I acknowledge the feelings that come with the death of a relative, but this article is not about the grieving process.
The article describes how to deal with an inheritance and so will start from the point when you learn how much your inheritance (bequest) is going to be.
Viewing posts categorised under: Spain
I have received an inheritance. What now?
By Barry Davys
This article is published on: 31st July 2023
31.07.23
Oh wow, that will be helpful/very nice! I didn’t expect that much! What a lovely surprise!
These very common responses on finding you are about to benefit in a Will are shortly followed by “What should we do with it?” or “Let’s buy a holiday home/new car/go on a cruise/ give money to the kids etc.” It is unusual for me to find a reaction in between these two different approaches to receiving a bequest.
My experience of working with people who have received inheritances gives me insight into what things are important to consider. Some of these people have worked with me on inheritance tax planning before the death of the relative. This does not mean planning immediately before the death but sometimes years in advance. This type of planning is the subject of another article.
Typically though, as recipients we focus on the amount that we are getting in isolation and make our decisions based simply upon the amount we receive.
This approach often leads to buyers’ regret, defined in the dictionary as:
‘A sense of regret or uneasiness often after having purchased a house, car, or other major item, especially when the acquisition involves an ongoing financial burden.’
A new car comes with ongoing expenses: insurance premiums for a newer or bigger car can be higher, maintenance costs greater. Similar issues occur for a holiday home. Here is an analysis of the true cost of buying a house
Here are some very important steps to ensure you avoid the buyers’ regret syndrome and form a process on how to make the best of your good fortune.
Check your answers to these questions:
- Am I thinking “What would Dad/Mum have wanted me to do with the money, what can I spend it on?” Or am I thinking “What would be the best use of the money for my family”?
- The money is now mine. Have I accepted yet that I am now responsible for looking after it?
- Can I write a list of how to improve my family situation with my money?
- What type of an investor am I?
- If I want to be cautious, what does that really mean in practical terms? How would I choose savings that are “safe”?
- Will I be glad when it is all over, put away somewhere safe and I don’t have to worry about it anymore?
- Will I be able to leave an inheritance to my family?
These questions help us take the focus away from how much you have received to how it will benefit your family and improve your quality of life. Why is this important? Unlike an annual bonus or a job with a higher salary, receiving an inheritance from the deceased relative will happen just once from that relative. Often the relative, when deciding to leave you something, will have been thinking “I hope this will benefit the family and make their life a little easier”.
How to deal with an inheritance – a step by step process
How you approach the issue of what to do with an inheritance should depend on your financial position before the inheritance.
How can you fit the inheritance into your finances so it gives ongoing benefit?
The process:
- List your debts
Whether you should you pay off your debts depends on the interest rate of each debt. One certainty is that if you have a Spanish mortgage with a fixed rate of interest at 1% for 10, 20 or 30 years you should not pay off this debt. Please contact me for an explanation of the returns on your savings and how this mortgage fights against inflation to your benefit, along with a full description of how this works. - List your future expenditure e.g. school or university fees
If you have a use for the money at a set date, savings should be designed to meet that need. Bitcoin etc is not going to give you the certainty that the money is there when you need it. - How much emergency fund do you already have in the bank?
An emergency fund should typically be enough for six months of expenditure. Top up your emergency fund if necessary. - Do I need the money to grow or do I need it to provide an income?
If you wish to bolster your pension when you get to retirement, it may need to grow now and provide an income at retirement. If you wish to leave money to your family, you may wish take the income or profit from your savings and to leave the capital ready to pass on. - Where are my existing savings and investments?
Often I see people doubling up on a particular investment, often by accident. One fund may, for example, hold lots of Tesla shares already. If so, you might not want to buy lots of Tesla shares with your inheritance. Why not? By concentrating your investments like this you increase your exposure to risk. - Look to pay for gifts or toys such as new golf clubs from the income not the capital
I have helped many clients over the years preserve their inheritance with this approach. In addition to the toys, I have structured donations to charity too. - Analyse your options
What type of savings match my risk profile and how do I make them tax efficient? - Then do what you have decided to do
It is surprisingly common for people to still have an inheritance some years after they have received it. Not being an expert or experienced in savings and investments and tax they end up doing nothing out of fear of doing something wrong. Whilst this is understandable, the real value of the inheritance is eaten away by inflation with a “do nothing” approach.
