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Tax and Savings in Spain

By Barry Davys - Topics: Barcelona, Saving, Spain, Tax, Tax Efficient Savings
This article is published on: 28th March 2018


This is an introduction to the differences between the UK and Spanish tax systems and an introduction to a European ISA equivalent. It has been produced to help answer two regularly asked questions. : “What is the difference in taxation between Spain and in the UK?” – followed by “Is there a tax free savings account in Spain similar to an ISA?”.

For those of you not from the UK, I hope that the Spanish part of the table below will still be useful in allowing you to compare it with your home country tax situation.

Tax UK Spain
Tax Year Dates  6th April – 5th April  1st January – 31st December
Income Tax Allowance  £11,500 €9250 up to age 64
€10,400 age 65+
€11,800 age 75+
Capital Gains Tax Allowance £11,300  N/A but some gains can be offset against some losses
Savings Tax Rates (interest and capital gains)  N/A
Income Tax and CGT calculated separately
19% to €6,000, then 21% for the next €44,000 and 23% above €50,000
Tax Free Interest  £1,000  Nil
Tax Free Dividends  £5,000
Falling to £2,000 in 2018/19
Annual ISA Allowance  £20,000  Unlimited
(see Euro ISA below)
Pension Contributions Limits  100% of your earnings
up to £40,000 pa
 €8,000 pa
Inheritance Tax  Above £325,000 at 40% plus possible allowance against main residence of £125,000 in 2018/19 Autonomous community rules.

Catalonia and Madrid have large discounts for immediate family

Wealth Tax Limit  N/A at present  Autonomous community rules. Catalonia: over €500,000 with a €300,000 allowance for main residence, rates from 0.21% to 2.75%

The main differences are in Wealth Tax, Inheritance Tax and the way savings are taxed.

Wealth Tax in Spain

In the UK there is not currently any Wealth Tax. There is in Spain and the rates and method of calculation are set by the autonomous communities. In Catalunya the rate is banded, starting at 0.21% and rising to 2.75%.

Inheritance Tax in Spain

In the UK, the estate of the deceased person is taxed as a whole, whilst in Spain, the person receiving the bequest is taxed based just on the amount they personally receive from the estate. The allowances and method of taxation also differ. The rates of inheritance tax in Barcelona and the Costa Brava are the same but will be very different if you live in Andalucia. For more information, please see Inheritance Tax in Catalunya as an example.

However, if you prefer to speak with an experienced adviser who lives in Catalunya please click ‘Inheritance tax help

Tax Free Savings in Spain

In the UK, since January 1987 with the introduction of Personal Equity Plans (PEPS), we have been used to having tax free savings. Peps are now called ISAs and the allowance is now £20,000 per annum. If you live in Spain and have an ISA please note it is taxable in Spain. The fact that it is tax free in the UK does not transfer to Spain and you should look at the alternative below.

Spain does not have an ISA system as such but there is a similar investment, sometimes known as the “European ISA”. It is tax free whilst invested and has a very beneficial low taxation basis, especially if you require income from your investment. It is a little more restrictive than the UK ISA but is still worthwhile.

The two big advantages are that there is no limit and it is portable to other countries. If you would like to invest 10,000,000 euros in one year in the “European ISA” you can do! Unlike a UK ISA, the European ISA can go with you if you move country (not to all countries). If you return to the UK, the tax will be proportional to the amount of time you have been in the UK against the time you have had the European ISA. So if you have a Euro ISA for 10 years in total and have moved back to the UK for the last two years of the 10 years, the tax will be reduced. Specifically, the tax will be calculated and multiplied by 2/10ths. An 80% tax saving!

*Sources: www.gov.uk/government/organisations/hm-revenue-customs

If you would like more information on Inheritance Tax, Wealth Tax or the European ISA, please contact me on barry.davys@spectrum-ifa.com or telephone on +34 645 257 525. If you have UK ISAs, I will also be happy to advise you on how to make these tax efficient in Spain.










