We have spoken with many international people who are still benig charged 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.

Many international people from around the world who are now resident in Italy to work or retire continue to run into difficulties managing their portfolios. Having expected that their home country banks and financial advisers would be able to continue to help them as Italian residents, they are discovering that using financial products and solutions designed to work only in other territories can very often be unsuitable, expensive and inefficient for tax purposes.

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.

Government Bonds - Debt securities issued by a government
US, European and UK government bond yields are still close to their 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 US European and UK 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.. More and more, investors look to align their portfolios with their financial goals and internationally recognized sustainability goals such as The Paris Agreement or UN Sustainable Development Goals (SDG).

Bond Opportunities in the current economic environment
With government and corporate bonds yields close to their highest levels for more than 20 years and forecasts for inflation from The US Federal Reserve,, The European Central Bank and The Bank of England indicating an expected 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.

Foreign General Investment Accounts and Tax Wrappers
These can be very inefficient for tax purposes in Italy and may 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.

Capital gains tax free allowances from other countries do not apply in Italy. 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 linked 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 any other countries where an obligation may arise.

Paul Redmond
Managing Partner

To discuss your own individual circumstances, please click here to book a meeting.

17 May 2024