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UK Inheritance Tax and Spanish Succession Tax

By Charles Hutchinson - Topics: Inheritance Tax, Spain, Spanish Succession Tax, Succession Planning, Wealth Tax
This article is published on: 5th August 2020

05.08.20
Succession tax in Spain

Much has been written and said on this subject, particularly in many of a 19th hole. There is a fundamental difference between the two:

  • The UK Inheritance Tax is upon the deceased’s estate
  • The Spanish Succession Tax version is upon the inheritors

UK Inheritance Tax Liability is on the worldwide estate of the deceased and all global assets are assessed and ‘gathered together’ for the purpose of probate. Once fully quantified and valued, the tax is levied at a (current) rate of 40%. There is a nil rate band of (currently) £325,000 estate value below which no tax is payable. The tax has to be paid BEFORE the estate is distributed.

Spanish Succession Tax is payable on EITHER assets being located in Spain OR on global assets if the inheritor is a resident of Spain. If neither is the case, then there is no liability. If one or both is the case, then Spanish Succession Tax is payable by the inheritor(s) whether they be a resident or non resident of Spain.

There are some essential measures one can take to either mitigate or avoid these liabilities.

One of the best and most effective is the use of (Spanish compliant) investment bonds. In Spain for example, Succession Tax is payable on assets passing between spouses (this is unlike the UK where assets can pass between them untaxed). Where an investment bond is jointly owned, the deceased’s half can pass to the spouse untaxed.

An even greater advantage is that the bond can pass down the generations with the possibility of continuing investment growth free of both UK Inheritance Tax and Spanish Succession Tax. For as long as the policy holders and lives assured continue to be appointed, the bond will continue and each generation of policy holders can enjoy capital withdrawals on both a regular or intermittent basis. Thus all inheritance tax is avoided by an unlimited number of generations.

Furthermore, should a Spanish resident bond owner pass away and their beneficiaries are non residents of Spain, there would be no liability to Spanish Succession Tax because the bond is also domiciled outside of Spain (e.g. Dublin).

Spanish Inheritance Tax

For the moment, Spanish Succession Tax in the region where I live (Andalucia) is virtually non existent. There is a €1m allowance between close family members, providing their individual existing wealth does not exceed that figure. The remaining assets are also liable to a 99% exemption.

These two taxes are the only ones not included in the UK/Spain Double Tax Treaty. However, there is an unwritten rule that if it has been paid in one country, then it will not be charged again by the other. To my certain knowledge, this informal agreement has always been observed.

For information and assistance with your inheritance planning, please contact me by completing the form below of email/call:
charles.hutchinson@spectrum-ifa.com
Tel:(+34) 952 79 79 23
Mobile: 605 903 472

7 Good Reasons to Retire in Andalucía

By Charles Hutchinson - Topics: Moving to Spain, Retirement, Spain
This article is published on: 13th June 2020

13.06.20

There is currently a noticeable increase in the number of enquiries to estate agents in this area from abroad, the majority of which are from the UK.

If you are looking ahead to retirement and wondering where you might like to live when the time comes, you should consider putting Andalucía somewhere at the top of your list.

Lifestyle
The Spanish lifestyle is one of the most open and friendly in the world where coastal areas, in particular Andalucía, are most welcoming. Locals are well aware that the international market is all important to the economy and growth of the region, bringing prosperity to what was once the poorest part of the country.

Culture
The region is littered with places of historical interest and beautiful world heritage sites. The Arts play an important role in life here with great classical concerts and popular music shows. Every town and village in Andalucía has at least two ferias (festivals) a year and talented street performers are found everywhere. Every city has important galleries and museums reflecting its historical artistic contributions to the world.

Climate
Andalucía enjoys one of the mildest climates in Europe, especially in coastal regions where temperatures are not as extreme as in the interior. Having said that, the climate in the interior is dry, making the upper and lower temperatures more tolerable. The climate, outdoor life, healthy Mediterranean diet and generally relaxed atmosphere of the region can be counted among the many reasons why Andalucía enjoys the highest life expectancy in Europe.