Thoughtful, considered planning is how I approach a request to help with an inheritance. A step by step approach is best using the process above. By using cashflow modelling software I can show you what your financial future looks like now you have the new money. The software also allows you to explore different options and compare the possible outcomes. This “what if“ analysis is one of the most useful parts of the planning process. Assessing the best planning for Spanish and/or UK tax is a speciality of my advice.
Special Spanish tax items
There are specific reporting requirements about your inheritance in Spain, even if you have paid inheritance tax in the UK or Ireland.
This report must be made within six months from the date of death.
If you receive an inheritance in your name and then decide to do something with the money in joint names, there is gift tax to pay in Spain. A typical trap is buying a property in joint names with the inheritance only to find out there is gift tax on half the value of the house.
What next and how to make the best of having received the money?
You can book a call with Barry Davys of The Spectrum IFA Group who specialises in advising on how to manage the inheritance. Please choose a time that is convenient for you on his online system
He has dealt with many such situations in both the UK and in Spain. He brings understanding of the circumstances and respect of your wishes inside a framework of professional advice.
He often acts with lawyers who are settling an estate. The lawyer works on the process of settling the estate whilst Barry is forward looking and works on the planning for the future.
Barry will personally get in touch with you within the next five days. Any call or communication will be in confidence.
Use your inheritance you have received for your future
By Barry Davys
This article is published on: 30th July 2023
30.07.23
Travel broadens the mind, and the investment portfolio
Have you ever been to India for work or to travel?
I haven’t but my partner went for work and my daughter for travel. Some seven other friends have also travelled and all have reported the same way. It is a great place, still lots of improvements to be made, but the people work hard and are generally friendly.
With a current population estimated at 1.46 billion (now larger than China’s), India accounts for around 18% of the world’s total population.
If you were running a business with:
- 18% of the world’s population in your home market
- English being spoken well by a good proportion of the population and with English language ability providing valuable access to international markets
- skilled and hard working employees
Would you be mildly optimistic about your outlook? Of course, you would have to deal with the day to day issues of logistics, marketing, financing etc but even so, you might still be mildly optimistic.
The story is only just beginning. Yours and my parts of this story come at the end of this article. Read on.
The IMF, World Bank and Goldman Sachs are all optimistic about the country’s outlook. India is currently the fifth largest country by size of economy. However, by 2050 Goldman estimates it will be the third largest in the world. Sounds good but when you examine the numbers it really is impressive.
In 2022 the Indian economy was valued at $3.385 trillion. Goldman expects the economy to be $22.2 trillion by 2050. By 2075 it is anticipated it will be $52.5 trillion, making it the second largest economy in the World.
To give some context, the economic output (GDP) of some other countries in 2075 are estimated to be:
- USA $51.5 trillion
- Japan $7.5 trillion
- UK $7.6 trillion
- Germany $8.1 trillion
Your involvement in the story
Sounds good but what has this got to do with me?
If you are about to receive or have received an inheritance at, as an example, age 50, it is likely that you will live around 40 years. This change in India to 2050 will take place in your lifetime.
If you have children, and especially with grandchildren, this change in India to 2075 will take place in their lifetimes.
I am not an investment manager but am able to arrange for discretionary fund managers (DFMs) to run investment portfolios on behalf of my clients. I direct the DFM to invest in a manner that fits both with your attitude to risk and your longer-term planning objectives. This includes your requirements for income and inheritance tax planning for your family.
I am forward looking. This story of India is not a recommendation to invest in India. It does illustrate however that if this economic expansion is expected to develop over your lifetime, we could ask the DFM to consider including at least some Indian exposure in your portfolio.
If you wish to look to the future, book an appointment for an initial call with Barry Davys at a time that is convenient for you, using his online system at Receiving an Inheritance – What Now
Should I buy a property with the Inheritance I have just received?
By Barry Davys
This article is published on: 29th July 2023
29.07.23
The true story may surprise you?
There are some spectacular homes in Catalonia and there are many properties which are bought for rental as an investment.
If you are coming from a home owning country such as the UK (63% homeowners in 2020)¹ or Romania (a remarkable 92.9% homeowners in 2021)², it is only natural to think of property as a good idea. We may have experienced significant gains on a property and we probably know others who have done so. Most of these cases will be people who have bought their property as a home. We may have also seen the headlines about the “Buy to Let” boom in the UK. Bear in mind the boom was helped by very, very low interest rates which are most unlikely to be repeated.
