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UK tax rebates in Spain

By Chris Burke - Topics: Retire in Spain, Spain, Tax in Spain
This article is published on: 1st September 2021

01.09.21

The TT – Top Tips Newsletter

Hi everyone, I hope you are enjoying some well needed freedom and a good summer. This month’s TT covers the following Hot Topics:

  • UK passports – VERY important news on travelling to Europe
  • UK tax rebates for those moving abroad
  • New working/retirement rules in Spain

UK passports
The first news out this year, importantly for those travelling to and from Europe, was that you must have 6 months left on your UK passport to enter the country now that the UK has left the EU; this applies even if you are a resident. Those travelling may have noticed that as well as joining the ‘Non-EU passport queue’, your passport will more than likely have been stamped. The UK has issued a statement saying that if you present your TIE resident card at passport control, they will not need to stamp your passport. In my experience this is not the case so far, even though I have given them my TIE as well. This might be an issue for those people who travel regularly, as once your passport stamp pages are full a passport is not usable. You would then need to apply for a new passport on the basis of ‘exhaustion of pages’. What’s more is that some countries will not allow entry without two blank passport stamp pages. If you are renewing your passport, it might be worth requesting the larger version with more pages to cover for this eventuality. Which leads me nicely onto my next topic.

UK red passport expiry date

UK red passport expiry date
Those who have not renewed their UK passport in the last year probably will have the old red colour passport. An important announcement was made recently in respect of these and is as such: these passports are ONLY valid for 10 years exactly. What this means is, if when you last renewed your passport and had months added that were still valid from the previous passport, these do not count anymore. Thus, these passports are only valid from 10 years from their date of ISSUE.

This will not affect everyone, but for example, if your current red passport was issued in January 2012, but expires in May 2022, because there were 4 months remaining on the previous passport which were added to the new one, you will be affected. In this instance, Europe/Spain will have this passport expiring in January 2022 and to enter you must have 6 months remaining to this date.
It’s good to have things like this to worry about, because there just isn’t enough in life is there?!

Tax in Spain and the UK

UK tax rebate for those moving abroad
Anyone who has left the UK in the last four tax years is allowed to apply for a UK tax rebate. There is no way to trigger an automatic tax refund; the HMRC needs you to submit an official claim before they can refund your tax overspend.

UK tax is calculated on your projected annual income, so if you don’t complete a full UK tax year this could be wrong, and in many cases very much so.
The main reasons you should look at this are:

  • Personal allowance – you have not used the entire amount in the year you emigrate/leave
  • You continue to be a UK taxpayer but are employed in another country

The process to find out if you are due any monies is fairly straightforward:
Complete form P85, sending parts 2 & 3 of your P45 that you should have received from your employer, or a self assesment form if you were self employed.

You can read about how to do this on the official government website here:
www.gov.uk/tax-right-retire-abroad-return-to-uk

Retiring in Spain

New part time working/retirement rules in Spain
Until recently in Spain, you either had to be working or retired from a Spanish state pension perspective. That is to say, you could not work and receive your state pension. I know, I know, it just doesn’t incentivise people who arguably have the most experience in life to contribute to the economy, as if they continue working in any capacity they cannot receive their hard worked for state pension. However, recently this has changed.
You can now receive 50% of your Spanish state pension, pay a reduced autonomo payment (self-employed monthly payment) and continue to work. As a reminder, to receive a Spanish state pension you must have contributed for 15 years and two of those years must have been within the 15 years preceding actually retiring.

If you would like more information regarding any of the above, or to talk through your situation initially and receive expert, factual advice, don’t hesitate to get in touch with Chris.

Click here to read reviews on Chris and his advice

Top three financial tips for expats living in Spain

By Chris Burke - Topics: Financial Planning, Inflation, Pensions, Spain, Tax in Spain
This article is published on: 22nd July 2021

22.07.21
Chris Burke | Spectrum IFA Barcelona

Hola

This month we are covering the following Hot Topics:

  • UK financial advisers are not legally able to advise EU based clients anymore
  • The important ‘rule of 72’ for investing
  • Spanish state pension inflation worry

UK investments & pension law changes
Many UK based financial advisers can no longer legally look after anyone resident in Spain or the EU due to Brexit legislation, most having already written to their clients informing them of this. However, it’s not all bad news; most UK based investments including ISAs are not tax efficient in Spain/EU, with many having to be declared annually and tax paid on any gains, EVEN if you don’t access the money. This does depend completely on your circumstances and I help people analyse their personal situation, managing their UK assets or arranging for them to become Spanish compliant moving forward.

For those with UK private pensions in drawdown, every few years to receive this money you must have a UK accountant rubber stamp this to continue. So again, you will need to find someone locally to do this for you, which we can help with.

If you have any questions or need help in respect of UK based assets, please get in touch for a free, no obligation chat/review of your situation.

Tax in Spain and the UK

The rule of 72 and poor performing investments
Implementing an investment strategy is not where your investment plan finishes; it is where it begins. Without regular reviews and maintenance there is a strong risk you will finish up with much less than you should have had. Many financial advisors here in Spain are mainly remunerated when taking on a new client, not on the performance of their investment. This is where I/Spectrum differ.

One of the many key aspects of investing is to keep a keen eye on the ‘rule of 72’, which is knowing how long before your money should double in its value. To work out the ‘rule of 72’ for your investment you use the following simple formula: divide the number 72 by the average annual interest you are receiving/likely to receive and it will tell you how many years it would take for you to double your money. So, for example, if you were averaging 4% interest per year it would take around 18 years (72/4 = 18 years), at 5% around 14 years and 6% around 12 years. To put that into a real-life scenario, if we use a starting point of €100,000 and invested over a 25 year period this amount of money would give you:

  • 4% €266,583
  • 5% €338,635
  • 6% €429,187

To put that into context, historically inflation makes your costs double every 24 years, so if your money is not well ahead of that, in real terms your monies are just keeping their present value.

Therefore, it’s imperative you really are seeing your investments growing and working for you. If they are not, I suggest you seek a second opinion and find out how you can have these optimised, because it will make a big difference to you further down the line. The main reasons for investments failing are high maintenance costs and investments that give the financial adviser a ‘kickback’. Many people don’t always understand why their investment funds are growing but their portfolio isn’t as much, and this is usually a starting point to look at.

I work in a different way, making sure it also works for the client by not using this method, but on a transparent fee basis using the best investments & platforms for the clients; not using investment funds that give the adviser more commissions, in essence.

inflation

Spanish state pension inflation worry
Back in 2011, Spain used to have a surplus state pension fund of €66 billion. This could be looked at as ‘well, at least they had a surplus; most countries have never had one’. Just before Covid started in 2019, it was €16 billion in debt. Now the state pension system, like many others, works on the principle that current workers pay for those who are retired now. The key point here is, from a percentage perspective, Spain, compared to others in the EU, has one of the highest proportions of its GDP (total country income) contributed to its state pension, at around 12%. The average ‘replacement rate’, which is the percentage of workers final salary income that they receive in retirement, was at 72% in 2019*, whereas the average in Europe is 45%. They receive, as a percentage, much more on average for their state pension compared to their earnings than their European counterparts. This is great on one hand, however this really is a great burden on Spain to provide that level of state pension to the people.

The only way Spain can carry on providing state pensions is to “increase the retirement age even higher and decrease the amount people receive” says Concepcion Patxot Cardoner, a University of Barcelona professor, as quoted by Bloomberg. That and start to move people towards saving into their own private pensions. However, this last option and the main plan moving forward is going to be difficult to achieve in a culture where only around 26% currently save into a private pension. Compare that to the UK where the latest survey showed 65% of people contribute.

If you also take into account Spain’s tourist industry (before Covid), which is the second largest in the world employing about 2 million people and accounting for about 11 percent of the country’s GDP, you can see that things are going to need to change drastically to balance the books given the current crisis.

What does all this mean? Well, to you and I, it’s even more important that we have a plan in place, whatever that is, to make sure we have provision in retirement. I am here to talk through this with you, using professional analytics tools to help take one of the most important planning aspects of your life and break it down, step by step, making it:

  • Specific to you
  • Measurable
  • Achievable
  • Realistic
  • Targeted

If you would like to talk through your situation with someone consultative and knowledgeable, don’t hesitate to get in touch.

Are you self employed in Spain – What expenses can you claim?

By Chris Burke - Topics: Self-employed in Spain, Spain
This article is published on: 26th March 2021

26.03.21

I find people are not always aware of what they can and can’t claim back as expenses in Spain, mainly as there is no easy to understand list explaining this to you. Try asking your accountant and even they might not give you exactly what you need to understand, so, I will try to explain as clearly as possible. The following is what you can claim for, in all times, as long as you have a receipt with your name on and the payment details, using a card/account in your name (adding your NIE/TIE to the receipt is even better, thus providing you with a VAT invoice, or factura simplificada as its known):

Lunch – inside Spain you can spend €26.67 (How did they get to that amount?) and outside Spain €48.08. For a work trip away, you have an allowance of €53.34 for food, and outside of Spain €91.35. This does not include accommodation, which seems to be not capped (I would be careful here obviously).

