Office Locations
Viewing posts categorised under: Spain

Brexit uncertainty and much more…

By John Hayward - Topics: BREXIT, Costa Blanca, spain, UK bank accounts
This article is published on: 19th September 2018

19.09.18

Brexit uncertainty, losing access to UK bank accounts, victims of mis-sold pension and investment plans, personal visits from HMRC, and kids (sort of) go back to school

Brexit uncertainty
Not for the first time, I was asked how Brexit would affect my work in Spain. My standard answer is I don´t know, in the same way I don´t know for sure what the weather is going to be like tomorrow, irrespective of the forecasts which are given. Based on warnings, especially from social media sources, the weekend should have seen us floating down to Masymas on a dinghy. As it turned out, we had a pretty heavy shower providing some surface water in which a toy dinghy would probably have avoided running aground. Of course, I understand that other parts of Spain have suffered; coastal areas have been hit with tornadoes and waterspouts. My point is, even if you have a good idea what is going to happen, it is rare that things will happen as predicted. In fact, I´m not sure that anyone actually predicted the tornadoes. This happens so often in the financial world. With Brexit, I do not know what will happen. Deal or no deal. Take the money or open the box. Perhaps just phone a friend when necessary. I will just continue to jump the hurdles as they are laid out and not base my actions, or those of my family, on media guesswork, which is often a mile off the result.

Losing access to UK bank accounts
Headlines, both in newspapers and on the television, gave a couple of elderly people a shock. They believed they would lose access to their UK bank accounts after a no deal Brexit. This story first appeared in August this year and was highlighted again this week on television. The fact is that there will be certain banking facilities which, if there is no deal, may or may not, be available for a person living outside the UK. This refers more to deposit and loan arrangements, not to the account itself. Receiving money in the form of a pension may also be an issue in that, according to those who appear to know, making a payment from a UK pension to an EU country will be illegal. The alternative will be to have the payment made to a UK bank account for onward transfer to, say, Spain. For those, especially pensioners, who do not have a UK bank account after moving to Spain, it would be a good idea to open one in readiness for what might happen.

Mis-sold pension and investment plans
Unfortunately, I am being asked to help more and more with people who are suffering from poor financial advice. They have savings and pension arrangements that contain investments which arguably are not suitable and, to make matters worse, have not performed leaving policyholders with significant losses. In some cases, there is little we can do. The damage has already been done. However, in other cases we can restructure without incurring additional large set up costs, which are often part of the reason why these plans have not performed. We are always willing to take a look at investments without charging anything. If there is something that we can do, it will be organised in a fair and equitable manner with the details, blood, guts, and all, explained before you commit.

HMRC comes to the Costa Blanca
There was a presentation in Moraira this week with representatives from Her Majesty´s Revenue and Customs focusing on the obligation for UK tax residents to declare income from assets they hold outside the UK such as rent from a property or interest (no joke intended) on bank deposits or gains on investments. People have up until 30th September 2018 to make this declaration. For more detail you can visit this page from the UK Government website: www.gov.uk/government/news/hmrc-warns-its-time-to-declare-offshore-assets

The concern for some people was that they, as Spanish residents, had to declare, having missed the point, understandably, that the declaration was to be made by UK residents for foreign assets outside the UK. We already have the asset declaration for Spanish tax residents in the form of the Modelo 720. At Spectrum we can show you ways to position money within investments in what will still be EU jurisdictions post Brexit so that a) you don´t have to worry about what happens once the UK leaves b) you don´t have to declare the investment separately as this is carried out on your behalf and c) the beneficial tax calculation will still apply.

Kids back to school
Friday 7th September was the last day of summer holidays for our children, although my son will argue that they will continue until Christmas when the festive season kicks in. Since they were last in school, what seems like 10 months ago, but is actually only (!) 10 weeks, it is guaranteed that there will be a book missing or a broken pink pencil, our daughter´s favourite. However, we cannot get too excited. For our daughter, September is only half days and so work/school juggling is still a skill we have to develop.

To find out how we can help you with our financial planning in a manner protecting you and your loved ones, contact me at john.hayward@spectrum-ifa.com or call/WhatsApp 0034 618 204 731

96% of Spanish savings account pay 0.5% interest or less

By Barry Davys - Topics: Barcelona, Interest rates, Saving, spain
This article is published on: 18th September 2018

18.09.18

96% of Spanish savings accounts pay 0.5% interest or less. However, the price of our weekly shop is going up by 2.3% per annum in Spain. It is a concern as the value of our money is going backwards. In fact, it makes us worry “what shall we do with the money in the bank”.

As a seasoned adviser and an expat myself for 12 years, I understand that people can be concerned about moving from a bank account to an alternative where the value fluctuates. Your personal situation and outlook on life should be taken into account before looking at alternatives to a very low interest rate bank account. This can then help you decide whether you should look at a bank account, an investment such as funds or indeed a smoothed investment. We will always need to keep some money in the bank for emergencies. For the rest of the money in the bank, the time has come to look at alternatives.