Cost of Living
The benign climate makes for reduced heating, food and clothing expenses. It encourages outdoor living through more months of the year than you might enjoy in northern Europe or parts of the US. Spain is one of the largest producers of fruit and vegetables in Europe with much of these coming from Huelva and Almería and not far away, Murcia which is known as the vegetable garden of Spain. Eating out can also be very inexpensive and extremely good. In coastal areas and a little further inland there is no shortage of good places to eat. Spain is also one of the most important wine producers of the world and Spanish wines have come a long way, standing alongside some of the best in the world.

Sports & Outdoor leisure
There is a large variety of sporting activities to be enjoyed here. Apart from a huge number of golf courses and tennis clubs, there are excellent beaches, water sports, Whale/Dolphin watching, etc. You can snow ski and water ski within two hours of each other. We have the highest ski resort in Spain. Trekking and rambling is a pure joy through spectacular scenery.

Health Care
The state health care system in Spain is excellent and some of the best doctors and specialists can be found in this country, especially in Andalucia for they too want to live a good lifestyle! Health Insurance, if you do not qualify for state health care, is cheap when compared to northern Europe and many countries farther afield.

Communications
The larger cities in the region are very well connected with Madrid and other main Spanish cities. There are excellent coach and train services which are a joy to experience. Coach travel is inexpensive and always provides the bonus of being able to enjoy the view. Train travel also offers you the chance to enjoy the scenery and if you want added comfort and speed, the AVE is an excellent example of high-speed train travel with one of the best networks in Europe, which has halved train travel time around many parts of the country. It also compares favourably against air travel if, for example, you are travelling to Madrid, as you will be taken right to the city centre and you do not have to be at the station two hours before departure.

Capital cities in Andalucía also provide excellent connections by air with direct flights to 129 European cities as well as to numerous destinations elsewhere in the world. If you have family and friends back home, in the US or somewhere in northern Europe there are plenty of options when it comes to getting back to see them or having them come over to Spain for visits.

moving-to-spain

Things to consider before moving here

  • You will need to decide where you want to live. This is best achieved by renting short term somewhere first. Consideration should be given to any medical care needs, sporting facilities, schools (if you a younger retiree) and convenient distances to an international airport
  • You will need to decide how much time you want to spend here and whether to become tax resident. This is where I can give you in depth assistance with residency, permits and tax advice
  • Regarding tax, we would need to review any existing investments you may have to ensure they are tax efficient here in Spain. UK tax efficient investments are usually not tax efficient here
  • We would need to review your income situation in retirement and how best to achieve the required level with the least tax
  • We can assist you with a choice of medical insurance, if needed. Wills might have to be adjusted and Spanish ones drawn up

Please remember that if you already have a UK Financial Adviser, they will not be qualified or knowledgeable to give advice here.
By the same token, if one of our clients moves back to the UK or another country, it is essential they contact a local adviser there.

WISH YOU WERE HERE?
CONTACT ME NOW FOR FURTHER INFORMATION

Retire in Andalucía

Atypical expat family living in Spain

By Charles Hutchinson - Topics: Moving to Spain, Spain
This article is published on: 15th May 2020

15.05.20

Once upon a time there lived a British family in Southern Spain. I say British but in fact the wife had dual nationality, being both American and British. In fact they are still here.

They have 3 children, one adult son from her previous marriage living in the Middle East, their second son in boarding school in England and the youngest, their daughter, with them in Spain. His last position had been as an eminent surgeon in a well known teaching hospital in London. She had been a very successful realtor (estate agent) on the East coast of the USA. They had met through mutual friends when he was at medical conference in Boston. She brought with her to the marriage a respectably sized share portfolio which she had accumulated over the years.

They have a large five bedroom house in leafy suburbia in Surrey, UK. They have owned it since the arrival of their first child, several years after marrying. He sold his flat in central London a couple of years after their wedding and commuted to work every day from Dorking. Summer after summer brought nothing but rain and unpredictable weather. They finally decided to throw in the towel and move, lock, stock and barrel to Andalucia where they purchased a lovely house with gorgeous views over the Mediterranean. There in their retirement they play golf and have grown a circle of good friends, enjoying the lifestyle they had dreamt of in the UK. They rent out their Surrey home to visiting foreign film crews and have it managed by a competent agent.

