Viewing posts from: November 2000

Spanish Tax on Personal Pensions

By John Hayward
This article is published on: 1st June 2022

01.06.22

Further to the recent article written by my colleague Charles Hutchinson regarding temporary annuities and their taxation of annuities in Spain, I am expanding on the tax treatment of personal pensions generally.

Depending on the type of retirement income that you are receiving, it will either be taxed as regular income, “work” income as the Spanish call it, or savings (passive) income with a different set of tax rates being applying to each type. It is generally understood that the income from pension plans that received tax relief (effectively where the contributions were deducted from income before tax was calculated) will be treated as work income.

The word “annuity” is used in a general sense in the UK as the regular payment which comes from a pension scheme. It is possible to convert a personal pension fund to an annuity, with a view to guaranteeing a fixed income for life albeit waiving the right to the capital value of the pension pot. Whether or not it is advisable to purchase an annuity is another matter. This will depend on personal circumstances.

As far as Spain is concerned, an annuity is a form of income that attracts favourable tax treatment. An annuity in Spain is either temporary or for the whole of life. The annuity is purchased. It is not income drawn from an existing pension fund unless that fund is encashed to buy the annuity. At that point though there is the possibility of a large tax bill on the encashment.

Yes, I want to book an initial call to discuss my penions in Spain

The key points here are that:

Not all pension income is treated the same way for tax
Declaring work income as an annuity is not correct and, if reported intentionally in this manner, it is possible that it will be treated as fraud. The Spanish tax office is making a special effort right now to check on this. They can go back at least 4 years with their investigations
Care should be taken when accessing retirement income to make certain that, not only is it being declared in a lawful way, but also that you do not leave yourself open to a nasty and unexpected tax bill

Contact me today for more information on how we can help you to protect your assets from unnecessary taxation and make more from your money, protecting your income streams against inflation and low interest rates, to talk about Spanish Tax on Personal Pensions or for any other financial and tax planning information contact me at:

john.hayward@spectrum-ifa.com or call (+34) 618 204 731 (WhatsApp).

Spanish Tax Guide 2022

By John Hayward
This article is published on: 24th May 2022

24.05.22

Over the past year or so, with Covid-19 restrictions being lifted and impact of Brexit becoming clearer, we have received many enquiries regarding taxation in Spain, not only from people who are looking to move to Spain but also from those who already live in Spain, in some cases for many years. There are areas of tax that are complex, not helped by the fact that you might receive different opinions on the same tax subject.

In countries such as England, Wales, and the United States of America, there is a Common Law code. Established in England in medieval times, it is based mainly on case law. A decision made many years ago could still apply today. This is a system which has allowed us to get used procedures which have been in place for a long time. This is not necessarily the case in Spain.

Spain, like other countries in Europe, have a Civil Law code. Within this system, rules can be updated regularly. As flexible as this system is, unless you are completely up to date with the latest rules, which may only have been recently altered, it makes it extremely difficult to know how exactly you should be declaring your income and gains in Spain.

Please click on the link below to download our latest Spanish tax guide which is designed to give you a better understanding of the different Spanish taxes, to whom they apply, and when they need to be paid. Spain is made up of autonomous regions and so there can be different rules and tax rates that apply.

Download your tax guide here

However, the general principles are the same or similar throughout the Spain. You will be subject to at least one of these.

Income Tax
Inheritance Tax
Gift Tax
Wealth Tax
Capital Gains Tax

If you have any questions, please get in contact. If we do not know the answer to your tax questions, we know someone that does.

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Spanish tax on UK property

By John Hayward
This article is published on: 29th March 2022

29.03.22

In February I wrote about the impact on investments with Russia’s invasion of Ukraine and inflation rearing its ugly head. For the last month or so, the movement of global stock markets has attracted comparisons to a violin player’s arm joint and the undergarments of a professional lady. This is possibly the future for investments for a while although there appears to be more positive than negative movement (at the time of writing in case there has been a sudden catastrophe).

In the meantime, away from the uncertainty of how much a tank of fuel will cost in 6 months’ time, I want to mention something regarding Spanish tax on UK property.

31st March 2022. The end of the declaration period for everyone’s favourite, the Modelo 720. Although this is not a tax declaration, it does highlight assets and how these might be taxed in the future, whether this be capital gains tax, wealth tax, inheritance tax, or income tax. Focusing on the latter, I believe that it is generally not appreciated that a tax resident in Spain has to pay income tax on a UK property, even if it is not rented out.

