Viewing posts categorised under: Spain

Investing During War Times

By Chris Burke
This article is published on: 7th March 2022

07.03.22

Off the back of the current situation in Ukraine, many of my clients have been asking me what this means for their investment and pension portfolios. Irrespective of the size and scope of the conflict, any declaration of war has global repercussions. Instability in one area of the world will result in a ripple effect, effecting other areas of the world regardless of the countries involved. Yes, this is likely to affect your investments and your pensions but the key takeaway is that you should not worry. If you are panicking, please reach out to me and we can have a conversation about it. There are even areas of opportunity in war times and stocks in certain sectors have even bucked the trend and outperformed. In this article, I will discuss investing in war times, including the current conflict in Ukraine, and the impact that this has on the stock market performance and the wider economy.

The Current Conflict in Ukraine
In the case of the current conflict between Russia and Ukraine, the heavy sanctions inflicted on Russia already have and will continue to heavily effect the global economy. The sanctions are amongst the harshest sanctions ever imposed on a country, and include preventing the Russian Government from accessing up to 600 billion USD in foreign cash reserves which they hold in foreign banks around the world, banning Russia from SWIFT (thus preventing Russians from using various credit and debit cards to make payments) and the freezing of the assets of some Russian individuals around the world ranging from bank accounts, property and even private yachts.

Various multinational companies have also ceased or reduced their operations in Russia (at least temporarily). For example, Apple have closed their Russian stores, Shell and BP have sold their stakes or abandoned their Russian operations and a magnitude of aviation companies such as British Airways, Lufthansa and Boeing have either halted their flights to Russia (note that there have also been significant alterations to the accessibility of international airspace) or in Boeing’s case, suspended parts, maintenance and technical support for Russian airlines.

The conflict does not solely impact the Russian economy. A large number of countries throughout the world export products to Russia. If this is no longer possible, then they will see a reduction in profits, which will then go on to affect their balance sheet. Furthermore, many countries in the world import products from Russia. The key product in this case is oil, a vital energy source. Although the supply of oil has not yet been cut, we have already seen a rise in petrol prices in many countries such as the UK. Other popular Russian products such as vodka are likely to be hit. Due to the decrease in supply, we are likely to see both shortages and a rise in price of Russian products such as vodka.

However, it is very difficult to predict exactly what will happen. For this reason, when making personal finance related decisions it is recommended that you engage in a professional discussion with a professional financial adviser. In times of war in particular, it is recommended that people seek the advice of an expert to help them manage their portfolios.

Previous Wars and Their Impact on Stock Market Performance
It’s important that we consider previous wars and the impact that they had on the stock market. Some civil wars and internal conflicts, such as those in Sierra Leone (1991-2002) and the Central African Republic in 2013, caused severe disturbances in those countries’ economies. However, from a global perspective, these wars did not cause disturbances in the stock market of first-world nations such as the USA. On the other hand, large-scale wars such as World War 1 and 2 did effect the US market, even before the US entered the conflict.

Global markets in the past operated very differently from how they operate today. For example, prior to World War 1 every country operated independently and the countries that operated in global trade were seen as at ‘gold standard’ level. London was the world’s financial capital and used in this way when a financial centre was necessary, however the requirements and responsibilities were very different when compared to nowadays.

At the close of World War 2, significant changes were made to the global financial system which increased interdependence between countries. The World Bank and the IMF (International Monetary Fund) were created, and from then on stocks reacted very differently from World War 1 and World War 2 when conflicts arose.

It’s also important to consider the popularity of the war on the home front and the amount of time in which the war goes on for. For example, the Vietnam War and the Gulf War both saw very different stock market outcomes in the USA due to the difference in popularity of the wars amongst Americans. Furthermore, the Afghanistan War lasted almost 20 years. In this 20 years, the markets saw both highs and lows. Ultimately, the longer a war goes on the less reactive a market is to its influence. A war may start to be seen as a ‘Business as usual’ type of operation.

I created the below table, summarising previous wars and their impact on the economy and stock market performance (I used the Dow Jones stock market as a comparison).

