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How to reduce your taxes in Spain (legitimately!)

By Chris Burke - Topics: Spain, tax advice, Tax in Spain, Tax Relief, tax tips
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
Reduce your taxes in Spain

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.

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.

Is there tax relief in Portugal if I am downsizing my home?

By Mark Quinn - Topics: investments in Portugal, Portugal, Property in Portugal, Tax in Portugal, Tax Relief
This article is published on: 27th January 2022

27.01.22

As I covered in a recent blog post, capital gains tax is charged on the sale of all property sold by a Portuguese tax resident, irrespective of where the property is located, or if it was your main residence or not. Capital gains tax is also payable by non-residents who sell property located in Portugal.

To briefly recap the rules:

  • If you are a Portuguese tax resident and sell a property located in Portugal, capital gains tax is payable on 50% of the gain. This amount is added to your other income for that tax year and is taxed at the scale rates of income tax (14.5%-48%). If the property was held for more than 2 years, inflation relief is given
  • If you are not resident in Portugal but you sell a personally owned property in Portugal, 100% of the gain is taxable at 28%. If the property was held in a non-Portuguese company the rate is 25%, or 35% if the company is based in a backlisted jurisdiction
  • If the property sold was purchased before 1st January 1989, no capital gains tax applies

Despite the potential for high taxation, if the property sold was your main home there are two reliefs you can take advantage of to reduce or eliminate your tax bill:

  • Reinvest the net sale proceeds into another main home in Portugal, or EU/EEA;
  • Reinvest the net sale proceeds in an approved long-term savings plan or pension; or
  • Use a combination of the above 2 options. This is useful if you wish to downsize

Any portion not used to purchase another main home or not reinvested in a savings plan/pension will be taxed.

In order to qualify for the reliefs there are certain hoops you will need to jump through. Let’s look at each in turn.

If you choose to reinvest the proceeds in a new main home:

The property sold must be your main home.

  • You must purchase your new home within a certain time frame. This is a period of 5 years; 24 months before the sale of your previous home and 36 months after the sale
  • You or your family must occupy and live in the new property within 36 months of the original sale
  • The new home must be in the EU or EEA
  • The new home must be real estate, this can include land for development. It cannot be a boat or caravan
  • You must declare the necessary details on your annual tax return. It is best to work with your accountant to ensure this is done correctly as the reporting will be over several years unless you sell and repurchase property in one single tax year. If not done correctly, you will lose the relief

The above is all well and good if you want to buy a new property valued at the same price as the property you sold, but what if you do not?

tax relief in Portugal

The Portuguese government introduced a relatively new relief allowing you to reinvest the proceeds, or a part of the proceeds, in a long-term savings plan or pension rather than another property. Again, there are certain rules in order to qualify, but this can be a particularly advantageous option for those wishing to downsize.

The main conditions for qualification are:

  • On the date of transfer of the property the taxpayer, spouse or unmarried partner is in retirement or is at least 65 years old
  • The investment into the structure is made within six months from the date of sale
  • The property sold is the main home
  • Withdrawals from the structure are limited to a maximum of 7.5 % p.a. of the amount invested
  • You must declare your intention to invest the funds in such a structure on your tax return in the relevant year

Whether a pension or a long-term savings plan is right for you will depend on your personal circumstances and the structure must qualify in order to obtain the tax relief, so it is important to take advice.

We don’t have a crystal ball but we know how to prepare for the unknown

By Alan Watson - Topics: France, Inheritance Tax, Succession Planning, Tax Relief
This article is published on: 10th November 2020

10.11.20

For most of 2020, nobody in France has been able to escape the misery of the daily Virus update; even as I write this article, it gets worse by the day. From a financial planner’s viewpoint, and thinking of my family, long term Rhone-Alps based, it can spin one’s head wondering, “how much, and for how long, will our children be paying extra taxes and social charges to balance this black hole.”

President Macron has certainly not been slow in pressing his Eurozone political colleagues to secure a massive support package for France (so all those excessive Urssaf charges have clearly not been enough!) Did anybody analyse, offer some statistics as to how this will be paid back? If so, sorry I missed it, but we all know the harsh reality is payback time will be long and heavy.