Download your guide to tax in Spain here

It is (fairly) well known that, if you are a not tax resident in Spain, and you own a property in Spain, and you receive rental income, you have to pay Non-Resident Income Tax (NRIT) or Non-Resident Imputed Income Tax (NRIIT) if you do not receive rental income, perhaps both depending on how much of the tax year (1st January to 31st December) it is rented out. Imputed rent is a fictional amount of rent that the Spanish tax office decides is what you are receiving based on the cadastral value. It works the other way around. That is, if you are a tax resident in Spain with a UK property, and you do not rent it out, you still have to pay tax on the imputed rent.

How is the tax calculated? UK properties do not have a thing called a cadastral value. Some have said on the (not always reliable) worldwide web that it would be the rateable value that would be used. The actual rule is that, if there is no cadastral value, the tax is based on 50% of the original purchase price with the application of a rate of 1.1%. That gives you the imputed rent. It is this figure that would be used for income tax purposes.

For some people, this may not introduce a problem, especially when considering the double tax treaty between the UK and Spain. It is the fact that those who should have been declaring this “income” have not been and my message could prompt a chat with their tax agent. The Spanish tax office is regularly sweeping up what they (or their computer) see as outstanding items, often up to 4 years old in line with Spain’s statute of limitations.

Contact me today for more information on how we can help you to protect your assets from unnecessary taxation and make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

Modelo 720 – the end of late filing fees?

By John Hayward
This article is published on: 28th January 2022

28.01.22

Is this the end of ridiculously huge fines for the Modelo 720?

Although the ECJ has not stated that the Modelo 720 (the declaration by Spanish tax residents of assets outside Spain) is illegal, the European Court of Justice agrees with the European Commission that Spain has failed in its obligations under the free movement of capital because Spain has been charging disproportionate fines for non or late disclosure. The ECJ notes that Spain does not treat the disclosure of Spanish assets in the same way.

Spain has seemed to ignore pressure before on this subject but the ECJ has stated that, if Spain does not address this issue, Spain will face large fines. Perhaps this time Spain will act.

Download the Court of Justice of the European Union press release here

The Modelo 720 – Does this affect me?

In 2013, the Spanish government launched an “anti-fraud” plan to prevent tax evasion. It appears that this was originally aimed at Spanish nationals who were “hiding” their money outside Spain, but it soon became applicable to non-Spanish nationals living in Spain.

The Modelo 720 has to be completed by 31st March of each year and is based on assets held as at 31st December of the previous year. In general, you will be deemed tax resident if you are in living in Spain for more than 183 days of a calendar year (which is the same period as the tax year).

Yes, I would like assistance - I need to know if I have to complete the Modelo 720

Smart Banking

By John Hayward
This article is published on: 1st September 2021

01.09.21

Don´t panic Mr Mainwaring!

We’re almost 2/3rds through 2021 and there seems to be a lot more optimism, in Spain at least. However, certain problems exist and are not likely to go away any time soon. One of these problems is with banks. My particular bank branch did not exactly cover itself in glory over the last 17 months or so, allowing long queues to form outside, allowing only one person in at a time (when there were three members of staff inside!?). We all understood why they were doing it, but opening for only 2¾ hours a day and then not being particularly helpful if you could get in during that short window of time, made us feel a little bit let down.

The days of the local bank manager who knew everything about you, from the details of your spending habits to what school the kids went to, have long gone. There is little or no familiarity with customers and the main aim for the bank staff these days is to sell products, often with questionable relevance to the customer and rarely explained sufficiently, in my experience.

Let us think about the future of high-street banking. My opinion is that there will be a lot less bank branches in 10 years’ time than there are today, maybe none. I avoid going to a bank as much as I can, other than to grab some cash outside (from the machine and my account, obviously). I do all of my banking online. I have no fear of it but I appreciate that there are those who do and do not trust the system. I also appreciate that there is the possibility of fraud and theft but, as long as I follow the instructions like “Don´t give your card and pin number to someone else!”, I am confident that any money stolen will be covered by the bank. There are people who keep their card and a note of the pin number in the same handbag/wallet. The bank will not be very sympathetic in these circumstances. Also, be wary of anyone taking your card where you cannot see them. Cloning cards is a popular pastime for some. The overall feeling here is that those who do not like or want online banking will not have the choice in the future.

