☏ +34 93 665 85 96  |  ✑ info@spectrum-ifa.com
Viewing posts categorised under: Tax advice

French Tax declarations in June – Trusts & Wealth Tax

By Katriona Murray-Platon - Topics: France, tax advice, Tax Declarations, Tax in France, Wealth Tax
This article is published on: 1st June 2021

01.06.21

Oh what a month of May! So despite the old adage of being able to do as we please, the weather clearly didn’t get the memo! May has been a whirlwind of enquiries and questions on taxes with lots of people requesting the Spectrum Tax Guide. Hopefully, by now most of you have filed your tax returns, but those living in department numbers 55 to 976 as at 1st January, still have a few more days, until 8th June to file theirs. Also, if you have appointed an accountant to do your tax return, they have a special extended deadline until the end of June to file all remaining returns.

If you had a go at your own tax return, but would prefer to hand it over to a professional either for future returns or to check that what you filed this year was correct, it would be best to try to contact them after the end of June. If you think you made a mistake on your tax return, you have until the end of the year to correct it. You will soon know if there is something not quite right with what you have declared when you receive your statement at the end of August/beginning of September. At that point, if you are quick you can submit an amended return before the payment deadline; otherwise you may have to pay the tax payable on the original statement whilst awaiting the amended return to be processed and a new tax statement to be issued, with any tax reductions if applicable.

French Tax declarations

This month, my family and I set off for our first mini-break since the lockdown in March last year. I have to say we were a bit nervous venturing out of our house, preparing the suitcases and worrying that we hadn’t forgotten anything. We stayed in the lovely village of Coux-et-Bigaroque, about 45 minutes east of Bergerac. In spite of the weather we were able to take the children to the Perigord Aquarium, the Caves of Grand Roc and the Chateau of Milande, formerly owned by the singer and entertainer Josephine Baker. Whilst I love visiting this chateau and the birds of prey show in the grounds, it always makes me feel a bit sad. It is an example of how someone with such talent and a kind heart didn’t have the right advisers to help her make the best financial decisions.

Tax Calendar

In June there is another tax deadline that still needs to be considered:

Which is that all Trust declarations need to be declared by 15th June. I wrote an article many years ago which you can find HERE

There have been no significant changes to the treatment of trusts since the law of wealth tax was amended to include only immovable property. A trust can be recognised in France and perfectly valid in France provided that it doesn’t go against public policy (ordre public) and in particular the rights of heirs under French law. Income from a trust is subject to income tax depending on the nature of the income (rent from an apartment or capital income) and can be subject to tax credits under a double tax convention. Trusts (excluding charity trusts and pension trusts) must be declared in France if any of the settlor, trustee or beneficiary are French residents or if the trust contains an asset situated in France on 1st January. According to a press release by the Ministry of Finance on 5 July 2016, 16,000 entities had been identified and notified as trusts to the French administration.

Another change this year is that the Wealth Tax declaration which normally had to be submitted by middle of June if you have assets over a value of €1,3million, this year has to be submitted at the same time as your tax returns by way of a tax form called 2042-IFI. Those of you resident in departments numbered 55 and above still have until 8th June to submit. If you French tax residents who came to live in France, after having spent 5 years abroad, you are not taxable on your non-French assets until 5 years after you became resident. Non-residents also have to declare if their French assets are over €1.3million.

Finally, 30th June 2021 is the deadline for Brits who were resident in France before 31st December 2020 to apply for their residency permit under the Withdrawal Agreement. If you haven’t already done so or know of someone who hasn’t, and they were resident before 31st December 2020, please do try and encourage them to go to the following website:

Tax in France – what needs to be declared

By Katriona Murray-Platon - Topics: France, French Tax Changes, tax advice, Tax in France
This article is published on: 6th May 2021

06.05.21

No-one needs reminding that 2020 was a year like no other. Our lives were changed in many ways and this had an effect on our finances. Luckily there were many government schemes and initiatives to help people overcome the financial difficulties suffered in lockdown and because of the health restrictions. However now that 2021 tax season is upon us, what now needs to be declared?

Salaried workers bonus is tax exempt
Last year some salaried workers may have received a consumer bonus which is exempt from tax up to €1000 (or €2000 if there is an interest agreement/“accord d’intéressement”) Public workers and health workers also received a bonus which is exempt up to €1500.

Overtime hours are usually exempt up to €5000 per year, however the exemption threshold has been increased to €7500 for those hours carried out between the beginning of lockdown (16th March 2020) and the last day of the emergency health state set at 10th July 2020. This applies to salaried workers in the public and private sector as well as those under special regimes. All exempt overtime must still be declared on the tax form and will be included in the tax income reference rate for the tax household.

The Ministry for Economy and Public Accounts has announced that the payments paid by companies to their employees to cover the costs of working from home are exempt from tax up to €2.50 per day worked at home and up to €50 per month for 20 days and €550 per year.