Now we are seeing headlines such as ‘Lots of us are very anxious’: why Britain’s buy-to-let landlords are selling³. A reminder that like most investment markets the value of your investment can go down as well as up.
Investing in property can be effective. It should be considered like any other investment and not with the bias in our decision making that can come with having been brought up in a home owning country.
Here we help you to view an investment in property in Catalonia with data.
The first item to understand is that there is a property purchase tax of 10% of the purchase price. Other costs, such as lawyers and notary fees, are typically total 2% of the purchase price. This is an assessment of the impact of costs and taxes and what it can do to your investment return.
¹www.gov.uk – Home ownership
²European Union (Euro Stat) Home or Flat – Owning or renting
³Guardian newspaper 24/02/2023
| The true cost of a house for renting in Spain | Return on investment | ||||
|---|---|---|---|---|---|
| % | % | % | |||
| Purchase tax | 10.00 | Annual yield Barcelona | 5.7 | ||
| Lawyers, notary etc | 2.00 | Less | |||
| Property registration fee | 1.5 | Tax at say 33.8% of 5.7% | 1.93 | ||
| IBI (council tax) | 0.6 | ||||
| Landlord insurance | 0.5 | ||||
| Total cost of buying | 13.50 | Community charge | 0.3 | ||
| Furnishings and white goods | 0.75 | Total ongoing costs | 3.33 | ||
| Total Costs | 14.25 | Annual Net Return | 2.37 | ||
| Number of years to recover cost of purchase | Total Costs ➗ Annual Net Return | = | 6.01 |
In summary, total acquisition costs are typically 14.25% of the purchase price. The buyer has to have this amount of cash in addition to any deposit as the mortgage is based on the value of the property.
The rental property rate of return (yield) is shown for Barcelona. Anywhere outside of Barcelona will likely give you a lower rate of return.
Annual net returns after ongoing taxation of property tax (IBI) and income tax (rental income is added to employment income). The example uses a tax rate of 33.8% income tax on your rental but the top rate of income tax in Catalonia has recently risen to 50%.
This means it will take you just over 6 years to cover your costs from rental income.
Of course, with a bit of luck, the property will increase in value. There is an oft repeated mantra that “Oh but the property will increase in value”. It may well do, especially if you keep the property for many years. However, here are some other points to be aware of before buying a rental property for profit.
- You benefit from the increase in value when you sell the property
- Yet the true benefit is only the increase in value above inflation; not the difference in buying price and selling price but only the bit of profit above the revised value caused by inflation
- Capital gains tax is payable on the increase in buy to let property value, even if you are over 65. Inflation is not taken into account by the tax man so you pay tax on the full difference between buying and selling
- Capital gains tax in Catalonia is between 19% and 26%
- Estate agent fees in Catalonia are typically 5% of the sale price
- A further tax is called Plus Valor. Raised by the local council the tax is based on the increase of the value of the land that the property is built on. This applies to freehold properties too
- The property is part of the assessment for Inheritance Tax in Catalonia even if you return to the UK or your home country
Property investment works best when expectations and reality are matched. Knowing realistic figures, based on data, is very important. We hope that this article provides some insight and helps you with your assessment of whether it is right for you.
Are there alternatives? There are and one or two that are very tax efficient. In some cases a combination of property and other investments can work well.
For more information on these elements of investing in property in Catalonia you can book a call with the author Barry Davys. Please use his online system so you can choose a time that is convenient for you for the call. The call can be a video call or a telephone call.
Thinking of retiring to Spain?
By Jeremy Ferguson
This article is published on: 27th July 2023
27.07.23
If like many people, you’ve become hooked on life in Andalucia whilst here on holiday from the UK, what is the reality of retiring here, and what considerations need to be taken when looking at it seriously?
Since Brexit things have changed somewhat with regards the hoops to jump through to obtain residency, and nearly all of the clients we work with have had to apply firstly for permission to live here full time if they are UK passport holders.
The most common route is to apply for a non Lucrative Visa, and all of the information you need for this can be found at www.upsticks.es Essentially you will have to make your application through a Spanish Embassy in the UK, supplying them with financial information, criminal record checks and proving you have the necessary private health care in place amongst others. This can take a few months and having someone like Upsticks do this for you takes away nearly all of the pain.
