into the hands of developer s has added to a mood of desperation and fear amongst the British coastal communities. The UK's FCO states that Britain will engage with the Spanish government and its regional authorities on any policy which has implications for British citizens who have bought property in good faith. You paid how much? Brits with homes in Spain may face a tax bill of thousands of pounds following a clampdown on the practice of under-declaring sale prices. The Spanish tax office is running a new computer system to crack down on homeowners who evade tax by claiming to have sold their properties for much less than the actual selling price. For many a long year, sellers both foreign and local, have under-declared the sale price of their property by as much as 30%. Thus a property valued at around €100,000, might 'officially' sell it for €70,000. The other €30,000 would be paid in cash, thereby reducing the amount on which tax would have to be paid by the seller. Whereas this practice has always been illegal, buyers have been pressurised into complying with it by sellers who might not otherwise accept the property purchase offer. However, the Spanish tax authorities' computer program links to those operated by the public notary and property-registry offices. This makes it easier to spot unrealistic sales prices. Such a move means many homeowners will have to declare a larger capital gain when they sell and, consequently, be taxed on a higher sum. A recent tax law establishes that all property sellers are liable to pay 18% on capital gains accrued in Spain. However,if you become a Spanish resident, (that is, if you are spending more than 183 days of the year in Spain), the property has been your main home for three years, and you are over 65 when you sell, you avoid that capital gains tax in Spain. Resident sellers under the age of 65, who reinvested their profits in another home in Spain, will also be capital gains exempt on the profits of their sale. Where Brits beach While the British Foreign and Commonwealth Office estimates over a million Brits are living in Spain for all or part of the year, the Spanish 2006 census reveals most favoured coastal locations. Location Total North coast Asturias 603 Cantabria 333 Guizpuzcoa 621 La Cor una 687 Lugo 130 Pontevedr a 430 Vizaya 675 East coast Bar celona 9,771 Belearics 17,637 Castellon 1,415 Gerona 3,345 To rragana 3 449 Valencia South coast Alicante Almeria Cadiz Malaga Murcia Huelva Total number of Brits Source: Spanish census 2006 OUT NOW! * THE ANNUAL INTEREST RATE QUOTED IS VARIABLE, GROSS AND EFFECTIVE FROM 31 DECEMBER 2007. THIS RATE IS PAYABLE WHERE NO MORE THAN 3 WITHDRAWALS ARE MADE IN A BONUS YEAR (1ST APRIL -- 31ST MARCH) WITH A RATE OF 5.75% PAYABLE WHERE 4 OR MORE WITHDRAWALS ARE MADE IN THIS PERIOD. THIS ACCOUNT IS ONLY AVAILABLE ONLINE TO INDIVIDUALS AGED 18 OR OVER AND IS NOT AVAILABLE TO UK RESIDENTS. Maximum balance is £1,000,000. Bradford & Bingley International Limited, International eSavings Unit, PO Box 263, Dougla s, Isle of Man IM99 2JJ British Isles. Registered in the Isle of Man No. 052221C. Registered Office: 30 Ridgeway Street, Douglas, Isle of Man, IM1 1TA. With share capital and reserves in exce audited accounts are available on request. Bradford & Bingley plc undertakes to discharge the liabilities of Bradford & Bingley International Limited in so far as the latter is unable to discharge them and remains a subsidiary of Bradford & Bingley plc. 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Manage from home 24/7 Available now at www.bbi.co.im/e Up to expatinvestor.com 24 EXPAT INVESTOR January/February 2008 FIRST PERSON UK budget implications for expats Traditionally, the Chancellor of the Exchequer sets out the proposals for major changes to tax legislation in the March budget to be operative from the ensuing tax year starting 6th April. However, we are becoming accustomed to major announcements prior to the budget in what is known as the pre-budget report. Whilst most of the 28 issues covered in the latest report are of little consequence to expats, there are four points whose implications are more significant and these are summarised below: Capital gains tax reform It is true to say that over recent year s the variety of reliefs that have been introduced have made this particular tax somewhat complicated and indeed in certain circumstances controversial. The Chancellor intends to apply a more simplistic approach and go for a flat rate of 18% effective from 6th April 2008 retaining as little as possible in respect of earlier reliefs although the existing rules will still remain for principal private residences, rollover relief for business assets, venture capital trust and enterprise investment schemes. The annual exempt amount will remain at the level for 2007/2008, £9,200 for individuals. No changes were announced in respect of the existing requirement to be non-resident for five tax years in relation to capital gains tax exe mption. Domicile review For many years non-domiciled individuals (and those not ordinarily resident) have enjoyed an attractive tax advantage only being subject to UK tax on a remittance basis. Income or capital gain arising outside the UK avoids the charge to UK tax provided the amount in question remains outside the UK. The definition of domicile is somewhat complicated and is actually outside the scope of this article, but broadly speaking it relates to what can be described as ones 'mother' country. It could be that your father was born abroad or perhaps that you migrated to the UK but intend to eventually return to another country. In essence, the Chancellor has proposed that any individual who is non-domiciled that has been resident in the UK for seven years or more will only be able to continue to use the remittance basis of taxation if they pay an additional charge of £30,000 a year. It is open to the individual to decide whether or not to pay this amount or alternatively give up the right to be taxed on income and gains under the remittance basis, whereupon they will be taxed on their worldwide income and gains whether or not remitted to the UK. Residency A separate issue arose during the course of last year following a tax case concer ning the historic procedure accepted by the tax authority of excluding days of arrival and departure when counting the number of days in the UK to determine residency. Interestingly, this has always been a matter of procedure as opposed to