Salaried workers who choose to deduct their actual costs rather than applying the flat 10% abatement on their salaries, can still choose this options without supplying supporting documents however these deductions may not be so beneficial depending on your level of salary. As always it is best looking at both options and seeing which works best for you.

tax deductions

Charitable gifts in 2020
Although things were hard for many people last year, it was also a year, more than ever to help those less fortunate. Gifts given in 2020 to humanitarian organisations and victims of domestic violence result

in a tax credit of 75% of the amounts donated up to a maximum threshold of donations of €1000. Over this threshold and for donations given to other organisations (including political parties), the rules haven’t changed, the tax reduction is 66% for such donations and he maximum threshold is 20% of the taxable income. The excess can be carried over over the next 5 years and results in a tax reduction under the same conditions.

Independent workers
Companies and individual tradespeople benefitted a lot from the government help last year. Fortunately the financial help granted by the solidarity fund to companies most affected by the health crisis, the exceptional financial help to independents (CPSTI RCI COVID 19) and those paid by the additional pension schemes of independent professionals and lawyers (CNAVPL and CNBF) are all exempt from income tax. The other help from public or private entities are taxable if there is no specific legal provision that exempting them otherwise.

Auto-entrepreneurs and micro-entrepreneurs who were exempt from paying part of their social charges must include in their tax declaration the turnover figure that was not declared to URSSAF because of this exemption.

Home help tax credit – changes to the conditions
The home help services normally give rise to a tax credit of 50% of the amount paid out. These expenses are deductible up to €12,000 (plus €1500 per dependent and person over 65 years, up to a maximum of €15,000). However in 2020, during lockdown some of these services had to be temporarily suspended or even cancelled, or in certain circumstances could be carried out online.

If you employed someone carry out a service in your home, you may have benefitted from the partial compensation for the hours that your employee was unable to carry out during lockdown. These compensated hours cannot benefit from the normal tax credit and if you nonetheless paid your employee their salary even though they couldn’t actually work, this cannot be used for the tax credit (it is classified as a solidarity donation).

Exceptionally, some services, which in principle took place in the home, but were in fact carried out remotely because of the health crisis, still give rise to the tax credit under the same conditions as other home help services. These include online additional schooling support lessons and individual lessons (gym, music etc) given to adults or children. The Ministry of Economy and Finance has specified that these services “must have involved a minimum amount of effective interaction, implying a physical presence of the person supplying the service at one end of the screen/telephone line and the be specifically given to the person paying for the service at home”. This therefore does not include online group lessons or watching pre-recorded videos online. This derogation applies throughout the time that people were not allowed to go out either because of lockdown or curfew.

property rental income

Professional landlords who waived rent
If you are a professional landlord and you waived the rent of your tenants for a commercial or professional premises rented to a company that was difficulty because of the Covid crisis, you can still deduct your

expenses (ownership expenses and mortgage interest). You also can carry forward your rental loss, up to €10,700, on your overall income. The additional loss – and the part of the deficit arising from the mortgage interest – will be carried forward and deducted from your income over the following 10 years.

There is also a specific tax credit if you definitively waived rent for November 2020 only (not any of the other months in 2020). The tenant company must have employed at least 5000 employees and have been closed to the public (even if they were able to do click and collect) or to have carried out its business in one of the sectors of business that were eligible for the solidarity fund as listed in Decree no 202-371 of 30.03.2020 (hotels, travel industry for example).

Furthermore the tenant company must not have been in financial difficulty on 31st December 2019 or have been under court ordered administration proceedings as at 1st March 2020. The tax credit is equal to half of the unpaid rent if the company employed less than 250 employees. If the number of employees was between 250 and 5000, the 50% is calculated on the two thirds of the rent. If the tenant company is managed by an ascendent, descendant or member of your tax household, you must justify the cash flow problems in order to deduct your expenses and get the tax credit.

Voluntary retirement contributions
You can deduct from your total income the sums paid into a retirement scheme such as PER, PERP or Préfon up to the normal deduction limits. If you have opened a PER for your child (whether a minor or of age but still within your tax household) you can deduct the payments even if they payments were paid by your own parents (the child’s grandparents) Children have their own deduction amounts even though it is not necessarily stated on the tax return.

Property Rental Income in Spain

By Jeremy Ferguson - Topics: Spain, tax advice, Tax in Spain
This article is published on: 23rd April 2021

23.04.21

For a Spanish Resident, property rental income can be incredibly tax efficient

It is commonplace to overhear conversations or see comments on social media where people are talking about how high taxes are in Spain compared to the UK.
By my reckoning, for the average person income tax and other taxes aren’t that much different between the two countries.

What you very rarely hear people talk about though, are some of the quite frankly amazing tax breaks available here. I use the word ‘breaks’ a little tongue in cheek, but if you are a Spanish resident, the tax treatment of residential rental income is a good example of why I choose to use those words.

Many people move here from the UK keeping what was their main family home there, and deciding to rent it out on a long term basis. It is surprising how many people have no idea what a tax efficient source of income that can prove to be.