This is just the first part of the jigsaw, and you will need to make very careful plans with regards the timing of your arrival if you are selling assets in the UK, typically this is your home, as well as thinking about whether to take pension benefits and what to do regarding your other assets. The most obvious is making sure you take your pension commencement lump sum as a UK tax resident by nature of the fact this is tax free when living there. If you did this after moving to Spain and becoming a tax resident, this would no longer be tax free and would attract income tax here, so it makes perfect sense to deal with this as part of the overall planning for your move.
Then there is the issue of selling your UK home, as if you are deemed a tax resident of Spain in the year in which it happens, there can be Spanish capital gains tax applied to the ‘profit’ you have made when selling. If this is your main home, and you sell when a tax resident of the UK then we all know this doesn’t attract capital gains tax, so to get the timing wrong when moving here and falling into that trap is normally the most important element to plan.
If you have ISA’s in the UK and they are in profit, then again realising these whilst a UK tax resident is tax free. If you held onto these investments and sold them after becoming tax resident here, the profits will attract capital gains tax. In many circumstances it can make sense to realise the profits before leaving the UK, and then make alternative arrangements when you get here. There are options available for tax efficient in- vestment products here, but it is important you are fully versed in the pros and cons of these be- fore doing anything.
Nearly all of my time at the moment is taken up with helping people plan their relocation carefully, so when they get here everything is done in the most tax and cost efficient way possible. With anything like this, my favourite expression is ‘relocating is like eating an elephant, it has to be done a mouthful at a time’.
We have a useful guide on our website which deals with relocating to Spain in more detail, and this can be downloaded at spectrum-ifa.com, If you are considering a new life in Spain, please do not hesitate to get in touch so we can help you every step of the way. For most people the reason they want to move here is for a less stressful life, so making sure you take the right advice is critical to helping this happen.
Comment mieux diversifier votre patrimoine
By Cedric Privat
This article is published on: 21st July 2023
21.07.23
“Bien épargner” aura une signification différente pour chacun; selon votre horizon de placement, vos priorités, votre profil de risque, votre situation familiale, etc.
L’Ipsos nous apprend que seul 24 % des Français déclarent épargner en vue de la retraite.
L’immobilier et les actifs prudents (livrets, support en euros de l’assurance-vie) sont très largement majoritaires et représentent plus de 80 % des actifs détenus par les ménages français.
Dans un contexte de forte hausse de l’inflation et de remontée des taux d’intérêts, diversifier son patrimoine semble désormais impératif.
Cette problématique est d’autant plus importante si vous travaillez en Espagne, la retraite y étant largement inférieure à la retraite française. Selon la “Seguridad Social”, la retraite moyenne en Espagne est actuellement de € 1’193.
Pourquoi diversifier votre épargne?
Hormis votre épargne de précaution (3 mois de salaire), laisser une partie importante de vos liquidités sur des comptes bancaires s’avère être un risque car vous perdez du pouvoir d’achat face à l’inflation.
Différentes diversifications sont possibles telles:
- Le type de produit
- L’impact fiscal
- L’horizon de placement
- Le risque
- Les zones géographiques
- Les devises
Le but étant de réduire le risque et d’optimiser la performance sur le moyen et long terme.
Les options: de la plus sage à la plus risquée
- Monétaire: Livret A & comptes bancaires rémunérés
- Obligations: dettes d’un État ou d’une entreprise à qui vous prêtez et qui vous doit des intérêts
- Immobilier: résidence principale, secondaire, ou locative
- SCPI: immobilier locatif via un placement collectif (pierre papier)
- Actions: vous possédez des parts de sociétés via un investissement en bourse
- Spéculative: matières premières, montres, voitures, Crypto, Art, etc.
Le risque de chaque fonds (actions, obligations, immobilier…) est calculé sur une échelle de 1 à 7. (Indicateur Synthétique de Risque)
L’assurance-vie
L’assurance-vie est le premier moyen d’épargne en France. On le surnomme le « couteau-suisse » indispensable des épargnants.
Les risques encourus par l’assuré varient selon le support choisi : les contrats souscrits en euros bénéficient d’un capital garanti, alors que le capital des contrats en unité de compte ou en action varie en fonction des marchés. Il est également possible d’investir dans l’immobilier.
Une assurance-vie « multisupport » permet de se construire un portefeuille diversifié et adapté à la situation de chacun.
