Thanks to everyone for their positive feedback on these newsletters. They are purely to give us ‘foreigners’ the heads up on financial matters that are at best opaque here in Spain. Before I head off to a chiringuito, as it’s that time of year, this month we shall be concentrating on the following important topics:
Viewing posts from: November 2000
Financial Top Tips in Spain
By Chris Burke
This article is published on: 11th June 2023
11.06.23
- National Insurance deadline to backdate/buy years in the UK – act now!
- What pension are you likely to receive as self-employed/autonomo here in Spain?
- How much money do I need to retire (with example) comfortably?
- Legal aid in Spain for British nationals
UK National Insurance deadline approaching
I meet many people who have contributed into the UK state pension (National Insurance contributions) and then move abroad. They may also pay into other countries´ state pensions, but the BIG potential issue is that no one knows for sure if these will be combined and what income in retirement you will receive. Some people say ‘Well they have to, otherwise it’s not fair and that’s how it works now/used to before Brexit’. I tend to focus on as many certainties as possible and always try to have a ‘more guaranteed’ plan instead of relying on what governments do and don’t do, as that doesn’t fill me with confidence.
I have met many people with 5 years’ state contributions here, 10 there and another 5 somewhere else and they don’t actually end up receiving ANY state pension. This is not the situation I want to end up with and that’s why I recommend to anyone who has existing UK NI contributions to continue to contribute to them, aiming to reach the maximum years needed to receive a full UK state pension. As a non-UK resident, if you are paying taxes in Spain it´s normally £12 a month to contribute to the UK system – for me it’s a no brainer.
With that in mind, normally you can ‘backdate’ or buy past years’ contributions to fill in any gaps you may have. However, from the end of July (next month), you will only be able to backdate 6 years, whereas before this deadline you can buy more. So, if you have significant gaps in your UK NI contributions you only have until next month to ‘fill’ a part of them. You can find out more here: National Insurance Gaps
Self-employed/autonomo state pension amounts
I wanted to clarify something that not many people here realise when they contribute into the social system as self-employed. In the UK you pay your contributions and the number of years you have contributed dictates, more often than not, how much you receive. However, this is not the case in Spain.
Many people are autonomo here and presume the monthly payment they make to the social security, if made over the necessary number of years, (currently 35), will give them the full Spanish state pension – unfortunately that is incorrect. That is because it’s not JUST the number of years you contribute, but also the amount you pay. Not many accountants will confirm that there is a choice on how much you can pay each month towards your social security – a low, medium or high amount. Therefore, most people pay the low amount for many years and only realise the problem when they start looking closer, usually at retirement age. I hope most people are sitting down when I tell you that if you paid the minimum contributions for the full number of qualifying years in Spain, you would receive around €643 a month, (almost half of the UK amount), whilst the maximum is €2,617.
That is why I recommend to almost everyone that they ensure as far as possible that they are fully contributed into the UK system by retirement.
Here are the links to HMRC to read about and organise this, (please don’t get in touch with me for help as it has to be done by yourself):
- Information on paying National Insurance contributions from abroad – gov.uk/national-insurance-if-you-go-abroad
- The Form to complete to pay Class 2 voluntary contributions at £12 a month – gov.uk/government/publications/social-security-abroad-ni38
You can obtain a state pension forecast here in Spain if you have a digital certificate here
As a local accountant recently told me, and I quote, “My personal opinion is that it is better that you make your own pension, saving the money and investing it directly, and more because each time the pensions are reduced year by year and it is quite sure that in the future they will be reduced most, but this is only my opinion…… This is what I decided to do a long time ago.”
So, my advice? Pay the minimum here, pay your NI in the UK and reach the maximum alongside making your own provision along the way.
How much money do you need for a comfortable retirement?