Many expenses, as well as mortgage interest, are allowable deductions. Furthermore a 60% reduction is then applied to the final taxable amount. Even lesser known is the fact there is a further annual depreciation allowance of 3% of the rebuild cost, but if this figure is not known, then this is reduced to 1.5% of the property value.

property investment Spain

As examples are normally the best way to explain how this works in practice, let’s look at one:
A couple own a UK property, which they bought for £500,000 , still owing £150,000 on the mortgage. They rent this when they move to Spain for £2,500 per month.

So their overall situation will look like this:

  • £30,000 gross annual rental income
  • £500,000 original purchase cost
  • £3,600 annual rental agent and  property management fees
  • £2,500 annual repairs and other property expenses, including legal and accountancy
  • £2,250 mortgage interest for the year
  • The property was let out throughout the year

SPANISH TAX CALCULATIONS

Tax calculations
Gross rent 30,000
Less:
Loan interest (1) 2,250
Rental agent 3,600
Repairs and other costs 2,500
Depreciation at 1.5% (3) 7,500
Total deductions 15,850
Net rental income 14,150
Deduction available for residential rental income at 60% (4) 8,490
Net taxable income subject to the general tax regime 5,660

This therefore means the taxable income due is based on a figure of just £5,560 at the clients highest marginal rate of income tax.

So let’s assume the client’s tax rate is 30.9% (which would be typical for a couple with healthy pension income); they would be paying £1748.94 in total for the rental income they received.

So if property rental income is an important source of income for you, then Spain really is an attractive place to be living. The same allowances will apply if you have a portfolio of buy to let properties in the UK rented on a long term basis.

Investment income, if coming from an appropriate investment, can also be extremely tax efficient in Spain, so if you would like to know more about how your specific circumstances might benefit, then please contact me to discuss in more detail.

I would like to thank Spence Clarke and Co, Chartered Accountants in Marbella for providing the figures in the above example, and for their ongoing support to many of our clients.

Big brother is watching… or might be

By Katriona Murray-Platon - Topics: France, tax advice, Tax in France
This article is published on: 2nd April 2021

02.04.21

After the fun and festivities of March (or those that could be had in current circumstances) it’s time to get down to serious tax work in April. The tax forms and dates of submission have not, at the time of writing, been released so that will have to wait until next month’s Ezine but usually the forms are available around the second week of April. If this is your first year of declaring in France you will have to go to the tax office to get the paper forms to complete. After submitting your first paper return you should then be given details to allow you to log on to your online account and do future returns online. The paper returns you will need are usually the 2042, sometimes the 2042 pro if you have professional income, the 2047 for all foreign source income and the 3916 for bank accounts and assurance vies (section 7 of the form).

The 3916 has recently been amended to take into account the new information that needs to be declared. Make sure you tick box 8UU for bank accounts and 8TT on the 2042 form to flag the fact that you have foreign assurance vies.

Under Article 1649 AA of the French Tax Code, those tax payers who have foreign assurance vies must declare the policy number, the amount of the investment, the start date of the policy and the duration of the contract or investment, any top ups or payments or reimbursements of premiums made during the tax year and, if relevant, the amount of any withdrawals or the surrender value,

Article 344 C of the Tax Code has now added new requirements concerning the information for foreign assurance vie policies which are:

  • The identification of the policy holder: name, forename, address, date and place of birth,
  • the address of the head offices of the insurance company or similar institution and, if relevant, the subsidiary which grants the cover,
  • the person covered by the policy, its reference numbers, the nature of the risks covered,
  • the amount covered by the policy and the duration of this cover,
  • the dates of any amendments to the contract, total or partial withdrawals, which have taken place during the calendar year.

Our policy providers are aware of this new law and will send out the relevant information for you to add into your tax returns or attach as a document online.

Those who have regular at home services and pay via CESU usually receive a tax credit for these expenses, 60% of which is paid in January. From June 2021 the tax office will be trialling a new system of immediately paying the tax credit for home help for those employers in Paris and the Northern departments who use the CESU system, before progressively rolling out this system across the whole country in 2022.

UK Pensions to a QROPS,

According to a study from the US bureau of Labor Statistics in 2015 which looked at the number of jobs a person held between the ages of 18 and 50, the average person will have had 12 jobs. This is during a span of 32 years, so therefore the the number is likely to be higher for a person’s entire lifetime. This means that you are likely to have several pensions with several pension providers without knowing the value, investment strategy, performance or fees on these investments.

France has clearly realised this situation as well. Retirement plans for French companies are held by insurance companies, so when you leave the company you may not continue to receive information on what rights you have accrued. Now, thanks to new legislation, insurers must send the information on file to a centralised body. If you are or have been an employee in France you can go to the website info-retraite.fr to be informed of what rights you may have. The new law also requires employers to communicate a statement of the retirement products to those leaving the company. When I left my job in Paris I had a PEE (Plan d’Epargne Entreprise or company savings policy) which I had done nothing with. I was advised that as I was no longer an employee of the company this was just being eaten up by fees. I closed it down and reinvested the money into two assurance vies for my sons which are now growing nicely.