For freelancers who work from home, Spain’s tax authority specifies certain partial deductions, such as supply expenses (water, electricity, gas, telephone, internet). The deduction is 30% of the expenses in proportion to the square meters of area at home you use, so for example an office. Not many people are aware this also includes for any home you own, on the mortgage interest part of the payment. So, if the space you work from home is 15% of the surface area, you can deduct that proportion. However, you must register your home address as your centre of economic activity when registering as an autónomo. As an autónomo, if you also partially use a vehicle for business, 50% of expenditures on it are deductible for income tax and VAT.

Car hire/leasing is covered, and generally a better way to go than purchasing a car in many cases.

Other things included as deductibles are charity donations (a specific amount) and varied work expenses, so paper, mobile phones and the contract, printers and their costs, client entertaining, travel expenses outside of food/beverage and work events. Usually, a good accountant will send you anything they aren’t sure about before they declare your expenses, so you can confirm what they are and you can then see if they are covered.

The following are importantly NOT covered and cannot be claimed as an expense:

Dry Cleaning
Purchasing of a car (even if solely for work)

Social Security in Spain

If you are earning more than the annual Spanish minimum wage as a self-employed worker or as an autónomo, you will have to pay social security contributions. If you are eligible and don’t pay social security, you won’t get any benefits. These contributions entitle you to health care and, after you’ve paid into the scheme for 15 years, a state pension. You can pay more than the basic amount to get a higher pension or make additional contributions to be covered for accidents or sickness at work.

The current monthly cost to be an autonomo is €289, whilst for many people the first year starts at €60 per month. For months 13–18, you’re eligible for a 50% discount, and from months 18-24, a 30% reduction and after 24 months it reverts to the standard rate. There are also reductions up to 50% if you are on maternity leave. The amount will differ depending on your age (over 50 it is slightly more) and you will need to make these payments even if you don’t earn anything.

Do I need financial advice

Is it better to be self employed
or run a Spanish company?

Setting up a Spanish company costs initially around €2,000 and has a monthly running cost of around €400 per individual approximately. There are also annual reporting costs and declarations, and it costs a similar amount to close a Spanish company down as to open it, so make sure you have thought this through before proceeding. In essence, if you believe your annual income will be above €80,000 then it would be worth looking into this structure. It is a lot more complicated, expensive and administrative. It might be best to run your business for a few years as an autonomo, see where you are and then look into setting up a company. It is also time consuming to close a Spanish company down.

Cryptocurrency Taxes in Spain

By Chris Burke - Topics: Cryptocurrency, Spain, Tax in Spain
This article is published on: 10th March 2021

10.03.21

As new investment types become more popular, people generally get in touch with me about them. That is certainly the case with cryptocurrencies such as Bitcoin, and that now large investment firms are starting to invest (Blackrock for example), more people feel comfortable in also investing, or researching whether they should.

Many years ago, due to the technology (or lack of) available, it usually took some time, even a decade or so, for new companies and investments to become well known, sustainable or very successful. Now, with the exponential growth of technology, automation and social media, companies can go from almost zero to mega over a period of months or years. As you may have seen recently in the news with the commodity silver and the company GameStop, technology has become so powerful that groups of people communicating on social media can even ‘manipulate’ investment prices themselves, whether this be a good or bad thing. However, this also creates careful considerations when contemplating investing in these hyped assets.

Cryptocurrency Taxes in Spain

You need to be very aware that these relatively young and very popular assets show an incredible amount of volatility, and therefore risk. This in itself is not a problem, just as long as you understand it. Investing in anything like this, and I would put cryptocurrency and Tesla or the like into that bracket, as fantastically as they can go up, they can also come down. So the golden rule to consider is, do not invest any monies you are not prepared to lose. Imagine you are walking in to a casino and have a figure in mind that you are going to gamble with; after it is gone you are prepared to walk away without it. That amount can be whatever you like, but you have to understand you can make an amazing profit if things go your way, or, you could lose almost all of it. As long as you are aware and accept this, then you are comfortable to invest in it.

I meet more and more people who have invested in these areas and then require help in taking their sometimes life changing gain to having it managed at a much lower risk level, consolidating and securing that gain. They have made their money, there is no need to keep the risk level that high, cash some if not all ‘out’ and use your ‘winnings’ to permanently change your life. For example, if you went to the casino and won a life changing amount of money, say €250,000, would you return the following week and carrying on gambling it? At what point would you ‘cash in your chips’ and take the reward? The probability still stays at 50/50 each day whether you win or lose, so, until you have ‘cashed in’ your chips, your high-risk level is still there. By de-risking, you are guaranteeing some of that gain and reducing your exposure.

tax in spain

What about taxes on cryptocurrency?
In October last year, the Spanish government brought in greater controls for this kind of investment. In real terms, this means if you buy, sell, transfer, exchange or use to buy something with it they want to know. However, there is only a taxable event when you dispose of this type of investment.