Les gains accumulés ne sont pas imposés tant qu’un rachat vers votre compte bancaire n’est pas activé.
Vous pouvez retirer de l’argent quand vous voulez mais un rachat les premières années peut entrainer une fiscalité plus lourde ou des frais de sortie anticipés.
Aucun investissement ne peut offrir à la fois un bon rendement, aucun risque de perte en capital et une bonne liquidité. Il est important au préalable de mettre en place une stratégie patrimoniale afin de s’adapter à sa situation, son profil de risque, calculer les sommes allouées pour une épargne court/moyen/long terme et préparer/chiffrer son avenir, coûts futurs et sa retraite.
Le groupe Spectrum à Barcelone se propose d’étudier gratuitement votre situation afin de vous aider, de vous conseiller, de vous orienter ou de vous guider dans vos démarches patrimoniales.
N’hésitez pas à nous contacter afin d’obtenir les réponses d’un professionnel aux questions que vous vous posez.
0% tax when selling your UK business
By Barry Davys
This article is published on: 20th July 2023
20.07.23
How you structure the sale of a business is always important. And never more so when you make an opportunity to move to Spain and then sell your business. Spain has a scheme to attract foreign workers, professionals and entrepreneurs with tax incentives.
This scheme can lead to 0% tax on the sale.
So unsurprisingly, moving to Spain is becoming an increasingly popular option.
Before inviting you to discuss the scheme, it is important to show how I help business people in this situation with their wealth planning. In addition to the 0% tax scheme there is greater depth to the planning. Will you live happily ever after? Well let’s see.
Selling a business is often a life changer. You have more time. You are not with the same people that you have been with for, in some cases, years. You suddenly have a large bank balance. And you spend time wondering what comes next in life?
I cannot help with the “what comes next?” question but I do help people get their affairs in good order so they can move forward.
My experience of working with people who have sold a business gives me insight into what things are important financially after a sale. Having sold a business myself I also have an understanding of the feelings that appear after the sale about the new found wealth.
The bank balance
The warm feeling that comes with looking at a new, very much bigger than normal, bank balance is great. It is a sense of achievement and reward for all the work you put into building your business and sacrifices you made along the way.
This feeling makes us focus on the figure on the bank statement. However, if we have sold at 55, with average life expectancy, we could live for another 30 years; longer if you are a woman. Life expectancy, as a result of medical advances, means we might well live even longer.
The secret to dealing with this bank balance focus is to check your answers to these questions:
- Have I just lost my salary?
- Have I just lost my dividends?
- Do I want to work anymore?
- How much do I need to live on if I don’t work?
- Will I run out of money?
These questions help us take the focus away from the big, juicy bank balance to the reality of providing an income for the next 30 years.
Question five may seem a strange question having just received a payment for the sale. It is actually an important one. The large bank balance typically tends to lead to big purchases; a car for husband and wife, a new house, helping or buying a house for children, a boat, gifts to other members of the family etc.
All these purchases and gifts have one thing in common. Not one of them produces an income!
Another common action is to invest in another business. I have seen time and time again, and I have been guilty of this myself, of investing in a company in a completely different sector, or perhaps B2C when your business was B2B. It can be a very expensive mistake to think “I know about business/marketing/retailing/manufacturing” etc and then investing in a different type of business.
What made our business successful was our ingrained experience of our sector and market, our knowledge of our suppliers and competitors and our customer needs. Moving to a different type of business for investment can render all that experience irrelevant. The assessment of the investment opportunity can be skewed by thinking we can rely on our experience.
So what should we do?
Post sale action
Secure your income first and then buy the toys, make further investments and make the gifts. But how do you do that when the future is unknown? By using some of the very best cash flow modelling software it is possible to show you. With inputs that are specific to you. With real data on portfolio performance including what happened during the financial crisis and the pandemic. Graphical output shows in real terms how to generate your income and what you could spend on other things.
For more information on how the modelling can work for you, book a call, in confidence, with the author Barry Davys, The Spectrum IFA Group, at a time that is convenient for you on his online system.
The earn out
I often hear people who are selling say “and I am due a further sum of X in Y years”. It is considered as the ‘cherry on the top’ part of the deal even when it is contingent on hitting a future target. We can’t help but include it in our “How much am I worth?” calculations in our head, even though it is contingent on a target that we have no control over (loss of control is a function of selling the business).