They have a fair sized investment portfolio with a UK stockbroker who has underperformed their peers over the previous decade, which he learnt from talking to fellow golfers in the 19th hole at the club. He has become keen to change his broker and the portfolio, but is very concerned about the potential Capital Gains Tax.

estate planning

Relations with their eldest son have become increasingly strained due to his stepfather’s disapproval of her son’s lifestyle in Dubai. It has reached a point whereby he has changed his English Will to exclude him from his half of the joint estate. The parents do not have Spanish Wills.

Also growing is the worry about their house in the UK with rising maintenance costs and property taxes. The decision has been made to sell it. In any event, over the years they have owned it they are sitting on a very fine profit. But it seems that they can no longer label it as their prime home. After all, they have been resident in Spain for some considerable years.

Brexit arrived rather suddenly and they have become aware of their potential position as non EU citizens after the final deadline in December 2020.

While they have appointed a UK estate agent to handle the sale of their UK home, Covid-19 has arrived on the global scene. They watch with horror as their portfolios tumble in value. Before the arrival of the virus, they had a sale agreed and their lawyer has taken a large deposit on exchange of contracts. Now the property market is falling away.

Several of their acquaintances both in the UK and in Spain have contracted the virus and they are getting nervous of their own position, their children’s and what to do if they catch it. He is over 65 and becoming more vulnerable as time passes.

UK share portfolio

This couple faces several significant problems:

  • She has a US share and bond portfolio which is fully exposed to US taxes
  • He wants to sell out their UK portfolio and change holdings. It still shows a considerable gain
  • They want to sell their UK home which is still showing a considerable gain
  • They have no Spanish Wills which would cause problems in the event of first death, not least if the eldest son invoked Spanish Succession Law, to inherit his share
  • Although resident in Spain from several angles, they are not actually tax resident here but still tax resident in the UK
  • Apart from tax considerations, their residence status would become questionable in December 2020 (if the Brexit negotiations deadline is realised)
  • They need to complete the sale of their UK home as soon as possible before the market falls much further and their buyer pulls out (despite the hefty deposit he has made)

You might think this is just a story, but with only a few changes this was the reality of two of my longest held clients. Not all of the above may apply to you, but I’m sure certain elements of this brief bio resonate with many of you. The important thing to remember is that every element of this situation has a solution. As advisers here in Spain, we are expats too, and over the past years we have come across all (and more) of these situations. And we have always delivered a solution.

Do you relate to, or are you faced, with any of these issues? Do you know someone who does? They all have a solution. Why not call me for a chat over a coffee? If we are still in lockdown, we can talk about it on the telephone, all in the strictest confidence, of course.

Life in Lockdown

By Charles Hutchinson - Topics: Costa del Sol, investment diversification, Spain
This article is published on: 14th April 2020

14.04.20

Here we are starting the 5th week of lockdown in the Costa del Sol. What a surreal world it is compared to what we have known all our lives. I would like to think it is good for us and our moral fibre. Certainly it is morphing into a much more pleasant environment to the mess mankind was creating until the virus came along. Depending on your take on things, this is either nature seeking to redress our mishandling of this fragile planet, or it is the force we call God taking action to prevent our mass suicide. Of course, it can be argued they are both one and the same, but that discussion is for another time. I and my wife are very lucky, as is my son and his family. We live in houses with space and gardens. We are particularly lucky as we have 1.3 hectares of land and are at least 300 meters from the nearest lone house. We have dogs and can take them out for walks at will, on or off our land, and nearly always meet no one. We have fabulous views and my wife is catching up with all the stuff in the garden for which she normally does not have the time. We both work from home anyway and so our work regime has not altered.

Some of my clients in similar circumstances are also not enduring too bad a time, but the ones I feel for are those clients of mine who live alone in small apartments in urban areas and have no dogs. These are the ones I try to stay in touch with most. I am calm in the knowledge that their money is safe because they are with highly reputable companies and investment managers. And it is all about when the markets will begin to recover. It is their wellbeing that concerns me most and part of that is the reassurance they need that their security is not threatened in the long term.

Charles Hutchinson Estepona

Little Estepona has only one case so far (so lucky), it’s like a ghost town when I go down for our weekly shop. No one on the streets and the police have check points to enquire to where you are going and why and from where you have come.

You have to carry evidence on you to show what you are doing. It’s all good stuff to keep this dreadful thing outside of our city limits. But it does feel very bizarre. Telecommunications and web communications have replaced face to face and touchy feely, but that’s tolerable. The peace and quiet is incredible, you hear so much more now without the sometimes distant murmur of traffic, fireworks, helicopters and the boy racers roaring up and down our mountain road across the valley. The nightingales have arrived which is so beautiful and you can hear them even louder than before. The dawn chorus is almost deafening.

I have to say that the Spanish are bearing up extremely well. When you consider that their life is all about being out and about, socialising, meeting, kissing and hugging each other, sitting out in cafés with friends and family and just enjoying the social interaction, making huge amounts of noise, so much so that they design their homes, not for entertaining, but for spending as little time in them as possible. So now they are imprisoned for an indeterminate sentence, where they cannot go out except to buy essential food once a day, directly there and back, no meeting or touching people and if meeting someone by mistake, it must be from a distance. At the end of all this, we reckon there will be a spike in suicides, divorces and births. Our son Simon and family in Luxembourg, in the same lockdown, go to virtual drinks and dinner parties in the evenings and weekends with friends in the area. He showed us a photo of him getting ready for a dinner party. He was wearing a winged collar, black tie and dinner jacket and shorts and slippers (they can’t see the bottom half!). We’ve started them too; we have about half a dozen friends for drinks and it is hugely enjoyable. We use Zoom so that you can see everyone at the same time and chat together.

Rhona, my wife, has joined Gareth Malone’s virtual choir – I wonder if you have heard about it? The Great British Home Chorus. So far he has more than 110,000 people from all over the English speaking globe and she rehearses with him in the early evening. It is hilarious sometimes hearing these extraordinary howls from another part of the house or outside, my not hearing or seeing the great teacher conducting her.

So, what now? We really don’t know – anything could happen – gradual eradication or a resurgence of the virus? We know here there has been a partial release of lockdown for some workers, especially those who cannot work from home. There is a natural conflict between those who want to continue the lockdown to protect the health of the population and the health service and those who want to protect the economy, jobs and companies. It is very difficult to navigate a sensible course between the two. The global stock markets, which always try to predict the future (not the present nor the past), have already come off bottom with a double bounce nearly a month ago. Now this rise seems sustained for the moment or is this another dead cat bounce? What is obvious is that the markets want to get going again and advantage is being taken of these low levels by many. Those who have cash should think seriously about getting in at these levels, even if drip feeding. Some markets are already up between 20% – 30% from bottom and the potential is still there for a very healthy start to an investment, but it is not for the faint hearted. Cash is king no longer and a home has to be found for it. Make a plan, invest for the long term (at least 5 years), diversify your investments (even in multi asset funds alone), choose good investment houses and funds and stick to the plan. You will not go far wrong if you observe these simple rules.
If you would like to discuss this further, do please get in touch by contacting me as per below. I would even like to hear about your lockdown experiences!

Stock markets falling, should I sell?

By Charles Hutchinson - Topics: BREXIT, Investment Risk, Spain, Stock Markets
This article is published on: 6th March 2020

06.03.20

There are four big subjects dominating the public arena at present: life after Brexit, life after the coronavirus, life after climate change, life after the dramatic falls in the global markets.

We live in an interdependent world where news is instant across all continents (although I’m not sure whether the penguins are interested). We are aware of climate change, the antics of Widow Twanky Trump, the spread of the coronavirus and Brexit (an outdated game in which the British people have kicked off in the hope of a repeat performance of their imperial past). Hopefully we have taken onboard the catastrophy of climate change in time (not Widow Twanky, yet) before we are reduced to a desert of Mars proportions. Hopefully the coronavirus threat is a storm in a teacup. Hopefully Brexit will work out. These are all uncertainties – except one: the global stock markets.

All life is cyclical; this is enshrined in history. Take any historical event of extreme proportions; the pendulum will at some point begin to swing back the other way. The only possible exception I can think of is the reincarnation of the Dinosaurs and the Dodo. There will be other tyrants, exterminations, plagues and climate changes at some point; but in our lifetime at least you can depend on the markets bouncing back. Why? As I have described in other articles, the markets are like the tides, they come in and they go out. The sea does not disappear over the horizon in a great hiss of steam into the sunset. Money has to have a home and it is to the markets, at the end of the day, that money’s guardians largely turn. In a post apocalyptical world, bartering will still continue, even if it is with seashells and potatoes. Money is merely the lubricant of trade, whether it be between you and I or corporations or countries.

Believe it or not, the professional market traders relish market falls (or corrections, as they call them) because it presents them with the buying opportunities which are needed to make money. The falls are caused by a mixture of inexperienced emotional investors and market makers (to create the buying opportunities). What is sure now is that markets will move up again and it might be sooner than expected. No person, company or country can stay in lock down for long. We have to eat and carry on our normal lives. Sooner or later, a cure for COVID-19 will be found (they announced yesterday promising results with HIV and Ebola antiviral drugs). The old may be vulnerable, but they don’t need to go out to work, tilling the fields or driving the engines of manufacturing. They are mostly at home enjoying a good rest after a lifetime’s toil. So with a bit of care we may be able to keep them protected until the virus burns itself out.

The lesson is clear: stay invested, or if you are a little brave buy into these low levels to enjoy a potentially better return and maybe average down (don’t commit all your spare investment capital at once but buy into the falling markets in stages to increase the odds of buying near the bottom to increase your potential profits).

Remember, Spectrum does not risk our clients’ hard earned capital. We just know the tide will come in again and as long as we are in sound and sturdy boats (investment funds), it will take everyone back up the beach to new heights. Spectrum chooses fund houses for their experience and expertise, some of whom have been around for more than 200 years. It is their fund managers’ job to react to world events on a daily basis. We use them to protect our clients’ money. We arrange for our clients to access these superb funds through structures called Investment Bonds (or Insurance Wrappers) which are Spanish compliant and which offer unparalleled security (against corporate collapse) and low taxation with both income tax in Spain and the UK and also inheritance tax in Spain.

If you would like to talk to me more about this subject and the points raised, please contact me as per below and I would be happy to discuss this further.

Arts Society de La Frontera & Spectrum – Costa del Sol

By Charles Hutchinson - Topics: Costa del Sol, Spain, Sponsoring
This article is published on: 24th February 2020

24.02.20

The Spectrum IFA Group again co-sponsored an excellent Arts Society de La Frontera lecture on 19th February at the San Roque Golf & Country Club on the Costa del Sol. We were represented by one of our local and long-serving advisers, Charles Hutchinson, who attended along with our co-sponsors Currencies Direct, represented by area manager Ignacio Ortega and Alexandra Derudder. Also present was the society’s European Chairman Jo Ward.

The Arts Society is a leading global arts charity which opens up the world of the arts through a network of local societies and national events throughout the world. With inspiring monthly lectures given by some of the UK’s top experts, together with days of special interest, educational visits and cultural holidays, the Arts Society is a great way to learn, have fun and make new and lasting friendships.

At this event, over 130 attendees were entertained by a talk entitled ‘John Singer Sargent, master of the society portrait’ by Mary Alexander, who is one of the UK’s top experts on this subject. She gave an excellent lecture which was highly informative and educational, opening up the artist’s world to show his versatility away from not just being a portraitist and his much travelled life.

The talk was followed by a drinks reception which included a free raffle for prizes, including a CH supplied lovely coffee table book on the artist, champagne and an elegant pot plant. Currencies Direct also supplied a presentation bottle of brandy.

All in all, a great turnout and a very successful event at a wonderful venue which has just been renovated throughout; looking through the windows, one can see the golf course completely dug up and redesigned.

The Spectrum IFA Group was very proud to be involved with such a fantastic organisation during its current global expansion and we hope to have the opportunity to do so again.

