Having worked hard for our money it is often the case that we forget to look after it with the same dedication as we put into our professions or businesses. We spend 40 hours plus a week (plus, plus if you run a business) working, but how much time do we spend on looking after the money we have spent all that time earning? The answer for most of us is “very little”.
Showing posts from tagged with: Tax in Spain
Working Life vs Life Savings When Living in Spain
By Barry Davys - Topics: Exchange Rates, Living in Spain, Spain
This article is published on: 11th October 2021
11.10.21
Who’s this for?
This article is for all British people who live in Spain.
Overview
Work Life vs Life Savings. How we should apply our work life process to our life savings.
Why to read this article?
With a simple comparison between your work life and your “savings life” you will gain understanding on how to better look after your savings. The article even provides a solution at the end to help you implement these ideas.
Your commitment
Taking the time to read the article and requesting an initial telephone or Zoom meeting. if you want help for your specific situation.
The reasons are many fold from having a love of “things” instead of savings and security. Social and peer pressure adds to the need to buy the latest iPhone, for example. We might not understand investments so do not spend time exploring the options. We might think our savings are just put away for a rainy day and not realise that they can be used to provide us with a feeling of security because they can also provide us with lifelong income.
The reason for our lack of attention, in part, is that there is no structure in place to make sure we do give the right amount of time to our money and savings. When we are at work we have a structure, a place you go to, probably training for the job, a boss, a company mission, company values, a product line which is specific and customers who keep you on your toes. The better we get at the job the more likely we are to get a promotion.
Don’t worry. I am not suggesting you spend another 40 hours a week on top of working to look after your savings. What will make a difference, though, is if we apply these work elements to our savings.
Structure – perhaps as simple as saving regularly, or perhaps using savings type where tax is not paid whilst your money grows. Using a cashflow model to see what your financial future looks like.
A place to go – more difficult but if you have an adviser go to his/her office to discuss your situation and your requirements.
Training – there are many good books on looking after your savings. You will notice that the best concentrate on your approach to money and the process of making it grow. Not on an “investment product”. Always start with your plan and then fit the products into your plan. Do not buy a product and then wonder why you have it. This is not as easy as we might think because the adverts for financial services are mostly offering products.
A boss – if you have an adviser you become the boss and the adviser becomes your employee. If this is not the case, get a new adviser!
Mission and values – have a list of requirements for your savings, investments and pensions. It may be that you have chosen a set date to retire or how much to leave the children or many, many more objectives. Your values may include making your money grow without causing harm to the environment.
Product line – emotions guide what you want from your money but make your decisions on how to achieve that based on data. Recognise that you should build your planning on emotion and implement the plan based on data. Your work company has a limited number of products. In Europe alone we have 16,000 different possibilities in just one investment class. Even if you have a really good knowledge of how investments work you still need help with sorting the data on 16,000 options. Use an adviser with tools to analyse that data on your behalf and to give you guidance on what will best fit your plan.
Customers who keep you on your toes – the customers who will keep you on your toes for your savings are interest rates, markets, tax, rules and regulation. All of these “customers” change their minds. A very good recent example is in the markets, with the S&P 500 index of US shares from the start of Covid:
- 9th February 2020 – 3,380.16
- 15th March 2020 – 2304.92 (31.8% change)
- 12th April 2020 – 2874.56 (24.7% back up)
- 7th October 2021 – 4399.76%
*Source New York Stock Exchange
Of course this is an extreme example, but it does illustrate how you or your adviser needs to pay attention.
For those of us living in Spain we have to add in the additional issues of a tax system in the UK and a tax system in Spain. Exchange rates are another factor we need to consider.
If you would like to be the boss of your savings with an adviser who can guide you for building your plan and then use data to best work out how to implement your plan, myself and our team at the Spectrum IFA Group are here to help. With software systems for cashflow planning, an investment panel for reviewing investments, clear understanding of both UK and Spanish tax systems and ongoing support, all given in English by an adviser who lives in Spain.
For an initial call to find out more, choose a time for a phone call or Zoom meeting that is convenient for you with this link: initial telephone or Zoom meeting.
I look forward to converting our expertise and systems into easy to understand ways for you to make your plans become a reality.
External research
The better we get at the job the more likely we are to get a promotion.
Vanguard, the $7 trillion dollar fund management company, has conducted extensive analysis of the benefit of using a financial adviser. Here are some of the key findings:
People with financial advisers average a 3% better investment return.