It is useful to have an independent financial adviser (IFA) listen to your requirements and then help you decide what to do with your money. An IFA can help you in lots of ways, including building a model of what your future looks like and practical things such as mortgages, currency exchange, tax efficient savings and Inheritance Tax planning.

When my back started hurting I had no idea what was wrong. My Chiropractor knew as this was his expertise. My expertise is financial planning for the international community in the Barcelona and Costa Brava areas. If you would like to find out more, please contact me, Barry Davys, at The Spectrum IFA Group by telephone on +34 645 257 525 or email barry.davys@spectrum-ifa.com. .

Sources:
Thebanks.eu as at 8th September 2018
Spanish Inflation, National Statistics Institute, Madrid July 2018

Exchange of Information – CRS

By Chris Webb - Topics: Exchange of Information, spain
This article is published on: 30th August 2018

30.08.18

It surprises me that today I am still meeting with people who are blissfully unaware of the global exchange of information, or common reporting standards, that started back in January 2016, with the first actual exchange of information taking place in 2017.

Why am I surprised? Well, for starters, I meet with and hear of people who still attempt to keep their assets under the radar of the relevant tax office, in the belief that if they haven’t declared it or aren’t actively using the asset it won’t appear on any tax or government system.

In Spain, this immediately brings the Modelo 720 reporting requirement to mind, but that’s another topic, which I have already written an article on and which can be found on our website. The CRS is bringing AUTOMATIC exchange of information to the table…

Ultimately, this means that it is now more important than ever to make sure you have reported and are declaring income and assets in the right country.

From January 2016, financial institutions in around 50 countries began collecting information on their clients and their accounts. The purpose of collecting the data in 2016 was to share it with the client’s country of residence in 2017, which was the start date for the actual sharing.

This is not a one-off thing; the exchange of information will be repeated every year, and every year more and more countries are joining the group. According to the Gov.UK website another 53 countries started collecting the information in 2017 to report it in 2018, and in 2018 another 4 countries will begin the process and fulfil reporting to the relevant authorities in 2019.

Looking at the list here: www.gov.uk/guidance/automatic-exchange-of-information-introduction you will see that most countries of any relevance to the majority of us are listed. Refer to the note relating to the US as the US exchanges information globally under its FATCA initiative – the Foreign Account Tax Compliance Act.

In fact, I only know of one person who could possibly be in the section where no agreement is in place… yet.

It is important to note that this is a regulatory procedure and there are no choices. It is carried out under the Common Reporting Standard (CRS), developed by the Organisation for Economic Co-operation and Development (OECD).

Quite simply, this means that there is nowhere to hide anymore; this loss of financial privacy affects us all. If you live in one country and have assets in another, your information WILL be shared between countries. Your local tax authority will automatically receive information on the financial assets you own overseas.

One potential client fully believes that this will only happen if your tax affairs are being investigated or if the tax office is querying a specific asset. This is not true, they do not have to request the information because they will receive it automatically.

As an example, if you are a tax resident in Spain and have bank accounts in the UK and investment portfolios in the Isle of Man, the Hacienda will automatically receive the information on these accounts / portfolios from the tax authorities in the countries where the assets sit.

You will probably have noticed that your banks or financial institutions, from outside your country of residence, have been sending you forms to complete to confirm your tax residency. This is a legal requirement on their part. Even not returning these forms doesn’t help you as they will simply assume you are still a resident of the country that you last registered with them, therefore will still report to that tax authority.

The information they will be sharing about your financial assets includes personal data such as your name and address, country of tax residence and tax identification number. They will also be reporting information relating to your accounts such as account balances, investment income, interest earned, dividend payments, income from certain insurance policies and any proceeds from the sale of assets.

As you will have seen above, this sharing / reporting requirement is now firmly in place. In September 2017 the first jurisdictions exchanged their data. Importantly for my clients this list of Jurisdictions includes the UK, Spain and most other EU countries. It also includes the Isle of Man, Jersey and the Cayman Islands which were, historically, places people looked at when placing their financial assets.

Hopefully you can see the importance of understanding exchange of information, or CRS. Think about the complications that could arise… When the local tax office receives information about your assets or income abroad, they will automatically be able to cross reference whether you have accurately reported total global income on your tax return.

For residents of Spain it has taken the Modelo 720 reporting requirement to another level. The Hacienda will now be able to compare the data they are given with your Modelo 720 declaration. In my opinion, it makes the Modelo 720 redundant, BUT it is still a legal obligation to file it!

Tax residents of Spain are liable to pay Spanish tax on their worldwide income, gains and wealth. This includes most income which is also taxed elsewhere, although double taxation agreements mean you aren’t taxed twice. It is still a common misconception that if you have income taxable in the UK then it doesn’t need to be declared in Spain. I can’t reiterate enough how wrong this is. Even if you have made a tax declaration in another country you still need to make the declaration in Spain.

If you haven’t been doing this, I strongly recommend that you regularise your tax affairs as soon as possible. This would also be the right time to look at all your financial affairs.