Everything is pointing towards branchless banking. That means people having to do all of their banking online. For me, that is perfect. The internet connection permitting, I can go to my bank at any time of the day. I don’t have to wait for it to finish a chat about the weather or the health of their cat before being attended to. I don´t have to find a home for half an Amazon Rainforest worth of paper and, generally, on the homepage there is a smiley photo of a person who may, or may not, work for the bank but that doesn´t matter. In order to perform certain actions online, you need to have registered a mobile telephone. For those not yet in the world of smartphones, it might be time to arrive. A smartphone is not essential for internet banking but the functionality of a smartphone just makes the whole process so much neater and easier (eventually). Whether you use a phone, iPad, laptop, or PC for your internet use, you will need the phone to confirm certain transactions and instructions.

I mentioned some months ago about ways of getting around bank charges that have been applicable since Brexit. Although the withdrawal agreement stated that the UK would remain part of the Single Euro Payments Area (SEPA), certain banks decided to apply charges to UK transactions with the excuse that the UK was no longer part of the EU. They have not taken any notice of the agreement and customers have been paying exorbitant fees for banking. I have recently discovered that a client of mine has been charged €18 a month on a small private pension of around £170 per month. This is being paid to her Spanish bank and they are charging, because they can. She challenged them on this (10% fee a month) and they said that they didn’t realise that it is a pension. However, they still have not done anything about it. Therefore, I have helped the client sort out a new banking arrangement for these transfers, saving her hundreds of euros a year in bank charges, as well as providing her with an exceptional exchange rate.

Brexit has introduced new problems and highlighted existing ones. Undoubtedly, as we progress through the journey and consequences of Brexit, we will have to deal with new taxes, new charges, new barriers, and new paperwork. We at The Spectrum IFA Group can help to make that journey less painful and less complicated.

Contact me today to find out how I can help you make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

New Spanish tax rules for UK ISAs and investment funds

By John Hayward
This article is published on: 28th May 2021

28.05.21

Brexit increases tax woes for UK nationals living in Spain

Slowly but surely, the impact of the United Kingdom’s exit from the European Union is taking shape. For those UK nationals living in Spain, this could mean higher, and possibly new, taxes. As I wrote last week in my Wealth Tax in Spain article, the Spanish government and regional governments are in desperate need of revenue to cover pensions and the consequences of Covid-19. One source of this revenue will be through applying taxes to people from the UK who hold investments that do not qualify for special treatment in Spain.

At The Spectrum IFA Group, trading as Baskerville Advisers S.L. in Spain, we encourage those who wish to invest to make more from their money in the bank, or those already invested, to use a “wrapper” that is tax compliant in Spain. The main benefit of this is that any tax on gains is deferred until the account holder receives benefits in the form of a withdrawal. There are also other tax advantages that Spanish compliant investments have over those that do not qualify for special tax treatment in Spain.

Part of the “compliant” nature of the products that we recommend is that the companies used to hold the investments report the values, and hence gains, to the Spanish tax authorities. They are also responsible for deducting tax from any withdrawals.

Other important factors to make an investment Spanish compliant are that the distributor (the company offering their products in Spain) must be officially registered with the Spanish authorities and that the funds invested in are based in the EU*.

Click here to book a call

We meet many people who have UK based investments such as Individual Savings Accounts (ISAs). Others invest in funds using platforms (Online investment facilities) or insurance bonds through UK based companies. Up until 31st December 2020, although gains on these investments may not have been reported to Spain annually by Spanish tax residents, they seem to have been largely ignored by accountants and gestors when completing the annual tax return in Spain. This is possibly due to the fact that the UK was part of the EU and at least part of the compliance stipulations were being satisfied. That is, the funds used were in the EU.

People think that completing the asset declaration using the Modelo 720 is some kind of tax return. It is not. Of course, it gives the Spanish tax office a snapshot of wealth, which in turn could possibly lead to wealth tax being charged, but it is not specifically designed to give the detail of the annual gains, or losses, that occurred in a particular tax year.

The picture has changed dramatically due to Brexit. If you hold investment funds in the UK, these will be some of your responsibilities moving forward:

You will have to report any gains each year
You have to itemise each element of the investment so that if, for example, you hold 20 different funds, you must detail each one
In addition, if your portfolio is made up of income paying funds, any dividends/coupons have to be itemised. Even cash within a portfolio has to be shown separately
You need to know exactly when you bought each fund

There is a lot more to consider but, as you can imagine, this is going to be a nightmare situation for many, especially for those who have bought, sold, and then bought funds again over the years.