In terms of the tax to pay, this would come under savings tax in Spain (or capital gains tax as it is also known). These rates are currently:

From 0 to €6000 you pay 19% in tax
From €6001 to €50000 you pay 21% in tax
From €50001 to €200,000 you pay 23% in tax
From €200,001 +  you pay 26% in tax

This is only on the gain/profit you have made, not the amount you sell.

Key considerations to take into account
Cryptocurrency is also applicable under wealth tax in Spain, should the region you are tax resident in be applicable to this.

If your cryptocurrency investment should incur a loss, these can be offset against any gains you have over the next 4 years, so that is something important to bear in mind.

Buying using cryptocurrency
If you sell cryptocurrency and buy another investment type having made a profit, then this would be taxed as a gain at the above rates. If you use Bitcoin to make purchases for products or services, then 21% IVA (VAT) tax would also be applicable.

If you do not make the relevant declarations or pay the necessary taxes, large penalties and fines will apply, so you must make sure you not only do this, but perform it correctly.

If you would like help in looking into investing in Bitcoin or other cryptocurrencies, would like help declaring these correctly, or would like to take your already gained profit as tax efficiently as possible and have it managed professionally, don’t hesitate to get in touch.

Claiming your UK State Pension whilst living in Spain/EEA

By Chris Burke - Topics: Pensions, Spain, UK Pensions
This article is published on: 16th February 2021

16.02.21

Perhaps the most common questions I have been receiving since Brexit was agreed are in respect of UK State Pensions, particularly how it will work moving forward having contributed to the UK social security pension system:

  • What is my entitlement and how will UK nationals be able to claim their state pensions moving forward after Brexit?
  • What age can I start claiming (different EU countries have different age limits)?
  • How are these state pension calculations achieved?

Well, this should give you some clarity
First things first, to receive a Spanish state pension, you need at least 15 contributing years (combined years from any EU country) to be entitled to a minimum pension which will amount to 50% of the ´base reguladora´ (for Autonomos) or minimum state pension for employees, based on your past wages. At least 2 contributing years need to be within the period of 15 years leading up to your legal pension age. If you do not qualify for this, you should go directly to each country you have contributed to previously and see if you qualify from them.

Before the UK joined the EU, you would claim your state pensions from each country individually. Once we joined the EU and if you lived and contributed social security payments there, you would contact the relevant department of the country you were residing in i.e. worked and paid taxes in that country. They would then claim ALL your state pensions throughout the EU system. Under the Withdrawal Agreement for Brexit, this system has remained in place for both existing and new residents:

final salary pension review

‘The EU-UK Trade and Co-operation Agreement announced on 24 December 2020 includes a protocol on social security co-ordination. UK government guidance on the rights of UK nationals in the EU, EEA or Switzerland to UK benefits and pensions from 1 January 2021, states:

UK State Pension
You can carry on receiving your UK State Pension if you move to live in the EU, EEA or Switzerland and you can still claim your UK State Pension from these countries.
Your UK State Pension will be increased each year in the EU in line with the rate paid in the UK.

You can also count relevant social security contributions made in EU countries to meet the qualifying conditions for a UK State Pension.

This guidance is for UK nationals; however these rules on the State Pension apply to everyone regardless of your nationality and regardless of when you moved. (Gov.UK Benefits and pensions for UK nationals in the EEA and Switzerland, 24 December 2020).
(source – house of commons library)

Never worked in Spain or paid social security there?
You claim directly from the UK here www.gov.uk/state-pension-if-you-retire-abroad

retire

Differences in retirement ages
In some EU countries, you will have to wait longer to start drawing your pension than in others.

You can only receive your pension from the country where you now live (or last worked) once you have reached the legal retirement age in that country. If you have accumulated pension rights in other countries, you will only receive those parts of your pension once you have reached the legal retirement age in those countries.

So, it’s important to find out in advance, from all the countries where you have worked, what your situation will be if you change the date on which you start receiving your pension.
If you take one pension earlier than the other, it might affect the amounts you receive.

You can get more advice from the relevant authority in the country where you live and/or in the countries where you worked. Find out about the retirement ages and pension systems in the different EU countries you have contributed.

