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Does Qrops or transferring your UK Pension overseas work?

By Chris Burke - Topics: Barcelona, pension transfer, Pensions, QROPS, Spain, UK Pensions, United Kingdom
This article is published on: 4th March 2019

04.03.19

Those people who have a UK private or company pension and are resident outside of the UK, more often than not have the choice to transfer their pension to a QROPS (Qualifying Recognised Overseas Pension Scheme), that is the process of moving your pension outside of the UK. However, what are the important points to note with this, how does it differ from having your pension in the UK and most importantly, does it actually work effectively?

For just over 10 years you have been able to move your pension outside of the UK. Over that time, I have seen mixed success at doing this, with the companies providing this service changing, fees in essence reducing and the options of managing this growing. What has also changed is the benefit of doing this, alongside the advice you receive. Unfortunately, I have come across many cases where this has not worked well, and the reasons are nearly all the same: bad advice was given by the financial adviser who put their clients is funds/pensions that were overpriced and expensive.

To summarise, the current key potential benefits of Qrops would be the first step to seeing if this could be the right choice for you:

  • Pension potentially outside of future UK law changes
  • Brexit and the impact it would have on being a British person living in Spain
  • Potentially side stepping an expected 25% tax charge for moving pensions after Brexit
  • Currency fluctuation (ability to change your pension to euros when convenient)
  • Portability – the ability to move your pension in the future if needed
  • Potentially reduced tax liability
  • Inheritance – potential reduction of tax to beneficiaries or potentially lower tax on death (depending on your country of residence)
  • Peace of mind
  • Closer personal management of your pension
  • Tax efficient (working alongside a local tax adviser) potentially

And what are the key points that might mean Qrops is not right for you:

  • Returning to live permanently in the UK in the next five years (or maybe longer)
  • Pensions total value under £60,000 (the charges would be, in my opinion, punitive)
  • A company scheme where the benefits outweigh transferring
  • In the near future, wanting to take most of the money from your pension
  • Not having your pension in a Qrops managed well and expensively

From the perspective of access to your money, there is currently not much difference to having a personal pension in the UK or a Qrops. With the rule changes a few years back, you can, in essence, get access to your UK pension from age 55 in the UK and as much as you like, just as in Qrops.

Where Qrops really can help is moving an asset away from the UK and any potential rule changes, which have been regular over the recent years (mainly worse for the person owning a private pension). Couple that with Brexit and a potential 25% tax charge, then having your pension outside the UK will give you peace of mind in knowing exactly what the pensions rules would be for you moving forward. Also, given the fact that if you did ever move back to the UK (statistics show that for a British couple, there is a 75% chance one of you will go back at some point), you can transfer it back with you (there could also be tax benefits of doing this) and with some pension companies no charge.

However, perhaps the most important question is, does it work? The simple answer is yes it can, BUT it has to be set up the right way, with the right company and if you are given the right advice for what your pension is invested in. Basically, it needs to be done for your benefit, not so that the adviser can earn as much commission as possible from your pension.

Whenever I take a new client on, I always ask them if they would like to speak to an existing client to see what their experiences were, which is what I would do when performing my own due diligence.

If you would like to talk through any pensions you have and what your options are, feel free to get in touch and know that you will be given good advice, whether you become a client or not.

G transferred her pension 4 years ago; it has grown significantly over that time. “Chris has always been consultative and there when we need him.”

J transferred his pension 6 years ago. “It has grown well over that time. Whenever I have needed money from my pension Chris has arranged this for me. I would recommend him for sure.”

C transferred her pension 5 years ago. “It has grown steadily in that time (I am a cautious investor) and since then my husband and I have asked Chris to help us with our other investments.”

Récapitulatif sur le MODELO 720

By Cedric Privat - Topics: Barcelona, Modelo 720, Spain
This article is published on: 25th January 2019

25.01.19

Qu’est-ce que le Modèle 720 ?
En 2013, le gouvernement espagnol décide de s’attaquer à la fraude fiscale. Il met alors en place un certain nombre de mesures.

Visant en priorité les nationaux espagnols, cette réforme affecte également les étrangers vivant et/ou travaillant en Espagne disposant d’un patrimoine en dehors de la péninsule Ibérique.

Le Modèle 720 est une déclaration informative mais obligatoire sur les biens et avoirs à l’étranger.