WAR	EFFECT ON ECONOMY
World War 1	Nations that imported more than they exported lost gold reserves, negatively impacting their economies, because the slow economic conditions saw greater demand for exports When Archduke Franz Ferdinand was assassinated, what is considered as the start catalyst of the war, the stock market was barely effected When Austria-Hungary declared war on Serbia in 1914, the Dow Jones dropped by 30% and the market had to close to maintain order and stability. When it opened a few months later, it sawed up by 88% and continued to rise until late 1916 When the US declared War in Germany in 1917, the stock market took a hit and continued trending downwards into 1918. It didn’t recover fully until mid 1919, on the news that the war was over
World War 2	The US was just emerging from the Great Depression in 1939 when the war started. In the early days of the war the Dow Jones increased over 10%, offering hope that the geopolitical environment would put an end to the challenging economic times. However, the conflict started to disrupt international trade and after this initial boost, the market started to fall significantly Rapid action from various impacted Governments around the world prevented the stock market from falling further than it did From 1939 to the end of the war in 1945, the Dow Jones was up 50%. Considering the economic conditions, this was a rather unexpected gain. The gain was put down to the various international cooperation agreements which succeeded in stabilising and growing the US economy
Korean War	The Dow Jones dropped around 5% on the first day – the war was a shock to most investors The recovery was fast, and by the time the war ended in 1953 the Dow Jones was up almost 60%. This is thought to be due to a number of Government policies such as increasing taxes and not borrowing money to fund the war.
Vietnam War	The Dow Jones grew by 43% from the start to the end of the war (1965 to 1973), despite its low popularity However, it was not all plain sailing. The Government’s decisions on funding the war caused inflation, setting off a mild recession in 1970
Gulf War	The Gulf War only lasted for 7 months. Due to its shortness, it is more difficult to separate the changes caused by the conflicts from those related to other world events. For example oil prices increased, causing a brief recession, which is an unusual event for war times When comparing the Gulf War with the previous wars, the US economy has changed a lot. The economy changed from processing natural resources and manufacturing capital goods to primarily knowledge based work (producing information and services). This may have meant that the stock market reacted differently during this war compared to previous wars.
Afghanistan War	The Afghanistan War lasted for almost 20 years, making it difficult to measure the impact of the war There were two crashes (2008 Global Financial Crisis and 2020 Covid Pandemic) which were both followed by quick recoveries, however these were largely unrelated to the war Industries such as Real Estate, Data Processing and Information Services and Computer Systems design and related services saw huge growth, suggesting that the war did not influence them. Shares in industry-leading defense contractors also profited significantly during the war.

Do any Patterns Emerge from Historical Stock Market Performance During War Times?
In the early days, there is certainly volatility. For example, both the FTSE and the Dow Jones took a dip last week (25/02/22) when Russia invaded Ukraine, however both have recovered since then. Logic dictates that this volatility continues throughout war times, however history has shown that this is not always the case. Yes, during pre-war times and at the beginning of a war (especially if there is no escalation period and the war breaks out suddenly without warning) stocks prices tend to decline due to shock and uncertainty. However, once war begins, history has shown that the stock market goes up, as has been the case with the Dow Jones and the FTSE this week (as of 03/03/22).

Generally speaking, there is no need to panic. Panic selling stocks and investments at the start of a war could prove to be a very bad move, considering that early sharp drops tend to be followed by steady gains. However, it is also important to note that the world is changing and that historical patterns may not play out again in future conflicts. Economics and the way in which the stock market behaves is very complex and depends on a variety of internal and external factors such as earnings, valuation, inflation, interest rates, and overall economic growth. Regardless of world events, investors should maintain proven strategies to protect and grow portfolios. The best way in which you could do this is to speak with an expert, and have your investment portfolio professionally managed.

Make a direct virtual appointment here

If you would like to speak with an expert, Chris Burke is able to review your pensions, investments and other assets, with the potential to make them more effective moving forward. If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below:

What has changed for the Modelo 720?

By Chris Webb
This article is published on: 5th March 2022

05.03.22

ITS STILL HERE BUT WHAT´S CHANGED……

We are fast approaching the 2022 deadline to file the Modelo 720.

Here we are in March 2022, nine years on from when the Spanish authorities launched their new “anti-fraud” plan to prevent tax evasion. We were initially advised it was aimed at Spanish nationals trying to hide their assets overseas, but quickly realised that most people affected were the International community with assets back home……

This law was introduced back in 2013, at the time the authorities didn’t really highlight this requirement very well and most of the country were not aware it had been passed. Fast forward to 2022 and I am still meeting people on a regular basis who have never heard of it.

So here it is, a brief outline of the Modelo 720 and what you need to do.

WHO HAS TO REPORT?
Any person, permanent establishment or company who is tax resident in Spain and is the owner, titleholder, representative, authorised person, beneficiary, or has disposal powers of assets located outside of Spain worth more than €50 000 (see assets below), must report the value of these assets.