Now, this is a very difficult forecast to make given everyone’s very different lifestyles, so I must use a few assumptions based on the following:
- Average annual salary – €3,000 per month after tax
- Medium lifestyle choice in retirement
Therefore, one could surmise an income needed in retirement of €4,000 per month before tax could be the average amount required. If we say you receive the full state pension of around €1,000 per month, you need to supplement €3,000 per month.
If you had €300,000 and it gave you 5% return each year this would give you €1,250 per month – so we still need another €1,750 per month. Of course, this means that as you are taking the full interest earned from your money pot it is not keeping up with inflation. Therefore, taking 4% at most is more applicable which gives you €1,000 per month income. However, if this income falls under income tax (such as property income), then from earnings upwards of the current allowance of €6,700 each year at age 65 in Spain you will be taxed. Adding that to the state pension, (which is declarable for income tax in Spain), we probably need to say it’s more likely €800 a month net from this monetary income.
So, we see the problem, what do we need to do? In essence, make your savings/monies and assets work for you over the years with professional management, taking into account tax mitigation. The more money you invest and the longer the time, the more comfortable or higher probability you will achieve your goals.
By the way, the answer to the above question also depends on how you are receiving the income. Tax efficient savings will greatly reduce you tax liability away from income tax to the lower, (and with possible offsetting capability) of capital gains tax. In monetary terms, to be safe I would suggest €800,000 plus a property rented out in retirement, in today’s money, as an income will safely achieve this. Is that the average persons situation?
Legal aid in Spain for British nationals
The UK has just released the following information on legal aid available for those residing in Spain which is perhaps ‘better’ than I would have expected and well worth knowing: Legal Aid Spain
Click here to read independent reviews on Chris and his advice.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with Chris.
The Top Tips in Spain | May 2023
By Chris Burke
This article is published on: 15th May 2023
15.05.23
Summer is well on its way, lighter evenings and enjoyable temperatures are here for most and we will soon be commenting on how hot it is, I am sure!
For this month we shall be concentrating on the following topics:
- Driving licence swap now active
- UK investments/ISAs compared to Spanish options
- UK tax code changes – beware!
- State pension retirement options in Spain
Driving licence swap now active
From the 16th March 2023 the UK & Spain driving licence exchange, without the need to take a practical or theory driving test, is back at long last for those who are Spanish residents. From this date, as a resident you can legally drive in Spain on your UK driving licence, having 6 months to exchange.
You will also need to book a ‘Psicotecnico’ as I previously mentioned in my Newsletter and here is a link for the participating places to do this: Psicotecnico centres
So get your driving gloves back on and hit the Spanish roads! Be aware, this new exchange deal between the UK and Spain also means they will be sharing information on fines, speeding tickets and other incidents recorded (intoxication for example) so take note.
UK investments/ISAs compared to Spanish options
Many people who live in Spain are unclear or unaware of the difference between holding UK savings and investments compared to Spanish, and also what your options actually are here.
Unless you are on a specialist tax regime such as the Beckham Law, or potentially the new Digital Nomad Visa, Spain views UK savings and investments as non-Spanish compliant and therefore tax declarable/paid on any gains annually, EVEN if you do not access any of these monies. In the UK for example, normally the first advice any financial adviser will give their clients is to ‘max out’ their ISA and private pension contributions annually, as the tax saving alone makes this a great thing to do. However, once you become a Spanish tax resident these are not generally tax efficient and any gain on non pension related investments has to be declared and tax paid annually – therefore in many cases potentially nullifying the benefits of these.
So what can you do?
Most people speak to their Spanish bank and aren’t given any financial advice as such in respect of their circumstances and, in many cases, are sold investments that are not really what they are looking for, nor, dare I say, are any good from what my clients tell me!
When they have been put off by this they start looking around for something similar to what they had before they moved to Spain, and that’s when they find and/or are recommended to me. In Spain, we have access to several flexible investment solutions backed by some of the UK’s largest and well-known institutions. These products are EU regulated and highly tax-efficient, in essence similar to a UK ISA. We start by looking at your overall situation, carefully understanding what you are looking to achieve – whether that be a retirement plan, mid-term investment or complete financial planning for the whole family, taking into account university fees, or perhaps FIRE (Financial Independence, Retire Early). As the years go by and your money grows we provide ongoing advice to make sure these are optimised, taking into account life events that occur along the way.