    The Spectrum IFA Group is committed to building long term client relationships. This form collects your name and contact details so we can contact you about this specific enquiry. For further information, please see our Privacy Policy.

    Good News for Premium Bond Holders

    By Barry Davys - Topics: Premium Bonds
    This article is published on: 27th November 2017


    Good news for all of you out there who hold premium bonds!

    Due to the equivalent interest rate increase recently announced by the Bank of England, NS&I has announced that there will be an increase in the size of the prize fund for the popular Premium Bond scheme. Though this isn’t a real terms interest rate change, it does mean that there will now be more funds available for bond holders to win.

    The chances of winning with a single bond will be increased sizeably from 30,000 to 1 to 24,500 to 1.

    See below a small table taken from Telegraph.co.uk to show the substantial change in prizes!

    Prizes           No. of prizes November 2017           No. of prizes December 2017
    £1m 2 2
    £100k 3 4
    £50k 5 9
    £25k 12 18
    £10k 28 42
    £5k 57 87
    £1k 1,366 1,660
    £500 4,098 4,980
    £100 22,190 22,792
    £50 22,190 22,792
    £25 2,325,993 2,853,919


    Inheritance Tax in Catalunya

    By Barry Davys - Topics: Barcelona, Catalunya, Inheritance Tax, Spain, Succession Planning
    This article is published on: 12th November 2017


    So, we have now managed to control the amount of wealth tax due (Wealth Tax in Catalunya). However, when we receive an inheritance or leave something to our family, we are taxed again. Inheritance tax or ‘impuestos de successiones’ feels even worse than Wealth Tax. At this point we have now paid savings tax, income tax AND wealth tax. Now there is IHT on top! Like Wealth Tax, though, it is possible to manage your liability.

    Inheritance Tax in Catalunya – How it works
    Perhaps the most important aspect is that tax is charged to the recipient of a bequest or property physically located in Spain. For UK nationals living in Catalunya, this is a surprise, as in the UK it is on the estate of the person who has passed away.

    Tax is due on the value of the bequest but the rate of tax is dependent on your relationship with the person who has passed away. A spouse, child, sister, uncle or non-related all have different methods of calculating the tax due. Once the tax has been calculated, there may be discounts to be applied to reduce the amount. Indeed, it takes at least four different steps when working out the tax due to end up with the final figure. Fortunately, help is at hand in calculating the amount.

    It is also very important to understand that the tax return has to be submitted within 6 months of the death and the tax has to be paid by the same day. A common situation we see is where a person is due to inherit a share of a property but the property has not been sold within 6 months. The forms still have to be submitted to the Hacienda and tax paid based on an estimated value. Failure to do so results in a fine and interest.

    How to Manage Your IHT
    There are numerous strategies, but for British people, careful planning is required. In the UK it is the estate of the person who has passed away that is taxed, but in Catalunya it is the recipient; so we have two different systems with two sets of rules. Care is needed to ensure that planning in one system does not increase the liability in the other. Fortunately our qualifications and experience in the UK and in Catalunya mean we understand this issue.

    Another issue specific to British people living in Catalunya is that they do not plan for RECEIVING a bequest. When asked to assist with planning for inheritance tax it is nearly always from a view of “what can I leave to my children?”. Yet before then people often receive bequests from their parents and family which triggers a tax charge. Planning for receiving a bequest can be as important as planning for leaving a bequest.

    Certain assets are exempt from Inheritance Tax. Careful choice of where investments are kept can also help. Finally, dovetailing UK and Catalan Inheritance planning can also make a difference.

    If you would like to discuss how to manage your Wealth Tax liability, please email me at barry.davys@spectrum-ifa.com, call me on 00 34 645 257 525, or use the contact form opposite.











      The Spectrum IFA Group is committed to building long term client relationships. This form collects your name and contact details so we can contact you about this specific enquiry. For further information, please see our Privacy Policy.