Pensions health check

The Spectrum IFA group offer a free review of your pensions. We will help you obtain the relevant information from your pension providers and prepare a free report on your current pension plans and their benefits and whether they can or should be combined into one self investment pension plan or qualified overseas pension scheme. As I often say to clients, I agree with the many eggs in baskets principle but it is better having your baskets on a shelf where you can see them rather than eggs hidden around the farm!

If you have an SCI remember to put the 4th May in your diary (may the fourth be with you!) as this is the deadline for the income tax return for SCI companies that are not subject to corporation tax. This is also the deadline for accountants to file the income statements for those with industrial and commercial businesses (BIC), non commercial businesses (BNC) and agricultural businesses (BA). The deadline is extended to 19th May for online declarations. As yet the other tax filing deadlines are not known.

In the finance law for 2020 (article 154) a new law allowed the tax and customs authorities to use certain data published on the internet (Law no 2019-1479 of 28.12.19). The decree implementing this data mining provision was published in the Official Law Journal on 13 February 2021 (no 2021-148 of 11.02.21). This means that the tax authorities are allowed, experimentally and for only three years, to use information published by tax payers on social media (Facebook, Instrgam etc), sales sites (Ebay, Leboncoin etc) and other networking sites such as Airbnb and Blablacar. After researching, analysing and modelling fraudulent behaviour, the tax authorities can then use this data. They do not however have unlimited power, they are subject to the CNIL (National Commission for Freedom and Information Technology) and Parliament, to whom a report must be submitted in August 2022 and August 2023. The data mining can only be used to track non disclosed business activities and false declarations of off shore domiciles. Only “deliberately divulged” information can be collected and used, access to which does not require a password or subscribing to the website. Private posts or comments from third parties cannot be used. The data must be erased after 30 days if it isn’t going to result in an investigation. Data on sensitive subjects such as political views, religious beliefs and health information must be erased after 5 days on the same grounds. Whether this experiment will be extended or not remains to be seen but in the meantime it is another reason to be careful what you put out on publicly accessible social media.

If you have any questions or would like to speak to me about any of the points mentioned above please do let me know. Thank you to those who have got back in touch after reading my Ezine or have let me know that you are still enjoying reading these emails.

If you would like to receive my monthly ezine,
please sign up below

Katie Murray Spectrum IFA

I’m moving to Spain – When should I take financial advice?

By David Hattersley - Topics: Moving to Spain, Spain, tax advice, Tax Efficient Savings, Tax in Spain
This article is published on: 17th March 2021

17.03.21

Brexit removed the previous rules pertaining to “Freedom of movement, goods and services within the EU”. Those who now wish to move to Spain from the UK, making it their home as retirees or working here, newer and tougher rules apply.

Distance working has added a new dynamic, in particular for those in the technology sector who see that this is as an opportunity to work and live in a nicer environment. Speaking to a qualified financial adviser who is regulated here,in Spain is sometimes an afterthought . However, talking to an adviser before you embark on the journey can help avoid some of the issues which expatriates can find themselves encountering. Financial planning is complex, whichever new country one moves to, so a brief summary can help prepare for the future “devil in the detail” elements. Forewarned is forearmed and helps avoid basic pitfalls.

It makes sense to “disinvest” all UK held assets prior to becoming Spanish Tax resident. Timing and deferral is the key to planning a strategy. Note that due to Brexit, UK advisers are no longer allowed to offer continuity of advice Spain for those that become tax resident in Spain.

There are a number of rules regarding Spanish tax residence, which are briefly detailed below. You will be deemed tax resident in Spain in any one of the following cases:

1. Number days in Spain not to exceed 183 days and may include time spent in any EU member country,
2. Centre of Economic interest i.e. source of earnings is in Spain,
3. Spouse and minor children living in Spain.

moving-to-spain

With regards to your assets, without going into too much detail, the following will apply.

UK property: Disposal once tax resident will be subject to Spanish capital gains tax, even if it was one’s primary UK residence. If retained it will be subject to reporting on Modello 720, a record listing overseas assets. A 20% increase in value will mean a new Modello 720 report. Income derived from letting the property will be subject to Spanish “investment” tax.

UK Pensions: A Pension Comencement Lump Sum is tax free in the UK, it is liable to tax in Spain. So if nearing 55 wait till you take it and then become Spanish Tax resident.

ISAs: An ISA offers tax free growth or income in the UK. They are not tax free in Spain, but there is a Spanish equivalent.

Unit Trust, Shares, Investment & Insurance Bonds, NSI bonds etc: There are some tax breaks in UK but none in Spain.

Inheritance Tax: The UK rules apply to the residual estate whereas Spain applies it to the beneficiary. There is a strong possibility of being taxed twice as estate rules & beneficiary rules are not covered by double taxation agreements.Based on “domicile” there is a different law for bequests & inheritance in Spain. Also, unlike the UK, it has a the variety of laws for each autonomous area,affecting in particular the potential impact of Spanish succession tax. It makes sense to deal with a regulated adviser who is based in or near to an autonomous area you will be living in e.g. Madrid ,Andalucia, Murcia, Valencia.