L’objectif de cette démarche est de disposer d’informations sur:
– les comptes bancaires situés à l’étranger
– les titres, droits, assurances-vie et placements gérés ou acquis à l’étranger
– les biens immobiliers et les droits sur les biens immobiliers à l’étranger
Ce formulaire dûment rempli doit être présenté entre le 1er janvier et le 31 mars, uniquement par internet (via le site “Agencia Tributaria – Modelo 720 Declaración Informativa. Declaratión sobre bienes y derechos situados en el extranjero”).

Qui doit présenter le Modèle 720 ?
Toute personne physique ou morale résidant sur le territoire espagnol (plus de 183 jours par an), et uniquement si la somme de ses actifs est supérieure à la somme totale de 50 000€ dans une ou plusieurs des trois catégories.

Les années suivantes, il n’est demandé de représenter le Modelo 720 qu’en cas d’augmentation de plus de 20 000€ par rapport au capital initialement déclaré.

Quels sont les risques en cas de non-présentation?
Même si cette déclaration n’a pour but que d’informer, le gouvernement espagnol menace d’appliquer de lourdes sanctions en cas de non respect de cette mesure.
– 5 000€ pour toute information incomplète, erronée ou fausse, avec un minimum de 10 000€ d’amende par déclaration.
– 100€ par information, avec un minimum de 1500€, si la déclaration a été déposée au delà de la date limite.
– Si l’Hacienda se rend compte de l’absence de déclaration, les sanctions annoncées sont extrêmes (par exemple, 150 % de la valeur du bien, plus-values sur tout patrimoine non justifié)

De nombreuses plaintes ont été déposées afin de contester ces sanctions excessives et injustes, la commission européenne serait également en contact avec les autorités espagnoles sur ce sujet.

Néanmoins, il vous est fortement conseillé d’effectuer cette déclaration afin d’éviter tout problème avec Hacienda.

Plusieurs conseillers fiscaux francophones à Barcelone, dont je me propose de vous fournir les coordonnées, peuvent vous apporter leur aide pour remplir ce formulaire.

Je reste à votre entière disposition pour vous fournir tous renseignements complémentaires.

BREXIT and our right to remain in Spain

By Barry Davys - Topics: Barcelona, BREXIT, Residency, Spain
This article is published on: 29th November 2018

29.11.18

Brexit and our Right to Remain in Spain

There is much work still being carried out by both teams in the Brexit negotiations, despite the Withdrawal Agreement. However, until all issues have been agreed upon, including the Northern Ireland border issue, fish and Gibraltar, and the UK Parliament has approved the agreement, nothing is certain about the Brexit.

For those of us living in Spain, there is something we can do now which provides some protection. We have been recommended to do this by the British Embassy in Spain. The action we can take now is to register for “Permanent Residency”.

Without having to give up our British passport or take Spanish citizenship, we can apply for permanent residence if we have lived here for more than five years. This gives us the same rights as a Spanish person to reside in Spain. Making this application whilst Britain is still part of the EU will be easier than when Britain is not part of the EU.

If you already have a residency card, please check to see whether it contains the word “Permanente”. If it does, you have already completed this process. If you have a card that does not include this word, you should complete this process.

I am applying for permanent residency as I write this article and it is not (famous last words) onerous. Other people who have completed it have found the same. There are good notes, including information on what is required to make the application, at this web address. There are two forms that are required: one is the application form and the other is the payment of the fee form. Supporting documentation is also required; this is listed in the notes on the website above.

The completed forms are submitted at your police station that deals with “extranjeros”. There are several in Barcelona, but in the Costa Brava, Girona is the place to go. Some advice suggests that the payment form should be first taken to the police station and then to the bank. Others suggest payment first (an online option is available) and then taking proof of payment with your application to the police station.

The application form is the Modelo EX-18 here and the payment form is the Modelo 790.

Confirmation of our residency status is essential for our tax situation too. I therefore recommend that if you can, you apply for permanent residency. Please feel welcome to Whatsapp me if you wish to discuss your situation at +34 645 257 525 or email barry.davys@spectrum-ifa.com

     

     

     

     

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    UK Investments & ISAs – Tax Treatment in Spain

    By Chris Burke - Topics: Barcelona, Captial Gains, dividends, Investments, ISAs, Premium Bonds, Spain, Tax, UK investments
    This article is published on: 16th April 2018

    16.04.18

    With automatic exchange of financial information between most countries now standard practice, most of us already recognise the importance of declaring our assets properly and fully. In the UK, if your accountant or tax adviser declares your assets incorrectly, they are liable; however, that is NOT the case in Spain. I have been contacted by many people with various stories of how their accountants in Spain have reported assets. Sometimes it feels like people are speaking to numerous accountants until they find the one with the answer they want – if the declaration is incorrect though, and leads to an investigation, you are personally liable. Therefore, it is essential to have your assets reported correctly.

