How automatic exchange of information and the Modelo 720 could affect you, together with a possible solution.
Last month I described how, as a British ex-pat now resident in Spain, you must make sure you are paying the right taxes in the right place. With the new automatic exchange of information regime, your financial information will be shared with your local tax office in Spain without the Spanish asking for it. Under the Common Reporting Standard you must declare overseas assets worth more than €50,000 (per asset class) for the previous year ending 31st December.
Assets fall in to 3 classes:
Cash, deposits and ISAs held overseas
Financial Assets (bonds, investments, pensions, insurances) located abroad
Apart from receiving a bill for previous years of unpaid taxes due in Spain, historically severe fines have been imposed for non-disclosure.
If you use a Spanish-compliant bond, the Hacienda (Spanish tax office) offers us some very tax-efficient investments. Here’s an example of how non-compliant investments are taxed by comparison with a Spanish-compliant investment bond:
Non-Compliant Investment Taxation
Mr A.Stonished is resident in Spain and has £90,000 (approximately €100,000) invested in non-compliant investments like ISA’s, Unit Trusts, Bank Deposits in April 2017. A year later the investments have grown by 10% and are now worth €110,000. Great news until the tax is considered:
No withdrawals have been made.
Mr A.Stonished then decides he has to employ a Gestor or Accountant to complete his Spanish Tax Return for him.
The €10,000 gain is taxable as savings income; the first €6,000 at 19%, the remaining €4,000 at 21% = is €1,980 tax, plus he has to pay the accountant.
Spanish-Compliant Investment Bond Taxation
No withdrawals = no tax to pay!
If €10,000 is withdrawn, it is considered partly return of capital from the original investment and partly gain and only the part considered gain is taxable as follows
€110,000 (current investment value) minus €100,000 (original investment) = gain €10,000
€10.000 (gain) / €110,000 (current value) = 9.09%
€10,000 x 9.09% = €909 (taxable gain)
€909 taxed at 19% = €172.71 tax payable
The tax payable would be €1,980 on non-compliant investments even if no withdrawals are made, whereas in a Spanish tax-compliant bond he would only pay tax of €172.71 if he took out the €10,000 and zero if no withdrawal was made.
If the tax savings aren’t enough, then consider the additional advantages of Spanish compliant investments:
No need to report them on your Modelo 720 (Spanish foreign asset declaration) as all reporting is taken care of for you
They are ‘tax-compliant’ as seen by the Hacienda.
Tax is calculated by the bond provider and paid direct to the Hacienda on your behalf with no need for you to do any calculations or to pay someone else to do it.
Normally no need for probate on death.
Avoid currency fluctuations; invest in €, £, $
They can be Tax efficient on death.
Large range of funds available; low/high risk/return
Are you concerned about non-declaration or high tax bills? If so, please contact me for a free initial consultation.
Paul Price on 634 348 295
Local office address:
Blacktower Financial Management (International) Limited
120 Avenida Dr. Artero Guirao 2C
San Pedro Del Pinatar
Tax Rates taken from Blacktower Group – Tax in Spain brochure and article published by Blacktower Finanancial Management. The above information was correct at the time of preparation and does not constitute investment advice. You should seek advice from a professional adviser before embarking on any financial planning activity.
Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission. Licence 00805B.
Blacktower Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK.