AS a British expat living in Spain, you no doubt have existing savings and investment plans (ISA’s, PEP’s, National Savings, Onshore and Offshore Investment Bonds etc). These investments were good planning when you were a UK resident.
However, they are now unlikely to be efficient as the Spanish Tax Authorities (Hacienda) simply ignore the tax wrapper and look directly at the cash value.
What does this mean for you?
Your previously tax-efficient investments are now taxable annually in Spain as part of your income on the growth / interest received.
Add to this the fact that any investment above €50,000 needs to be declared to the Hacienda on your annual tax return modelo 720 and failure to disclose carries hefty fines with expats seen as ‘soft targets’, and it is no surprise that you are concerned about what to do.
What needs to be declared?
Declaration of Assets (Modelo 720 Form)
Spanish Residents (are you certain you are not considered resident in Spain? (see below)) must declare overseas assets worth more than €50,000 on the Modelo 720 Tax Form. These include:
• Property (your old home you kept for let in the UK perhaps).
• ISA’s, PEP’s, NISA’s, Investment Bonds both Onshore and Offshore etc. (the Spanish Government looks straight through the tax wrapper as if it was not there).
• Bank accounts.
• Protection policies.
Are you a Spanish resident?
Whilst it seems complicated, establishing residency in Spain is relatively simple. You are a Spanish Tax Resident if:
• You live in Spain for more than half a year (not necessarily in one sitting). Or;
• You have your ‘centre of vital interest’ in Spain. These rules have been tightened up to catch those who deliberately spend less than 183 days a year in Spain to avoid tax. We have heard of cases where the location of the family dog came into play!
What can be done to avoid the tax?
Spanish Compliant Investment plans on the other hand offer a direct tax advantage. Specifically, designed plans for Expatriates in Spain will offer income tax and succession tax advantages. They have the added advantage that the Hacienda recognises them as tax-efficient investments in Spain.
These are very useful for the following reasons:
• No need to be declared on Modelo 720.
• The structure of the Bond is such that they are “compliant” as seen by the Hacienda.
• Any tax liability due (usually a small amount) is calculated by the bond provider and paid direct to the Hacienda.
• Avoid the need for probate on death.
• Can be denominated in GBP, Euro, Dollars and other currencies.
• Inheritance Tax efficient.
• Tax treatment is very favourable in Spain when compared to not using this method so potentially large tax savings can be made
• Large range of investments, asset classes and different risk profile investments available within the bond including some capital protected funds for low risk investors
The use of Spanish Compliant Investment Bond products created specifically for Expats in Spain enables you to save tax and have the peace of mind needed for a comfortable retirement.
Take advice now to make sure you are not inadvertently paying too much tax
or facing stiff fines for not declaring assets outside of Spain.
Got a question? Then Ask the Expert and drop Sandy a line.
Sandy Paterson DipFA, CeMAP, MLIBF
International Financial Adviser
Blacktower Financial Management (International) Ltd – Mallorca Office
Tel: 971 42 59 86
Blacktower Financial Management (International) Limited is licensed in Gibraltar by the Financial Services Commission. Licence 00805B and is registered by both the DGS and CNMV in Spain.
Blacktower Financial Management Limited is authorised and regulated in the UK by the Financial Conduct Authority.