Most people I meet have several bank accounts and sometimes several investment portfolios and products. When asked they don’t really know why they are set up the way they are, it has just been that way for years. Streamlining your financial affairs can ease the administrative burden now and certainly later in life.

Living in Spain makes it even more important to review your financial assets. What may be “tax free” in the UK is not necessarily “tax free” in Spain.
Are your financial assets approved here in Spain? You probably wouldn’t know unless the differences had been explained to you.

In Spain we have what are deemed compliant products. If you have a compliant bond you will find it is EU based; if you discover your financial solution is based in The Isle of Man, Jersey or Guernsey it is deemed non-compliant. This isn’t meant to be confusing; they are not illegal, but they must be reported to Hacienda and please note that they are taxed differently to a Spanish compliant bond.

The Spectrum IFA Group will only ever recommend a solution that is compliant and tax efficient in your country of residence. In Spain we will not recommend solutions outside of the “approved area”. This is for your benefit!
For a free, no obligation review of you financial assets please get in touch at chris.webb@spectrum-ifa.com or 639118185. If you are in the Madrid region I will personally meet with you, if you live in any other part of Spain OR Europe let me know and I can put you in touch with our local office there.

Moving to, or living in Spain after Brexit – What do you need to do?

By Chris Burke - Topics: BREXIT, Residency, spain
This article is published on: 20th August 2018

20.08.18

If you have been living in Spain lawfully for at least five years, you will be able to apply for indefinite permission to reside there, which is termed ‘permiso de residencia de larga duración’ simply meaning ‘long term residence permit’. Note that you cannot apply until the UK has ‘potentially’ finally left the EU.

Apart from this, there are four main conditions to be able to remain in Spain after Brexit:

  1. No criminal record
  2. That you have not been ejected from Spain OR from a country which Spain has a verbal agreement with
  3. You have private health insurance
  4. You have a net monthly income of at least €799 for a family of two, and a further €266 per month for each additional family member

However, if after Brexit you have not been in Spain for 5 years but are living there legally, there is no great need to worry. The time you have spent there will count towards the 5 years and as long as you meet the above criteria, you will then be able to apply for the ‘permiso de residencia de larga duracion’. What you might have to do though, is apply for permission for what you will be doing in Spain. For example, if a retiree, you might need to ask to be that in Spain. Or, if you wish to work (see more about this below) you will need to apply for this also. If you wish to holiday for less than 3 months at a time, then you should not need to apply to remain in Spain for this. Before Brexit, obviously none of this was required.

Working, or not working, in Spain – after Brexit
If you wish to move to Spain after Brexit, but NOT work in Spain, you will need to apply for a ‘permiso de residencia no lucrativa’ meaning essentially a ‘non profit visa’. You will also have to prove you have money to live on, such as a regular permanent income (a salary would not count for this) or through bank statements showing that a minimum balance has been maintained over at least the last year, with your name and account number.

If you are an employee of a company in Spain, then they should be taking care of your application to stay.

Moving to Spain after Brexit as self employed
If you are looking to move to Spain and work for yourself, you can apply to be self employed, or ‘Autonomo’. You will need to be able to demonstrate the following, as well as applying for permanent residence as set out above, i.e. ‘permiso de residencia de larga duración’. The commercial activity you will be doing must comply with Spanish rules and you must:

  1. have the relevant qualifications
  2. have sufficient funds to invest in the activity to make it viable
  3. give the number of people you will employ, if any
  4. have sufficient funds to support yourself, on top of the funds for the activity (see above)
  5. Provide a business plan which makes sense to the Spanish Authorities
  6. not be suffering from a serious illness

Retiring in Spain after Brexit
When looking to retire in Spain after Brexit, there will be several criteria to fulfil and adhere to in your application. Those are:

  1. No illnesses that are a serious public risk (eg smallpox, SARS)
  2. €2130 monthly income for the main earner in the family, and an additional €532 for each dependant
  3. Proof of ability to sustain this income for one year

Note, after you have resided in Spain for 5 years, you can then apply for ‘permiso de residencia de larga duración’ as mentioned above and will only need to adhere to those criteria moving forward from that point.

The process – what happens when you are accepted?
When you have been accepted, you will be issued a visa within 1 month and you must enter Spain within 3 months for this to remain valid. If you have permission to work and you do not register with the social security office within three months of your arrival, your right to remain will lapse.

Where to apply when moving to Spain, after Brexit
To apply for permission to live in Spain, you go to your local Spanish Consulate, even if you are not living in your country of origin. The process is thus: the Spanish consulate confirms whether all the relevant documents are in order and that everything has been provided that needs to be. They, in turn, send this to a Spanish Government office who will decide if they will give you permission to move to Spain.

If your application is successful
If applying to live in Spain without working and you are successful, you can then pick up your visa within one month. If applying to work, you will then be asked to make this application, again within one month, once you have been given the ok to reside in Spain.