    It is quite straightforward to understand the Spanish tax treatment of your UK assets. If they are NOT Spanish compliant – that is to say, not EU based and regulated AND the company holding these assets doesn’t have a fiscal representative and authorisation in Spain – then income and investment growth are taxable annually. Note that investment growth on assets such as shares, ISAs and premium bonds is taxable regardless of whether you have taken any income or withdrawals.

    Below you will see the main list of investments that need to be declared and the tax rates that apply annually:

    Type of Assets/Investment Tax Payable Type of Tax
    Investment funds/stocks/shares Yes, on growth Capital Gains Tax (19-23%)
    ISAs Yes, on growth Capital Gains Tax (19-23%)
    Premium Bonds Yes, on gain/win Income Tax (19-45%)
    Interest from Banks Yes, on growth Capital Gains Tax (19-23%)
    Rental Income Yes Income Tax (19-45%)
    Pension Income Yes Income Tax (19-45%)

    Expenses may be able to offset some of the tax on gains, and for long term property rentals you can receive up to 60% discount on net rental income. However, tax reliefs and allowances that applied in the UK are not available to you in Spain.

    There are ways of reducing these taxes, by having your finances organised correctly, and in many cases there is also scope to defer tax. This means there is no tax to pay if you are not taking an income or withdrawals from your investment. In fact, the more your money grows, the greater the potential tax saving.

    The first thing you should do, and any financial adviser or tax adviser should do, is consider ways of mitigating your tax, both now and in the future. Otherwise you could end up with a ‘leaking bucket’. Many accountants are starting to increase charges for declaring UK assets, which need to be listed individually and where there is often lack of familiarity with the assets held. By the time you have paid the tax for NOT drawing your money, paid your accountant and lost any tax relief that applied in the UK, in most cases there are more cost effective, tax efficient, Spanish compliant options available. Furthermore, for those returning to the UK, there is still generous tax relief which applies to certain Spanish compliant investments.

    For an initial discussion regarding your finances and practical guidance on planning opportunities, please get in touch – my advice and recommendations are provided free of charge without obligation – chris.burke@spectrum-ifa.com

    Tax and Savings in Spain

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

    28.03.18

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

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

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

    Catalonia and Madrid have large discounts for immediate family

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

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

    Wealth Tax in Spain

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

    Inheritance Tax in Spain

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

    Tax Free Savings in Spain

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

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

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

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

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

       

       

       

       

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      Tax relief on Spanish charity donations

      By Chris Burke - Topics: Barcelona, Spain, Tax Relief
      This article is published on: 19th March 2018

      19.03.18

      When you pay Spanish income tax while residing in Spain, you can qualify for tax relief on any charity donations that you make (to certain types of charities such as foundations or NGO’s, i.e. non profit making organisations.

      The tax relief you can receive here in Spain, whether you are employed, self employed or have a Spanish S.L. (company) are as follows:

      For individuals & self employed (autonomo)

      Amount paid in charity donation,
      up to per year
      Percentage deduction (%)
      150euro 75%
      Amount paid above 150euro 30% (or 35*)

       

      * If the amount paid in each of the two previous years is the same or more than the amount paid the previous year of each of these two years, the percentage increases to 35%.

      The amount deductable cannot exceed 10% of the taxable income of the year.

      For companies

      Tax relief is 35% unless the amount paid in each the two previous years is equal or more than the amount paid the previous year of each of these two years, in which case the percentage increases to 40%.

      The amount deductable in a year cannot exceed 10% of the taxable income of that year. If it does, you can apply the excess during the 10 following years.

      In each of the above cases, the deduction is taken from the amount of tax to be paid.

      People are much more responsive to charitable pleas that feature a single, identifiable beneficiary than they are to statistical information about the scale of the problem being faced. In essence, we are ruled by our hearts, not our heads when donating and showing the proven effectiveness of the charity can actually have the opposite effect to that intended. Take the time to research your chosen charity to make sure your money is going to be doing what you want it to do.