Many of my clients in the Alps are either retired, considering it, or working hard in their business to secure a tidy financial future, not only for themselves, but for their families also. It’s a part of life’s pattern that many of us become beneficiaries of a family estate, and being a French fiscal resident, this brings up potential questions and complications, “what are the limits I can receive before the tax man becomes an unwelcome beneficiary?”, “my children deserve a portion of this, but the bank offers a derisory return, not even Eurozone inflation proof,”, “our young daughter dreams of studying in the US, how much will that cost?”

gifts

So how do we approach such matters ? You may be surprised and relieved to hear that the French fiscal system can be both generous and highly tax efficient when it comes to financial planning for ourselves and our families. For example, a gift of €100,000 can be made every 15 years from parents to children, free of tax and social charges, which could be used for that far off house purchase, a highly regarded study program, or even setting up a business. A lower, but still highly valuable, allowance of just over €30,000 applies for gifts between grandparents and grandchildren.

Currency is also an important consideration. French banks are always happy to offer short and long term saving vehicles. The wording of the contracts, terms, and fund choices, even for somebody who has spent over 30 years in European financial services, can be rather bewildering, plus they always insist on converting your Sterling to Euros, and currently this is not a sensible proposition. In the last year alone we have seen swings between the two currencies of 10%; the Pound is still a global currency and will return to its former glory, so a far better facility is to be able to choose your exchange date, then take advantage whenthe currency is stronger to move to your new Euro based need. This flexibility coupled to tax efficiency, could make a gift for your loved ones a very sensible and well planned move.

As a financial adviser, I meet many people in sometimes complex and misunderstood situations, “I have actually lived in France for the last two years, is it now time to declare fiscal residency?”, “My children have UK ISAs set up by their grandparents, so living here as a family, is this tax efficient?”

A no obligation meeting may help to unravel the complex French reporting system, and allow you to enjoy all the things that brought us here in the first place.

The results are in…

By Chris Webb - Topics: Investment Risk, Moving to Spain, Spain, Tax, Tax Efficient Savings, Tax Relief, UK investments
This article is published on: 10th June 2020

10.06.20
Spectrum IFA Survey

I trust you are all safe and well and enjoying the additional bit of freedom that moving into Phase 1 has afforded us herein Spain. By the time you read this there is every chance we are into Phase 2 allowing even more freedom. It’s been a long haul for Madrid to get there and there are mixed feelings about how long it has taken…

Personally, I´d rather be safe than sorry, so whilst there have been frustrating times over the last few months, it is probably for the best. Recently I sent a survey out to my clients, who are based all over the community of Madrid. The survey was twofold:

Secondly, being in lockdown has given us all the time and opportunity to evaluate our personal situations. To address administrative tasks we had put on the back burner and to look at all aspects of our financial wellbeing, whether that be assessing emergency cash reserves, job security or even making sure an up to date will was in place.

The response to my survey was fantastic with many responses. Some just answered the questions but the majority also wrote additional comments, which gave a greater insight into their situation. It was interesting for me to read the results and compare the answers to how my family have felt and what we had looked at changing or updating.

Spectrum IFA Survey Results

I´d like to share some of the results from the survey, but I won’t detail all the questions as this Ezine would be never ending.

It might be beneficial for you to compare the data with your own situation or feelings.

1. Only 30% felt that lockdown was a struggle; the vast majority were not concerned by the restrictions.
2. 80% were comfortable with the transition to online communication, whether that be email or video calling.
3. 100% were concerned about their investments – completely natural when you were watching the fall out on the news.
4. 42% were concerned for their jobs.
5. 95% had sufficient emergency cash reserves to see them through – something we always encourage when dealing with our clients.
6. 50% had excess cash reserves sitting idle in the bank.
7. 62% believed that NOW was a great time to get invested and put more money into the markets. Of that number 55% proceeded and bought in at the discounted prices available.
8. 57% had an up to date will in place. Some admitting to doing it recently after my article titled “The Folder”.
9. 80% felt that their insurance policies were sufficient for their situation; however 40% of these people have requested further information and alternative quotes.

The results made for interesting reading and it was great to see that a lot of people had reviewed things and were keen to look at alternative options.

Tax in Spain and the UK

As a company we have a huge network of 3rd party companies that can assist our clients with all the points raised in the survey.

In Madrid I can recommend teams of lawyers who will offer a free initial

consultation and discounted rates, providing they come from me as a direct referral. This is great for anybody that needs to review their will – you can have the initial conversation at no cost and then pay for the will upon completion.I can recommend teams of accountants or gestors to assist with tax returns, inheritance, and other administrative issues.