WHEN DO YOU REPORT?
Between 1 January and 31 March of each tax year.

WHICH ASSETS MUST BE REPORTED?
There are three main asset classes that need to be reported if the total value of each class is over the €50 000 limit:

Bank/Building Society accounts located outside of Spain – It is important to note that if you hold several bank accounts and the TOTAL amount held exceeds the €50 000 limit, then ALL the accounts need to be reported, even those with a nil balance.

Investments / Life or disability insurance policies – If you are the owner or policyholder of an investment or insurance policy then these will need to be declared if they exceed €50 000. Again, there is a requirement if you have multiple investments or policies, that if the total value exceeds the limit then they will all need reporting. Interestingly if you are holding what we describe as Spanish compliant Life Insurance Bonds, then the onus of reporting on the Modelo falls to the institution themselves.

Property – Owners or part owners of an overseas property where the value exceeds the limit must report these properties.

NOTE – You need to report the Modelo 720 again if any of your asset classes have increased by over €20.000 since they were last reported

WHAT IF YOU DON’T REPORT IN TIME / CORRECTLY / OR AT ALL?
This is where things have changed in 2022. Previously The Spanish Tax Authority had implemented a series of heavy penalties for those who do not comply with the regulation.

These penalties can be imposed for late filing, incomplete/inaccurate filing and even for presenting the information to them in a way not deemed acceptable. Pre 2022 these fines could equate to 150% of the asset value. In a recent European court ruling these fines were deemed excessive and have been ruled out by the authorities. It is important to note though that the courts did agree a need for the Modelo 720 itself.

Whilst the excessive fines have been struck out please don’t think that there are no repercussions for not filing. The Spanish authorities will release a new penalty / fine structure that will be more acceptable to the European courts.

For further information you can visit the Agencia Tributaria website here Modelo 720 to see the latest information, in Spanish.

If you need any guidance or have any queries regarding your Modelo 720 please let me know.

ESG funds and green gardening

By David Hattersley
This article is published on: 10th February 2022

10.02.22

I love maintaining the grounds of our home. It keeps me fit, is rewarding when a job is well done, and gets me off the computer into the fresh air.

We live on the edge of the National Park that is the Montgo, surrounded by pine trees and other natural vegetation. We decided to keep an area that many would describe as wild and unkempt as a “nature reserve”.

The joy of a variety of animals and bird life gathering at dawn and dusk at the pool as their “watering hole” has provided many an hour of entertainment. So many bird species and colours nest here, and visit us year after year with their offspring. In the summer even the occasional Parakeet/ Cockatiel fly in, Hawks circle above on the thermals looking for their prey, and Swallows “dive bomb” the pool for flying insects.

Perhaps the most amusing are the squirrels that use the balustrade surrounding the pool as their personal M25, rather than the death defying leaps from tree to tree. They drink from the deep end hanging on for dear life with their front paws in the pool, and suspended by their rear haunches.

It’s the animals’ natural habitat, and source of food. Pigeons eat the dry seed pods from the yellow Mimosa, the other birds attracted by brightly coloured berries from bushes. They drop the seeds or deposit them via “natural wastage” through their system. Bird’s beaks pollinate flowers as they move from plant to plant. Squirrels store their nuts and then forget where they left them, ie lost their nuts. All of this leads to natural germination of new plant growth.

Of course there are drawbacks, fire being our biggest fear with the latest in January this year that was only 500 metres away. A round of applause for the skill of the pilots in their helicopters and planes dispensing their water drops on steep slopes and the “ ground Fire-fighters “ that camped out overnight on the mountain slopes to ensure the fire did not restart.
Our grab bags were ready for immediate evacuation.

Like everything in life there is a balance, yin and yan. De-forestation also has other issues that impact our very lives. I ‘ll refer to this in part 2, and its quite a surprise. But we have to consider the fire risk of our natural area, man’s need vs environment. It is a compromise that needs “Forest Management “rather than total destruction. This takes time, effort, planning and thought.

On a minor basis this is no different to company investment funds that are moving to a strict code pertaining to ESG. As a company The Spectrum IFA Group continue to add new additional ESG funds to the portfolio of fund managers that are truly supportive of this vital part of investing. The most recent one is the Liontrust ESG fund and we welcome its inclusion.