      Concerned by a Currency Conundrum…?

      By Barry Davys - Topics: Uncategorised
      This article is published on: 22nd September 2017


      As the Pound’s prospects continue to look bleak on the surface, many of us are considering what is best to do with our money. Should we invest it into a different currency so it will hold its value? Rob Walker of Rathbones investment group has an excellent overview of the major currencies available on the market, and predictions of what might happen as the financial world around us changes:

      “With a portfolio approach that is global in nature, currency volatility is playing an important role in the reported returns to clients on a quarter­by­quarter basis. The last two years has seen some substantial US Dollar, British Pound and Euro volatility as confidence in the respective economic regions ebbs and flows. This has a profound effect on how the overseas assets’ performance are reported in an investor’s base currency, based on their individual circumstances.”

      US Dollar
      The US Dollar has been a safe haven in times of increased economic uncertainty. In the first few months of Donald Trump’s presidency, the US Dollar strengthened on the presumption that tax cuts would stimulate the economy. This has subsequently reversed, as the realisation of many false or premature promises has taken hold.

      British Pound
      The British Pound has seen its value fall significantly against the US Dollar and Euro due to Brexit uncertainty. Until the exact path of Brexit and the economic ramifications of this are known, it is likely that the Pound will remain weak. There will be many twists and turns along the way until March 2019, not least with the Conservative’s recent General Election result and subsequent reliance on the DUP. The current status quo is very vulnerable to further turmoil and the weakness of Sterling is a by­product of this.

      At the turn of 2017, markets were focussing on the possibility of anti­establishment vote in both The Netherlands and France. At the time, both countries had parties with anti­EU policies in opinion poll ascendency and thus the consensus was to remain underweight in the Eurozone. Since that time, the Euro has undergone a substantial recovery of over 14% against the US Dollar as political risk subsided and economic confidence in the Eurozone improved. Against Sterling, it is up over 7% this year in addition to the weakness after Brexit of 2016. Both of these currency movements have had the impact of weakening the value of US and UK assets for Euro investors.

      Translation effects
      Performance of globally diversified portfolios has been affected by each of these currency movements. For example, had a US investor bought Euro assets at the start of 2017 the translated value would be increased by 14% due to the currency effect along, but a Euro investor who bought US assets at the start of the year would be seeing a translated loss of over 12%. Investors in Sterling will have seen the value of overseas assets increase markedly during the Brexit process as the Pound has weakened significantly, but Euro investors with Sterling exposure have seen a corresponding fall. Over the long ­term, we would expect the impact of shorter term currency movements to average out. For the Pound particularly, I have pasted some thoughts on the longer ­term direction below.

      When managing portfolios in Euros, Sterling and US Dollars, we ordinarily have a degree of home- country bias to a client’s base currency. However, this is dependent on a client’s unique circumstances. Our portfolios are globally diversified, where we are striving to gain exposure to a portfolio of high ­quality global franchises in order to reduce risk to any one particular economic region. Indeed, currency analysis can be somewhat circular, as the underlying investments in each region are typically multi­nationals that have a global spread of currencies. This can mean that an individual portfolio may deviate against a certain measure or benchmark over the short ­term, which can be transitory, but we feel this spread of global investments will serve clients well over time.

      Almost all investment professionals admit that forecasting future direction of foreign exchange is a thankless task, as currencies are largely influenced by future unknown events which are, by definition, unpredictable. As with most investments, volatility can also be driven by speculative investors such as hedge funds.

      Hedging currency risk, i.e. eliminating the currency impact of portfolio returns and focussing on the underlying overseas investment return, is sometimes considered by investors. This can add to certainty but also cost. In many cases, due to the inherent unpredictability of foreign exchange markets, hedging not only detracts from returns but often proves to be the wrong action in hindsight. The additional cost and operational risk complexities of hedging currencies of hundreds of individual, tailored client portfolios mean that we cannot offer this at a client’s individual portfolio. However, in some cases, a hedged class of fund is available to Rathbones within a private client portfolio. For example, we have access to Sterling hedged classes of JP Morgan US Equity Income, Findlay Park American and Blackrock European Dynamic funds, enabling us to strip out the currency effect of these three funds at a cost. We do consider the use of these funds when we consider a currency to be excessively weak or strong.