The visas are valid for one year, when it needs to be renewed for periods of two years moving forward. During this whole time, you need to abide by the rules mentioned above including having the required income to live/run your business. Then, after you have lived in Spain for five years you can apply for ‘permiso de residencia de larga duración’ and solely adhere to those rules, again as mentioned above.
Once you have moved to Spain legally, your rights, taxes and your families rights will be the same as any citizen of the EU. Like everyone else, having lived in Spain for 10 years, you can, if you wish, apply for Spanish residency. To do this you need to demonstrate that you have integrated into Spanish society, including speaking the language and understanding the culture.

If you would like to receive further important updates on living in or moving to Spain, as an English speaker, sign up to Chris’s Newsletter here:

Tips on Moving to Spain before Brexit

By Chris Burke - Topics: BREXIT, spain
This article is published on: 24th July 2018

24.07.18

With the UK likely to leave the EU in 2019, many people are making the move and leaving the UK whilst it is arguably still easier to do so than it will be after Brexit. But what are the key things you need to do in order to be organised from a personal financial advice point of view? Here I have listed my ‘Top Tips on moving to Spain’, the main areas I point people in when making the move, or having just arrived in Spain. This could save you a lot of time, money and headaches, and is only a small example of the way I help clients living here in Spain.

  • Confirming Non UK Resident Status with the HMRC
  • Potential Tax Rebate
  • National Insurance Contributions Whilst Abroad
  • Checking Your National Insurance Contributions
  • Becoming Tax Resident in Spain
  • Existing Investment Organisation
  • Inheritance
  • Healthcare
  • Life Insurance
  • Wills
  • Property
  • Private Pensions
  • Banking
  • Why Move to Spain Before Brexit

Please click on each link below to find out more regarding that area of expertise:

Confirming Non UK Resident Status with the HMRC
Tell the HMRC that you will no longer be a UK resident by filling in form P85, informing your local council and the UK state pensions department. This is important for the following reasons:

Potential Tax Rebate

In many cases you could receive a tax rebate, depending on which part of the tax year you leave in. Tax is taken from your wages and worked out on what you are paid each month, starting with the first month. Therefore, if your final UK salary payment is in September having been earning £4,000 per month, for example, that means the following months until the end of the tax year, in March, you won’t be paid anything. Therefore, because the HMRC would have been taxing you on the basis of completing that financial year, the tax you owe could well be reduced and in many cases a rebate will be applicable.

National Insurance Contributions Whilst Abroad

You can apply for Non Resident relief when living abroad, meaning that you can pay National Insurance contributions in the UK at half the cost, so around £11 per month (which mathematically is worth doing, considering life expectancy in Europe of 84). You can also backdate these up to 6 years if you have been out of the UK that long and haven’t been paying.
www.gov.uk/national-insurance-if-you-go-abroad

Checking Your National Insurance Contributions

You can see how many years National Insurance contributions you have by entering your number on the link below:
www.gov.uk/check-national-insurance-record

Becoming Tax Resident in Spain

It is important that when you move to Spain you choose the right tax regime to be part of. For example, if you are working for a Spanish entity, you may be able to apply for The Beckham Law, which means all worldwide income will be taxed for 5 complete tax years at least, at a flat rate of 24% (as opposed the normal rate of up to 46%).

Or, if you live in Spain, work for a Spanish company and spend up to two weeks of the month outside of Spain on business, you may be able to deduct tax for every day you are away proportionally. So, that could mean up to half the tax payable.
IMPORTANT – Some of these tax regimes only give you a limited time to apply for them. For example, within 6 months of paying tax here you have to apply for the Beckham Law.

It may also be of benefit to set up a Spanish company instead of becoming self employed, the main rule of thumb here being if your income is likely to be consistently over €60,000 per annum.

Existing Investment Organisation

Any investments you have when you become tax resident in Spain (that is, spending more than 6 months a year in Spain and having your economic centre of interests there being the deciding factors) will be reportable in Spain and might not be as tax efficient as they should be. For example, many asset classes such as ISAs or stock/share/fund investments (unless structured in a certain way) are declarable each year and tax is payable on any gains, whether you take any of that money or not. In some cases, you can have your assets organised so this is not the case, and the tax can potentially be reduced when you do withdraw any money.

Inheritance

In Spain, rules on giving away your assets are very strict and you are limited in what you can give away per year without incurring any tax. This is an area that is worth considering and organising before you leave the UK. In the UK there is usually no inheritance tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’. There’s also no inheritance tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they live in the UK permanently. However, other people you gift to will be charged inheritance tax if you give away more than £325,000 in the 7 years before your death. See the sliding scale below:

In Spain, gift tax depends on the age of the person and their relationship to you. In many circumstances you receive a €100,000 exemption, following which a sliding scale up to 20% is applied in tax. Spouses can claim up to 99% relief. It is imperative to look at this before you move.