As this is becoming a vital component to any individual’s portfolio, feel free to contact me as detailed below, or download our guide to responsible investing and ESG funds here

ESG – How to invest ethically

By Chris Burke
This article is published on: 29th January 2022

29.01.22

Positive Ethical Screening

Over the last few months, I’ve noticed a large increase in enquiries relating to ethical investments. It’s brilliant to see so many people looking and willing to make a positive difference to the world, whilst also in many cases seeing an equally positive return on their investments.  However, I often get questioned ‘What exactly makes an ethical fund ethical?’ and ‘What exactly do the companies that are defined as ethical funds do to make themselves ethical?’

Traditionally, ethical investing has focussed on omitting companies which operate in a non-ethical manner (for example, companies that produce arms or alcohol). However, it is just as important that when investing ethically we also consider the positives as opposed to solely filtering out on the negatives. There are many funds and companies out there who actively make amends to be more ethical, sustainable and make the world a better place, which doesn’t always get taken into account when negatively screening. In this article, I will go over positive screening criteria that I look for in an Ethical or Sustainable Fund. What exactly makes an ethical fund (or company), ethical?

Communication, Lobbying and Engagement
Funds that regularly communicate, lobby and engage with the companies in which their funds invest in. Although there is no guarantee that doing this will make a difference, communication is never a bad thing and there is potential for it to result in positive changes. For example, a fund could issue an ultimatum to a company if they do not act to reduce their carbon footprint. If the firm does not act, then the fund may well disinvest.

For example, Blackrock are pushing for more disclosure from companies. Specifically, they are asking companies to disclose how their business model will be compatible with a net-zero economy. By actively communicating and lobbying the companies which they include in their ethical funds, this will make companies take note and, hopefully, change for the better. If all investment management corporations followed suit, the chances of companies in general becoming more ethical and sustainable would increase.

Yes, I'm interested in ESG investments and would like to talk to Chris

Climate Change
Funds that contain companies which actively establish policies relating to reducing the impact of climate change. This could mean reducing their carbon footprint by reducing their mileage or switching their vehicle fleet to electric cars, or by utilising sources of renewable energy such as solar panels and wind turbines.

Various investment management companies such as JP Morgan, Schroders and Templeton all have specific climate change funds. The criteria by which each fund selects does vary, however the goal of all of them is to appreciate by investing in companies which adapt to risks posed by climate change and resource depletion. For example, Schroder do not filter based on sector but they select companies which are based on five themes: clean energy, energy efficiency, sustainable transport, environmental resources and low carbon leaders. JP Morgan operates a specialist thematic approach, utilising artificial intelligence and data science to create a portfolio of sustainable companies. Templeton select companies which exhibit superior climate-change practices and favour companies that provide low carbon solutions, companies transitioning to a low carbon economy and companies that are resilient to climate change.

Human Rights
Funds that favour companies who tackle human rights issues. This could mean by actively reviewing and ensuring that they do not break any human rights issues such as child labour, poor labour or generally poor working conditions. For example, if a firm was to use the services of a subcontractor, then they could actively and regularly audit them to ensure that no human rights issues are present.

Abrdn have a strong human rights stance, as demonstrated in a recent report. As they have an ESG friendly approach for their company as a whole, this naturally flows through into the companies that they select for their fund range (although they don’t have a specific human rights fund). The company performs regular human rights assessments to monitor that they are on track. As stated in the report, their human rights status is underpinned by four core beliefs and they are supporters of the ‘Protect, Respect, Remedy’ framework agreed by the UN Human Rights Council in 2008.

Positive Contributions to Society
Funds that generally screen for companies that make a positive contribution to society. For example, funds that look for companies that create products such as medical products that could save lives or industrial machinery that could help make people’s jobs safer. Furthermore, companies that offer good working conditions including pay, hours and the environment could also be screened positively. A positive working environment could see positive human resources policies within an organisation relating to disabilities, assistance with parental care and flexible working. If a company donates a sizable percentage of their profits to charity, then they could also be included here.

There are many examples of investment companies and funds which positively contribute to society. M&G have one of the most extensive ranges of ethical and sustainable funds ranging from funds that invest in long-life, immovable infrastructure assets to funds that invest in companies which companies that contribute towards the Paris Agreement goals. Furthermore, Prudential have been named as one of the World’s Most Ethical Companies by the Ethisphere Institute for the 7th year running. The award is based on five key categories: ethics and compliance program, culture of ethics, corporate citizenship and responsibility, governance, and leadership and reputation. Prudential were one of six financial services companies out of 132 honourees.