What age can you start claiming the state pension in Spain?
Currently 66 years, increasing by 1 & ½ months per year, until it reaches 67 in 2027.
(source trading economics)

How many years do I need to contribute for a full Spanish state pension?
36 years in general (35 for most people in the UK)

How is your state pension calculated?
Pension authorities in each EU country you’ve worked in will look at the contributions you’ve paid into their system, how much you’ve paid in other countries, and for how long you’ve worked in different countries.

The EU-equivalent rate
Each pension authority will calculate the part of the pension it should pay taking into account periods completed in all EU countries.

To do so, it will add together the periods you completed in all EU countries and work out how much pension you would get had you contributed into its own scheme over the entire time (called the theoretical amount).

This amount will then be adjusted to reflect the actual time you were covered in that country (called the pro-rata benefit).

The national rate
If you meet the conditions for entitlement to a national pension irrespective of any periods completed in other countries, the pension authority will also calculate the national pension (known as an independent benefit).

Pensions health check

Result
The national authority will then compare the pro-rata benefit and the independent benefit; you will receive whichever is higher from that EU country.

Each country’s decision on your claim will be explained in a special note you will receive, the P1 form.

See the below example of how this would work:
Dalila worked for 20 years in France and 10 years in Spain.
Both countries apply a minimum period of 15 years of work in order to have the right to a pension. Each country will calculate Dalila’s pension:
The French authority will make a double calculation:
• It will calculate Dalila’s national pension for the 20 years worked in France – let’s say EUR 800.
• It will also calculate a theoretical amount, the pension Dalila would have had if she had worked the full 30 years in France – let’s say EUR 1 500. Then, it will determine the pro-rata pension, which is the part of this amount that should be paid for the years worked in France: 1 500×20 years in France/30 years in total= EUR 1 000.

Dalila is entitled to the higher amount — EUR 1 000 a month.

The Spanish authority will not calculate the national pension because Dalila has worked in Spain less than the minimum period required. It will only calculate the EU-equivalent rate starting with the theoretical amount, the pension Dalila would have had if she had worked all the 30 years in Spain – let’s say EUR 1 200.

Then, it will determine the pro-rata pension – the part of this amount which should be paid for the years worked in Spain: 1200×10 years in Spain/30 years in total= EUR 400.
In the end, Dalila will receive a pension of EUR 1 400.
(source – Europa.eu – official website of the European Union)

State Pensions After BREXIT

Here is the official UK government wording on the continuation of Social Security Coordination between the UK & EU from Brexit:
“The provisions in the Protocol on Social Security Coordination will ensure that individuals who move between the UK and the EU in the future will have their social security position in respect of certain important benefits protected.

Individuals will be able to have access to a range of social security benefits, including reciprocal healthcare cover and an uprated state pension.

Article 114. This Protocol supports business and trade by ensuring that cross border workers and their employers are only liable to pay social security contributions in one state at a time. Generally, this will be in the country where work is undertaken, irrespective of whether the worker resides within the EU or the UK, or indeed whether the employer is based in the EU or the UK.

Article 115. UK workers who are sent by their employer to work temporarily in an EU Member State which has agreed to apply the “detached worker” rules will remain liable to only pay social security contributions in the UK for the period of work in that EU Member State. Similarly, if an EU worker is sent by their employer to work temporarily in the UK from a Member State which has agreed to apply the “detached worker” rules, they will remain liable to only pay contributions in that EU Member State.

116. Under the Protocol, the UK and EU Member States will be able to take into account relevant contributions paid into each other’s social security systems, or relevant periods of work or residence, by individuals for determining entitlement to a state pension and to a range of benefits. This will provide a good level of protection for people working in the UK and EU Member States. The Protocol also provides for the uprating of the UK State Pension paid to pensioners who retire to the EU.

117. On healthcare, where the UK or an EU Member State is responsible for the healthcare of an individual, they will be entitled to reciprocal healthcare cover. This includes certain categories of cross-border workers and state pensioners who retire to the UK or to the EU.

118. In addition, the Protocol will ensure necessary healthcare provisions – akin to those provided by the European Health Insurance Card (EHIC) scheme – continue. This means individuals who are temporarily staying in another country, for example a UK national who is in an EU Member State for a holiday, will have their necessary healthcare needs met for the period of their stay. 119. The Protocol also protects the ability of individuals to seek authorisation to receive planned medical treatment in the

(source – UK government summary annex – UK-EU TRADE AND COOPERATION AGREEMENT Summary December 2020)

If you would like help talking this through, or making sure your financial assets are tax efficient, working for you in a safe manner adapting to the world as it changes, don’t hesitate to get in touch.