During lockdown I also set up a collaboration with an expat insurance broker, which allows us to assist with health insurance, life insurance, car insurance, house insurance and more. The great thing about this relationship is that ALL quotations and policy documentation are in English. Whilst most of you will speak and understand Spanish perfectly well, there are times when something is easier “to get” when it’s in English.

If you want to review your insurances, or just obtain alternative quotes to compare with what you already have, get in touch – there is no charge for a quotation.

Do not delay reviewing your will, insurances, or investments.

Planning yesterday is better than today, which is better than tomorrow.

PS. If you did not receive the survey and want to complete it, send me an email and I´d be happy to share it with you.

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.

Moving to Spain & UK pension contributions

By John Hayward - Topics: Pensions, Spain, Tax Relief, UK Pensions
This article is published on: 29th May 2020

29.05.20

I am moving to Spain and I want to make UK personal pension contributions
Is this permitted and what are the restrictions?
Will I still receive tax relief?

Providing that you are a relevant UK individual (definitions below) then you can continue pension contributions for up to 5 full tax years after the tax year you leave the UK. This means that, even if you have no UK earnings once you leave the UK, you can continue to pay up to £2,880 a year (currently), with a gross pension credit of £3,600, for 5 full tax years after leaving the UK. There are more details on how you qualify to make contributions in the text below taken from HMRC’s Pensions Tax Manual. Importantly, any contributions must be made to a plan taken out prior to leaving the UK. In other words, you cannot open a new UK pension plan having left the UK.

We have solutions for people who have left the UK but continue to work and wish to fund a retirement plan. We also help clients position their existing pension funds in the most tax efficient way, creating flexibility whilst providing access to investment experts to maximise the benefits you will receive.

Relevant UK individuals and active members*

Section 189 Finance Act 2004
An individual is a relevant UK individual for a tax year if they:

  • have relevant UK earnings chargeable to income tax for that tax year,
  • are resident in the United Kingdom at some time during that tax year,
  • were resident in the UK at some time during the five tax years immediately before the tax year in question and they were also resident in the UK when they joined the pension scheme, or
  • have for that tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003), or
  • is the spouse or civil partner of an individual who has for the tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003)

Relevant UK earnings are explained under Earnings that attract tax relief in the above tax manual.

Tax in Spain and the UK

Members who move overseas
An individual who is a member of a registered pension scheme and is no longer resident in the UK is a relevant UK individual for a tax year if they were resident in the UK both:

  • at some time during the five tax years before that year
  • when the individual became a member of the pension scheme

These individuals may also qualify for tax relief on contributions up to the ‘basic amount’ of £3,600.
*Source UK government

To find out if you qualify and an explanation of all your pension options, including pension transfers, SIPPs, QROPS, and income drawdown, tax treatment of pensions in Spain, and to find out how you could make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, contact me today at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

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!

Do you know if you are overpaying Spanish tax?

By John Hayward - Topics: Investments, Spain, Tax Relief, tax tips
This article is published on: 9th May 2019

09.05.19

Thousands of Spanish residents could be overpaying tax due to their lack of knowledge of the most tax efficient way to hold savings. People overpay income tax, savings tax, capital gains tax, and even inheritance tax, because they are holding their money in inappropriate savings and investment accounts. However, there are often simple solutions to what seem like complex problems. With the correct professional advice from people experienced in Spanish financial matters, savers could see more income and pay less tax.

Often, residents of Spain will turn to their bank to give them advice on what accounts and investment vehicles are best suited to them. The choice in Spanish banks is limited and the risks are often not explained. Many people are stuck in what they thought were deposit accounts, when in fact they are investments, the performance of which could be based on stockmarkets.

There are also those who hold “tax free” savings in the UK, such as ISAs, National Savings Certificates and Premium Bonds. All of these are NOT TAX FREE IN SPAIN. For Premium Bonds especially, there appears to be better returns, when compared to most other options which are paying close to zero interest. However, any interest or gain is taxable in Spain and needs to be declared.

A solution is to have money outside Spain but recognised by Spain for preferential tax treatment.

A COMPLIANT ACCOUNT AND NO WITHDRAWALS MEANS NO TAX DUE
In this example, €200,000 was invested in 2016 and the accountholder had no other savings income.

With a non-compliant account, tax must be paid each year on the growth of the account, totalling €6,260 over the 3 years. With the Spanish compliant account, if no withdrawals are taken, no tax is immediately due on the annual growth of the account.

*Click the image above to enlarge

AND IF WITHDRAWALS ARE MADE?
Again €200,000 is invested and the accountholder has no other savings income. This time the policy grows by €10,000 each year, and the accountholder withdraws this amount. With a non-compliant account tax payable is based on the full growth of the account, whatever amount is withdrawn. For a compliant account, tax is only due on the gain attached to the withdrawal.

*Click the image above to enlarge

That´s a 91% tax saving over 3 years!

To find out more about how you could benefit from quality financial planning advice and years of experience both in Spain and the UK, contact me today on +34 618 204 731 or at john.hayward@spectrum-ifa.com

French Tax Changes 2019

By Sue Regan - Topics: Assurance Vie, France, Income Tax, Tax, tax advice, Tax Relief
This article is published on: 31st January 2019

31.01.19

2019 has brought a number of changes to the French tax system. Below is a summary of the principal changes affecting personal taxation.

INCOME TAX (Impôt sur le Revenu)
There has been no change to the rates of income tax of the barème scale, but the tax bands have been increased as follows:

Income Tax Rate
Up to €9,964 0%
€9,965 to €27,519 14%
€27,520 to €73,779 30%
€73,780 to €156,244 41%
€156,245 and over 45%

PAYE (Prélèvement à la Source)
PAYE has been introduced in France with effect from 1st January 2019.
The types of income subject to PAYE include:

  • Income from employment
  • Retirement income, including UK private and State pensions, but excluding certain pensions where tax is already deducted at source, such as UK Civil Service pensions
  • Rental income, including that from French properties owned by people who are not resident in France.

For French source income, the employer or pension provider will deduct the tax at source.

Clearly, where income is generated from outside of France there can be no deduction at source by the French authorities. This means that many expatriates living in France will be subject to a monthly withholding tax on their income. Therefore, starting in January 2019, the tax authorities will collect a sum equal to 1/12th of the tax paid in 2018 (based on income declared for 2017).

Excluded from PAYE is investment income, such as bank interest, dividends, capital gains and gains from life assurance policies.

New residents of France who have not yet submitted a French tax return, will have the option of paying a sum ‘on account’, or be taxed in May 2020, following submission of their first tax return.

Everyone will still be required to submit a French tax return in the May of the following year. Thereafter, the final assessment of tax liability will be carried out, and you will either receive a tax refund or be required to pay any additional tax due, over a four-month period.

If you do not currently pay any income tax, you will not be required to pay provisional monthly payments. Similarly, if you anticipate a significant change to your income during the course of the year you can request that the tax authority alter your tax code. However, if you do so, and your income is 10% greater than advised, you could face a tax penalty of at least 10%.

REFORM OF SOCIAL CHARGES (Prélèvements Sociaux)
Some changes have been introduced to certain social charges, which is good news for some taxpayers.

The main rates for social charges remain the same as for 2018, i.e.:

Source of income Rate
Pension 9.1%
Investment and property rental 17.2%
Employment 9.7%

 

Social Charges on Pension Income
The exemption from social charges on pension income still applies if you hold the EU S1 Certificate or if France is not responsible for the cost of your healthcare.

However, those pensioners who do not satisfy the exemption conditions above, but whose pension income is less than €2,000 per month (or €3,000 for a couple), will now pay a lower rate of 7.4% on pension income.

Social Charges on Investment Income and Capital Gains
From 1st January 2019, individuals covered under the health care system of another EU or EEA country are no longer subject to the existing rate of 17.2% on investment income or capital gains. Instead they will now pay a new flat rate of 7.5%. This new flat rate is known as the ‘Prélèvement de Solidarité’ and represents a saving of 9.7%. It applies to investment income, such as property rentals, bank interest, dividends and withdrawals from ‘assurance vie’ policies, and capital gains realised by both residents and non-residents of France.

In summary, taxpayers can benefit from the new 7.5% rate on investment income if:

  • They hold the EU S1 Certificate
  • They are a non-resident of France earning French source income (i.e. rental income, capital gains on the sale of a French property, etc) and are covered by the health system of another EU or EEA country

ASSURANCE VIE
There are no changes to ‘assurance vie’ apart from the social charges reform detailed above which will benefit some policyholders.
For policies held for more than eight years, the annual allowance remains at €4,600 for individuals and €9,200 for married/PACS couples.

This outline is provided for information purposes only based on our understanding of current French tax law. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.

If you would like to discuss how these changes may affect you, please do not hesitate to contact your local Spectrum IFA Group adviser.