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ARE YOU PAYING TOO MUCH TAX ON YOUR SAVINGS?

By John Hayward
This article is published on: 12th October 2013

Offshore Spanish-tax-compliant investments

All financial planning advice provided by us is done so using and within insurance contracts that are highly tax efficient in Spain.

For residents of Spain, there is an opportunity to save thousands in tax by structuring investments in the right way. These investments need not, and through us will not, be based in Spain. However, they are recognised by the Spanish as being legitimate for Spanish tax purposes.

Under normal circumstances, if you have a bank deposit, tax will be deducted at source. This is irrespective of whether it is an onshore account, where the local savings tax will be applied, or if it is offshore, and undeclared, where the EU Savings Directive tax kicks in. However, whereas you might be paying 20% tax on the onshore account, you could be having 35% tax deducted from an undeclared offshore account.

Within a Spanish tax compliant investment, you only get taxed when you make a withdrawal. This means that you can defer paying tax for as long as you live. In addition, the rate of tax applied is capital gains tax, currently at a base of 21%. 
Also, the amount of the withdrawal which is taxable is very small, especially in the early years, as it is deemed that the majority of the money you are withdrawing is your original capital.

Here is an example:
Mr & Mrs Investor put €100,000 in a Spanish compliant bond and another €100,000 is already on deposit in a bank on the Isle of Man.
One year later, both accounts have made 5%
The tax payable on the bank account is 35%, so the tax payable will be €5,000 x 35% = €1,750
The tax payable on the bond is more complicated to calculate but worth doing so, as you will see.
Same gain of €5,000. The tax is calculated based on how much the gain is relative to its new value.
i.e. (5,000 ÷ 105,000) x 5,000 = €238.09
This is then taxed at 21% which gives a tax bill of €50 compared to €1,750. Quite a saving.

 

Unlike capital gains tax in the UK, no further tax will be payable if you are a higher rate tax payer. The tax payable is based on the gain, not on your overall income.

These calculations are based on our understanding of Spanish tax law which is subject to alteration.

For more information contact your local adviser or use the contact form below. 

Article by John Hayward

If you are based in the Costa Blanca area you can contact John at: john.hayward@spectrum-ifa.com for more information. If you are based in another area within Europe, please complete the form below and we will put a local adviser in touch with you.

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