TAXATION UPDATE IN SPAIN

By Charles Hutchinson - Topics: Modelo 720, Spain, Wealth Tax
This article is published on: 16th January 2020

16.01.20

We now have a new government here in Spain, albeit quite far to the left which could cause some more interesting changes in taxation. Watch this space.

WEALTH TAX
So far, the reinstatement of the 100% allowance for Wealth Tax (which was approved in 2011) has been delayed again for one more year as part of the 2018 budget extension, due to the recent era of no federal government being in place. Nor has the Junta de Andalucia made any moves to reinstate the allowance in the 2020 budget either.

MODEL 720 DECLARATION OF FOREIGN ASSETS
On the 23rd October 2019, the EU Commission filed a complaint in the European Court of Justice to the effect that Spain has not complied with the Commission’s findings in November 2015 namely that Modelo 720 deters businesses and private individuals from investing or moving across borders in the Single Market. Also these provisions are in conflict with the fundamental freedoms in the EU; this conflict affects free movements of persons, free movement of workers, freedom of establishment, freedom to provide services and the free movement of capital.

Furthermore, the Commission has claimed that by introducing late filing penalties and the labeling of these foreign assets as unjustified capital gains (which are not subject to the statute of limitations), it has breached EU law. Additionally, whatever the amounts involved, they are all subject to tax at the top marginal rate (45% in 2012) plus a fixed penalty of 150% in addition to the tax and further fixed penalties for failure to file, which are higher than the general rules on similar infringements. Spain, therefore, is liable to comply with EU law and to pay costs.

Although precedence does not exist in Roman law, a precedent was set in 2011 when the EU successfully prosecuted Spain over discriminatory Inheritance and Gift Tax rules. This ended with a Court resolution in 2014 that led to an amendment in Spanish Law and opened the door for reclaims of taxes paid over the previous 4 years.

The issue of the Declaration continues to be of great concern to many people in Spain, particularly the expatriate community. Some of the most vulnerable assets are foreign bank accounts. These can be easily switched into other foreign assets where reporting under Modelo 720 is not required and the taxation of income from them (if taken) is greatly reduced.

If you have concerns in this area, please contact me where I can assist you with the problem.

Source: JC&A Abagados, Marbella

Arts Society de La Frontera event

By Charles Hutchinson - Topics: Costa del Sol, Events, Spain
This article is published on: 27th November 2019

27.11.19

The Spectrum IFA Group again co-sponsored an excellent Arts Society de La Frontera lecture on 20th November at the San Roque Golf & Country Club on the Costa del Sol. We were represented by one of our local and long-serving Advisers, Charles Hutchinson, who attended along with our co-sponsors Prudential International in the form of George Forsythe.

The Arts Society is a leading global Arts charity which opens up the world of the arts through a network of local societies (such as in Spain) and national events throughout the world.

With inspiring monthly lectures given by some of the UK’s top experts, together with days of special interest, educational visits and cultural holidays, the Arts Society is a great way to learn, have fun and make new and lasting friendships.

At this event, over 120 attendees were entertained by a talk on Stolen Masterpieces: The Most Sensational Art Thefts in History by Shauna Isaacs who is one of the UK’s top experts in this field. She gave an excellent lecture revealing to us the history and reasons behind great art thefts. She is also a particular expert in the Nazi thefts of Art prior to and during the Second World War which she covered in a later Arts Society lecture that same day.

The talk was followed by a drinks reception which included free raffle for prizes including a CH supplied book on Stolen Masterpieces, Christmas crackers and mince pies. Prudential International donated a bottle of 12 year old whisky.

All in all, a great turnout and a very successful event at a wonderful venue, although we were in temporary accommodation as the main clubhouse is under renovation. The Spectrum IFA Group was very proud to be involved with such a fantastic organization during its current global expansion and we hope to have the opportunity to do so again.

Arts Society de La Frontera
Arts Society de La Frontera
Arts Society de La Frontera
Arts Society de La Frontera

Is this the time to invest and where?