UK tax code changes – beware!
On the 10th April this year UK state pensions were increased to rise with inflation up to £203.85 a week (10.1% increase) as the government restarted the ‘triple lock’ agreement it had suspended for one year. For most people receiving their UK pensions this was very good news, however for some it has created another problem depending on other income and how they are set up for tax purposes.
When leaving the UK as a tax resident it is important to inform HMRC. If you don’t, once your income rises above your personal allowance of £12,570 (with the state pension annually now £10,600) you will be subject to income tax in the UK and taxed accordingly.
Worse than that, this hike in UK state pension income has seen many retired people have their tax code changed, wrongly it would seem, by HMRC. In one case I have seen they were being taxed 40% on their income above the personal allowance. If the tax they are taking doesn’t look right a simple phone call to HMRC seems to solve the problem.
If you have set yourself up correctly as a non UK tax resident, then the only UK income you should be taxed on is property rental income. Most other income should not be taxed in the UK, but declared and tax paid in the country where you are tax resident.
State pension retirement options in Spain
Below I have listed the different options when you retire in Spain claiming a state pension – one notable new change is that to qualify for ‘partial retirement’ (also known as active retirement) you can only use Spanish contributions – previously you could include contributions from the UK.
Ordinary Retirement
Retirement age in Spain starts at 65, however for most it is 66 years and 10 months and by 2027 the number of years of contributions to retirement needed will be 38.5 years.
Flexible Retirement
After you retire, you can combine receiving a part of your pension with part-time work (reducing your full working day down to 50%). Your pension is reduced proportionally.
Partial/Active Retirement
If you have not reached the legal retirement age, you can combine a part-time employment contract with receiving part of your retirement pension.
**Reminder – to qualify for the Spanish state pension in general you must have contributed for 15 years, of which two at least should fall within the 15 years immediately preceding the start of your entitlement.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with Chris.
Saving for retirement in Spain
By Chris Burke
This article is published on: 8th February 2023
08.02.23
Retirement options
One of the big differences when you move to Spain are the options available to you for retirement planning. In the UK/Ireland we have ISAs and private/employer pension schemes which both offer good tax savings.
ISAs are not tax free in Spain, and the annual ‘private pension allowance’ is only €1,500 per year per person! In some employer contribution schemes you can save up to €10,000 per year, but these are very uncommon. Compare that to £40,000 per year in the UK, or in Ireland up to €115,000 per person, per year! €1,500 per year is never going to achieve any serious amount of income for retirement.
The main reason for this is that in Spain, culturally people preferred to set up a company structure or accrue properties, passing these from generation to generation. Additionally, there is a lack of incentives from the authorities to entice people to save into retirement schemes.
Pensions have been popular for retirement in the UK/Ireland because of the tax savings and potential employer contributions. Take both of those away and they are not nearly as effective, which is what happens when you move to Spain. So, what can you do if you want to plan for retirement in a tax efficient manner?
For me, retirement is not just about a pension, it’s about a retirement plan. We help clients build that retirement strategy, taking into consideration the amount of income they want, making sure their assets are highly tax efficient (such as moving them away from future income tax positions) and then making sure everything is flexible and portable, because you never know what will happen in life. This is all done by using our client planning portal, where we work together to bring this to life using the following process:
This is all done by planning, where we work together to bring this to life using the following process:
- Assess existing assets including ISAs, pensions and other savings/investments
- Understand your objectives and when/where you are looking to retire and with how much
- Understand your current and ongoing financial situation, taking into account future events such as children/grandparents
- Compile this into a strategy where we plan, implement and review
- Review and adapt as the years go by evolving the plan to fit your life
We never know exactly what’s going to happen, but one thing is for sure, with proper informed planning and regular analysis, you will be much better prepared.