      Although many people would like to leave a gift to charity in their will, they often forget about it when they write their will. Research has shown that if the will-writer just asks someone if they would like to donate, the rate of donation roughly doubles. Remember to make a list of any charities you would like to contribute to, before you sit down to write your will.

      Giving to charity is contagious, seeing others give makes an individual more likely to give themselves and gentle encouragement from a prominent person in your life can make also make a big difference to your donation decisions. Most people support charities in one way or another, but often struggle to make donations as often as they think they should or would like to.

      If you would like to donate to charity more but it slips to the back of your mind, create a habit. For example, every time you receive a bonus or every time you get paid you could make a donation, or if it is the birthday of someone close to you, send them a birthday wish and give a little to charity. Spending money on others actually makes us happier than spending it on ourselves!

      Source GM Tax consultancy, Barcelona.

      Pension Commencement Lump Sum Tax in Spain – How does it work?

      By Chris Burke - Topics: Barcelona, Pensions, Spain, UK Pensions
      This article is published on: 16th March 2018

      16.03.18

      There are conflicting stories on how much lump sum/one off amount can you take from your pension if resident in Spain and what the tax will be. Indeed, many people with UK pensions believe it is better to take their UK pension lump sum in the UK before (grey line here if they have already moved!) they move to Spain permanently, as they will pay less tax. Firstly, even if you have a UK pension but are resident in Spain, this has to be declared in Spain. Secondly, if you finished contributing before 2007 you actually can receive MORE tax relief in Spain than in the UK (dependent upon the pension you have and how you take it).

      To clarify, in the UK you can currently take a 25% tax free amount from all your private pensions and anymore would then be taxable.

      If resident in Spain, you have the right to take up to 100% of your personal pensions in one go (100% in capital), to receive part in capital and part through regular payments or to receive the whole amount through regular payments. If you receive an amount in capital (a whole or a part) then you can apply for a tax reduction of 40% of the amount received for any contributions you made prior to 2007. This option can only be applied once, so, if you have more than one pension plan, you have to receive all of them in the same tax year if you want to apply this reduction.

      If you take the amount as a regular payment you will have to pay income tax as if you have received any other general taxable income (a salary for example). In both of these cases, the amount that is taxed (with or without the 40%) is subject to the general income tax rate.

      Lump Sum Pension Tax in Spain Lump Sum

      Total amount of pensions £150,000
      Amount to be taken in lump sum/one off £50,000
      Amount tax exempt in Spain £20,000
      Pension lump sum amount income taxable £30,000 (added to your annual income tax band)

       

      Now if we look at the UK example we shall see the difference

      Total amount of pensions £150,000
      Amount to be taken in lump sum £50,000
      Amount tax exempt in the UK £37,500
      Pension lump sum amount income taxable £13,000 (added to your annual income tax band)

      However, in the following scenario the Spain example works more in your favour:

      Total amount of pensions £100,000
      Amount to be taken in lump sum/one off £100,000
      Amount tax exempt in Spain £40,000
      Pension lump sum amount income taxable £60,000 (added to your annual income tax band)

       

      UK Example

      Total amount of pensions £100,000
      Amount to be taken in lump sum/one off £100,000
      Amount tax exempt in Spain £25,000
      Pension lump sum amount income taxable £75,000 (added to your annual income tax band)

      Important points to note here are:
      If you cash in your UK pension OVER 25% and are registered in the UK as a non resident, an emergency tax code is likely to be used up to 45% and you will have to claim back what is owed to you. Unless you are able to provide a P45 from the current tax year following withdrawal from employment and/or current pension plan,

      or

      The pension provider already holds a P45 or up to date cumulative tax code received from HMRC as the result of previous withdrawals from that pension plan, and can apply it.

      If you take your UK pension as a 25% lump sum, this should be declared in Spain and would apply to the Spanish rules of 40% being tax exempt and the rest income taxable. You would therefore pay any tax owed in Spain.

      Only the FIRST Lump Sum is tax exempt so it’s important to realise that and make sure you plan effectively.

      Regular payments from your pension fall under income tax

      From 2007 onwards there is NO tax exemption of this kind.

      Top Tips For Your Pension Lump Sum/One Off
      When taking your lump sum, take it in the year that is most tax efficient for you, such as when you have lower income from other sources.