Years between gift and death Tax paid
less than 3 40%
3 to 4 32%
4 to 5 24%
5 to 6 16%
6 to 7 8%
7 or more 0%

Healthcare

When you first arrive in Spain, registering at your local health centre should be a priority in case of illness. The requirements can change, but at present the following should be sufficient for you to acquire an individual health card (Tarjeta Sanitaria). This will enable you to register with a doctor, visit a health drop in centre (in Barcelona a Capsalut) and purchase prescription drugs:

  • NIE (tax number/residence certificate)
  • Rental contract of your apartment
  • Social Security number
  • Empadronamiento (document from the town hall confirming where you live)

Life Insurance

Insurance in Spain, in general, can be much more expensive than in the UK, and life insurance is an example of that. Many insurance companies will allow you to carry on with the life insurance you have in the UK, but you must get this confirmed in writing by them. To give you an example, I have seen an insurance cover in the UK at £22 per month, costing over €100 euro per month in Spain, and the cost is not fixed for life like it generally is in the UK.

Wills

Foreign residents of Spain are not permitted to give away more than the freely disposed part of their estate (one-third) as the rest is reserved for the ‘obligatory heirs’. If an international or Spanish will is made stipulating that the laws of a person’s home nationality apply, however, no aspects of Spanish inheritance law will apply to either Spanish or worldwide assets. In layman’s terms, if you are British, you can choose UK law and therefore leave your assets as you see fit without having to adhere to Spain’s rules.

If your estate is dealt with under Spanish inheritance law, ‘forced heirship’ rules apply (known as the ‘Law of Obligatory Heirs’ in Spain). This means there are restrictions on how you distribute your estate, as a certain percentage needs to be set aside for certain relatives.

The Law of Obligatory Heirs states that if the deceased was married at the time of death, the spouse keeps 50 percent of all jointly owned property. The remaining 50 percent is put towards the estate. The estate is divided into three equal portions:

  • One-third is divided between surviving children in equal shares
  • One-third is reserved for surviving children but can be distributed equally or unequally according to instructions in a will. The surviving spouse retains a ‘life interest’ (usufruct) in this part of the estate and the children do not inherit until the spouse dies
  • One-third can be disposed of freely in a will
  • If there are no children, then surviving parents are entitled to one-third if there is a surviving spouse, or 50 percent if not

Property

This is currently a very popular asset to buy in Spain. Key points to be aware of compared to the UK are the extra taxes/costs (approx 13% costs on top of the purchase price of a property in Barcelona) and that the market is not as regulated as the UK, which means that there are estate agents out there that are just interested in their commission. You MUST make sure you purchase a property with a Cedula (certificate that the building has passed health and safety required by Spanish law) and certificado de habitabilidad (this means the property meets the minimum standard for living in), otherwise, you might not get a mortgage and also it will be difficult to sell later as it is not a legal place to live.

If you have never lived in the place you are moving to, I strongly suggest renting an apartment for a period of time, maybe even a couple in different Barrios/areas. That way you will get a feel of what works for you. In many cases, renting actually works out cheaper than buying somewhere, even taking into account the recent rental price increases.

Private Pensions

There are sometimes tax implications on moving your pension outside of the UK, which many people have done for the resulting benefits. In the last couple of years, 25% taxes have been implemented depending on where you move your UK pension to. There are opinions that this charge could apply to the EU, should Brexit go ahead. If you are planning to move abroad, either before or after Brexit, looking into this possibility will give you the options and knowledge to assess and make an informed decision.

Banking

Banks in Spain can be very ‘charge’ friendly and don’t always fully explain how your account works. Usually when you arrive banks will give you a ‘Non resident’ account, incurring extra costs and charges. However, you can quickly open up a ‘Resident’ bank account with no everyday running costs, such as bank transfers or costs for withdrawing money from their own ATMs. To qualify for a ‘Residents’ bank account and bypass potential costs you need to transfer in €600-€700 per month.

Why Move to Spain Before Brexit?

There will be certain criteria to meet to be able to move to Spain after Brexit, in particular if you are self employed or own your own business. This is expected to include a year’s cash flow in the bank, private medical insurance, proof that your business is viable and if retiring, a minimum income of around €2,200. I have a much more in depth article you can read if you wish to know more about this.

If you have questions relating to these points, or anything similar, don’t hesitate to get in touch.

Are you moving to Spain?

By The Spectrum IFA Group Spain - Topics: Beckham Law, Modelo 720, spain
This article is published on: 11th July 2018

11.07.18

If you are considering a move to Spain, or have recently arrived, there are a few basic steps to follow which will help with managing and improving your finances. The list below is intended for general guidance only, but refers to some of the key points consider as part of your early financial planning.

First, an update on Brexit

Whilst departure terms between the UK and EU are yet to be finalised, the status of British expatriates living in Europe has largely been agreed, in principle at least. From state pension escalation, to health care cover and rights on residency and employment, first phase negotiations concluded (eventually) with consensus on protection of citizens’ rights.
Of course, agreement still needs to be formalised and as the EU/UK progress agreement highlights, ‘nothing is agreed until everything is agreed’. But for now, at least, it is looking like existing expatriates’ rights are likely to be recognised beyond April 2019.

Buying a property

From the initial and legally binding ‘pago de arras’, the legal process of buying a property is markedly different from UK conveyancing.