Financial updates in Spain
By Chris Burke
This article is published on: 23rd November 2022
23.11.22
This month we cover the following topics (if there is anything you would like to understand more or wish to see covered in these articles, don’t hesitate to ask):
- Digital Nomad Visa – Update
- New Wealth Tax Implemented for those with assets over €3 million
- New Autonomo payments from 2023
Digital Nomad Visa – Update
The Spanish Government has confirmed plans for its digital nomad visa scheme. The scheme will offer citizens from non-European Union countries the opportunity to live in Spain whilst working remotely for companies located outside the country.
The visas will be available for those who derive a maximum of 20 per cent of their income from Spanish firms and who work remotely for companies located outside Spain. The visas should bring vital help to the Spanish economic sector and that it will also help the country recover from the economic damages caused by the Covid pandemic.
Even though there has been no detailed information publicly and the law has not yet been 100% passed through Parliament, it has been publicised that the visas will be initially granted for a period of one year. There will then be the opportunity for this period to be renewed for more than five years, depending on the circumstance of the applicant.
Spain’s Economic Affairs Minister, Nadia Calviño, stressed that “the digital nomad visa will attract and retain international and national talents by helping remote workers and digital nomads set up in Spain.”
In order to benefit from Spain’s digital nomad visa, applicants must be able to show or prove that they have been working remotely for at least a year and be from outside the European Economic Area. They must also show that they hold a contract of employment or, if freelance, prove that they have been regularly employed by a company outside of Spain. Proof that they have enough money to be self-sufficient and have an address in Spain is needed too.
Spain is not the first country in Europe to instigate a Digital Nomad Visa programme. Estonia, Croatia, Portugal and Iceland already have a similar visa scheme, and in January this year the Government of Romania implemented a similar visa.
New Wealth Tax Implemented for those with assets over €3 million
Spain is set to implement a new wealth tax, its second, as the country looks for ways to raise funding to pay for social policies amid soaring inflation.
As reported by Bloomberg, those who have assets worth at least €3 million ($2.9 million) a year from 2023 will be affected, the Budget Ministry said in late September. Payments made against an existing wealth tax will be deductible from the new one, it said.
There are three ranges to the tax:
| Assets | Tax (Payable Yearly) |
|---|---|
| Between €3 and €5 million | 1.70% payable on the value of the assets |
| Between €5 and €10 million | 2.10% payable on the value of the assets |
| Over €10 million | 3.50% payable on the value of the assets |
23,000 people will be affected by the new tax and is expected to raise around 1.5 billion Euros. In 2024 another 204 million is expected to be raised by an increase of up to 2 percentage points on incomes above 200,000 Euros a year. There will be tax reductions for lower earners which is estimated to be worth about €1.88 billion over two years.
New Autonomo Payments from 2023
Self-employed workers (Autonomo’s) in Spain will start paying new monthly social security fees which will be based on the amount they earn. The changes will be brought into force from January 2023.
For those newly self-employed and under the age of 35:
| Time Period | Amount Payable |
|---|---|
| The first 12 months | €60 (80% reduction) |
| Month 13 – Month 18 | €146.97 (50% reduction) |
| Month 19 – Month 24 | €205.76 (30% reduction) |
This flat rate is a measure to promote self-employment that consists of paying a reduced monthly Social Security contribution as a self-employed person for two years.