We can simplify all of this.
For those who have yet to become Spanish tax resident, we can organise your investments so that you never have to experience this incredibly difficult situation. For those who are already tax resident in Spain, we can switch your non-compliant, and potentially painful, investments to compliant ones. If you wish, you can select the same types of fund that you currently hold but in a Spanish tax compliant manner. This is extremely important because it means that, if you move back to the UK without having withdrawn any money from the investment, you will have escaped Spanish taxation on gains made whilst resident in Spain. Added to that, through investment structures that we can guide you to, if you return to the UK, any gains made whilst you lived in Spain, are ignored for UK tax purposes (I will write more on this in another article).

If you would like to legally avoid annual Spanish taxation on your investments, as well as the headaches and additional accountancy costs, you need to act now. The problem is not going to go away unless you leave Spain, which might be an extreme measure. It might be that your investments are in poor shape or that your UK adviser can simply no longer deal with you since Brexit. There is a host of other ways that I might be able to help you so contact me today for a free and no obligation discussion.

*Source: JC&A Abogados

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Wealth Tax in Spain

By John Hayward
This article is published on: 10th May 2021

10.05.21

The UK tends to rely on income and inheritance taxes to generate revenue, but countries such as Spain and France, also apply wealth tax (Impuesto sobre el patrimonio). This is an asset tax and can be on cash, real estate, pension funds, shares, investment bonds, ISAs, and even cars. Portugal also has a wealth tax but this relates solely to immoveable property.

Spain eliminated wealth tax in 2008 but then “temporarily” reintroduced it in 2011 and it has been here ever since.

Each autonomous region sets their own allowances and rates after initial direction by central government. The Spanish State’s allowance is €700,000 plus up to €300,000 for one’s main residence. This is per taxpayer. It is important to note here that a property only becomes a main residence after 3 years of continuous habitation. There are a number of exceptions to this rule.

The State’s rates of wealth tax are as follows:

Lower Band Limit (€)	Upper Band Limit (€)	Tax rate (%)
Nil	167,129	0.2
167,129	334,253	0.3
334,253	668,500	0.5
668,500	1,337,000	0.9
1,337,000	2,673,999	1.3
2,673,999	5,347,998	1.7
5,347,998	10,695,996	2.1
Over	10,695,996	2.5

Wealth tax in Valencia has changed over the years. In 2019, it was announced that the tax-free allowance was being reduced to €600,000. With effect from 2021, the allowance is being reduced further to €500,000. This means that more and more people will become subject to wealth tax.

In addition to the reduction in allowances for 2021, Valencia has higher wealth tax rates than the State’s own rate, as follows:

Lower Band Limit (€)	Upper Band Limit (€)	Tax rate (%)
Nil	167,129	0.25
167,129	334,253	0.37
334,253	668,500	0.62
668,500	1,337,000	1.12
1,337,000	2,673,999	1.62
2,673,999	5,347,998	2.12
5,347,998	10,695,996	2.62
Over	10,695,996	3.50

Example:
If a couple have assets totalling €2.5 million, including a main residence worth €600,000, the individual annual wealth tax bill based on the State allowance and rates could be around €600. Using the Valencia allowance and rates, the tax bill could be almost €1,800. To clarify, this is per person and payable each year.

Depending on one’s income, and if one is a resident in Spain, the amount due can be reduced. The wealth tax due cannot exceed 60% of one’s taxable base (e.g., annual pension income, savings, etc.) when adding the wealth tax to personal income tax liabilities with a minimum payment of 20% of the wealth tax due. It is important to make certain that all of one’s assets are eligible for this rule.

Spanish Tax Guide Download

Taxes in Spain after BREXIT

By John Hayward
This article is published on: 12th April 2021

12.04.21

The Times They Are a-Changin’ (Bob Dylan:1964)

With the first three months of the year having seemingly whizzed by, I feel that there is a more positive feeling (generally) compared to a few months ago. More and more people are (slowly) receiving a vaccination of one brand or another. At the same time, we feel disappointed and worried that this could be a short reprieve if people lose their patience. We have witnessed crowds acting as if there is nothing out there to worry about. We may well see wave after wave of Covid-19 as the months and years go by. The main thing is to control it and, hopefully, an annual vaccination will be the least of our concerns.