      Thoughts on the Pound
      Using our long term macroeconomic framework, Sterling looks to be significantly undervalued versus the Euro (see chart below) in our view. Without Brexit, we’d be looking at what we call an ‘equilibrium’ value of around 1.50 euros to the pound, taking into account economic fundamentals only (relative prices, relative productivity and relative expected savings). Assuming Brexit, we’re working on the basis of c.1.3 € to £ ­ but it could take a number of years to get there.

      Currencies Conundrum

      Productivity is a key driver of our long term framework – particularly productivity in the tradeable goods sectors. This is likely to suffer after Brexit due to non­tariff barriers to trade (think complying with overseas regulation and customs regimes). That said productivity growth on the Continent has been weak, and is unlikely to surge ahead while the UK economy recalibrates, somewhat limiting the damage to the equilibrium rate. If the European project revivifies around a new Macron/Merkel nexus, then further gains from integration may lower the equilibrium rate a little further via improving Eurozone productivity.

      Although the long­run economic value of the pound would shift lower in a ‘hard Brexit’ scenario (ie. no special deal), primarily due to the impact on productivity, the actual exchange rate is so far below the economic equilibrium value that we expect the pound to rise on a long ­term basis in any scenario. It is really just a question of speed. Unfortunately, such long­term analysis does not help us forecast currencies on a 6­12 month view, and the newspaper headlines generated by ongoing Brexit negotiations could well drive exchange rate volatility.

      Until June, the EUR/GBP exchange rate over the last couple of years has closely tracked changes in relative interest rate expectations (ie. what the market thinks interest rates will be in Europe in 3 years time relative to what they think they will be in the UK). This lends some shorter ­term support to the pound, and indeed could favour sterling further if the run of strong macro data in the Eurozone starts to roll over.

      The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance should not be seen as an indication of future performance. Changes in rates of exchange between currencies may cause the value of investments to decrease or increase.

      Information valid at 12 September 2017.
      Tax regimes, bases and reliefs may change in the future.

      © 2017 Rathbone Brothers Plc. All rights reserved.”

      Brexit Pensions Deal Reached!

      By Barry Davys - Topics: BREXIT, Brexit Pensions, State Pensions After BREXIT
      This article is published on: 14th September 2017

      State Pensions After BREXIT

      During the ongoing Brexit negotiations, many of us Brits living abroad have been concerned about our fate following March 2019. Thankfully, Britain and the EU have now reached a solid agreement about the rumoured ‘freezing’ of the state pension after Brexit, and the result is very positive indeed – state pensions will continue to increase for those of us living in the EU.

      To read the full article please click here www.telegraph.co.uk/pensions-retirement/news/britain-eu-reach-agreement-expats-state-pension-brexit/

      Wealth Tax in Catalunya

      By Barry Davys - Topics: Barcelona, Catalunya, Estate Planning, Inheritance Tax, Spain, Succession Planning, Wealth Tax
      This article is published on: 3rd August 2017


      We understand the need to pay tax. It gives us hospitals to treat our family, care in later life and many other services. Yet it is also easy to feel unhappy about some taxes. Some seem just downright unfair.

      Wealth tax is the first of these. Having worked hard and paid tax on our earnings, we have then also paid tax on our savings. Despite this we have managed to build our savings, have become less of a burden on the state and yet we are now taxed again with Wealth Tax for having saved. Fortunately, it is possible to pay what is due but also to manage the amount due.

      Wealth Tax in Catalunya – How it works
      Wealth tax ( Patrimonial ) is applied if your worldwide assets are more than 500,000€ with an additional allowance of up to 300,000€ for your main residence. The tax is based upon your net wealth; assets minus liabilities.