Advisers often find ways of saving clients tax on their investments.
Some of the best opportunities to add value occur during market duress or euphoria when clients are tempted to abandon their well thought out investment plans.
One of the most important benefits is to give clients peace of mind
advisors.vanguard.com/insights/article/IWE_ResPuttingAValueOnValue
Tax and Saving in Spain
By Barry Davys - Topics: Barcelona, ISAs, Spain, Tax
This article is published on: 21st March 2018
21.03.18
This is an introduction to the differences between the UK and Spanish tax systems and an introduction to a Spanish Compliant Bond. It has been produced to help answer two regularly asked questions. : “What is the difference in taxation between Spain and in the UK?” – followed by “Is there a tax free savings account in Spain similar to an ISA?”.
For those of you not from the UK, I hope that the Spanish part of the table below will still be useful in allowing you to compare it with your home country tax situation.
| Tax | UK | Spain |
| Tax Year Dates | 6th April – 5th April | 1st January – 31st December |
| Income Tax Allowance | £11,500 | €9250 up to age 64 €10,400 age 65+ €11,800 age 75+ |
| Capital Gains Tax Allowance | £11,300 | N/A but some gains can be offset against some losses |
| Savings Tax Rates (interest and capital gains) | N/A Income Tax and CGT calculated separately |
19% to €6,000, then 21% for the next €44,000 and 23% above €50,000 |
| Tax Free Interest | £1,000 | Nil |
| Tax Free Dividends | £5,000 Falling to £2,000 in 2018/19 |
Nil |
| Annual ISA Allowance | £20,000 | Unlimited (see Euro ISA below) |
| Pension Contributions Limits | 100% of your earnings up to £40,000 pa |
€8,000 pa |
| Inheritance Tax | Above £325,000 at 40% plus possible allowance against main residence of £125,000 in 2018/19 | Autonomous community rules.
Catalonia and Madrid have large discounts for immediate family |
| Wealth Tax Limit | N/A at present | Autonomous community rules. Catalonia: over €500,000 with a €300,000 allowance for main residence, rates from 0.21% to 2.75% |
The main differences are in Wealth Tax, Inheritance Tax and the way savings are taxed.
Wealth Tax in Spain
In the UK there is not currently any Wealth Tax. There is in Spain and the rates and method of calculation are set by the autonomous communities. In Catalunya the rate is banded, starting at 0.21% and rising to 2.75%.
Inheritance Tax in Spain
In the UK, the estate of the deceased person is taxed as a whole, whilst in Spain, the person receiving the bequest is taxed based just on the amount they personally receive from the estate. The allowances and method of taxation also differ. The rates of inheritance tax in Barcelona and the Costa Brava are the same but will be very different if you live in Andalucia. For more information, please see Inheritance Tax in Catalunya as an example.
Tax Free Savings in Spain
In the UK, since January 1987 with the introduction of Personal Equity Plans (PEPS), we have been used to having tax free savings. Peps are now called ISAs and the allowance is now £20,000 per annum. If you live in Spain and have an ISA please note it is taxable in Spain. The fact that it is tax free in the UK does not transfer to Spain and you should look at the alternative below.
Spain does not have an ISA system as such but there is a similar investment, sometimes known as the “Spanish Compliant Bond”. It is tax free whilst invested and has a very beneficial low taxation basis, especially if you require income from your investment. It is a little more restrictive than the UK ISA but is still worthwhile.
The two big advantages are that there is no limit and it is portable to other countries. If you would like to invest 10,000,000 euros in one year in the “Spanish Compliant Bond” you can do! Unlike a UK ISA, the Spanish Compliant Bond can go with you if you move country (not to all countries). If you return to the UK, the tax will be proportional to the amount of time you have been in the UK against the time you have had the Spanish Compliant Bond. So if you have a Spanish Compliant Bond for 10 years in total and have moved back to the UK for the last two years of the 10 years, the tax will be reduced. Specifically, the tax will be calculated and multiplied by 2/10ths. An 80% tax saving!
*Sources: www.gov.uk/government/organisations/hm-revenue-customs
www.agenciatributaria.es/
If you would like more information on Inheritance Tax, Wealth Tax or the European ISA, please contact me on barry.davys@spectrum-ifa.com or telephone on +34 645 257 525. If you have UK ISAs, I will also be happy to advise you on how to make these tax efficient in Spain.