For those who have been self-employed for two years or more:
| Amount earned per month (€) | 2023 | 2024 | 2025 | 2026 |
|---|---|---|---|---|
| < 600 | €281,50 | €269,30 | €257,00 | €244,80 |
| 600 – 900 | €281,50 | €269,30 | €257,00 | €244,80 |
| 900 – 1.125,90 | €293,90 | €293,90 | €293,90 | €293,90 |
| 1.25,90 – 1.300 | €351,90 | €351,90 | €351,90 | €351,90 |
| 1.300 – 1.500 | €351,90 | €413,10 | €413,10 | €413,10 |
| 1.500 – 1.700 | €351,90 | €413,10 | €474,30 | €474,30 |
| 1.700 – 1.900 | €351,90 | €413,10 | €474,30 | €535,50 |
| 1.900 – 2.330 | €351,90 | €413,10 | €474,30 | €535,50 |
| 2.330 – 2.760 | €351,90 | €413,10 | €474,30 | €535,50 |
| 2.760 – 3.190 | €351,90 | €413,10 | €474,30 | €535,50 |
| 3.190 – 3.620 | €351,90 | €413,10 | €474,30 | €535,50 |
| 3.620 – 4.050 | €351,90 | €413,10 | €474,30 | €535,50 |
| >4.050 | €351,90 | €413,10 | €474,30 | €535,50 |
*Source: Government of Spain
In summary, the current minimum fixed payment of €294 will be changed to a progressive system of 13 instalments, depending on income. This will be introduced over 9 years. It’s important to note that these changes have not yet been finalised and there are still some details to be agreed.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch. You can book an initial consultation via my calendar link below or email/send me a message.
Top Tips for expat finances in Spain
By Chris Burke
This article is published on: 21st September 2022
21.09.22
I hope you are well and had an enjoyable summer. This month we cover the following topics (if there is anything you would like to understand more or wish to see covered in these Newsletters, don’t hesitate to ask):
- Early Retirement State Pensions in Spain
- New Cryptocurrency reporting regulations in Spain
- Free Train Tickets in Spain
Early Retirement Pensions in Spain
Did you know that in Spain, under certain circumstances, you can take early retirement before the legal retirement age? But what are these circumstances and what requirements must you meet?
What are you entitled to and how can you apply for it?
This can be quite complicated depending on your situation, and we would recommend taking professional advice so that you can be sure of exactly what you are entitled to.
New Cryptocurrency Regulations in Spain
From 2023 onwards, Spanish residents will have to declare cryptocurrency holdings in their tax returns. Currently, cryptocurrency holders are only obliged to declare any profits or losses in their income tax returns. The 2022 tax return has a special section for these assets. However, from 1st January 2023, a new regulation will be implemented meaning that all Cryptocurrency transactions must be declared. This has been regulated by Spain’s new anti-fraud law, which is currently at the public hearing stage. It has been set out in a draft bill incorporating several anti-fraud amendments.
The new tax declaration will have to be submitted using the form Modelo 721. Information will have to be included on those who have held cryptocurrency or have been authorised beneficiaries of cryptocurrency at some point during the year (from 2023 onwards). Furthermore, cryptocurrency holders will have to include information on what their final balances are at the end of the year, as well as information on the types of cryptocurrency and the amount of units that they hold, along with the equivalent amount in Euros. This new regulation further reinforces the need to seek professional tax advice if you are a cryptocurrency holder or thinking of becoming one.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch. You can book an initial consultation via my calendar link below or email/send me a message.
August update for expats in Spain
By Chris Burke
This article is published on: 17th August 2022
17.08.22
I hope you are well and managing to keep cool, stay safe and ‘push back’ a little if possible. This month we cover the following topics (if there is anything you would like to understand more or would wish to see covered in these Newsletters don’t hesitate to ask):
- Covid Update (the last one ?)
- Golden Visa Changes in Europe
- An Update on having a UK bank/investment/building society account
Covid Update
A quick Covid update to start things off – The Catalan health department have announced that people who have Covid-19 symptoms will be able to request an automatic 5-day sick leave. This announcement was made as a response to the seventh wave of Covid here in Catalonia, which has seen an increase in visits to primary care centres. The measures allow residents of Catalonia to fill out a form on the website of the Catalan health department, ‘La Meva Salut’, explaining why they feel ill.