Away from Covid-19, over the coming days and weeks I will be sharing my experiences relating to the concerns of others and their taxes in Spain, France, the UK, and even the USA. This information will cover income tax, capital gains tax, wealth tax, and inheritance tax in Spain and their link with taxes in other countries. I will also explain how I have helped people solve the bank charges problem, how I was able to find pension funds that the person didn´t know they had, and how I have happy clients whose investments have produced increases at a time when a lot of people have believed that the investment world is in dire straits (Perhaps relying a little too much on certain news channels and newspapers).

Since Brexit, there have been quite a few changes in Spain and I am certain that there are more to come. This has been a pretty steep learning/development curve and, as so often happens in Spain, opinion is rife. Knowledge, however, seems to be in short supply. It is quite frightening how many different answers you can get for the same question. Over the last few months, I have been studying the Spanish Tax Office’s information, steering clear of blog sites. At the same time, I have had meetings with my economista on various tax matters. Familiarity of investments outside Spain is lacking by many lawyers and accountants in Spain. It is for people like me and my colleagues to educate and liaise with clients and also with the professionals themselves.

With most countries having a focus on higher taxes or lower allowances in order to pay for the welcome support provided over the last year or so, and the likely consequence of higher inflation, it has become even more important to have savings and investments in the most tax efficient structures.

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New Spanish bank charges post-Brexit

By John Hayward
This article is published on: 11th February 2021

11.02.21

If you bank with Sabadell, you may well have noticed that they are charging you for transfers in and out of your account. Although you may have an account that didn´t attract changes before Brexit, it could do now. When approached by a client of mine, who has a Premium account with Sabadell, their response was, and I paraphrase “because we can”, using the Bank of Spain rule book to justify the charges. It is because the UK is no longer in the EU. It appears that these charges are being applied to ad hoc transfers as opposed to regular payments such as pensions.

I have heard of other instances where transfers have been made from the UK using a currency exchange company. Currencies Direct, for example, have stated that they will cover the charges made by banks as they feel that it is incorrect and goes against the SEPA (Single Euro Payments Area) agreement, challenging the actions of the banks.

Solutions

Close the account with Sabadell. (This is probably not convenient for many)
Tell Sabadell that you will close the account if they continue to charge. (You will probably not get too much of a reaction to this one)
Instead of transferring money as and when required, which is something many people do, set up a regular payment.
Make transfers via companies where you can have an account in GBP and another in Euros. When the money is received or paid by Sabadell in Euros, from or to an EU based account, they do not charge.

I understand that other banks are also making charges when they did not before Brexit, so check with your bank. You do not have to just accept what they are doing.

Cash is King?

By John Hayward
This article is published on: 10th February 2021

10.02.21

What are investors doing with their cash?
Last year, Quilter, a British multinational wealth management company, conducted research* with 2,000 UK investors. The Covid-19 pandemic has provided many investors the opportunity to save more than they were before. However, many are either choosing to lock this money in a bank account or are waiting for what they believe is the ‘right’ time to invest in markets. But when is the right time to invest?

The research also found that most of those surveyed don’t understand the potential risks that having too much of their savings tied up in cash can have on their financial plans over the long term.

More recently, Quilter reached out to a sample of their international customers and found that the very same sentiment was shared by them. Many investors are sitting on cash that is not necessarily working for them and they could be missing out by being too cautious with their money.

Prudential have reported that, according to the Bank of England 28% of households have seen savings increase in 2020. That could mean they have a cash pile sitting unproductively earning minimal interest.

We understand that people are concerned about the future, even more so now with Covid-19 in play, but we also know that interest rates are likely to stay low for the foreseeable future whereas as inflation remains in the background. Many were waiting (years) for Brexit to go through and then Covid-19 came along and now they are waiting for this to go away before taking action with their money. In the meantime, the value of their cash has gradually reduced whilst those invested have seen the benefit of being so.

Here is a link to Prudential’s Investing for Beginners for those who are would like to know more about some investment basics and we can provide additional guidance.

Investing for Beginners | How to Start Investing | Prudential

There are many articles which call themselves ‘Investing for beginners’ but maybe a better place to start is to simply understand the ‘point’ of investing. Why could it be a good idea? Why should you consider it?

To find out how we can help you decide how best to plan for your current needs and those of the future, contact me today.