by Sam Kelly DipPFS, EFA, BA (Hons),

Managing Partner,

Chorus Financial.

Every now and then an email lands in my inbox or a member of the public walks through my office door, and I know we have a serious problem. I recall around 6 years ago seeing the portfolios of several Continental Wealth Management clients, and immediately telling them they had to get out of those plans. In truth, I wasn’t so well known back then and so I wasn’t able to warn too many people in advance. Despite rescuing around a dozen clients from those plans before they collapsed, as many of you will know, ultimately victims of CWM lost around £25 million from their pensions.

It was the greed and selfishness of a group of financial advisers that led to those losses, and some very sad and tragic consequences for many of their victims.

Over the last few years something else has been nagging at me. My attention was first drawn to it a few years ago when a client told them that a large, well-known financial advisory firm had told them they could save up to 88% on their income taxes in Spain if they told the tax office that their pensions were being paid as an annuity.

I immediately knew something wasn’t right. Purely from a logical point of view there was no way the Spanish tax office would offer such benefits, but beyond that, my understanding was this scheme wasn’t even using real annuities.

The promise was based on transferring your pensions from the safety of your UK pension to a QROPs (an overseas pension). The new pension trustee would agree with you a set income for a period of up to 3 years, and in return provide you with a certificate claiming that your income was an annuity. On all the cases I’ve personally investigated under such an arrangement, as you can probably guess, the financial adviser was pocketing eye-watering, undisclosed commissions, the ongoing fees were through the roof (with the client being totally unaware of the full extent), and the pension was being invested very poorly. The whole arrangement was purely there to extract as much money as possible from the client, and the promise of tax savings was the hook.

The idea behind the tax savings is to exploit a genuine tax benefit where you use your savings to buy an annuity in Spain, and the annuity payment is then taxed at a greatly reduced amount. The logic behind this is that you have already paid income taxes on your savings, so most of that annuity payment is your own capital coming back to you, hence there being a big discount on the tax basis.

The problem lies when you start trying to claim those same benefits, but on income coming from your pension. A pension is tax relieved when you pay into it – i.e., you didn’t pay any income tax on those earnings, so when you take money out of it, income tax is always due in full. To simplify this, if you draw money from your pensions, whether as flexible drawdown, a true annuity, or an annuity style payment, there are no discounts in Spain, no ‘up to 88% savings’. If you file a tax return with the intention of claiming pension income is an annuity, then I’m afraid to say you are committing tax fraud.

Sadly, the victims of such schemes were following advice from firms they thought they could trust, in return these firms made huge amounts of money, often in hidden fees and undisclosed commissions. What has prompted this article is that I was recently provided with a ruling from the tax office where a British gentleman in Spain has been heavily fined and made to pay years of back taxes for attempting to have his pension annuity taxed as described in this article. I have been told by several tax lawyers in the area that many of their clients are also under investigation for the same offence, so I suspect this is just the beginning.

The warning here is quite simple. If something seems illogical or ‘too good to be true’, it generally is. No one wants to pay too much in taxes, but at the same time, avoiding taxes illegally can lead to a much bigger bill in the long-term.

With an ethical, qualified financial adviser you can draw up a plan to help save on your ongoing taxation in Spain, but too many firms in Spain prey on Brits here with promises that cannot be fulfilled. When the tax office come knocking, you, the victim, is also seen as the perpetrator of tax fraud.

If you feel you may be a victim, or if you need honest, professional advice on your pensions and investments, contact Chorus Financial on [email protected], call +34 965 641 163 or visit for more information.

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