Many British nationals continue to run into problems having expected their UK or offshore financial adviser and/or financial institution to be able to successfully advise them as Italian residents whilst using financial products and solutions designed to work only in other territories and which for Italian residents are very often unsuitable, expensive and inefficient for tax purposes.
Many are still charging fees for advice, services and products which do not work for Italian residents and mistakes can be costly.
Setting up your existing pension and investment arrangements to meet your financial goals and objectives whilst being cost effective, tax efficient and compliant for Italian residence can be achieved.
With the right guidance and local expertise, you can continue to use UK based investments which include the type of fair, clear and transparent fees and charges that you have became accustomed to as a UK resident.
CAshFlow Planning and the use of different financial asset classes
Characteristics and PRACTICAL USES of different financial asset classes
Bank Accounts – Deposit Guarantee Schemes
The EU deposit guarantee scheme protects depositors savings by guaranteeing deposits of up to €100,000 per bank. The equivalent UK scheme provides for £85,000. and the Crown dependant territories of Jersey, Guernsey and The Isle of Man provide for up to £50,000. Some jurisdictions provide very little or no protection whatsoever.
During the global financial crisis of 2008, many failed banks were bailed out by governments. Current arrangements prohibit this.
Bank Accounts – Inflation Risk
Cash is widely considered to have the lowest degree of risk and interest rates have risen sharply since the end of 2021 to combat the effects of inflation which have been higher than initially forecast .
Covid economic stimulus, Central bank quantitive easing as well as food and energy price rises following the Russian invasion of Ukraine are some of the reasons for higher inflation. As inflation increases, the value of cash decreases as does your ability to buy goods and services in the future.
Bank Accounts – Practical considerations for British nationals in Italy
After Brexit, a number of UK based banks and building societies forced British nationals resident in Italy to close their accounts whilst those that allowed the continued use of accounts and ancillary services such as credit cards, often allowed facilities set up before Brexit to continue as normal but typically limited or restricted the setting up of any new facilities due to the application process being unable to cater to a non UK resident.
A number of international Banks located in the Crown dependant territories of Jersey, Guernsey and The Isle of Man are able to provide both Sterling and Euro accounts as well as a range of other currencies. Sterling accounts can receive state pension contributions which are paid via BACS (Bank Automated Clearing System) which is a component of the UK clearing and settlements system.
Most of the large Italian banks can offer accounts in Sterling but these are often unable to receive payments from UK Pensions.
Government Bonds – Debt securities issued by a government
UK, US and European government bond yields are now at the highest levels for more than 20 years. Government bonds in emerging economies provide a higher yield but the debt to GDP (gross domestic product) ratio of many has accelerated sharply as has the risk of default.
Corporate Bonds – Debt securities issued by companies
Investment grade corporate bonds can provide a higher yield than UK, US and European government bonds. High yield bonds are those issued by companies or entities with lower credit ratings and have a higher yield to account for this as well as higher risk of default.
Green, Social and Sustainability Bonds – Specialised bonds issued by governments and companies
An increasingly important part of the global fixed income market where demand is rising rapidly as the financial system adapts to the climate and social needs of our planet.
Bond Opportunities in the current economic environment
With government and corporate bonds yields at their highest for more than 20 years and forecasts for inflation from The Bank of England, The European Central Bank and The US Federal Reserve indicating an expected slowdown and return to more normal levels over the next couple of years, this presents an opportunity for investors to lock in attractive yields as well as potentially benefit from an increase in price once interest rates begin to reduce.
Stock Markets – Superior returns over time
Equities have significantly outperformed government bonds and cash over the medium and long term. Equities have proven to be the most effective hedge against inflation over the long term but higher volatility may make equities unsuitable for short term savings. Current valuations for UK, US and European equities indicate that prices are historically relatively cheap and forward looking estimates for the next 5 years and beyond look very positive.
Sustainable Investments – Positive impact with competitive returns
Sustainable investing balances traditional investing with environmental, social and governance-related (ESG) insights to improve long term outcomes.
Green and impact equity and bond funds are proving to be attractive alternatives to traditional funds. The sector is growing and evolving rapidly as the need for a sustainable transition in financial markets becomes more apparent.
UK and Offshore GIA (General Investment Accounts) and UK ISA (Individual Savings Accounts) for Italian Residents
These are very inefficient for tax purposes in Italy and they can create difficulties for Italian residents and their Italian Commercialista (Tax Accountant) because of the differences in the tax treatment in Italy for foreign accounts whereby every sale and purchase needs to be checked for reporting on the Modello Unico (The Italian Tax Return) and then the calculation of capital gains on each sale and dividend across 2 sets of annual statements needs to be applied.
The UK capital gains tax free allowance does not apply. Restructuring your portfolio using a unit linked life assurance policy which complies with Italian law can provide significant cost and tax savings as well as a wide range of additional benefits for Italian residents.
UK and Offshore Investment Bonds
UK and offshore investment bonds can provide significant tax advantages for UK residents and for residents of other jurisdictions but for Italian residents, it is important to use a unit inked life assurance policy which complies with Italian law and which is in accordance with the requirements in Italy to be able to provide favourable fiscal conditions.
Asset Allocation – Short, medium and long term cashflow Requirements
It is important to check that your current asset allocation matches with your short, medium and long term cash flow requirements and that you have calculated your income and expenditure as accurately as possible taking into account your tax obligations both in Italy as well as in the UK and any other countries where an obligation may arise.
How We can Help – Putting it all TogetheR
If you have an existing portfolio of cash and investments with a value of at least €250,000 and you would like to explore how to structure this to be meet your financial goals and objectives as well as being cost effective, tax efficient and compliant with your residence in Italy, please contact us by email on [email protected] to arrange a review.
Please also forward this article to any British friends who may find this helpful.