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Expats make property a priority before Spanish renaissance

So, the present time could therefore be the last chance to get a foothold on the luxury Spanish property market. For many decades the country has not quite realised its economic potential and more recently has had to be subsidised by European Union billions in order to achieve a healthy bottom line – but the situation is expected to soon change permanently and for the better.

According to figures from the International Monetary Fund, Spain has recorded 2.6% Gross Domestic Product growth in 2017, placing the nation ahead even of traditional economic powerhouses such as the US and Germany.

The expat Euro has of course been a factor in this recovery, with expat financial advisers in Spain frequently called upon to help their clients invest their pensions and other assets into Spain. However, this is just one aspect of the country’s economic growth. According to a report by global property consultants Knight Frank, 2017 has seen employment growth, salary growth and, consequently, increased demand for flats, houses and mortgages. Importantly, mortgage rates remain incredibly competitive for many buyers, which is only further fuelling demand.

The Knight Frank report states: “In 2017, two key trends merit the attention of second home buyers. Firstly, the diversification of demand. British buyers, down 28% in the year to the end of the fourth quarter of 2016 are being replaced by Dutch purchasers, up 58% during the same period, along with Belgian, Scandinavian, Latin American and Turkish buyers.”

Furthermore, according to Knight Frank, Spain is in the grips of a new phenomenon, the “rise of the urban resort”. All of Barcelona, Valencia, Malaga and Mallorca’s capital, Palma, are experiencing a new and sustained interest from expats and internal buyers looking to marry the cultural, commericial and social upsides of inner city living with the attractions of coastal living.

The Balearic Islands, which include the larger islands of Majorca, Menorca, Ibiza and Formentera, remain a very popular choice for the clients of expat financial advisers in Spain, and have seen property price rises of nearly 2.5% in the past 12 months.

Meanwhile, Barcelona has seen prices rise by 6.6% in three years, with rental income growth even more pronounced during the same period (25%). Although not on the coast, Madrid has seen price rises of 3% in the last twelve months, while Marbella, another popular expat hub, has seen prices go up by 2.9%.

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

Other News

HMRC Pension Transfer Guidance May Change

CogsThe rules relating to pension transfers and inheritance tax could be set to change after HM Revenue & Customs (HMRC) announced that it is to review its guidance on the matter following a number of concerns raised by the Office of Tax Simplification (OTS) in a review published on July 5 2019.

One area that the OTS has earmarked for examination involves the rules relating to pension transfers made within two years of a person’s death. Such transfers can result in the deceased person’s remaining defined contribution pot being subject to 40 per cent inheritance tax unless the estate can prove to HMRC that the pension transfer was made without the intention to deliver gratuitous benefit.

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Final salary pensions – why now is a good time to cash in

Juicy lottery-sized sums are being offered to savers to tempt them out of gold-plated workplace pension schemes and into personal plans. We’ve explored whether you should consider taking a final salary pension, as well as the benefits and drawbacks of withdrawing.

What is a final salary pension?

A final salary pension, sometimes referred to as a gold-plated pension, is a special style of retirement fund that is based on your final or average salary.

The main difference between this and a defined contribution pension is that a final salary scheme gives you a guaranteed sum annually for the rest of your life when you retire.

To work out the value of your final salary scheme, consider a few factors: 

  1. Your final or average salary at your place of employment (confirm this with your employer)
  2. Your length of service
  3. The final salary scheme’s accrual rate (this is often 1/80th)

Your final salary pension will take each factor into account, and the resulting figure will be the guaranteed annual sum you are entitled to.

For instance, if you worked somewhere for ten years, and leave on a salary of £100,000, with an accrual rate of 1/80th, you will have a guaranteed retired annual income of £12,500.

It is possible to undertake a final salary pension transfer. Depending upon how long you expect to enjoy retirement, this could be a favourable choice. However, it’s important to consult a financial advisor to make your final salary pension transfer values work harder.

What are the benefits of transferring a final salary pension?

Assessing your final salary pension transfer value, you might consider it worthwhile to withdraw. We’ve outlined the main benefits of taking your final salary pension:

Receive the cash value of your final salary pension

Withdrawing from a final salary scheme allows you to receive a cash lump sum in return for forfeiting your guaranteed income in retirement. This final salary pension transfer value is the main reason to withdraw from a scheme, as it offers you financial freedom.

Remove ties with your employer

This is an especially important point if you’re concerned that your employer may not exist throughout your full retirement. For most, the pension protection fund (PPF) will cover your pension, but, for especially high earners, there is a PPF ceiling of £41,461 (as of April 2020).

Enjoy a flexible income in your retirement

A final salary scheme entitles you to a guaranteed annual income when you retire, but if you go down the route of transferring your final salary pension you will be able to enjoy a little more flexibility in how you receive your income. Usefully, by withdrawing from your final salary scheme, you can choose to take more out in your younger years.

Choose how you want to invest your pension

A final salary scheme is controlled tightly to accommodate all employees and their interests. When withdrawing from the scheme, however, you can take complete control over how your pension fund is invested.

The considerations you should make before transferring your final salary pension

While there are certainly benefits of going down the route of transferring final salary pension funds into various other pots, it’s important to consider what you’ll be giving up:

  • Entitlement to a fixed annual income for the rest of your life
  • A safe income that doesn’t fluctuate with volatile markets and share prices
  • Spousal and family benefits that come with a final salary scheme

 Example: Should I cash in my final salary pension?

An example is Mrs Dee (not her real name), 4 years ago she asked for her final salary transfer values, which came in at £250,000 – a nice sum, you may think. After reviewing all the facts and figures available, however, I advised Mrs Dee to leave her final salary pension where it was, which she duly did.

Towards the end of last year, because of favourable market conditions, I applied again to see the value of transferring her final salary . This one came in at just under £600,000.

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