The measures will not require a Covid test to be taken, and will be automatically lifted on the fifth day. This could prove particularly beneficial for those who are sick and cannot work remotely. The idea behind the new measure is to simplify the process and reduce in-person paperwork for someone who may not be able to attend a health centre.
Golden Visa Changes
The European Parliament is considering implementing changes to the ‘golden visa’ scheme, which is prevalent in many EU countries, including Spain. The scheme allows families who invest over €500,000 into residential property or qualifying investment schemes to receive citizenship and/or residency in the respective country.
Some MEPs have demanded a ban on ‘golden passports’ and specific rules for ‘golden visas’ to fight money laundering and corruption. MEPs have become concerned that EU membership is for sale and have pledged to regulate this area throughout Europe. This includes stringent background checks, reporting obligations for member states and requirements surrounding minimum physical presence in the country for applicants.
Banks Accounts, Savings and Investments accounts in the UK
There have been reports of UK Financial Institutions requesting Non-Resident UK clients to close their bank, savings and investment accounts in the UK.
National Savings & Investments, home of the NS&I accounts and Premium Bonds which is government backed, is reminding clients that they need a UK bank account to retain their accounts. That would be fine in itself as many people who have lived in the UK still have one of these, however, there have also been reports of Barclays asking clients with EU residential addresses to close their accounts. Therefore, this is having a knock-on effect – for example, to have an account with NS&I you need a UK bank or building society account in your name. If this account is closed (imagine if you had an account with Barclays) then you cannot have an NS&I account also.
This may be a little unsettling if you are living here in Spain and have bank, savings or investment accounts in the UK, but do not worry. If you are affected or concerned by this then feel free to get in contact with me. There are good alternatives to Savings & investment accounts that are Spanish compliant, meaning your money is likely to be more tax efficient and remains with UK based institutions.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch. You can book an initial consultation via my calendar link below or email/send me a message.
Is it better to pay off your mortgage early or save for retirement?
By Chris Burke
This article is published on: 10th August 2022
10.08.22
One of the more common and difficult questions to answer for clients, more because emotionally people like to pay off their debts and specifically their mortgage (its most likely the biggest debt you will have in your lifetime, if you exclude children!) is ‘Is it better to pay off my mortgage early or save for retirement?’ Well, I am very analytical, which is great being a financial adviser, so I need facts to make decisions and to look forward for clients planning.
Whether you’ve received a pay rise or you’re just planning for the future in general, it can be a challenge deciding how to employ use your hard-earned cash. From a psychological perspective, in a way it makes sense making clearing your debts a priority. However, will you be better off this way or by doing something else with that money/investing those funds? Which option will provide the better return on investment and generate long term wealth for you?
The first step is to evaluate your personal financial situation with a professional financial adviser if possible. There are many variables to take into consideration here such as:
- What are your objectives/goals?
- Do you have surplus cash each month?
- Do you have an emergency fund in place?
- What exactly are you looking to achieve?
Choosing to pay off your mortgage early
It can be very enticing to pay off your mortgage early and being debt free whilst owning your home outright. This may be able to save you thousands in the long-run and reduce your monthly outgoings, which could be a solid financial decision. Certainly, in the early years of your mortgage, if you are paying mainly interest on your monthly mortgage payments, then this may be the best option for you. However, have you considered the interest rate you have on your mortgage? Is this favourable when compared to other options? And furthermore, have you looked in to the potential early redemption penalties?
| Pros of paying off your mortgage early | Cons of paying off your mortgage early |
| Save on paying off the interest borrowed | You may cut into your savings (and emergency fund) |
| Debt free earlier (psychological) | Have you diversified? Is your mortgage your only investment? |
| More money available to you after | Early redemption penalties |
| Are you losing an opportunity to increase your wealth, by missing out on doing something more effective with the money? | |
| Money is historically cheap to borrow |
Choosing to invest your money
Even though paying off a mortgage early can have many benefits and lifts the burden of repaying a large debt, in many cases it may be wiser to invest extra cash instead in the form of investments or retirement funds. With regards to investing for the future, the earlier that you do this the better. Interest builds up over time (the power of compound interest!) so the longer you have your funds invested ‘working for you’ the more they will be worth when it’s eventually the time to use them.
