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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.

Investing After a Stock Market Crash

By Chris Burke - Topics: investment diversification, Investment Risk, Investments, Spain, Stock Markets
This article is published on: 25th May 2020

25.05.20

The question on any investor’s lips at the moment is, ‘Will the stock markets crash again in the near future, say in the next 6 months?’ The main reason for this question is, even if the world starts to get back to normal after this pandemic, when furloughing and all the other methods that have helped people economically are finished, soon we shall see the realisation of the following:

  • Profound job losses and companies going out of business
  • Some entire sectors (e.g. aviation) taking years to recover, some even never recovering
  • Company results being published for the 2nd quarter of 2020, when they have been effectively shut the whole time. How will the markets react?
  • Unemployment at an all-time high
  • People losing their homes, unable to obtain mortgages

What’s really unclear here is, and this is the BIGGEST question, has all of this already been priced in to the stock markets? That is to say, have all these considerations and more been valued and taken into account by people buying and selling stocks?

50% of the reason why stock markets go up or down has nothing to do with the actual value of those stocks; it’s the perception of the people buying and selling that influences it. If people are optimistic and there is some bad news, the markets might not be affected by this. However, if people are worried/pessimistic and there is some small bad news, this could be ‘the straw that breaks the camel’s back’ sending the markets tumbling. So, what is the best approach to take when investing after a stock market crash?

upward stockmarket trends

The answer to this question depends on your risk/reward profile. If you are a more aggressive investor, then using all your allocated investment money in one go would probably be your choice. However, this equates for less than 20% of us; the most common approach

of people investing their money is balanced.

Most people understand that not being invested means you could miss out if the markets shoot up, but also, if they crash lower you would lose out. However, if you believe yourself to be aligned with the following criteria, then there is a strategy you can follow which statistically should give you more safety, with a lower chance of your money being negatively impacted at the beginning:

  • You are prepared for your money to be invested for the medium to long term (5 years plus)
  • You do not want access to this money for at least 5 years
  • You understand there could be some volatility during this period
  • You want your money to grow above inflation and actually increase in its value
  • You are a balanced investor, meaning you are prepared to invest with the knowledge that the value of your money will go down, as well as up

After every stock market crash, analysts try to label what kind of a recovery it is. Is it a ‘U’ shaped recovery, meaning a sharp drop, period of downturn and then a sharp upward recovery? Or is it a ‘W’, where there is a crash, then a recovery, then another crash followed again by a recovery? The truth is, each stock market crash is different; no two are the same. Each day it’s 50/50 whether the markets will be up or down. Therefore, taking this reasoning into focus, and wanting to limit any losses and maximise any gains, let’s look at this as if it’s a business opportunity.

If you were opening up a new business, and needed to borrow money to finance it, would you either:

  • Borrow all the money you needed in one go and spend it
  • Borrow some of the money you needed, review periodically and then borrow more as and when necessary
  • Borrow some of the money you needed, review periodically and have instant access to more when necessary

Whilst Option 1 could work for you, that money needs to have interest repaid on it, and if the business didn’t go well, that’s more money lost.

Option 2, as long as you don’t have any cash flow issues, could also work well, meaning you are repaying less money and only borrowing what you need as and when. If anything happened to the business you were not putting everything in.

Option 3 gives you the same as option 2, as well as having access to a cash injection instantly should the time arise.

crystal ball

These options are all a matter of opinion, but in relation to investing, there is no future knowledge of what the stock markets will do. What we do know for certain about investing is this:

  • Historically, inflation has doubled approximately every 24 years
  • Unless your money is keeping up with inflation, in real terms you are reducing the value of your money
  • There is hardly any interest being paid by bank accounts
  • One day you will stop working, and the only income you will have is what you have built up

Therefore, taking into account these main known points, it’s clear that money needs to be managed effectively but in a risk averse way as possible. To be able to minimise risk, and to try and gain on any stock market rises and minimise any falls, the safest short-term approach would be to ‘drip feed’ your investments. However, to make sure you don’t miss out on any upswings in the market, you need to have your investment money aligned in the following way:

Example – Investment value €250,000:
Starting with €50,000, add to this €20,000 per month moving forward until one of the following occurs:

  • You have invested all your money
  • There is a large enough stock market downturn

In this second scenario, you would then decide to add much more of your uninvested money immediately; depending on how much is left and the scale of the market drop.

By using this approach, if markets took a sudden upward turn your money is already partially invested to take advantage of any gains moving forward. However, and more importantly, if the stock markets took a sudden dive, you are limiting losses and are in a position where you can take advantage of lower prices.

financial review

As I stated above, no one knows exactly what will happen or when after a stock market crash, but by investing in tranches to make your money grow, this will give you some protection against a stock market crash in the near future, and even the ability to even take advantage of it.

Two last points I would add, and those are, even if stock markets crash again, after a recent previous crash, there is more likely of a quicker bounce back. And secondly, money invested over time is the safest way to achieve long term growth of your money and create that income for when that day finally comes when you are no longer working.

My job is to help people plan their finances, managing their money in as painless and risk-averse approach as possible, at all times having their best interests as our common goal. Don’t hesitate to contact me on the details below if you would like to discuss any of the points in this article or arrange a meeting with me.

Modelo 720 Reporting Time – 2020

By Chris Burke - Topics: Barcelona, Modelo 720, Spain
This article is published on: 26th February 2020

26.02.20

Just a reminder that time is running out for submitting your Modelo 720 declaration for 2020. The deadline this year is the 31st March and is fast approaching.

All those tax resident in Spain (those living in Spain for more than 183 days a year or where Spain is the main base for your business) should be aware that as a result of legislation passed on 29th October 2012, residents in Spain who have any assets outside of Spain with a value of €50.000 (or alternative currency equivalent) or more, are required to submit this declaration form to the Spanish authorities.

This declaration can be made online, through the Tax Office`s web page www.agenciatributaria.es where the Modelo 720 formcan be located (type in Modelo 720 into the search block on the top right hand side of the page). It must be filed between January 1st and March 31st of the first year of residence to avoid being investigated or fined by the Spanish authorities. I would personally recommend speaking with your accountant / Gestoria to avoid mistakes.

    1. Property
    1. Bank accounts (cash)
    1. Investments

To warrant a declaration the total value of assets should exceed €50.000 in each or any one of the categories; e.g. if you have 3 bank accounts and totalling up all the balances it exceeds the €50.000 limit you are subject to making the Modelo 720 declaration. However, if you have a bank account at €30.000 and, say, investments valued at €30.000 then there would be no reporting requirement as they are in separate categories and each individual total value does not exceed the €50.000.

A declaration must be submitted individually, regardless of the percentage of ownership (in joint accounts). For example, if you have a joint bank account with a value exceeding €50.000, although your particular (say €25.000) share is below the threshold, each owner would still be required to submit an individual declaration based on the total value of the account.

Although this declaration of assets abroad is solely informative and no tax is charged, failure to file, late filing or false information could result in fines.

For this reason, we recommend that everybody arranges to declare their assets. Once you have made your first declaration it is not necessary to present any further declarations in subsequent years, unless any of your assets in any category increases by more than €20.000 above the initial value declared.