Welfare of Animals
Funds that look at companies that show a general interest in the welfare of animals. For example, this could be ensuring that farm animals have quality facilities, enough space to roam and a lasting, regular supply of food and water. It could also focus on funds that include firms who do not facilitate tests on animals. However, it is important to be aware that a lot of firms test on animals in accordance with ‘best practice’. But is this ethical? The more ethical choice would be to not test on animals at all.

Various funds show a clear interest in animal welfare. This is stated in the various fund factsheets and prospectuses. Morningstar conducted an analysis of funds that are against animal testing. The fund which came out on top, The Vegan Climate ETF Index, describes itself as having zero animal exploitation.

Book a telephone call or zoom chat with Chris now

Download out guide to Responsible Investing

If you would like to find out more about ethical investing, or invest your pension or investments in a more ethical manner, don’t hesitate to get in touch with Chris via the form below.

Modelo 720 – the end of late filing fees?

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

28.01.22

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

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

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

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

The Modelo 720 – Does this affect me?

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

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

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

How to reduce your taxes in Spain (legitimately!)

By Chris Burke
This article is published on: 28th January 2022

28.01.22

Taxes are present all over the world. Just because tax rates may seem high here in Spain or because the system may seem complex, it doesn’t mean that you don’t have to pay them! It’s important that you gain an understanding as early as possible on how the system works. By doing so, you may be able to take vital action early which could potentially save you large sums of money by the time your tax bill comes around. In this article, I’m going to provide an overview of the tax situation in Spain whilst offering tips on how to reduce your tax bill legitimately.

First and foremost, it must be said that you do not have the option to choose whether or not to be a tax resident in Spain. Just because the taxes may be cheaper in the UK or the US or wherever you are from, or because you understand the tax system in your home country and not here, it doesn’t mean that you can elect to pay your taxes there. Ultimately, it boils down to if you live in Spain and if so, how many days of the year you spend here. Once you have spent 183 days in Spain in a tax year, which runs from 1st January to 31st December, you are then obliged to declare all of your income and assets and pay tax. These 183 days do not have to be consecutive. For example, in the tax year you could spend 170 days here before then leaving, coming back for a week and then leaving and coming back for another week, taking your total amount of days spent in Spain to 184.

Just because you have a residency card does not mean that you automatically become a tax resident immediately. For example, if your NIE or TIE application gets accepted and you decide to move to Spain in August 2022, and spend 5 months or less living in the country in 2022, in that tax year you will not be liable to tax. Therefore, you would have a few months to assess and take action to protect your assets from Spanish tax before becoming tax resident in the following year.

As a result, it can be highly beneficial if you are planning to move to Spain that you take action early. For example, if you decide to move to Spain in August 2022 and therefore do not become tax resident in Spain in that year, then you can dispose of your assets in that year free of tax in Spain. Therefore, you could sell your property or shares avoiding capital gains tax here and instead pay capital gains tax in your home country. Furthermore, there is no capital gains allowance in Spain. In the UK in 21/22, and 22/23, there is £12,300 capital gains allowance meaning that you will not pay tax on any capital gain up to this amount (which rises to £24,600 if you are married, joint own the asset and combine your allowance with your partner’s).

Example 1

August 2022 – Bill moves to Spain
August 2023 – Having been living in Spain for over 183 days in 2023, Bill sells his house in the UK. As he is now a Spanish tax resident, and this is not his primary residence, he is now required to pay capital gains tax in Spain (supposing he has made a gain on his property)

Example 2

August 2022 – Bill moves to Spain
September 2022 – Having been living in Spain for one month in 2022, Bill sells his house in the UK. As he is not yet a Spanish tax resident, he is not required to pay capital gains tax in Spain and he may benefit from the £12,300 tax free UK Capital Gains Allowance. The first £12,300 of profit made from selling his property may be tax free, depending on other factors such as if he has already used up his capital gains allowance for the year

Contact Chris to discuss your current tax liabilities

Alongside the normal income and capital gains taxes, Spain also imposes an annual wealth tax. This wealth tax, although only paid by individuals who own over €700,000 (€500,000 in Catalonia) in worldwide assets, can result in a discouraging annual tax bill. The wealth tax, into which I will go into in more detail in a future article, is only payable at between 0.2% and 2.5% on assets over the annual allowance (€700,000 or €500,000 in Catalonia).  There is a way to avoid, or at least mitigate this wealth tax. Following the previous example, if you decide to move to Spain in August 2022, and therefore not spend the required 183 days in Spain which you need to spend to become a tax resident, then you may be able to avoid the wealth tax in Spain by gifting your assets. However, this can prove to be a complicated process so it is recommended that you speak to us directly prior to doing this.