| Pros of investing (vs paying off your mortgage early) | Cons of investing (vs paying off your mortgage early) |
| Potential to see a higher rate of return and increase your wealth | Riskier – returns are not guaranteed |
| The assets are more liquid – easier to sell if you are in need of cash | Still requires that you make payments |
| Depending on the type of investment, there may be opportunity for tax savings or for your employer to match the amount | Doesn’t make your debt ‘go away’ |
So, as I said earlier, I am analytical and its not for me to decide whether anyone should pay off their mortgage early or not, that’s their decision. However, mathematics doesn’t lie so let’s look at a real-life example. The Mortgage payments, rates of return and end results are real figures obtained from our mortgage department and professional investment calculator:
In the below examples I have used €1,930 as the monthly amount in total as this is what came back as the monthly payment for borrowing €300,000 over 15 years:
Case Study 1
Paying your mortgage off over 25 years and also saving for retirement along the way:
Property Value €600 000
Mortgage of €300 000 EUR (50% Mortgage)
25-year term fixed rate at 2%
€1,271 EUR monthly payment
Mortgage paid in full after 25 years
Meanwhile whilst also saving for retirement:
Investing €659 a month for 25 years (€659 + €1,271 adds up to €1,930, the 15-year monthly payment amount below)
5% compound interest
Value of investment/retirement plan after 25 years: €377,425
Case Study 2
Property Value €600 000
Mortgage of €300 000 EUR (50% Mortgage)
15-year term at 2% fixed rate
€1,930 EUR monthly payment
Mortgage paid off in 15 years
Then (after the 15-year period and mortgage fully paid off)
Investing €1,930 a month for 10 years
5% compound interest
Value after 10 years: €291,000
Comparison Results
After 25 years in case study 1, you will have the value of the property you are living in plus €377,425 towards a retirement fund. After 25 years in case study 2, you will have the value of the property plus a retirement fund of €291,000.
Surmise
The difference is nearly €86,000, which I think most people would consider a decent amount of money. The main reason for this is that investing over a greater period of time will statistically bring you a greater return in your investments than shorter. Emotionally, people may like to pay their mortgage off first and then save for retirement, this will either mean you will have less for retirement in the above example or it will cost you a lot more. You would actually need to save €2,500 per month for the 10 years in case study 2 to achieve the same retirement pot, a whopping €68,400 more for the same outcome.
Should I pay off my mortgage or invest?
Before making a decision, it’s important to do a full-scale financial review (ideally with a financial adviser). For example, do you have an emergency fund in place to cover you in case of any unexpected surprises? Furthermore, take your life situation and goals into account. Do you have any plans to travel which you will need the money for? Or a wedding? Furthermore, how long do you think you will be in your home for? If you are considering moving to another place in the near future, it does not make sense to pay off your mortgage (and potentially paying a penalty).
Both options can be seen as very smart financial decisions, depending on your personal circumstances. But everyone’s financial situation is different. It’s important to take everything into consideration and consult a professional.
If you would like to speak with a Financial Adviser in Spain, I am experienced, qualified and legally able to discuss your financial matters. I am also able to review your current pensions, investments and other assets, with the potential to make them more effective and tax efficient moving forward. If necessary, we can perform in depth financial planning to get you set up/back on the right path/or ready for retirement once I fully understand what you are looking to achieve and your situation.
You can get in touch via the form below – or click the button below to make a direct virtual appointment here.
Living in Spain after BREXIT
By Chris Burke
This article is published on: 26th July 2022
26.07.22
In this months regular article I’ll be discussing three main concerns I’ve heard from clients recently:
- Changes to UK driving licenses in Spain
- Living in Spain after Brexit, managing your personal finances
- 18 months on from Brexit in Spain – What has changed / what do you need to do to move here?