Having a “ partner “ relationship as opposed to being married, brings its financial own risks in Spain, and arrangements must be considered.

Are you moving to Spain?

Spanish Property: Some people come to Spain with plans of using their new Spanish property to retire to now or eventually. If it is the latter, the property maybe used to produce rental income either via summer rentals or long term rentals, but in this case there will be tax considerations.

Investing an hour of two of your time before you make the move to Spain can provide peace of mind and financial comfort when planning your new adventure. I can provide “Your guide to tax in Spain” that goes into greater detail. Whether you want to send the guide or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.

A Spanish regulated adviser can ensure you are financially prepared for your move, in terms of any investments, savings and taxes which can become due on both income and windfalls you may be expecting after your move.

Please note, we are not accountants or lawyers, but we do work hand in hand with these professionals, and can be the “first port of call”.

There’s only two things you can be certain of in life…

By Katriona Murray-Platon - Topics: France, Tax, tax advice, Tax Efficient Savings, Tax Relief
This article is published on: 2nd June 2020

02.06.20

In France they have an expression “En mai fait ce qui te plait” which translated means that in May you do as you please. Well clearly this year we haven’t been able to do exactly as we please but we have been allowed a bit more freedom since the end of lockdown on 11th May. I haven’t yet felt the need to take advantage of this new found liberty, but as the children returned to school under acceptable conditions at the end of last week our work/home/school routine is set to change.

May is also tax season. Whilst you can get online to do your tax return in April, I personally have always preferred to do it on 1st May and during the month of May I notice an increase in client enquiries. Even though, in my previous role as a tax adviser, I used to do several hundred tax returns for our English speaking clients, I still find myself getting nervous when I do our annual tax return. There are so many bits of information that need to be assembled and I want to make sure that I have all the income, expenses and tax reductions properly entered before I finally press send.

French Tax Changes 2019

May is a good time to think about not only your tax but also your taxable income. When I worked in the accountancy firm, my colleagues and I didn’t have time to think about whether a client was paying TOO much tax or not. We just took the information provided and entered the figures in the boxes. When I joined Spectrum I realised that, as a financial adviser, I could take the time to sit down and do a full financial review with my clients to look into whether it made sense for them to be paying so much tax. One thing that comes to mind is UK ISAs and investment portfolios.

They are not tax efficient in France and a real headache for anyone or their tax adviser to have to work out. It took hours of entering in each dividend, interest and capital gain. You can still own a well diversified, multi asset portfolio within an assurance vie wrapper and save time and money when it comes to completing your tax return.

If you haven’t done your tax return then there is still time to do so. You can get our free tax guide HERE. In 2020, all households must do their tax returns online if they have internet access at home. If not they can submit a paper return. You have until 4th June if your live in Departments 1-19 or if you are non-resident, 8th June for Departments 20-54 and 11th June for Departments 55 to 974/976.

As regards the markets, global share prices have recovered strongly over recent weeks, with many investors encouraged by central bank interventions, including ongoing financial support and stimulus for individuals and companies. The prospect of successful vaccine development and the easing of lockdown restrictions have also fuelled optimism. Some of this investor enthusiasm, and expectations of a rapid economic recovery, may well be misplaced, but short term stock market direction is of course impossible to forecast.

There is almost certainly more economic difficulty ahead, but there will in time be a recovery (the only question is timing) and, as always, it is important to take the long term view. For now, our priority should be to ensure that our investments and pensions continue to be well managed regardless of the difficult economic circumstances.

In the words of Julian Chillingworth, Chief Investment Officer of Rathbones, one of Spectrum’s approved multi-asset fund managers,
“We think it’s important that investors concentrate on understanding which businesses can survive this current crisis and quickly return to generating meaningful profits and paying dividends. This is where we are concentrating our research efforts, generating ideas for our investment managers to use in portfolios as we work our way through this crisis.”

May has been a busy month with Zoom meetings with colleagues, friends and family and telephone meetings with clients and prospects. However as lockdown has now ended and my children are back at school (for at least two days a week), I will be tentatively making a few face to face meetings in June if my clients so wish whilst taking all the necessary protection measures.

If you want to speak to me about any financial matters or you know of anyone who, having moved to France, would benefit from learning more about managing finances in France, please do get in touch.

Tax increases in Spain

By Barry Davys - Topics: Barcelona, Inheritance Tax, Spain, Tax, tax advice, Tax Efficient Savings, Wealth Tax
This article is published on: 16th May 2020

16.05.20

This is an article for those of us who live in Spain but will apply in every developed country around the world.

The Covid-19 pandemic has led to a worldwide lockdown, including here in Spain. The economy has been shut down with the likes of Seat in Barcelona stopping production and Barcelona tourist numbers collapsing. We all know this because we are all a living part of the lockdown.

