Contact

News & Insights

Spectacular Tax Savings for Expats using Spanish Compliant Investments!

What needs to be declared on modelo 720

Spanish Tax Residents (are you certain you are not considered tax resident in Spain? (see below)) must declare overseas assets worth more than €50000, including:

  • Property (home in the UK perhaps).
  • ISA’s, PEP’s, Investment Bonds both Onshore and Offshore, etc.
  • Bank accounts both onshore and offshore.
  • National Savings and Premium Bonds.
  • Protection policies.

Are you a Spanish Tax Resident?

Seems complicated, but establishing tax residency in Spain is very simple. You are a Spanish Tax Resident if:

  • You’ve live in Spain for more than half a year in total
  • You have your ‘centre of vital interests’ in Spain (home, kids school, dog, work etc.)

These rules have been tightened up to include those who deliberately spend less than 183 days a year in Spain to avoid being tax-resident. We know of cases where car hire, flight details & credit card bills have all been used to prove time spent in Spain.

What can be done to avoid this?

Using Spanish Compliant Bonds offer a direct tax advantage. Specifically designed plans for expats in Spain offer income tax and succession tax advantages. The Hacienda recognises them as tax-efficient. Probably the best way to illustrate this is by a direct comparison between non-compliant investments and Spanish compliant investments.

Non-compliant tax

Mr Expat invested €100,000 in a non-compliant offshore investment bond in April 2016, and a year later the bond had grown by 10% to €110,000. Good news so far, until the taxation is considered as follows:

  • No withdrawals have been taken at all.
  • The Gain is €10,000, taxable as savings income (renta del ahorro).
  • The first €6,000 is taxed at 19%, the remaining €4,000 at 21%. The calculation needs to be made by Mr Expat (or he could pay a Gestor or Accountant to do it) and the tax paid on the annual tax return.
  • The total savings tax bill would be €1,140 + €840 = €1,980 (19.8% tax).

Had Mr Expat invested in a Spanish Tax Compliant Bond instead, no savings tax would be payable as no withdrawal was taken and he would not even need to declare the plan to the Hacienda.

Spanish compliant bond taxation

Firstly, if no withdrawal is made, there is no tax to pay – a huge saving in tax.

Now assume the €10,000 gain is withdrawn. The important consideration here is that partial withdrawals are apportioned partly between “redemption of capital” (from the original investment) and partly from the gain.

Most clients I meet wrongly assume the tax would be the same as their current non-compliant investment of €1,980 (19.8% of the gain). But this is not the case at all. The tax due would be reduced significantly as calculated in the three stages below:

First calculation

  • €110,000 minus €100,000 = gain €10,000, straightforward so far.

Second calculation

  • New value €110,000 / gain €10,000 = 9.09% Therefore €10,000 x 9.09% = €909 (slightly confusing but bear with me).

Third calculation

  • The €909 is the taxable gain as the Hacienda sees it. Therefore €909 taxed at 19% = €172.71 (1.72% of the gain).

Mr Expat would be taxed €1,980 in a non-compliant investment even if no withdrawals had been made, whereas in a Spanish tax compliant bond he would only have a tax bill of €172.71 even when taking the full €10,000 and zero if no withdrawal was made. A tax saving of €1,807.29 in the first year.

This is a spectacular difference in a country’s treatment of investments where tax is concerned.

If these dramatic tax savings have not made your ears prick up, then consider these additional advantages of Spanish compliant investments:

  • No need to declare on Modelo 720.
  • They are “tax-compliant” as seen by the Hacienda.
  • Tax is calculated by the bond provider and paid direct to the Hacienda on your behalf with no need for you to do any calculations or to pay someone else to do it.
  • No need for probate on death.
  • Multiple currencies available €, £, $ etc.
  • They are Inheritance Tax efficient.
  • Large range of available investments whether you like investment risk or not, including some capital protected funds for low-risk investors.

Your current investments may be causing you problems with non-declaration or draconian tax bills. The time to review your investments in line with your Spanish tax Residency is now.

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

Other News

Good news on pension exit fees

It appears there is good news on the horizon for up to 2 million pension savers.  The UK Financial Conduct Authority (FCA) is looking at evidence that some major providers applied exit charges to people’s pensions without informing them.  In some cases, this amounted to nearly 40% of the value of the fund.

They are looking to see if they followed the rules which say they have to inform customers of any exit fees being applied.  This is good news for anyone who, in the last few years, has suffered from being in this position as they could be due compensation.

Read More

NEWS WRAP – Eco Investment Scammers Given Prison Sentences

The Old BaileyIncreasing numbers of investors are motivated to put their money into ethically and ecologically minded investments. This is undoubtedly an admirable aim, however, investors who fail to take adequate international financial advice risk becoming vulnerable to scammers looking to prey on their good intentions.

This fact has recently been underlined with the conviction and sentencing of five men for their operation of a multi-million pound fraudulent eco-investment scheme; a scheme which has been described by HM Revenue & Customs as one of the largest of its kind to be carried out in the UK.

Read More

Select your country

Please select your country of residence so we can provide you with the most relevant information:

You are currently viewing the Blacktower Financial Management EU website.

You may be looking for the Blacktower United States website.

Blacktower United States > X Stay on this site

Or choose your country.