Financial and Retirement Planning – Cash flow Modelling

By Chris Burke - Topics: Cash Flow Planning, Financial Planning, Pensions, Saving, Spain
This article is published on: 2nd February 2021

02.02.21

Many people seek financial advice, or financial planning, but if you asked them what they would like to get out of it, most people would probably say clarity on their finances, planning how to make their monies work and to have what they need in retirement, or partial retirement. Only 45% of people in Spain save into private pensions, and now with the government reducing the amount you can save that way tax efficiently, retirement planning is even more important.

Most financial advisers will look at your assets, see what you are doing, talk through why, then recommend a product to improve what you are doing. There is nothing wrong with that, in fact that is part of what we do, however this isn’t really giving people what they hoped to get out of the meetings/talks.

A key part of helping people with their finances, as well as making their monies work, is real life planning of what they have now, what their goals are and showing them how to get there. People take in and understand much more visually, as most of us know; in fact 65% of us are visual learners. That’s why it’s important that when planning your finances you consider using a visual modelling system that shows your monies, what they are doing, future monies potentially coming in, and if you save ‘X’ amount into a pension/property/investment this will be the outcome. For example, which of the below would you prefer to see as your advice?

‘We recommend you place your €50,000 with ‘X’ company, and over the years achieving ‘X’ % return. Also, save ‘X’ a month in a savings program and both of these at retirement will give you ‘X’

OR TRY THIS…

Cash Flow Chris Burke
Cash Flow Chris Burke

What it really comes down to is the expertise of the planning, the knowledge of the financial adviser with whom you are working, and how much is actually put into planning your finances, rather than just making what monies you have work.

This is just one example why I/we at Spectrum stand out as excellent professional financial advisers and planners, if you would like to seriously start planning your retirement and investments or review what you are doing now, don’t hesitate to get in touch, or sign up to my Newsletter below to keep well informed.

Chris Burke newsletter

UK pension consolidation living in Spain

By Chris Burke - Topics: pension transfer, Pensions, Spain, UK Pensions
This article is published on: 1st February 2021

01.02.21

Now more than ever, with the UK leaving the EU, if you have a UK pension/pensions you will need to make sure that they are being properly looked after and managed. This needs to be by someone who can legally practice in the country where you are tax resident. Many UK pension companies are no longer able to give advice to those living outside of the UK, meaning you could have difficulties accessing, managing and securing your pension moving forward. A local adviser also has the advantage of knowing the local regulations, so is able to make sure you are adhering to the rules in addition to being as tax efficient as possible.

When people approach me to speak about their UK private or company pensions, they usually are not clear on:

    • What they are invested in, and whether the strategy is appropriate given the stage of life they are at now
    • How investment decisions are made, who makes them and when
    • The costs of management, what they are and are they efficient
    • How to access the pensions, particularly doing it tax efficiently living in Spain
    • How to consolidate multiple pensions, reducing costs and creating greater annual gains

When I ask most people what their pensions are invested in, what the annual returns are and when they last reviewed this, they usually don’t know or can’t remember. One of the reasons for this is that being outside of the UK makes all this all the more difficult to manage, and even more so now after Brexit.

Or, if they do know the answer to my questions, they have now found they cannot receive any advice from UK pension companies or UK based financial advisers moving forward.

final salary pension review

Consider consolidating several pension pots

If you have several different pension pots, there are potential advantages if you consolidate them into one. These include:

  • Simplification of administration and keeping track of your pensions
  • Managing your pension savings more easily and effectively, including potential tax liabilities knowing local, Spanish rules
  • Saving money if you can transfer from higher-cost schemes to a lower-cost one
  • Opening up a greater choice of investments if you are consolidating your pension pots into a flexible scheme

In many cases, the first step would be to locate your pensions and then evaluate what you have, how they work, what your options are and then have these managed effectively.

I help clients consolidate their UK pensions, managing them efficiently and effectively, planning for when they want to access them integrating with their tax situation and lifestyle. We can help you achieve all this, giving ongoing advice and moving forward making sure you access you pension tax efficiently, adapting to your life as it changes along the way.

For example, if you are over 55 years of age and currently on the Beckham Law, did you know you can cash your UK pensions in, potentially paying no tax in the UK, and potentially none in Spain? This is because on the Beckham Law, all ‘non-Spanish’ income is tax exempt (this depends on your personal circumstances) and being a NON-UK resident, you have no tax liabilities there either.

If you would like to discuss your various UK pensions and what your options are, feel free to get in touch.

Form D6, Modelo 720, Declaracion de la Renta and Wealth Tax reporting dates

By Chris Burke - Topics: Barcelona, Form D6 Spain, Modelo 720, Spain, Tax
This article is published on: 15th January 2021

15.01.21

Whether you have lived in Spain for a while, or are new and trying to understand when you need to submit to the various deadlines, including taxes and overseas assets, I have listed below in an easy to read format what you have to declare and when, to help make your life more simple. These have been the same for the last few years and so should remain moving forward. If you would like help in understanding, declaring and any other questions don’t hesitate to get in touch.