It is important to engage a knowledgeable lawyer, ideally English speaking if you do not speak Spanish. Your lawyer will liaise with and arrange your meeting with a notary, which is legal a requirement in Spain for the property buying process. Resident and Non-resident tax obligations vary and require reviewing on an individual basis.

Mortgages

Seek guidance on the wide range of borrowing options available, from the national banks to smaller regional lenders. An independent mortgage specialist will identify the most competitive and flexible mortgages available and ensure suitability for your specific borrowing requirements, as well as introducing you to trustworthy and reliable legal and professional services, a must in Spain when purchasing or selling property. It is important to note that banks do not make mortgage offers without the property being secured. (See below for our independent mortgage brokers, Spectrum International Mortgages Spain)

Bank accounts

Familiarise yourself with the various current and savings accounts available, from the cuenta corriente (current account) to tax efficient ‘Cuentas de Ahorro’, or savings accounts. It is important also to note that bank managers tend to move branches frequently, so finding a bank you like is more important in the longer term than a friendly bank manager or ‘Director’.

Tax Residency

Please note you cannot choose where to be tax resident. The law dictates when this will happen and you do not necessarily have to complete any forms to be treated as tax resident. If you meet one of these following conditions you will be a tax resident:

● If you are in Spain for more than 183 days in any calendar year
● If your “centre of interests” are considered to be in Spain eg. If your main income is in Spain, your main home is in Spain or if your spouse and children live in Spain.
● Residency commences from the first day that you declare Spain to be your permanent home.

Tax declarations

When you move to Spain, the Spanish tax authority becomes your controlling tax authority, even if you pay tax elsewhere. The tax year is the calendar year. Worldwide income needs to be declared annually (between April and end of June) and the relevant form is called “La Renta”. (Income taxes and capital gains tax are called IRPF). UK source income from dividends and property rental, whilst taxable in the UK, should also be included in your Spanish tax return. The double tax treaty between Spain and the UK should ensure an accurate tax assessment, but it is important to check that liabilities have been calculated correctly.
Note too that tax-free investments in the UK, such as ISAs and premium bonds, do not hold the same favourable status in Spain. For permanent and long-term Spanish residents, there are tax efficient alternatives available (see Investment section below). Without exception, make full disclosure of income and assets, recognising that there is automatic exchange of tax and financial information between the two countries, under global Common Reporting Standards adopted by the EU in 2017.
The Modelo 720 or M720 is a requirement for all Spanish residents, including foreigners, to complete. It is an informative overseas asset declaration for assets of over 50,000 euros including property, banks accounts, offshore investments, shares and other assets. This declaration needs to be completed by March 31st following the first full fiscal year of residency. As this declaration can only be completed electronically we highly recommend the involvement of a qualified ‘gestor’ or tax accountant, as hefty penalties could be imposed for providing erroneous information.
Wealth tax obligations change on a regular basis and vary between autonomous regions, so obtaining the latest local rates applicable is important.

Beckham Law

For employed individuals earning over 60,000 euros pa and having not been resident in Spain for the past 10 years before becoming tax resident, the possibility exists of being paid as a non-resident for tax purposes and up to five full tax years. The rate of income tax is 24% plus you avoid the need to declare M720. It is available to company owners as long as they (and their immediate family) do not own more than 25% of the shares. The ability to join this scheme needs to be assessed on a case by case basis.

Inheritance tax

This is a subject that causes some confusion on moving to Spain. In Spain, it is the beneficiaries that are assessed for Inheritance tax. In the UK it is the estate of the person who has died that is assessed for Inheritance tax. This means that different planning is required in Spain although it is possible to plan for both the UK and for Spain in some circumstances.
Like wealth tax, inheritance tax varies from autonomous community to autonomous community. Advice in the community where you are living is therefore very important.

Healthcare

Spain’s comprehensive and efficient healthcare system is considered to be at least on a par with the UK and better in many areas. It is generally accessible to expatriates but the extent of cover available to you, and how to secure access to it, depends on individual circumstances. Eligibility for a Tarjeta de Salud or holding suitable private health insurance, or a combination of the two, are essential to avoid unexpected and expensive bills for medical treatment. This especially applies to dental treatment which is typically very costly in Spain.

Currency exchange

Relying on your bank for foreign exchange transfers is generally an expensive option. Numerous currency transfer specialists provide not only competitive terms and secure, swift transactions, but a range of other benefits including on-line facilities for regular payments, forward contracts and rate tracking alerts.

Pensions

Pensions are a technically complex subject where reliable advice is essential. From understanding UK state pension entitlement, to reviewing all existing personal and/or occupational schemes, there is scope to increase the value, flexibility and security of your retirement finances. British expatriates living in Europe currently enjoy pension freedoms and transfer opportunities that are unavailable elsewhere. However, in relation to both Brexit and ongoing UK pension reform, it is unlikely this flexibility will remain beyond the short term.
Even if Brexit transitional arrangements encourage a smoother economic separation, further changes to pension regulations are already on the UK domestic agenda. Consult an authorised, qualified and experienced specialist to arrange a comprehensive review of your existing pension arrangements. Be wary of any recommendation to transfer a UK pension without receiving a detailed report which explains clearly why a transfer is in your best interests.

