Tax Efficient Investments in Spain
As a UK Expat living in Mallorca you no doubt have exisiting savings and investment plans (NISA's, PEP's (that are now NISA's), National Savings, Onshore and Offshore Investment Bonds etc.) These investments were good planning when you were a UK resident. However they are now unlikely to be efficient as the Spanish Tax Authorities (Hacienda) simply ignore the tax wrapper and look directly at the cash value.
What Does This Mean to you?
This means that your previously tax-efficient investments are now taxable annualy in Spain as part of your income on the growth / interest received. Add to this the fact that any investment above €50000 needs to be declared to the Hacienda on your annual tax return (Modelo 720) and failure to disclose carries hefty fines with Expats seen as "soft targets", and it is no surprise that you are concerned about what to do.
What Needs to be Declared?
Delaration of Assets (Modelo 720 Form)
Under the new rules, Spanish Residents (are you certain you are not considered resident in Spain? (see below)) must declare overseas assets worth more than €50,000 on the Modelo 720 Tax Form. This includes:
- Property (your old home you kept and now let out in the UK perhaps).
- NISA’s, PEP's (which are now NISA's), Investment Bonds both Onshore and Offshore etc. (the Spanish Government looks straight through the tax wrapper as if it was not there).
- Bank accounts.
- Protection policies.
Are you a Spanish Resident?
Whilst it seems complicated establishing residency in Spain is actually relative simple. You are a Spanish resident if:
- You live in Spain for more than half a year (not necessarily in one sitting). Or;
- You have your ‘centre of vital interest’ in Spain. These rules have been tightened up to make sure those who deliberately spend less than 183 days a year in Spain to avoid tax.
What can be Done to Avoid This?
Spanish Compliant Investment plans on the other hand offer a direct tax advantage. Specifically designed plans for Expatriates in Spain will offer income tax and succession tax advantages. They have the added advantage that the Hacienda recognises them as tax efficient investments in Spain.
Spanish tax compliant solutions such as Spanish Compliant Investment Bonds can be used. These are very useful for the following reasons:
- They do not need to be declared on Modelo 720
- The structure of the Bond is such that they are “compliant” as seen by the Hacienda
- Any tax liability due is calculated by the bond provider and paid direct to the Hacienda
- They avoid the need for probate on death
- Multi currencies available
- They are Inheritance Tax efficient
- Whilst they are still taxable to some extent, the tax treatment is very favourable in Spain when compared to not using this method so potentially large tax savings can be made
- There is a very large range of investments, asset classes, different risk profile investments available within the bond including some capital protected funds for low risk investors
The use of Spanish Compliant Investment Bond products created specifically for Expats in Spain enables you to save tax and have the peace of mind needed for a comfortable retirement. They can offer tax efficient investment accounts and savings opportunities from private banks or from household names such as Prudential, Friends Life International, Old Mutual International, Generali Pan Europe and SEB International amongst others.
Take a look at our FREE Guide on Spanish Compliant Investments here. If you need to discuss your situation now then get in touch with us.