The modelling helps with this issue too. A model with zero return from an earn out period in a contract allows you to plan with the resources you have available now. A second model is provided showing receipt of the further payment when it becomes clear the payment will be made. This second model can account for any and all of the following:
- Earn out period
- Retained shareholdings
- Loan notes
- Tax rebates
Your pension
As we have been building the business we may have thought of pension contributions as a way of managing corporation tax, personal income tax or both. The pension pot itself is generally viewed as ensuring you have a comfortable retirement.
Now you have (or will have) a larger amount of wealth outside your pension it can be very beneficial to use this non pension wealth to provide your income in retirement. Firstly, it is possible in Spain to provide you with an income with a lower tax rate than applies to a pension. This gives you income that lasts longer into your retirement, allows you to have a better standard of living, or both!
Your pension pot then becomes one of the most effective IHT planning tools at your disposal and it is already under your control.
Inheritance tax in Spain
Inheritance tax in Spain is less about where you are living and more about your connection to the UK and also where your children live. Connection to the UK because even if we leave the UK a long time before death, we are generally considered to be “Domiciled” in the UK. Domiciled has a specific definition in the UK allowing HMRC to claim inheritance tax from an estate no matter where you die
Where you children live is important because they are the taxable entity, not your estate, for inheritance tax in Spain.
The importance of inheritance tax planning increases significantly after the sale of a business. It may be that you have previously qualified for family business exemptions on inheritance tax in both Spain and the UK. This was granted based on your shareholding in the company. Now the business has been sold, the exemption disappears.
Relatively simple planning can give outstanding results in reducing the amount of inheritance tax due in Spain.
Don’t forget the basics
Our feeling of abundance pushes the basics from our mind. However, there are a few basics that we should attend to post sale and which we will then not have to worry about again. This attention often means tax savings and reduction in expenditure.
Life Assurance
Have you had life assurance provided by your business? Has that now disappeared? Do you still need life assurance if you now have a large capital sum? Do you have life cover taken out in your personal name?
When advising people on the post sale process these are the sorts of questions we address. In one recent post sale example my advice saved a husband and wife £400,000 EACH in potential inheritance tax.
Private medical insurance and income protection insurance
Were either of these insurances paid for by your company? Do you need to replace or update an existing policy and especially so when you move to Spain?
Income protection insurance will pay you an income if you cannot work. However, with the loss of earnings as a result of the sale these types of policies become void. The good news is that by addressing the income issue first in your planning, you are already meeting the need for income. The policy is no longer needed and so there is a cost saving from not having to pay the insurance company a premium.
Where next?
It is especially important that planning post a sale is broad enough to look at your overall situation and not be focussed just on the 0% tax or how to invest the sale proceeds. People have also found that continuing advice brings better outcomes for the family and ongoing piece of mind.
Of course, the 0% tax is very important and so I discuss this as part of the planning of the sale of your UK business in detail. To arrange a meeting or call please use this link to choose a time that is convenient for you to find out more about the 0% tax scheme and wealth management for you and your family.
However, perhaps you’re not interested in a holistic financial approach. If you believe investing is just about picking the right stocks or funds and have no interest in considering your complete financial picture – including tax strategies, estate planning, retirement goals, and risk management – I must admit, my comprehensive approach won’t be your cup of tea.”
Barry Davys MBA Dip PFS
Partner, Spectrum IFA Group
Building your portfolio after selling a business
By Barry Davys
This article is published on: 19th July 2023
19.07.23
Travel broadens the mind, and the investment portfolio
Have you ever been to India for work or to travel?
I haven’t but my partner went for work and my daughter for travel. Some seven other friends have also travelled and all have reported the same way. It is a great place, still lots of improvements to be made, but the people work hard and are generally friendly.
With a current population estimated at 1.46 billion (now larger than China’s), India accounts for around 18% of the world’s total population.
If you were running a business with:
- 18% of the world’s population in your home market
- English being spoken well by a good proportion of the population and with English language ability providing valuable access to international markets
- skilled and hard working employees
Would you be mildly optimistic about your outlook? Of course, you would have to deal with the day to day issues of logistics, marketing, financing etc but even so, you might still be mildly optimistic.
The story is only just beginning. Yours and my parts of this story come at the end of this article. Read on.
The IMF, World Bank and Goldman Sachs are all optimistic about the country’s outlook. India is currently the fifth largest country by size of economy. However, by 2050 Goldman estimates it will be the third largest in the world. Sounds good but when you examine the numbers it really is impressive.