Wills and estate planning

Spanish forced heir-ship rules restricts the extent to which you can freely transfer wealth during your lifetime. It also, unless you have planned properly, governs how your estate is distributed upon death – most notably, prescribed heir-ship laws override individual choice when it comes to nominating beneficiaries. However, if you are a British expatriate living in Spain, EU legislation allows you to specify that your estate be administered according to the laws of your country of nationality, rather than your country of residence. Doing so provides valuable flexibility and control over the eventual distribution of your estate. Note this relates to probate law and is unconnected to inheritance tax law.
It is important to establish and maintain a valid will or testamento which fully reflects your intentions. A notary will prepare your will in the appropriate format.

Investments and savings

Recognising that UK assets are taxable in Spain, and that tax free in the UK doesn’t translate to the same in Spain, consider switching to Spanish approved tax efficient investments. Care is needed with possible tax consequences on the disposal of UK assets, so always seek professional advice before restructuring. Seguro de vida are widely regarded as the most tax efficient solution available in GBP and EUR (and other currencies), in English language and with investment flexibility to match individual objectives and risk profiles. Technically a life insurance policy, but in practice an investment vehicle and this is the most tax efficient means of investment in Spain –
Low cost, straightforward, beneficiary nomination, IHT exemptions/reliefs, capital access, income option, portability (UK return),

IFA

Even for the financially experienced it is worth seeking professional advice, if only to ensure that all available investment and tax planning opportunities are being fully utilised. Only deal with an independent, appropriately authorised firm and ideally someone living and working locally who has been recommended by other expatriates in the area.
The regulatory status of an independent broker can be checked on-line at; www.dgsfp.mineco.es/regpublicos/pui/pui.aspx, and at any initial discussion with an individual you should be informed about the advisory process, from fact finding and presenting suitable recommendations to responsibility for investment management and ongoing client servicing.

Tax threat: the consequences of CRS – The Spanish Situation

By Charles Hutchinson - Topics: spain, Tax
This article is published on: 14th June 2018

14.06.18

Unlike the UK non-dom or the Portuguese non-habituale tax rules, Spain does not have a specific tax offereing for those planning to come and live in Spain. A taxpayer is either classifieds as resident (taxed on worldwide income and wealth) or non-resident (taxed only on Spanish income and assets).

Those trying to escape from the 183-days rule of physical presence in Spain to avoid been deemed tax resident could be facing an unexpected problem.  

Governments all over the World have amended their domestic legislation over the last few years aimed at gathering as much information as possible from current and potential taxpayers and Spain is no exception. Governments have also signed agreements to exchange that information with each other and to disclose relevant data, primarily under the auspices of fighting money laundering and terrorism. Lately, this has had a direct impact on individuals and corporate taxation.

All these changes and improvements equally affect big corporations, large stockholders, important CEOs and ordinary people. Regrettably, the speed and frequency at which those changes take place makes it difficult for ordinary people to keep up and stay up to date with their obligations. Pensioners living abroad are a group particularly affected.

In our experience, we know many people who were just “out of the loop” by ignorance, going about their daily lives without being aware of how all these changes affect them. One of these new rules is the OECD´S COMMON REPORTING STANDARD (CRS).

As of 1 January 2016, Spain fully adopted the provision of the Council Directive 2011/16/EU on administrative cooperation in the field of taxation and the OECD CRS for the automatic exchange of financial account information.

Under the CRS and EU Directive, financial institutions in participating jurisdictions will report the full name and address, jurisdiction of tax residence, tax identification numbers and financial information of individual clients to their local tax authorities, which will then automatically exchange the data with the tax authorities of the participating countries where the individuals are tax resident.

Spain is one of the 102 committed jurisdictions and the list also includes traditional off-shore jurisdictions such as Gibraltar, Guernsey, Jersey or the Isle of Man. As of 5 April 2018, there are now already over 2700 bilateral exchange relationships activated with respect to 80 jurisdictions committed to the CRS. This link shows all bilateral exchange relationships that are currently in place for the automatic exchange of CRS:

www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/exchange-relationships/#d.en.345426

Financial institutions in all participating jurisdictions will be obliged to ascertain and verify the tax residence status of their individual clients by application of specific due diligence procedures under the CRS.

The automatic exchange of information related to financial accounts held by the end of year 2015 and new ones opened afterwards began in 2017. Hence, sooner or later, in cases where there was information exchanged that did not match the information provided by the taxpayer in their declarations and tax returns, people started to receive notifications from the tax office.

Those who have not been registered as resident or have not realized that they should have registered as resident, could be in trouble when the Spanish tax authorities receive information about a supposedly resident taxpayer. This information is gathered by the due diligence process that banks and financial institutions, including trustees, have to carry out. In some cases this can lead to the conclusion that they are resident in Spain (i.e., the postal address to where Banks send correspondence, the bank account to where they regularly transfer funds, the country where credit cards are frequently used, etc.). Spanish tax residents who have not fully disclosed their foreign portfolios to the Spanish tax authorities may encounter trouble as well. Full voluntary disclosure by means of late filings could avoid potential tax fraud penalties.