      In Catalunya the rates of tax start at 0.21% and rises to 2.75% depending on your wealth. Each year!

      Your wealth as at 31st December is declared as part of your Declaración de la Renta, your annual tax return and the payment of the tax made on the 30th June in the following year.

      How to manage the amount due
      There are some assets that are excluded from Wealth tax. Surprisingly, some of these are mainstream investments. It may be possible to reduce your Wealth Tax by using an exempt investment.

      In addition, the amount of tax due is capped at 60% of your income tax base, subject to paying at least 20% of the total tax based on your wealth. It is often possible to adjust your income so that you are limited to the 60% of your income tax base. Typically, this is done by using investments which are not assessed for tax each year. However, there are several methods of planning to achieve a reduction in Wealth Tax.

      How my Independent Financial Adviser in Spain saved me 82,947euro in tax!!

      By Barry Davys - Topics: Pensions, Residency, Spain, Tax, Uncategorised
      This article is published on: 5th November 2014


      Photo Steve bloodMr Blood has lived in Spain for eight years. However, as a result of a pension mis-selling review in the UK by a large UK bank he received compensation to cover a pension shortfall. The client was extremely satisfied with the amount of the compensation. Advice was requested from his Independent Financial Adviser (IFA), Barry Davys of The Spectrum IFA Group, on how to invest this compensation to ensure that his pension fund returned to its true value.

      Whilst this payment of compensation is tax free in the UK, Mr Blood is resident in Spain. In Spain these types of payment are taxable. Fortunately, the IFA knew the differences in the tax regimes. Barry had a tax lawyer calculate the amount of tax due on the compensation payment and Mr Blood was, not surprisingly, horrified to find that the tax to be paid was 82.947,91€.

      Despite the client having signed a letter of acceptance with the bank and the compensation having been paid, Barry reviewed the case and found that the letter of acceptance did not sufficiently identify the issue of Spanish tax, having only emphasised the UK tax situation. Barry opened negotiations with the bank. As the regulatory requirements in the UK required the bank to put the client in a “no loss” position, the payment of tax resulted in a loss. To be fair to the UK bank they accepted this principle and agreed to pay a further compensation to cover the loss from having to pay tax.

      The payment of a further 82,947€ could have seemed like a satisfactory outcome. However, any payment to cover the client’s loss as a result of the tax payment would be subject to taxation on the additional payment too. Our adviser again instructed a tax lawyer for the calculation of the gross amount required to ensure the client was put back in a no loss situation. Further negotiation by the IFA resulted in a grossed up additional payment to the client of 178,000€. This resulted in Mr Blood being recompensed in full for the loss.

      Case Study Key Points

      The key points in this case study show that a knowledge of UK and Spanish tax law was required to identify the problem. Secondly, knowledge of regulatory requirements helped ensure a successful negotiation between the bank and the IFA. Using specialist tax lawyers to calculate liabilities strengthened the client’s position. Finally the IFA’s knowledge of UK and Spanish pension law helped to identify what options were available for reimbursement.

      On payment of the additional compensation Mr Blood commented;
      “I was frankly shocked to learn that the Spanish Hacienda doesn’t recognize compensation for a loss as exactly that; a compensation. My initial dealings with the bank quickly highlighted my lack of experience with financial matters, and I was relieved that Barry agreed to negotiate on my behalf. His in-depth knowledge of the financial services industry and his negotiation style delivered for me the best possible outcome I could have wished for me and my family. I sincerely believe this outcome was only possible with his support.”

      Barry Davys was also pleased. “It is extremely gratifying to be able to help someone in this way. The years of studying taxation, pensions, regulations etc. feel worthwhile in situations such as these. It is an extremely interesting time in Spain with many changes in taxation from 1st January 2015. I look forward to the challenge of helping international people with their financial planning to put them in the best possible position”.