Do you live in Spain and still have UK and Offshore Investments?

Premium bonds or ISA?

Premium bonds and ISAs are some of the most common forms of investment, so it’s always worth checking on them before you make the move to Spain. There are a few key differences when you’re choosing between premium bonds or ISA for your UK investments – here are a few of the key facts you need to know.

Premium bonds

Premium bonds do not provide any automatic interest earnings or capital growth, but the possibility of winning a large prize made them quite appealing. However, the prize has historically made them quite appealing. However, the prize fund has been slashed over recent years, with further cuts made in December 2020.

Do you pay tax on premium bonds?

Our clients often ask ‘are premium bonds taxable?’, and the confusion is understanding. In the UK, you don’t pay premium bonds tax on any winnings. Even if you are lucky enough to win the £1 million jackpot, you do not pay any income tax on this. However, if you live in Spain, your premium bonds are not tax-free. As a Spanish resident, premium bond winnings are taxed as general income. So any potential winnings are added to your general income for the year and taxed at the scale rates of tax of up to 48% in Andalucía.

ISAs

ISAs too are fully taxable in Spain in the hands of Spanish residents at the corresponding savings income tax rates (19%, 21% and 23%). This applies to income and gains from cash and share ISAs.

Do you pay tax on ISAs?

Many expatriates mistakenly think that, since they are UK investments, and tax-free ones at that, that they do not need to be declared in Spain. In fact they do, and with the new global automatic exchange of information regime which started this year, the Spain tax authorities will be informed about your UK investments. 

Should I opt for premium bonds or an ISA?

If you can’t decide between premium bonds or ISAs, you’ll need to weigh the pros and cons – ISAs are taxable, but you’ll receive some return on your investment with interest. Premium bonds don’t offer the same return on investment but have a chance of a higher pay out, albeit with a premium bonds tax if you’re living in Spain when you win. If you’re not sure if premium bonds or ISAs are right for you, get in touch with Blacktower – we can offer expert financial help and advice on your investment portfolio.

Other UK investments 

You should also look at your other UK investments, such as shares, unit trusts, OEICs and investment bonds and consider how they are taxed in Spain. Are they the most tax efficient way possible for you?  

Investment bonds are another vehicle people use in the UK to hold their savings. UK residents can withdraw 5% of their original investment each year with no immediate liability to UK tax. This 5% tax-deferred allowance does not extend to Spanish residents. In many cases the Spanish tax treatment of such investments is not particularly beneficial, so seek advice if you have these bonds.

UK rental income

If you rent out property in the UK, this income remains taxable in the UK. It is also taxable in Spain if you are a resident here, and must be added to your other general income and taxed at the scale rates of tax. A 60% reduction is available in Spain against the net rental income, but only for long-term lettings. The UK tax paid on this income can be offset against the Spanish tax on the same income.   

The UK government has made changes over recent years that make owning UK property less attractive. Non-residents are now subject to capital gains tax when selling UK property, on gains from 6th April 2015; previously they were exempt. The rates of Stamp Duty Land Tax (applied to additional residential properties and buy-to-let) are going up. 

Bank interest

Bank interest, whether earned from Spanish, UK or offshore banks, is taxed as savings income at rates of 19%, 21% and 23%, depending on the amount earned.

To help you consider your own situation:

• Are your savings accounts earning the best returns they can or like the majority of funds, earning you virtually no interest?
• Are your investments performing the way you would like?
• Is the financial adviser you used to deal with no longer here and advising you?
• Do you have a pension in the UK which needs to be reviewed? 
• Are you aware that many defined benefit pension schemes are seriously underfunded and deficits are growing all the time?

We have entered a new era for international tax planning and cross border wealth management.

What you can do and where we can help

We will meet with you at our office in Marbella or at your preferred location, and have a friendly and relaxed conversation about your general situation. From this starting point we can determine a course of action that will ensure your situation is in the best possible shape moving forward. Contact us today. 

Disclaimer: The above information was correct at the time of preparation and does not constitute investment advice. You should seek advice from a professional regulated adviser before embarking on any financial planning activity.