As the tax system in Spain may be different to your home country, financial products and ‘tax wrappers’ that are tax free there may not be tax free in Spain. Taking the UK as an example: ISAs are tax-free wrappers in which any gains or dividends on assets held in this wrapper are not subject to UK tax. However, you need to declare your UK ISA if you are a tax resident in Spain and any gains within this ISA, although it would not be subject to UK tax, would be subject to tax in Spain. Furthermore, in the UK you can draw the initial 25% from your pension tax free. In Spain, the same withdrawal would be taxable, although there is another tax exemption for this who contributed to their pension prior to 2007. For this reason, it’s very important to strategically plan ahead and our advice is straightforward: make the most of your tax-free allowances whilst they are available.

Yes, I need to discuss my tax planning opportunities

There are various ways in which you can restructure your assets in order to take advantage of tax planning opportunities here in Spain. For example, you can utilise Spanish tax-effective investment arrangements such as the Spanish Compliant Investment Bond (similar to a UK ISA) which will significantly reduce your tax bill compared to holding the same investment outside of this wrapper. You could also transfer your pension to Spain and adjust how you take income from it.

Everyone’s circumstances are different, but the above points go to show that the way you hold, dispose and take income from your assets can make a large difference to how much tax you pay in Spain. However, it many cases it is not as straightforward as it seems and it could be highly beneficial to seek specialist advice as early as possible to reduce future tax liabilities.

If you would like to seek specialist advice, Chris Burke is able to review your pensions, investments and other assets and evaluate your current tax liabilities, with the potential to make them more tax effective moving forward. If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below, or make a direct virtual appointment here.

Inheritance tax living in Catalonia, Spain

By Chris Burke
This article is published on: 26th January 2022

26.01.22

With all that has been happening the last couple of years with Brexit and the Covid 19 pandemic, it could well have slipped by many people that significant changes have been made to the inheritance tax laws in Catalonia. This will particularly affect those who are resident here and receiving an inheritance from someone who is a non-resident of Catalonia.

Prior to 2020, spouses and descendants received large allowances in respect of tax due to be paid, starting from 99%. However, for those receiving inheritance as a descendant this has been reduced, at the worst to only a 60% reduction. This raises two main questions. Firstly, how much tax will you have to pay if you receive an inheritance, and secondly, is there an alternative way to receive this inheritance, for example as a gift rather than an inheritance, which has a different rate of tax?

It is important to understand how an inheritance is taxed in Catalonia. Major factors are the relationship between the deceased and the inheritor, what asset is being received and where the money comes from, i.e. which country. In the UK it is fairly straightforward: if someone dies as a resident in the UK and leaves you assets up to £325,000 there is usually no inheritance tax (paid by the estate) to pay due to the nil-rate band. However, anything over this amount is usually is taxed at 40%. However, in Catalonia it is not that simple (surprise surprise, I hear you say!) and alongside what is declared and what you may have to pay tax on in the UK, you must also declare and pay the relevant tax in Catalonia. Any assets you already own can also be taken into the equation of what tax is payable.

Inheritance tax in Catalonia is paid by the receiver, not the estate, and very importantly, you have 6 months to declare this inheritance. Even if you haven’t yet received the inheritance (this is from the date of decease), you must declare it within 6 months or else you will be fined the following way on the amount of tax you are liable to pay:

5% in the following 3 months (i.e. months 6-9 since death)
10% from 3 months to 6 months
15% from 6 months to 12 months
20% plus interests after 12 months

However, if you know that you need more time you can ask for an extension of an additional 6 months. This must be requested in the first 5 months following the death. In this case, the surcharges described in the above table will not be applicable and you will have an extra period of 6 months.

If you have questions, please contact Chris Burke

There are some discounts on inheritance tax in Catalonia. To start with, there is usually no tax to pay on the first €100,000 received if you are a spouse or child of the deceased. For other descendants, the allowance is €50,000. If you are an ascendant the allowance is €30,000 and for any other relation the reduction is €8,000.

From this point on, there are further reductions between 97-99% and other factors are to be taken into account, such as if the children are under 21, disabled, or if you receive the main home (“vivienda habitual”), family business or shares in certain types of companies.