By Charles Hutchinson - Topics: investment diversification, Investment Risk, Spain
This article is published on: 23rd October 2019

23.10.19

I was having lunch with a friend of many years the other day. When I asked why he was not currently invested and why he had not been for some time, he replied that it is too dangerous a time in the world with too many problems and that we were on the verge of a global market collapse. Further investigation revealed that he had had his money in the bank, largely unprotected against bank failure and earning less than a single digit interest rate (and that was for his Sterling) which was also taxed. What made it worse was that the majority of it is in Euros and he was actually having to pay charges to the bank for the privilege of keeping it there.

Although this sounds an extreme example of bad financial planning, it shows that we need to take professional advice sometimes. We need to diversify and we need to understand that the world is no worse or insecure than during the terrible wars and crises of the past. Money is not a Will o’ the Wisp, disappearing into thin air when not being utilised; it has to have a home in which to dwell for better or for worse. The secret, therefore, is to place it for the better in homes that are largely secure, allowing you to diversify smaller amounts somewhere else for better returns. In this era of low interest rates, which is set to continue for quite a while, that home should not be in a bank, except for your current account and a cash reserve for emergencies and planned spending over the next, say, 2-3 years. There is limited protection against bank failure and the return to be obtained is taxable and insignificant.

My old friend lamented that this was not the time to enter the market, to which I replied that there is no good time until you have left it too late (this is true of most markets). It is not market timing which is important, but time in the market. Unless you have a trading account for speculative investment, you must always plan to invest for the long term (5 years plus). The investment house Fidelity produced some excellent statistics which showed that (once invested) by not being in the market for just 10 specific days in the last 10 years, you would have lost nearly 50% of the market (London FTSE100) growth each year versus staying fully invested. Missing 20 days, this would have been halved again.

Missing out on 30 days, you wouldn’t have broken even after brokerage charges. Markets are like the tide on the sea shore – they rise and they fall. The difference is that each time the tide comes in, it reaches a little higher up the beach. And that is caused by a natural phenomenon called inflation, which moves hand in hand with growth

investing in tough times

I asked my friend if he was invested in 1987. He looked away gloomily and said that he had instructed his broker to sell out all his positions when the October crash arrived that terrible Monday morning. He watched with dismay as the markets around the world collapsed as soon as they opened and there were no buyers, fuelled by a flawed computer system over which there was no control. He lost over 35% of his capital over the next four days. At the time I was a trainee investment manager on the Australian desk of a prominent investment house in the City. The telephones rang off the hook and our advice was emphatic and simple: do not bale out. Hang in there. I remember my mentor, who was a keen yachtsman, saying, “If you are in a boat out at sea and a big storm blows up, you don’t jump overboard, do you? No. you batten down the hatches and wait it out”. This is the advice I have always given my clients ever since. Those who heeded our advice and waited it out actually ended that year in a higher position than when it started.

I can hear some readers already asking where they should place their hard earned capital after a life time of working and saving. There is no one single answer to this. It depends on your risk tolerance, your likes, and your needs (now and in the future). As ably described in our book “A Guide to Investment Risk” by Peter Brooke (opposite), diversification is everything.

Guide to investment risk

This could be across multiple global asset classes (to include gold bullion, diamonds, antiques, rare paintings, rare books, classic cars, etc.) or it could be an investment portfolio containing multi global assets managed by multi managers of different expertise and disciplines. It is always wise to remember that Risk is linked directly to Reward. The higher or lower each one is will reflect in the other. Also reflected is volatility, where the higher performing assets will mostly endure higher volatility (continuous high/low oscillations which are not for the faint hearted). When doing financial reviews with clients, we are careful to establish their risk appetite and the returns that can be expected taking into account that risk.

You cannot have a high performing low risk investment – there is no such animal. What you can expect from a good adviser is a steady performing investment at whatever level you set your tolerance to give you the return you want as long as you run the course, who does not try to time the market and who picks long established names who have been around many years. We often recommend long established (each over 150 years) London based investment managers to manage a client’s private portfolio, or we place clients in multi asset, multi manager investment funds. To those who are averse to volatility, we offer “smoothed” investments which are described by my colleague Anthony Poole elsewhere in this website in “Tax Efficient Investments“. These are safe secure investments which are tax efficient and which produce a steady return year after year, way above anything you can expect from a bank product.