In response to what looks like the worst economic crisis in the 300 years of modern data collection, governments and central banks around the world have provided some $7 trillion dollars of stimulus packages to economies and workers. It is the fastest and biggest reaction EVER to an economic crisis. Well done, the central banks! It genuinely is helping to make sure that as we slowly exit lockdown, individuals and companies will be in a little better condition to start up again.

Would I have it any other way? No! However, the question we now need to answer comes from Angela Merkel when asked to provide a European bailout in the 2009 crisis; “But where will the money come from?” A valid question. And even more so for the crisis that has come from the coronavirus pandemic.

Saving in Spain, ISA, Tax Free Saving in Spain

The money will come, in part, from higher taxation. In the UK today, a menu of proposed increases in taxation has been leaked. In Spain, a loophole in wealth tax legislation that allowed some unit linked insurance savings plans to be exempt from

wealth tax has been closed. What is significant is that these changes are coming now, before we are even clear of the lockdown and virus.

The changes to taxation in Spain are likely to include savings tax, inheritance tax and wealth tax in particular. Changes were already being discussed and the economic fallout from the pandemic provides the reason to bring forward these changes. Specifically, the EU has told us to harmonise inheritance tax across Autonomous Communities as there are big differences in the amount of tax to be paid.

In the draft budget for 2020, there is a proposal to change savings tax. At present, we have three bands of tax. The top rate for gains and investment income over €50,000 is 23%. A new band will be introduced for gains and investment income over €160,000 of 27%. We should expect this change to happen soon as it is already in the budget which is going before Parliament for approval. The first case I have seen where this will apply would lead to an additional €48,000 in tax. It is pertinent to bear in mind that these tax rates can apply to the gain on some property sales.

In addition to the wealth tax change described above, we understand that others may now be considered.

Planning actions

Help is at hand. There are planning actions that can be taken to minimise the tax issues. Here is a three point plan to minimise the effect of these changes:

1. Savings Tax. Move investments into Spanish tax efficient investments. These are available and you do not have to move your investment to Spain to qualify. They are available in Sterling as well as Euros and USD. If you would like confirmation on which of your current investments are tax efficient in Spain, I am happy to review them with you.

2. Inheritance Tax. This requires very careful consideration before making decisions to manage inheritance tax. Making sure you can maintain your lifestyle is an important part of this planning, especially for the survivor in the event of one half of a couple passing away. Once these criteria have been met, planning is feasible. A recent case of planning has saved £87,719 in UK inheritance tax for a couple living here in Spain. For nearly all of us from the UK, our estate at death will be assessed for UK inheritance tax.

3. Wealth Tax. Sometimes, the planning for wealth tax is simple. In other cases, not so simple. Care is needed and it is worthwhile asking for a review.

We have had our cake in the form of stimulus to protect the economy. We will shortly find we will have indigestion from eating the cake in the form of higher taxes. Fortunately, we still have a few indigestion tablets available to relieve our pain.

If you wish to discuss tax on your savings, inheritance tax or wealth tax please feel welcome to call. If this helps, you can match your availability for a call with mine online here.

Tax breaks in Italy

By Gareth Horsfall - Topics: Italy, Tax, tax advice, Tax Relief, tax tips
This article is published on: 7th October 2019

07.10.19

I have been writing these articles for 10 years this year, after sending out my first one in 2009. Looking back at the very first one just the other day, I saw how it had developed and how the concepts I discuss have changed dramatically. This got me thinking about the way that the world has changed as well during this time. Last Friday I joined the Global Climate Strike in Rome. There were about 250,000 students, protesters and concerned people; marching to spread our concern for how we treat the world we live in. It certainly got me thinking about how politics is going to have to change significantly in the coming years to meet the needs and desires of these disgruntled voters.

Which leads us nicely to the new coalition government in Italy and their changes in the Legge di Bilancio which were approved on the 30th September. In the Legge there are many new rules that will come into force from 2020, some eco based (but not enough) and a number which may affect you. Below I have selected a few of the changes in the tax law which might interest you.

1. If you are in the market for a new car, then incentives will be given, up to €6000 for purchasing a new electric, hybrid, small gas or small diesel car.

2. BUT, if you buy an SUV or an ‘auto lusso’, then you will taxed up to €3000.

3. Anyone who is working online might be caught in the trap set to try to tackle evasive tax practices by the big tech companies. Italy is following the French lead and introducing a tax of 3% on web based business revenues generated in Italy.

4. The flat tax of 7% for retirees moving to, and getting residency in Italy is fully approved from January 2019. The main caveat is that you must move to a village of no more than 20,000 inhabitants in any of the following regions:

Sardinia, Molise, Abruzzo, Puglia, Basilicata, Calabria, Sicilia

Other terms and conditions apply, so check carefully before assuming you automatically qualify.