statute law. It is therefore proposed that from 6th April 2008 when looking at the number of days in a tax year that have been spent in the UK it will be necessary to include a day of arrival and the day of departure. This could potentially have a major impact on tax payer s who regard their place of residence as being outside the UK but come to the UK during the week to conduct their work. For example, Mr Green lives in the South of France and arrives in the UK on Monday departing again on Thursday. Previously, Monday and Thur sday would be ignored so that there would only be two days of relevance whereas now that effectively doubles to four. For those readers who go abroad to work for longer periods the impact will be much less significant and only relevant if they are near the limit. Inheritance tax changes Readers are reminded that the definition for domicile in so far as inheritance tax is concerned is different to that applicable for income tax and capital gains tax mentioned elsewhere in this article. Indeed, it is somewhat simpler and an individual who has been resident for 17 year s out of the last 20 years is domiciled in the UK and subject to inheritance tax on their worldwide assets. The inheritance tax threshold is £300,000 for 2007/2008 and will be rising up to £350,000 by 2010/2011. The main change is that it is going to be possible to transfer any unused IHT nil rate band on a per sons death to the estate of their surviving spouse or civil partner covering deaths from 9th October 2007 onwards. This will apply where the IHT nil rate band of the first deceased spouse or civil partner was not fully used in calculating the IHT liability for the estate. Although the operative date is from 9th October 2007, the effect of the legislation is actually retrospective although specific measures are still to be clarified in the next budget of March 2008 but it is worth looking at two separate examples. Firstly, a husband and wife or civil partners with assets of, say, £600,000 jointly will now effectively be able to enjoy an exemption to the inheritance tax by the time of the second death of £600,000 based on current rates. It should be noted that generally speaking transfer s between husband and wife and civil partners are exempt from inheritance tax (note however, there is a significant difference with a non-domiciled partner). The second example relates to a situation where the partner has already died but did not utilise their nil rate band at the time of death. For example, their net assets were below the amount at which inheritance tax applied. That part will now become available to be car ried forward to the survivor. Naturally many people will be in a situation of owning assets well above these values particularly as a result of rising house prices which still means that careful planning in such circumstances is recommended. For further infor mation from Wilder Coe, enquire through the fast facts number below. Howard Weintrob, Tax Partner at London-based char tered accountants, Wilder Coe, reviews the tax implications from the recent pre-budget statement British expats. Fast Facts 22470 MORE INFORMATION? Enter the Fast Facts number into the Reader Reply Service coupon on page20orgoto www.expatinvestor.com "It is therefore proposed that from 6th April 2008 when looking at the number of days in a tax year that have been spent in the UK it will be necessary to include a day of arrival and the day of departure. " "Naturally many people will be in a situation of owning assets well above these values, particularly as a result of rising house prices which still means that careful planning in such circumstances is recommended. " The trip to Barbados more than lived up to expectations and a couple of days after returning home, Miss A visited her bank to change her remaining Barbados dollar notes back into sterling. She also still had several traveller's cheques -- issued in US dollars. She asked the bank to pay the value of these cheques -- in sterling -- into her account. The cashier took a very long time processing the transactions. He seemed to be having difficulty calculating the sterling equivalent for the Barbados dollars. Eventually, he wrote down a figure and showed it to Miss A, asking if she was happy to go ahead on that basis. Miss A agreed and the cashier asked her to sign a printed receipt showing the exchange rate that would be used. The transaction was then completed. Two weeks later, Miss A returned home to find a telephone message asking her to contact the bank. When she rang her branch the next day, she was told that the cashier had mistakenly used the exchange rate for US dollars when changing the Barbados dollar notes into sterling. As a result, Miss A had been credited with around £100 more than she should have been given. The bank said it would be debiting this sum from her account. Miss A thought this was unfair, but the bank insisted that it was acting correctly. Miss A then complained to the Ombudsman. never had to change money into a foreign currency before. The Ombudsman saw no reason to doubt her statement that she had assumed the rate quoted by the cashier was correct. The situation had been made more complicated by the fact that she had been carrying out a transaction involving US dollar travellers' cheques at the same time, and also by the cashier's apparent confusion. The Ombudsman told the bank he felt Miss A had acted in good faith and that it was unfair, in the circumstances, to make her pay back the £100. The bank agreed to re- credit Miss A's account and Miss A accepted that as a fair settlement of the dispute. Complaint upheld The bank strongly defended its actions in reclaiming the money. It told the Ombudsman it thought Miss A was trying to take advantage of a situation which had resulted from genuine confusion on the part of the cashier, who was relatively inexperienced. The Ombudsman did not doubt that the cashier had made a genuine mistake when calculating how much sterling he needed to give Miss A for the Barbados dollars. However, it was equally satisfied that Miss A had acted in good faith when accepting the exchange rate she was offered. Miss A had never been to Barbados before. Indeed, she had "So although the money had arrived at the international branch of Mr J's Maltese bank the day after he requested the transfer, the staff there were unable to identify either which specific branch the money was destined for, or to which customer it belonged."