The loan in fine: what advantages?

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The loan in fine allows you to realize tax savings if your wealth is important. The Lombard loan meanwhile, is either unknown to the public, is associated with tax evasion. Yet it is not limited to this use! This article explains how these two types of loans work, and how they are used.

1. What differences exist between the in-fine loan and the Lombard loan?

What is a loan in fine?

In a loan in fine , the borrower only pays interest for the duration of the loan and reimburses the capital in one go at the last monthly payment.

The loan in fine is subscribed mainly for rental investments. Indeed, interest is constant throughout the term of the loan in fine unlike   degressive interest on the amortizing loan . Since it is possible to deduct interest from property income when the client chooses the actual tax regime, the loan in fine is therefore a way to reduce its tax base .

Be careful: to take out a loan in fine, the bank usually asks for a pledge on an asset you own. Banks may require a personal contribution of a minimum of 30% of the price of the property. This contribution is called the initial pledge and is placed in a savings account. Most often, this product is life insurance. This pledge must be at the end of your loan at least 50% of the amount borrowed or equal to the initial capital.

What is a Lombard loan?

The Lombard loan is a special type of loan in fine, for which the bank requests a pledge on cash which the borrower owns, for example:

  • stock
  • Obligations
  • Monetary placement

The bank therefore lends a certain amount that depends on the value of the assets, and the borrower repays it when he sells his assets.

More simply, Lombard credit is like a cash advance .

How much can I borrow with a Lombard loan?

You have a lot of money but you may not want to touch it right now (often on a life insurance or a PEA). This may be the case if you benefit from an attractive return or if you expect a revaluation.

The Lombard loan can be considered as a liquidity advance made by a bank. The amount lent depends on the “security” of the investment. As an indication, the bank is ready to:

  • 100% for a euro fund
  • 80% to 100% for life insurance
  • 30% and 50% for stocks, depending on sector, company and distribution.

The amount lent will also depend on certain criteria, such as the diversification of your equity portfolio. The banker is not interested in your profile, but the assets you hold. The banker will first be interested in wealthy assets, before looking at your profile, as for a conventional loan.

Finally, depending on their positioning, the banks are more or less willing to make a Lombard loan. Not everyone agrees to provide this type of financing.

What are the modalities?

The Lombard credit rate is generally variable . It is based on reference rates such as the Euribor rate, to which the bank adds a margin of around 1%. These rates are often higher than those of traditional loans.

But the Lombard loan allows the borrower to benefit from a leverage effect : thanks to the borrowed funds, he can invest in new assets (real estate or financial), and thus generate a significant return.

2. How and why to use the Lombard loan

What about wealthy assets?

The borrower continues to receive interest and dividends on these assets.

If the market value of the pledged assets falls sharply, the lending institution may require additional collateral. In the case of non-repayment of your debt, the bank becomes the owner of the guarantee.

What are the types of Lombard credit?

There are different types of Lombard credit:

  • current account credit
  • the discovery
  • the fixed term advance

The current account credit and the overdraft work in the same way, the amount of the loan is not fixed beforehand. The loan is close to the overdraft : the bank authorizes its client to draw funds as and when needed. The interest is then calculated on the sum used.

For the fixed term loan, the duration of the credit and the sum lent are fixed in advance. The amount is then paid into the borrower’s account, and interest is paid on that amount.

Lombard credit, the flagship tool of tax evasion?

Lombard credit is much blamed when talking about tax evasion. Indeed, it facilitates certain fraudulent practices in tax matters. The bank collects the borrower’s assets and recovers them if the borrower does not pay back the loan.

Thus, it can be used to hide undeclared assets abroad : the borrower takes out a Lombard loan and does not voluntarily repay his loan. The bank then takes possession of the assets without declaring the seizure , which empties the account illegally held with ease.

Or a way to lower taxes?

Lombard credit is also used to lower taxes while maintaining a comfortable lifestyle. A person subject to income tax with a high slice, and wealth tax, can optimize his wealth through a Lombard credit.

Example

A company boss, subject to the ISF and a high proportion of IR, decides to pay himself a less important salary, to receive public aid and reduce his taxes.

In parallel, he takes out a Lombard loan, guaranteed on his life insurance policy. Thus, the bank pays him 600,000 euros, which are not taxed, since it is not income. He keeps his life insurance policy, which he will release in a few years, and can continue to live comfortably thanks to Lombard credit.

Abandoned bank accounts, what to do with them?

Many people manage more than one bank account. They have a principal, in which they move the bulk of their money, they can have others for various reasons (a credit, a mortgage, some investment) and perhaps some more that have been “stopped”, in which they have little balance and that They usually use for nothing.

The problem may arise when the account, instead of being simply “stopped”, is abandoned, because, then, we can lose our money.