As you can see, the calculation is not straightforward. I feel the quickest and simplest way to give you an idea of what tax you would pay is if I give examples using the most typical scenario of people we help. This scenario is of a parent resident in the UK leaving their child, who lives in Catalonia, an amount of money/assets not including property (as we said there would potentially be extra tax deductions for receiving this). The guidelines are shown below for someone tax resident in Catalonia, over 21 years old, owning assets themselves of less than €500,000. Note that the ‘domestic trousseau’ has also been included (the domestic trousseau is a tax on inherited household items, for example furniture, by default calculated as 3% the estate value):

Amount to be inherited	Tax due in Catalonia
€100,000	€84
€250,000	€6,969
€500,000	€29,888
€750,000	€64, 908
€1,000,000	€109,297

One possibility we investigate for our clients is whether it would it be better to plan the future inheritance and anticipate it, receiving the monies through a donation that is taxed between 5% and 9% between parents and their children (with some specific requirements). Additionally, please note that if a previous donation has been made, this must also be considered in order to calculate the effective inheritance tax rate. We always suggest getting in touch to confirm exactly what the amount would be, and for help declaring it. For the assets themselves, it is worth noting that whilst living in Catalonia it is not always efficient to have many overseas assets.

For example, investments or ISAs in the UK are declarable and tax is payable in Spain on any gain annually EVEN if you do not withdraw any of the money, unlike in the UK. It is possible to hold these monies in a Spanish tax-efficient structure, such as a Spanish Compliant Investment Bond, remaining in sterling as opposed to Euros if you prefer. In this way, you can benefit from the money growing through compounding with potential to greatly mitigate tax. This is where we can add value to help our clients effectively organise their assets, and we can manage the assets if need be.

If you have any questions relating to this article or would like help planning for this eventuality, or anything similar, don’t hesitate to get in touch.

Irish Pensions Transfers | What are your options?

By David Hattersley
This article is published on: 25th January 2022

25.01.22

Over the years there has been an ebb or flow of people between the UK, Ireland and also the EU/EEA. There is a strong link due to the common language between the UK and Ireland, with workers moving between both countries. There is a large Irish community in the UK from those who emigrated due to the high unemployment and lack of opportunities in Ireland for many years. Two things changed that trend: joining the EU in 1973 and the subsequent “Celtic Tiger “, which reversed the trend with Ireland becoming a net destination of immigration. It also has led to a change in demographics and the advent of multi-culturalism. However, the boom collapsed, for many reasons, and Ireland fell into recession in 2008, after their banking crisis. Irish youngsters then emigrated to Australia, the UK and elsewhere, to pursue careers or a better way of life.

As the world began to recover from the banking crisis and confidence was returning, the Covid pandemic hit the world. The ensuing restrictions created job losses in the retail, leisure, tourist and airline industries. There are still concerns over the unresolved issues of Brexit and the emergence of Omicron, but despite this Ireland has managed to stage a recovery on the back of the activities of multinational companies, financial services and supported by a domestic recovery, as reported by European Commission’s autumn economic forecast in 2021.

Contact David if you have further questions

There are many advantages to travelling – one’s perspective changes. But after moving abroad to live, work or retire you might find yourself with pensions scattered across different countries.

So when should you consider an Irish Pension Transfer? If you no longer reside in Ireland it is possible via a Malta based QROPS, provided certain criteria are met. Detailed below are some points to consider.

You have accumulated defined contribution pension plans in both the UK and Ireland
You have an Irish defined benefit scheme and you may be restricted by the trustees as to when benefits are taken, or their choice of investments
You are unhappy with the choice of fund offerings or selections
You wish to diversify the currencies of the assets
You wish to “mix and match” different quality fund managers and their styles, with the ability to change these within the wrapper
You may want to take retirement benefits earlier, between 50 and 60
You need flexibility when taking pension income benefits and to be able to vary these according to your needs or change in circumstances, e.g. taking benefits after redundancy, and then gaining new employment or an alternative career
Malta has a wide range of Double Taxation Agreements (DTA) in force whereby pension income is payable gross automatically and is assessable in the country of tax residence

A full assessment of your needs will of course be carried out to ensure that your objectives can be met, so feel free to contact me on my email below to start the process.

Arts Society de La Frontera ‘Live’

By Charles Hutchinson
This article is published on: 24th January 2022

24.01.22

After a gap of nearly two years due to Covid, The Spectrum IFA Group again co-sponsored an excellent Arts Society de La Frontera “Live” lecture on the 19th January at the newly renovated San Roque Golf & Country Club on the Costa del Sol. We were represented by one of our local and long-serving advisers, Charles Hutchinson, who attended along with our co-sponsors Smart Currency Exchange represented by Dean Biddulph. Also present was the society’s European Chairman Jo Ward.