Greed is the enemy of many investors. It is the curse of humanity. If you are not greedy, your money will grow securely at a respectable pace. Manage your own expectations – do not alter course when you see your returns are doing well. Do not cut corners, especially with tax. We only choose tax efficient products. Investment choice and tax efficiency are completely entwined. Tax is another subject to be explored in more detail and is covered elsewhere on this site by my colleagues. If you would like a copy of our Spanish Tax Guide 2019 (there is also one available for France), please contact me below.

To discuss these points in more detail, why not call me to make an appointment and let’s have a coffee together? Please remember, there is no commitment on your part but such a huge commitment on ours! With care, you will prosper.

Spain/Gibraltar Tax Treaty – tax residency of individuals

By Charles Hutchinson - Topics: Gibraltar, Spain, Tax
This article is published on: 5th June 2019

05.06.19

On 4 March 2019, Spain and the UK (acting on behalf of Gibraltar) signed an international agreement on taxation and the protection of mutual financial interests.

This is the first agreement on Gibraltar with Spain since the 1713 Utrecht Treaty. However it does not imply any modification of the respective legal status of Spain and the UK with regards to sovereignty and jurisdiction over Gibraltar.

It is important to note that this treaty has not yet been ratified by the two respective national parliaments.

The treaty incorporates the provisions for tax residency of natural persons:
1- Whereby natural persons are deemed resident in Spain and Gibraltar according to their domestic law,
(i) They shall be tax resident only in Spain when any of the following circumstances exist:
a) they spend over 183 overnight stays of the calendar year in Spain, from which sporadic absences from either Spain or Gibraltar shall not be deducted,
b) their spouse (not legally separated) or partner and/or dependent ascendants or descendants reside in Spain,
c) the only permanent home at their disposal is in Spain, or
d) 2/3 of their net assets held directly or indirectly are located in Spain.

(ii) They shall be tax resident only in Spain when the above provisions are not conclusive, unless they are able to provide reliable evidence that they have a permanent home to their exclusive use in Gibraltar and remain in Gibraltar over 183 days per annum.

2- Spanish nationals who move their residency to Gibraltar after the date on which this agreement is signed shall in all cases only be considered tax residents in Spain.

3- Non-Spanish nationals who provide proof of their new residency in Gibraltar shall not lose tax residency in Spain within the tax period when the change is made and during the four subsequent years, unless they spend less than one complete tax year in Spain or are registered Gibraltarians (generally British citizens that have resided in Gibraltar for over ten years) that spend less than 4 years in Spain.

4- HNWI, Cat 2, HEPSS or any other equivalent Gibraltar tax schemes shall not by itself constitute proof of tax residency in Gibraltar.

In conclusion
You will be considered tax resident in Spain if you meet any of the conditions where you are deemed resident in Spain (183 days, family ties, permanent home, 2/3 net assets) or you cannot prove that you spend more than 183 days in Gibraltar and own a house at your exclusive disposal there, or if you are Spanish national in all cases (Spanish domestic law currently is more restrictive because nationals do not lose tax residency when moving to a tax haven in the tax period and subsequent four years).

Non-Spanish nationals who have been tax resident in Spain for more than one year and have moved to Gibraltar will be deemed tax residents in Spain for the following four years after they moved. Gibraltarians who have been resident in Spain for more than four years will continue to be resident for four years more.

The rules for Spanish nationals will come into force as of 4 March 2019 if the Treaty is formally ratified.

The rules for non-Spanish nationals will come into force for the taxable periods after the ratification date, the earliest being on 1 January 2020.

Non-Spanish nationals may use this window to consider their position.

In spite of claims for historical Spanish sovereignty over The Rock, Spain (PSOE) has recognized the existence of both a separate tax authority in Gibraltar and the existence of registered Gibraltarians. Moreover, it is proposed that once the treaty is ratified, Gibraltar should be removed from the Spanish blacklist of tax haven jurisdictions.

Source: JC&A Abagados, Marbella