In 2022 the Indian economy was valued at $3.385 trillion. Goldman expects the economy to be $22.2 trillion by 2050. By 2075 it is anticipated it will be $52.5 trillion, making it the second largest economy in the World.
To give some context, the economic output (GDP) of some other countries in 2075 are estimated to be:
- USA $51.5 trillion
- Japan $7.5 trillion
- UK $7.6 trillion
- Germany $8.1 trillion
Your involvement in the story
Sounds good but what has this got to do with me?
If you are selling or have sold your business at, as an example, age 60, it is likely that you will live around 30 years. This change in India to 2050 will take place in your lifetime.
If you have children, and especially with grandchildren, this change in India to 2075 will take place in their lifetimes.
I am not an investment manager but am able to arrange for discretionary fund managers (DFMs) to run investment portfolios on behalf of my clients. I direct the DFM to invest in a manner that fits both with your attitude to risk and your longer-term planning objectives. This includes requirements for income and inheritance tax planning for your family.
I am forward looking. This story of India is not a recommendation to invest in India. It does illustrate however that if this economic expansion is expected to develop over your lifetime, we could ask the DFM to consider including at least some Indian exposure in your portfolio.
If you wish to look to the future, book an appointment for an initial call with Barry Davys at a time that is convenient for you, using his online system at Selling your Business
Sensible Inheritance Tax Planning
By Barry Davys
This article is published on: 17th July 2023
17.07.23
One of the principals of financial planning is to keep things as simple as possible. Often that is easier said than done. Often, trying to plan in the context of unknowns means we have to try to cover a number of options. Examples include what will future investment performance be, which country will you live in in the future, how many children and grandchildren will you have and indeed, how long will you live?
One piece of planning that is quite straightforward is a piece of planning for passing wealth onto your children when one lives in the UK and the other in Spain. As an example let’s use the family called the “Sensibles”:
- Mr & Mrs Sensible live in the UK
- Child Sam Sensible lives in Spain
- Child Una Sensible lives in the UK
- In Spain there is gift tax if money is given to Sam during Mr & Mrs Sensible’s lifetime
- In the UK, there is no gift tax
- In Spain, the recipient of money from a Will has to pay Inheritance Tax (IHT)
- In the UK, it is the estate of the person who has died that pays the IHT
- Mr & Mrs Sensible wish to do some UK IHT planning and give money to their children now
The problem for Mr & Mrs Sensible is that if they give money to their children now, this will lead to Sam in Spain having to pay Gift Tax now. If they leave their money to Sam in their Will there are allowances and discounts available which means that he will pay less tax than in the event of receiving a gift.
The Solution
The solution is quite straightforward. Mr & Mrs Sensible should give the total amount of money they wish to give to Una in the UK now. This will reduce their future liability to UK IHT. To make sure Sam and Una are treated the same they should then deduct the amount given to Una from her half in their Will.
- Sam pays no gift tax and Una pays no gift tax
- Sam pays less tax on the death of his parents because of the discounts available on IHT for bequests from parents to children
- Mr and Mrs Sensible have reduced their UK IHT bill
What a sensible thing to do.
Tax embargo in Spain for incorrect declaration of taxes
By Chris Burke
This article is published on: 10th July 2023
10.07.23
When moving to Spain you find out pretty quickly that the way things work here, bureaucratically and lawfully, are very different from the rest of the Western world, particularly the UK. One such example is if you are suspected of making an incorrect tax declaration or filing. Even if advised by your accountant/tax adviser to do so, you are liable and not them. In Spain, simply put, you are guilty until proven innocent of any suspected wrong doing.
With that in mind, one major example is of a self-employed person having their taxes filed incorrectly by their accountant and being unaware. At some point in the future the individual is notified that they have not responded to the tax office’s request to query this, and thus immediately have their income ‘embargoed’ and the monies they are suspected to owe are either taken from their Spanish bank account and/or taken at source from their main customers/invoices.
In one particular instance the tax office claimed they had ‘written confirmation’ that the notice of their investigation was delivered 3 times, however this confirmation is a signed document from the post office delivery person saying they were delivered, not the recipient signing to say he or she received them. Then, due to you not responding, the case is now closed and you are guilty by not replying, thus the money they believed you owed, you now owe and must be paid.