What is an abandoned bank account

According to the Law 33/2003, of November 3, of the Patrimony of the Public Administrations:

The General Administration of the State is responsible for the securities, money and other movable property deposited in the General Deposit Fund and in credit institutions, companies or securities agencies or any other financial entities, as well as the balances of current accounts, savings accounts. or other similar instruments opened in these establishments, for which no management has been carried out by the interested parties implying the exercise of their right to property within 20 years.

This means that if we have a current account over which we do not make movements in 20 years, it becomes the property of the State.

In addition, not only money is included, but all movable property deposited in credit institutions, securities agencies and other financial entities (which can include shares, investment funds, fixed income securities …).

What requirements must be met

The Law indicates that it refers to those goods in respect of which the interested parties have not practiced any management. Therefore, the simple charge of periodic commissions by the bank is not sufficient for the account not to be considered abandoned.

The entities must communicate annually to the Ministry of Economy the existence of these abandoned accounts.

Three months before it reaches 20 years, the entities must send a certified mail to the owner of the account that is going to be considered as abandoned so that it has the opportunity to know this situation and remedy it.

In any case, this communication is sent to the last registered address, so if the person has not updated it properly and now resides in another site, he will not receive it. In this case, an announcement will be published in the BOE (which, on the other hand, is unlikely to be read by the interested party) and, finally, if it does not appear within the stipulated period, it becomes state ownership.

How much money passes each year to the State

Although it may seem that it is not very usual for this to happen, the fact is that adding a little money here and another little there (tacita tacita, which said the ad), the State pockets a nonnegligible figure every year.

Thus, in the last ten years, the State has entered this concept almost 83 million euros.

What does that money do?

Recently, the Public Sector Information Reuse Law has introduced a modification in this sense, so that the money paid for this concept goes to the Royal Board on Disability to finance the development of the Program for the Improvement of Educational Conditions of the People with disabilities.

What bank transfers are now.

For some years now, we have all become accustomed to the fact that, in order to make a bank transfer, we no longer need only the CCC (Client Account Code) but also our IBAN code. But do we really know why?

The appearance of a new identification of the bank account through the IBAN – composed of our current CCC preceded by the country code and a control digit – dates back to the entry into force in February 2014 of the so-called SEPA Zone (Single Euro Payment Area = Single Euro Payment Area). It involves the 28 EU members plus Iceland, Liechtenstein, Monaco, Norway, and Switzerland, and allows all transfers between accounts of these countries have the same conditions, obligations, and rights. This means that since SEPA was created, a transfer between an account in Paris and another in Madrid or between one in Berlin and another in Lausanne is just as easy and quick as one between an account in Madrid and another in Bilbao. Hence, the identification of the bank account must also provide information on the country code and hence also that the distinction between national transfers and international transfers has become obsolete to make way for a new division between SEPA transfers and non-SEPA transfers.

To apply SEPA in Spain, the instruction SNCE (NATIONAL SYSTEM OF ELECTRONIC COMPENSATION) / CE / 13/005 published by iberpay (Spanish Society of Payment Systems) says the following:

 

  • “All entities participating in the SNCE 13 subsystem must be prepared, at least as beneficiary entities, to be able to process the transfers they receive from the rest of the entities that will be liquidated on the same day of their presentation.” This means that all Spanish banks have the obligation to pay the transfer into the customer’s account on the same day it arrives.

 

  • “The SEPA transfers must be presented at their scheduled exchange time, that is, between 8:00 am and 3:00 pm, so that they can be settled on the same day.” This means that all Spanish banks should be able to offer the SEPA transfer modality on the same day, establishing a cut-off time prior to the cut-off time of the SNCE (3:00 PM) so that it has time to present them.

 

At present, there are some entities that propose this modality of transfer on the same day, but most charge for this service. At Self Bank, if the client makes his SEPA transfer before 13:00, he will arrive at the destination entity on the same day, at no cost. Transfers made after 13:00 are paid the next day.

Leaving aside the SEPA transfers, let’s now talk about the non-SEPA transfers, which are those that include transfers to non-SEPA countries – also known as SWIFT transfers – and Urgent transfers – also known as OMF (order of Movement of Funds). ) or transfers via Bank of Spain. In reality, both – both SWIFT and Urgent – pass through the Bank of Spain. They do not travel through the SNCE, but through TARGET 2, a system of movements between treasury accounts of the Bank of Spain among financial entities. To process them, it is, therefore, necessary that the bank has an account with the Bank of Spain.

Transfers that travel to non-SEPA countries also do so through the SWIFT inter-bank messaging system. As for the urgent, they continue to be used, albeit less, due to their cost (between 0.25 and 0.35%, generally of the amount) and to the appearance of the new modality of transfer on the same day for SEPA transfers.