5. Income tax deductions will be available for anyone who carries out invoiced home renovation, purchases eco domestic appliances, completes seismic work on their house, purchases sun curtains for balconies or buys mosquito blocks for doors, amongst other property related deductions. The following article (in Italian) provides a nice summary (once again conditions apply, so make sure you check the small print or speak with a commercialista before going ahead).

www.theitaliantimes.it/economia/proroga-bonus-ristrutturazioni-mobili-verde-ecobonus-legge-di-bilancio_011019/

However, please remember that this work must be ‘invoiced’ work and paid for by electronic means. If you pay for it in the black or in cash (even if invoiced), then it is not deductable. Although paying in the black is illegal, it will often mean you can negotiate a discount on the full price. Whilst this might make paying in cash may seem attractive, it won’t afford you any income tax deduction so may turn out to be more disadvantageous.

6. The canone RAI (TV licence fee) has been reconfirmed as €90 per annum. No price increase will be applied, at least for this year.

7. And the pièce de résistance … if you thought that IMU and TASI were hard enough to get your head around, the latest news is that they are going to be unified. No prizes for anyone who can come up with the new acronym. TASIMU???

Tax Advice in Spain for Expats

By Chris Burke - Topics: Barcelona, Spain, Tax, tax advice, Tax Relief
This article is published on: 24th September 2019

24.09.19

Whenever someone gets in touch with me, the first, most important thing I suggest they do is to make themselves and their family as tax efficient as possible, i.e. tax planning. There is no point having a ‘leaky bucket’: their money earning interest but more than needs to is pouring through the ‘tax holes’ they haven’t plugged or planned for.

So, apart from the obvious reason of minimising the current tax you pay, why is it important to review your tax situation? It is to make sure you are aware of ‘stealth taxes’. Stealth taxes are those which are not easy to detect and that many people are not aware of.

If you are a government, you want to win as many votes as possible to be elected (or re-elected). You need money to spend, but raising taxes on the upper echelons will damage your votes, raising taxes on the working classes will also damage you votes, and both will be very vocal. Therefore, what has become increasingly popular with governments is to increase taxes that won’t necessarily hurt voters’ pockets on a day to day basis, but which could do in the future.

A good example of this is something called the lifetime allowance. This is the ‘ceiling’ under which the value of your UK private pension will be in the regular tax bands. However, if your pension pot overshoots this limit, you will pay increased tax of up to 55% on anything over that ceiling. Never heard of this tax? Well, I can assure you there are some very normal, everyday, hard-working people who are not in the upper echelons of society and who, due to long pension contributions and having good investment advice, will reach this limit in their lifetime.

To explain this a little more, the lifetime allowance ceiling was introduced in 2006 and was £1,800,000 at its maximum. Over time, it has been reduced and reduced to its present rate of £1,055,000. During that same time inflation has increased, people’s earnings have increased, contributions to pensions have increased; so why should the ceiling go down? Stealth tax.

Moving forward, stealth taxes are likely to be the most popular way for governments to increase their income without the majority of people noticing.

Let’s think about this. What else could the government do along these lines to increase revenue? How about tax those British people living outside of the UK more? They don’t live there, they don’t have the same rights as everyone that does, so are they not an easier target? So, what could they do? Tax UK state pensions (currently they do not tax non-UK residents, although they are taxable in Spain)? Or how about tax those with UK private pensions a ‘non-resident tax’? Or tax those who move their UK pensions outside of the UK and not into a place where the UK government has an agreement with? In fact, the last one they do already!

What can you do? Well its quite simple really; plan now so that should any of the above or anything like this happen, your assets or monies are arranged to be as tax efficient as possible to mitigate these circumstances. If your assets are working just as effectively as they are now, but are much more tax efficient, it could save you and your family a lot of money in taxes in the future.

Perfect preparation prevents P*** P*** performance I believe is the phrase!

Are You British, And Have You Recently Become An Official Resident Of Spain?

By Jeremy Ferguson - Topics: Domicile, domiciled, Financial Planning, Income Tax, Marbella, Residency, Spain, tax advice
This article is published on: 9th April 2019

09.04.19

If The Answer is Yes,
What’s Going to Change For You?

Last night I attended a presentation hosted by the British Consulate covering the issues of living here post Brexit. Well, I am not sure how informative it was, as there seemed to be lots of ifs, buts and maybes. One thing I did conclude from it all however, and something I have always maintained, is if you live here, why not just get in to the system properly rather than constantly ‘wondering’ about it, or simply avoiding the issue.

Many people have been here in Spain for years without ever becoming officially resident. Differing circumstances cause this, varying between lots of time spent travelling, working away in another country or just being told not to worry. These tend to have all created a ‘meaning to get round to it tomorrow’ situation for many people.

This has quite often been the case when I have met with people during the 20 plus years I have been here, until along came this Brexit situation. It has resulted in more and more talk about what to do in the press, on the TV and radio, in bars, at family gatherings; basically everywhere.

EU membership has led to the feeling of it being very easy to live here in oblivion to all things official. But that looks like it is now changing. Or is it? One thing we do know is that the Spanish have seized the opportunity to entice people to become official residents of Spain, and if you want to avoid any doubt going forward, it is by far the most sensible option.