It is crucial to check with your banks, financial agents, trustees, etc. if they have reported anything to a wrong country. Once the information gets to the tax authorities, those authorities will not doubt or care if the information is accurate or not, even if you try to prove otherwise, because the information has been provided by a Government of another country and it is understood that they, as well as the bank or financial entity who has previously reported to that Government, have complied with the regulations. In our experience, at least in Spain, if information provided by a Bank was not accurate, that Bank would have to amend whatever they had previously reported to their Government. Thus in turn it will amend the information sent to the Spanish tax authorities. The taxman will not stop demanding the taxpayer to pay the corresponding taxes unless the Government of the other country recognizes that it was a mistake.

Source: Santiago Lapausa of JC&A Abagados, Marbella

New QROPS tax charge for 2017 – Will this change after BREXIT?

By Spectrum IFA - Topics: Belgium, BREXIT, France, Italy, Luxembourg, Netherlands, pension transfer, Pensions, Portugal, QROPS, Retirement, spain, Switzerland, United Kingdom
This article is published on: 20th April 2018

20.04.18

In the Spring 2017 Budget, the UK government announced its intention to introduce a new 25% Overseas Transfer Charge (OTC) on QROPS transfers taking place on or after 9th March 2017. The HMRC Guidance indicates that the OTC will not be applied in the following situations:

  • the QROPS is in the European Union (EU) or EEA and the member is also resident in an EU or EEA country (not necessarily the same EU or EEA country);
  • the QROPS and the member is in the same country; or
  • the QROPS is an employer sponsored occupational pension scheme, overseas public service pension scheme or a pension scheme established by an International Organisation (for example, the United Nations, the EU, i.e. not just a multinational company), and the member is an employee of the entity to which the benefits are transferred to its pension scheme.

It is also intended that the above provisions will apply to transfers from one QROPS (or former QROPS) to another, if this is within five full tax years from the date of the original transfer of benefits from the UK pension scheme to the first QROPS arrangement.

Nevertheless, it is clear that taking professional regulated advice is essential. This includes if you have already transferred benefits to a QROPS and you are planning to move to another country of residence.

It is important to explore your options now while you still have the chance as who knows what changes will come with BREXIT. Contact you’re local adviser for a FREE consultation and to discuss your personal options

Tax in Spain can be a matter of opinion

By John Hayward - Topics: Pensions, Section 32 Buyout, spain, Tax
This article is published on: 17th April 2018

17.04.18

In Spain, there can be a huge difference in what autonomous regions charge for income, capital gains, wealth, and inheritance/succession taxes. Rules generally come from central government in Madrid but how that comes out in the fiscal wash in each region can vary considerably. For the purpose of future articles, my focus will be on the Valencian Community incorporating Castellón, Valencia, and Alicante.

There is also an unwritten rule which seems to be rife. The law of opinion. On a subject that you would think there should be clear instruction from the Spanish tax authorities, there is a lot of ignorance on several tax matters and so the law of opinion kicks in. This is especially true for any products which are based, or have been arranged, outside Spain. With the threat of fines for not declaring assets and paying taxes correctly, it seems at least slightly unjust that there is not clear instruction on how different assets are treated for tax.

As my colleague Chris Burke from Barcelona recently wrote, lump sums from pension funds can have special tax treatment, both in the UK and Spain. However, even though most people and their dog know that there is a 25% tax free lump sum in the UK, not everyone is aware that this lump sum is potentially taxable in Spain. Also, it is not common knowledge that there is a 40% discount on qualifying pension lump sums. It is likely that many people have overpaid taxes due to no or bad advice.

Can you tell the difference between margarine and a Section 32 Buyout?
If you can, you could be leader of the Conservative Party, according to the script of The Last Goon Show of All (Actually the comparison was between margarine and a lump on the head but the qualification would seem equally apt almost 50 years later). It is frightening what little knowledge there is with regard to pension schemes, notably with the advisers who make money for arranging them! A Section 32 Buyout plan is just one of many types of pension scheme which have emerged over the last 30 to 40 years. Few people are familiar with all the different types.

A pension fund is, in many cases, the second largest asset behind a property. People are generally familiar with the property expressions such as “doors”, “windows”, “walls”, “kitchen”, etc. They know where these things need to go and when they need repair and maintenance. When it comes to pensions, it is a different story. In a way, that is great for us because it means people need advice. The problem comes when they leave themselves open to advice which is inaccurate, if not complete garbage.

People need to check the qualifications of an adviser and their firm before exposing themselves to potential problems. I have the Chartered Insurance Institute G60 Pensions qualification. You won´t find too many advisers with this, especially not in Spain. As a company we have a team which is qualified and which keeps up to date with pension rules in the UK and Europe. All enquiries go through them before anything is arranged which should give comfort to those nervous about what will happen to their pension funds.

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