End of January 2021

FORM D6
Stocks, bonds and investment funds that are outside of Spain and are not Spanish compliant. (this is to compliment and not replace Modelo 720). Failure to comply with the obligation to submit this Form D6, can lead to a fine of up to 25% of the undeclared amount, with a minimum of €3000. Late declaration entails penalties ranging from €300 in the first 6 months to €600 after that deadline.

End of March 2021

MODELO 720
This is a declaration of assets outside of Spain value of €50,000 or more. Once declared you only need to do this again if the value of any asset (e.g. a bank account) has risen by more than €20,000). The authorities can fine you anywhere between 100 and 10,000 euro for failure to meet the requirements (as of 2019, the European Union considers Spain to be breaking EU law with these sanctions for people who file the Modelo 720 late).

End of June 2021

Declaración De La Renta
Your annual tax return, showing all assets and worldwide incomes, must be declared for assessment by this date. Not all assets will be taxable, depending on how they are structured. In Spain the financial year runs from January through to December, and in June you are declaring for the previous calendar year’s finances.

Wealth Tax declaration – Catalonia
Wealth tax 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 Catalonia the rates of tax start at 0.21% and rises to 2.75% depending on your wealth each year and is taken from the 31st December the previous year. There are ways of mitigating this tax by having your assets structured correctly.

What role do Chris and The Spectrum IFA Group perform?
I am a financial planner/Wealth Manager and we specialise in optimising clients’ assets, including strategies to minimise taxes both now and in the future. We manage clients’ savings, investments and pensions whilst understanding what these are and the role they will play in their lives. I do my best to continually keep clients informed of anything they need to know in respect of these topics.

Spanish private pensions

By Chris Burke - Topics: Pensions, Retire in Spain, Spain
This article is published on: 1st January 2021

01.01.21

Approximately 45% of people living in Spain contribute to a private pension. For someone who is from another Western, perhaps non-Latin country, this would seem remarkably low. Many years ago, in the UK pensions were almost guaranteed as part of an employer package, and a while back it became compulsory for anyone working in a company aged over 22 and earning more than £10,00 a year to contribute to one. But that figure of 45% in Spain could be about to get even lower…..why?

Spain has decided to lower the amount of private pension contributions you will receive tax relief on, from a low €8,000 per year (the UK has an amount you can contribute annually to of £40,000) to a measly €2,000 from 2021 onwards.

I have an open-minded view about pensions; I do not see them as essential, which may seem strange coming from a Financial Adviser. For me, a retirement plan does not need to include or solely be a pension, as long as there is planning in place. The only things I see as good value for the saver with a pension is that employees may contribute into this for you, and the potential tax savings received. I say potential tax savings here, because yes, you may receive tax relief when adding to these pensions, however, more often than not, unless you can mitigate your tax situation, will pay taxes when taking the money out, so more commonly they are a tax deferral system (which is still some kind of potential benefit).

UK pension lump sum

So, if you take away employer contributions, for me private pensions, certainly as an international person living and working away from your country of residence, doesn’t seem all that attractive. If you ever leave that country the pension stays there, under that

country’s rules, and you cannot access this money until age 67 (in Spain) and invariably, in my opinion but seen through clients and performance charts, Spanish private pensions are generally not that good. Look at most Spanish banks’ pension funds and you will find high commissions, too much investment in the Spanish market, and not enough advice.

What should a retirement/pension plan look like? Well, it’s about having a plan/strategy, regularly reviewing and understanding it doesn’t have to be a ‘pension’. It can be property; indeed, one of the reasons private pension contributions are so low in Spain is because culturally they are property lovers, often not just one, but several. These are usually structured within a Spanish company and passed down through the generations, and can be a very attractive investment and also tax efficient. Buying property in Spain is expensive, approximately 13% in Catalunya for example, however if you rent this out as a long-term rental, up to 60% of that annual income is tax exempt.