EU membership

In the build up to the 29th of March deadline, the British Consulate and local Spanish town halls have actively encouraged people here to take up official residency in a series of talks like the one I attended last night. It’s amazing how quickly this has all become reality in what seems such a short time since the original referendum in June 2016. Now we are looking down the barrel of a possible no deal Brexit on the 12th of April.

Or are we? Who knows as I write this.

All of this aside, the sensible thing, without doubt, is for people to become officially resident here in Spain. For many, since the Brexit situation it has felt like a fait accompli and therefore something they simply have to do. Whatever the reason, if you have made the decision, then what does it actually mean for you going forward? Things seemed to be absolutely fine before, so surely not a lot will change?
Well, that is not exactly true.

The first thing to stress is how nice it is to know that now you won’t need to worry about ‘sort of knowing’ you probably should be resident and in the system. Things can certainly now be 100% clear. I call it ‘the sleep easy factor’, and it’s amazing the amount of people who say how good they feel when it’s all done.

There are a number of things that you should now consider, not necessarily in this order.

Do you have Spanish will?
You should already have a Spanish will if you own a property here, so that’s not changed. If you haven’t done that, you must, and it is very easy to do. It can be in both English and Spanish so you will understand everything.

And it’s not expensive. A lot of lawyers I know will do it for a couple of hundred euros if things are all quite straightforward. That will be another box ticked!

estate planning

Once resident, currently some say you have up to two years to change your driving license to a Spanish license. There are others who say you have three months, others who say 9 months. The UK Government advice site says two years.

Regardless of who says what, and to avoid any embarrassing confusion, once you have residency why not just get on with changing your license? Again, there are many people around who will help you do this. You will get a temporary license while it is being dealt with and then a nice new Spanish license. A medical test will be needed, but again these aren’t that difficult to arrange. As long as you are in reasonably good health this shouldn’t be an issue.

On a positive note I have certainly found Trafico much easier to deal with showing a Spanish license when pulled over for a roadside check. The rules here are different to what you may be used to. You start with 13 points and they are deducted when you are caught being naughty. When you get to zero, then a suspension will occur!

Importantly, there will be taxes and tax returns to consider.

If this is your first time becoming a tax resident, then you will have to file a tax return for this year. The tax year here is the same as the calendar year (unlike the UK with their silly April date!). Your first return will therefore have to to be filed no later than the 30th June 2020.

tax in spain
  • Income tax will be due on income received during the year at varying rates depending on the amounts involved. This is similar to the UK with the rate increasing the greater your income level.
  • If you were previously a non resident, then you would pay capital gains tax when you sold your house (assuming there was a profit!). Now, as a resident, this will not apply on your main residence when it is sold, subject to certain criteria being met.
  • Wealth tax is due every year on your assets. This, as the words say, is effectively for people considered wealthy, and increases the wealthier you are. For most people this is not too much of an issue, but can be painful for people with a lot of assets.
  • Inheritance tax can be a complex area, and tax is paid by the person who receives the inheritance. The rules here in Andalucia have changed recently, meaning this should really not be so much of an issue anymore as there are now large exemptions granted which almost eradicate any amounts due, depending on the size of the estate.
  • At the end of each year, you will now also have to file a separate tax return from the one mentioned above, on a form known as Modelo 720. This is simply a declaration of everything you own in excess of 50k € outside of Spain (bank accounts, property, investment policies, share portfolios etc), and needs to be filed by the 31st March 2020.

Investments & Pensions
Regarding your investments and pensions, take a good look at where your income is coming from and what type of investments you hold. A simple example of the different treatment after taking residency would be holding UK ISAs. Although these are tax exempt in the UK, as a tax resident here these will now be taxable.

final salary pension review

Also, how will your pension be taxed now? Previously, you were entitled to a Pension Commencement Lump Sum (PCLS, previously referred to a tax free lump sum). This will now be taxable here in Spain. The rate applicable will vary depending on how old the scheme is, and any benefits you are receiving will be taxed differently depending on the amount. If you haven’t started drawing from your pension yet, it may be worth looking at moving the scheme away from the UK, for a multitude of reasons. On the other hand it may not, so if you do look into this, make sure you are furnished with all of the information you need to make a well informed decision.

Having taken residency will mean you have adequate medical insurance in place, and although this can be seen as expensive, the treatment you will receive will be second to none.
Of course, as with all of these things there are the exceptions and everyone’s circumstances differ slightly. But the overriding message is that things should be fine here, even after Brexit, and as we know, the Spanish are very keen to keep us all here for many years to come.

I have covered many different aspects in this article, but please make sure you take good advice from people in the know. There are many legal, tax and financial advisers here who will be able to help you with most of the subjects covered; but as always, make sure you shop around, as prices and service levels do vary greatly, and always see if you can get a recommendation from someone who has firsthand experience of using that person before.

So, with all things considered, maybe Brexit pushing you to become a fully fledged Resident of Spain wasn’t such a bad thing after all.