The Arts Society is a leading global arts charity which opens up the world of the arts through a network of local societies and national events throughout the world.

With inspiring monthly lectures given by some of the UK’s top experts, together with days of special interest, educational visits and cultural holidays, the Arts Society is a great way to learn, have fun and make new and lasting friendships.

At this event, over 50 attendees were entertained by a talk on the 1920’s Dustbowl of California, Oklahoma and Texas by John Francis, who is one of the UK’s top experts on this subject. He gave an excellent lecture, revealing to us how this terrible time in US history spawned a number of well known artists and singers, as part of the aid package produced by President Franklin Roosevelt to stimulate recovery.

The talk was followed by a drinks reception which included a free raffle for prizes including CH supplied lovely Art Deco flower vase, a book on the subject and Brandy. Smart Currency Exchange also supplied champagne and a crystal decanter and glasses.

All in all, considering many people are still nervous about large events, it was a good turnout and a successful event at a wonderful venue. The Spectrum IFA Group was very proud to be involved with such a fantastic organization during its current global expansion and we hope to have the opportunity again at the March lecture.

Your Financial Health Check 2022

By Chris Burke
This article is published on: 5th January 2022

05.01.22

New Year Financial Planning Resolutions

First of all, a very Merry Christmas, Happy New Year & Kings Day to all of my clients and readers! Here we are about to start another year; how fast the time passes! Although we have various challenges and uncertainties on our plate currently, the latest COVID-19 variation Omicron and the ongoing Brexit transition to name a couple, I am feeling optimistic about the year ahead.

This time of year is commonly thought of as the natural time to plan ahead. Writing our New Year’s Resolutions allows us to put down in writing what we would like to accomplish over the forthcoming 12 months, and hold ourselves accountable to this. There is a four-benefit cycle of writing New Year’s Resolutions:

Motivation Increases – we will feel motivated and determined from the moment that we set our goals so that we…
Take Control – we internalise that there is nothing stopping us from achieving our goals and that we have the power to ‘make it happen’. Resulting in a…
Sense of Achievement – as we take control and achieve our goals, we will start to feel a sense of achievement, motivating us further…
Self-Esteem/Confidence – as we crush our goals, we will see our self-esteem and confidence skyrocket!

New Year Financial Planning Resolutions - Health Check

But Chris, I hear you say, I don’t know what to include in my New Year’s Resolutions! There are lots of options, whether this is improving your fitness, learning a new skill or improving your financial situation. I specialise in financial advice, so I believe that I can add the most value assisting you with the latter!

A recent Royal London study (Royal London customer research: Feeling the benefit of financial advice, 2020) found that those who take financial advice are on average £47,000 better off over 10 years than those who do not. Furthermore, the study also highlighted that having a financial adviser not only has financial benefits. It suggested that the average person that receives regular financial advice feels more confident and in control, along with experiencing a heightened sense of ‘peace of mind’.

Book a telephone call or zoom chat with Chris now

I am an advocate of the Five Key Financial Planning Principles, also known as the PIPSI. These principles are listed in order of importance, starting with ‘Protection’. If you do not have adequate cover in place, then should something happen, the rest of your plans will not happen, so it is generally agreed that protection is the most important.

P – Protection
I – Income Protection
P – Pension
S – Savings
I – Investment

Protection – do you have adequate life and critical illness cover? Are you paying a fair price for it? Do you have a will to protect your family? Is it up to date?
Income Protection – if something happened resulting in you being unable to work due to accident or illness, are you covered? Would your dependents be financially secure?
Pensions – will your pension plans allow you to retire comfortably? Do you have pensions from previous jobs that could be due for a review? If you have numerous pensions, could it be best to consolidate them to reduce the overall charges and to maximise their effectiveness?
Savings – are you saving money regularly? Are you getting the best interest rate on your savings? Are your savings protected against inflation?
Investments – do your investments match your attitude to risk? Are your current investment charges too high? Do your principles align with your investment choices? For example, are you investing in an ethical manner? Are they on track with your financial life goals?

Have you included improving your finances as a part of your New Year’s Resolutions? Don’t hesitate to get in touch with Chris to talk through your situation and receive expert, factual advice. The initial consultation is free and without any obligation.

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