What this doesn’t give you though is liquidity, so, if there is a property slow down, you could be stuck with that investment unless you want to take a loss on it, or you may have to leave it behind if you move on. It can also be a big hassle, with Okupas (a common problem in Spain of people unlawfully living in your property, and who are very difficult to get rid of, indeed sometimes it can take years to do so and cost a lot of money). Many people working now are almost in a ‘golden generation’ to think about their pension planning. Many of their parents have assets/properties that have grown very well, and will more often than not leave them a considerable amount of money (see my article on inheritance planning for a potential tax problems there!) They seem less worried about their retirement, than perhaps their parents were. Therefore, they don’t necessarily see the benefit of saving money into a pension when they might not need one, with the money being blocked until then and it restricting their current lifestyle.

balanced investments

A more popular and arguably better strategy for someone, perhaps like me for example, living away from my country of birth, is to make my money work by having it invested in a medium term strategy, say 5-10 years, but have more flexibility should I need it, say for school fees, or, in a few years time, buying a property, or anything else my plan entails (maybe even early retirement).

So, build your strategy on a mixture of property, investments and emergency funds where possible, and always review regularly to see which type of these suits you best at any given moment. Some people really don’t want the hassle of having property, so a well managed investment portfolio could be better for you.

I can help with all of this: the planning, helping set up a property investment structure, and organising savings that will be invested and work for you. Alongside this, we can set it up with access to the money should you need it, making sure you have a clear strategy and advice along your journey.

Living in Spain after BREXIT

By Chris Burke - Topics: Barcelona, BREXIT, National Insurance Contributions, Spain, UK Pensions
This article is published on: 27th August 2020

27.08.20

After the results from the UK’s General Election, it seems we are closer to Brexit than ever before, so are you prepared for it living in Spain?

Documentation to remain in Spain

There are many rumours among non-Spanish people of what you need to do to stay in Spain should Brexit happen. The response from the Council recently has been, should you hold a NIE and an Empadronamiento, you are proving you are resident in Spain, so for now these should suffice. However, if Brexit does go ahead, Spain could draw a ‘Stay in Spain’ line in the sand which would then need adhering to. In the worst case scenario, a renewable 90-day tourist visa would give you time to adhere to whatever the new rules are. Spain has said publicly it will reciprocate what the UK does, and the UK knows there are far more British people living in Spain than the other way around in the UK.

UK Private and Corporate Pensions

The current HMRC rules state that if you take advantage of moving your UK pension abroad it must be to either where you are resident OR in the EU (due to the UK being in the EU). If this is not the case, you would have to pay 25% tax on the pension amount. Therefore, it is very likely that as the UK would be leaving the EU, these rules would not be met and the 25% tax charge would start to apply to pension movements outside of the UK. This could be the last chance to evaluate whether it’s better for you to move your pension or not and take advantage of the potential benefits, including being outside of UK law and taxes.

National Insurance Contributions

If you were to start receiving your State pension now, you would approach the Spanish authorities and they would contact the UK for their part of the contribution, taking both into account. Before the UK joined the EU, you would contact each country individually and receive what they were due to pay you. If this becomes the case again, for many British people the UK part of their State pension would potentially be more important, as it is likely to be the bulk of what you receive. We don’t know how Spain will act with regard to state pension benefits to foreigners; therefore it would make sense to manage the UK element well if this is your largest subscription.

I recommend two things here; firstly check what you have in the UK so you know where you are. You can do that here:

www.gov.uk/check-national-insurance-record

You can contact the HMRC about contributing overseas voluntary contributions at a greatly discounted rate, from £11 a month: you can even buy ‘years’ to catch up:

www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions

I have mentioned this in Newsletters before, but it really is a great thing to do, both mathematically and for peace of mind. Many people I meet living away from the UK have ‘broken’ years of contributions which is leaving themselves open to problems in retirement.

TIP: If you have an NI number, you do not necessarily have to be British to do this.

Investments/stocks/shares/savings

Time apportionment relief

Statistically, in 75% of British expat couples living abroad, at least one of them will return to live in the UK. It remains to be seen whether this changes if the UK leaves the EU, however, you can easily save yourself some serious tax if you have this in your plan of eventualities.

You can, in effect, give yourself 5% tax relief for every year you spend outside the UK by positioning your investments/savings correctly. Then, upon your return, you can take this tax relief when you are ready, such as in the following example:

Mr and Mrs Brown invested £200,000 ten years ago when they were living in Spain.
After this time, it is now worth £300,000
They returned to the UK and have been resident there for the last year (365 days)

They decide, after being back in the UK for 1 year (365 days) to cash in the investment, taking advantage of ‘Time Apportionment Relief’ which will be calculated the following way:

£100,000 (total gain)
multiplied by the number of days in the UK (365)
divided by total number of days the investments have been running i.e. 10 years (3650 days)

Resulting in a £10,000 chargeable gain (that is what you declare, not the tax you pay).

There are other potential tax savings as well, but they depend on other circumstances. If you have your savings/investments set up the right way you can take advantage of this.

If you have any questions or would like to book a financial review, don’t hesitate to get in touch.