IT is that time of year again when you soon need to be thinking about filing your tax return if you are resident in Spain.
(If you are UK tax resident, then you are too late if you have not filed for 2012/13 as this was due by 31st January 2014.)
While the tax return for income and wealth tax is not due in Spain until the end of June, if you have overseas assets, you may need to file an M720 return before the end of March; so while you are gathering the information for one return, you might as well get it all together in one go and be ready in advance.
I think it is probably fair to say that most people will view completing their tax returns, at best as a chore and at worst as a threat, because it could well result in more tax to pay.
In fact, the M720 does not lead directly to tax in itself, whereas, the wealth tax and income & gains tax returns may well have a sting in the tail.
So why do I ask the question – is there an opportunity here? I think that the focus of many tax professionals is mainly looking in the rear view mirror at what happened in the past and indeed, gathering information for the tax return is doing exactly the same thing. Yes, you need to capture that information, but if the result is that there is some tax to pay, just stop and ask two questions; why is there tax due and what could I have done to avoid it?
If you simply file the return, breathe a sigh of relief because it is over for another year and move on without asking the questions, then almost certainly, you will be doing the same thing next year.
Financial planning is as much about looking forwards as tax returns are about looking back. By asking the questions and being prepared to make a few changes, you might be pleasantly surprised at the tax savings you can make, not to mention the better returns you could open up for yourself.
For example, money on deposit in the bank will earn interest, not a lot I accept, but that interest, however little, will be assessable for tax. Whilst we should all keep some cash reserves, if the same amount of capital is there year on year, and the tax payable is a meaningful amount, then inevitably, you have too much money in that account.
Now just suppose, by moving some of that cash into an alternative cautious investment, you were able to avoid any tax next year and in fact earn perhaps twice as much as the bank would have added by way of interest, wouldn’t that be a worthwhile result just from asking those two simple questions?
As always you need to tread carefully and will need some professional advice, but go ahead, ask those two questions and see what happens next!