I have seen this happen many times over the years and cause considerable pain and suffering to people. Imagine the tax office saying you owed them €40,000 then taking it from your bank account, or deducting it each month as you received invoice payments. How do you then pay your bills? And in all of this, you are the complete innocent due to your accountant wrongly declaring your taxes.
What can you do? Well, the process is threefold:
- Firstly, you have to contest the ruling and see proof of what they are finding you guilty of (e.g., incorrectly filing) and that they actually delivered the documents to you.
- Secondly, if you feel their ruling is incorrect, appeal against it explaining why.
- Thirdly, as the appeal will likely be unsuccessful you then go through an ‘arbitration’ process where your likelihood of winning is approximately 75% and above.
The bad news is this process normally takes between 3-5 years. If you win, you will receive your money back plus some interest. If you lose, the European courts are your last option.
My best advice for anyone to avoid this is:
- Make sure you are confident in the accountant you are using to reduce the chance of this happening.
- Always make sure your address on file at the tax office is up to date.
- Only keep in a Spanish bank account money you need to live on. The tax office cannot legally take money from bank accounts outside of Spain unless they go through a court process.
If this has happened to you feel free to get in touch – I can recommend a law firm/accountant that has experience in this field and has been successful. Alternatively, if you would also like a recommendation for an accountant that won’t make these mistakes (hopefully, in Spain it’s never 100%!) then again feel free to reach out.
Click here to read independent reviews on Chris and his advice.
The Beckham Law – Spain
By Chris Burke
This article is published on: 7th July 2023
07.07.23
A chance to change your financial Future Forever!
Many people are aware of the Beckham Law or soon find out about it (hopefully) when they arrive in Spain. In this article I am not going to explain it’s benefits because most people know these, but I am going to explain how being on this tax regime can potentially CHANGE your whole financial future with proper planning.
The big attraction regarding the Beckham Law for many is the low, one band income tax of 24% up to an income of €600,000 per year. Whilst this can massively increase your income over the 5 complete tax years you are here (if you start the Beckham Law in a January/February you pretty much have 6 years on this regime) and allows you to potentially save/put aside thousands over that period of time, for me the other benefits it offers can have the biggest impact on your financial future.
Your worldwide income is not taxable on the Beckham Law whilst tax resident in Spain, which is great if you have investments/assets outside of Spain which would normally need to be declared and tax paid. So, let me give you an example:
You have investments/pensions outside of Spain (let’s say in the UK for this exercise) that are around £1million in total, split into the following asset classes:
- Investment/ISA portfolio £300,000
- Stocks/shares £300,000
- UK pension £400,000
If you were not on the Beckham Law, each time you took money from these assets you would normally pay capital gains tax up to 28% on investments/Isa/stocks/shares and income tax up to 47% on the pension. Imagine if you could ‘encash’ these assets all-in-one go and do NOT pay any tax. Then moving forward set these up in a highly tax efficient manner. You wouldn’t pay any tax on these amounts ever and minimal tax on any gain they made, as these could be offset/deferred and mitigated. Well, normally (always depending on your situation) on the Beckham Law you can do this. You are not a UK tax resident thus there is no UK tax to pay (as long as you have informed that to HMRC) and as a Spanish resident on the Beckham Law there is also no tax to pay on income outside of Spain.
So, rather than pay up to 28% tax on the investments/gains (approximately £138,000 in the above example) and income tax of approximately 30% on the pension income (considering the pension income alongside your state pension also) gives a tax saving of approximately £6,000 per year… for life. Over 30 years that’s £180,000 plus inflation. You have also, very importantly, turned the pension (which has to adhere to pension laws) into a lump sum of money free of tax and are able to do with this what you wish.
Once you have ‘encashed’ these assets and paid zero tax ´potentially´, you can then plan for when the Beckham Law ends, particularly because these are highly tax efficient and minimal taxes would need to be paid on in the future.
This is just one way that smart, efficient financial planning can massively change your financial future that we implement for clients on a daily basis. Alongside this we work with successful, well known mainly UK known investment companies, including ethical and sustainable investing, to work on greatly increasing and secure our clients financial future.
One last note, UK property can also work this way, however savings tax is still payable in the UK on this as a non-UK resident, although there are some potential allowances.
Click here to read independent reviews on Chris and his advice.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with Chris.
You can book a call or Zoom meeting with Chris below.