      Moving your pension outside the UK could give you more freedom, more choices and potentially less tax to pay in the long term (depending on your situation).

      Source: Silvia Gabarró GM Tax Consultancy Barcelona

      Pension Healthcheck – Tips and Advice for 2018

      By Chris Burke - Topics: Barcelona, pension transfer, Pensions, QROPS, Retirement, Spain
      This article is published on: 2nd March 2018

      02.03.18

      Whether you are thinking about the amount of pension you want in the future or are approaching retirement, a pension health check might be the answer you are looking for. With the UK government bringing in autoenrolment (the process by where companies who employ at least 1 person have to make sure they save into a pension) which has been massively successful, it is clear that as the years go by and with people living longer, it is more important than ever to save for the future. A pension healthcheck is your chance to ask general questions, be proactive and start planning for your retirement. Every year that you don’t start a pension, the amount of money that you will require becomes a lot more expensive for you to achieve, due to the effects of compound growth.

      The UK population is projected to continue growing, reaching over 74 million by 2039. It is also getting older with 18% aged 65 and over and 2.4% aged 85 and over. In 2016 there were 285 people aged 65 and over for every 1,000 people aged 16 to 64 years (“traditional working age”). Years ago, people generally retired at 55 and perhaps lived until 66/67 meaning 12 years of retirement income. Now, retirement starts at 60/65 and the average life expectancy is Europe is around 85. So mathematically, you can see the issue, which is why 89% of final salary pension schemes in the UK are financially in trouble: their calculations were not initiated on this model of retirement and life expectancy.

      Are pensions the answer?
      This is debatable for many circumstances, particularly in Spain where you do not receive tax relief on large pension contributions. Many years ago it was different, when you could put tens of thousands of pounds into a pension and receive tax relief, or a company paid into it for you. However, in today’s world most people don’t fall under this scenario.

      What IS the answer to retirement planning?
      Make sure any assets you own work for you, including rental properties, investments, inheritances or money saved regularly. Yes, you can receive tax relief on money you save into a pension purse, however, this money is usually blocked (except in the case of critical illness or disability) until you are allowed to have it and has to always act like a pension, i.e. less flexibility and adhering to pension rules.
      Therefore when thinking about retirement you should focus on the following tips to truly give you flexibility, confidence in your retirement and peace of mind:

      Maximise Property Assets
      If you own property, is it earning you the real value of your money invested in it? For example, a property investor today would usually want to receive a 7% return on their investment to make it worth their while:

      Annual rent of property: €15,000 pa
      Property Value:€300,000
      Annual yield:annual rental, divided by property price, x 100 = 5%.

      This may or may not take into account any expenses on the property you have. Are you also paying an agency to look after your property? Here are some areas to work on:
      Is the rent high enough given the amount of money invested?

      Can you reduce the costs of running the property, i.e. maintenance/agency fees? If they have been managing it for a while and there isn’t too much for them to do, ask them to ‘sharpen’ their pencil. More often than not they will, as they won’t want to lose the regular income you provide them.

      Investments/stocks/shares/funds
      How are these performing? Dividend paying shares (that is those with the payments /bonuses given to you, reinvested) historically are one of the best performing investments (including property).
      Are they outperforming the markets, or being managed less erratically? That means not going down as sharply as the markets do and giving a less volatile return, which in turn gives you security of capital invested

      The key areas to note here are:

      • Performance
      • Fees
      • Trust in advice given

      Pensions
      Are you currently saving into a pension and if not, what are you doing instead (as I said above it doesn’t have to be a specific pension purse). Have you accumulated more than one pension, if so what are they all doing, how are they being looked after and where might you be when you retire?

      Key points to find out:

      • Details/values/contact details of any pensions you have
      • What are they invested in and how are they performing?
      • What are your options?

      When you have gathered all the necessary information (or the advisor can gather this for you with your authority), you can then sit down with a professional and talk through your options and what journey your life might take. You can also look at maximising your National Insurance contributions (a mathematical no brainer in many people’s circumstances, even if you live outside the UK) and planning what you can do to make sure moving forward you are maximising your assets and turning them into a comfortable retirement.

      €200,000, achieving a 6% net return over a 27 year period would achieve 1 million Euros…….with good advice, planning and consistent reviews.

      Inheritance Tax in Catalunya

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

      12.11.17

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

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

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

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

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

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

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

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

         

         

         

         

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