Changes to UK Driving Licenses (When Living in Spain)
Up until the end of 2020, British driving licenses were valid in Spain. Furthermore, Brits were able to exchange their British Driving License for a Spanish one up until 31/12/20. From this date onwards, Brits residing in Spain prior to this have not been able to exchange their British driving licenses for a Spanish one.
For those residents who failed to meet the Spanish deadline to exchange their licences for a Spanish one, they currently (as of 08/07/22) cannot drive on their UK licence – this does not apply to holidaymakers hiring a car. The Spanish Government has already issued four extensions to the ‘grace period’, allowing Brits to still drive using their UK license. The grace period ended on 30/04/22.
Hugh Elliot, the British Ambassador to Spain and Andorra, issued an update on Twitter stating that they were working on a resolution to this. The belief is that they are hoping to secure a deal, similar to the UK’s deal with France, Sweden and many other European countries, in which UK Driving Licenses can be swapped for the license of that country (providing that the individual is resident).
According to SpanishNewsToday, the proposed deal would allow Brits living in Spain to swap their UK driving licenses for a Spanish one for an additional period of six months. The deal would also see UK Driving Licenses valid for a further six months. If this proves to be the case and you have not yet exchanged your license, I would recommend that you seize this opportunity.
Spain and Italy are the only EU countries in which Driving License exchange conversations are ongoing.
Financial Matters for Brits living in Spain after Brexit
From a tax perspective, for Brits living in Spain before Brexit there should not be a change as it is highly likely that you were a tax resident prior. Being a tax resident in Spain means that ‘your centre of economic or vital interests is in Spain’. As a result, if this is the case you must declare your wealth and worldwide income accordingly.
However, what has changed is the Private Pension agreement in relation to the Wealth Tax. In 2019, a ruling by Spain’s Directorate-General for Tax declared that Private Pensions from non-EU states are now eligible for Wealth Tax. Please read this article on Wealth Tax to find out more about it.
Furthermore, it is now more important than ever that Brits ensure that their finances are managed correctly. From 2021 onwards, Financial Advisers based in the UK are no longer permitted to advise clients based within the EU. The same situation applies to UK based banks, investment and insurance companies and stockbrokers.
If you are still using a UK-based financial adviser or service whilst a resident of Spain, they may well be breaking the law whilst servicing you. This could still be the case even if you only engage with them when returning to the UK to visit, providing that you are a resident of Spain. Furthermore, their professional indemnity insurance may not cover you. This may leave you vulnerable if you were to receive poor advice.
18 months on from Brexit in Spain – What has changed?
We are now over a year on from the end of the Brexit Transition Period (31/12/2020). Whilst British Expats in Spain continue to enjoy their life as it was before the Brexit, overall things are a little more complex than they once were. It’s important to understand these changes – some are more complex than others.
For Brits wanting to move to Spain in 2022, although it is far from impossible, the changes imposed have made this more complex. The door has not closed, however, it is important to seek clarification from experts who are aware of the legislation and will be best suited to providing you with available options.
Many Brits in Spain have experienced frequent ‘run of the mill’ changes to their lives in Spain compared to before Brexit. Whether this be extended queues when going through passport control, taxes on imports or companies no longer shipping to EU customers, most British people in Spain will have been effected at least in a minor way. However, there are bigger issues which people need to be aware of.
90 Day Travel Rule
To summarise, unless you are a Spanish resident or have a visa you can no longer spend more than 90 days in Spain in a rolling 180-day period. This rule has particularly affected Brits who have holiday homes in Spain and used to come and go as they please. Now, it is important to plan your trips to Spain throughout the year to ensure that this 90 in 180-day rule is not broken. Furthermore, this rule does not only apply to Spain. It applies to everyone country in the Schengen Zone.
Brits who are non-residents must also now get their passports stamped as they enter and exit Spain. However, this is a temporary procedure. The EU are working on the European Travel Information and Authorization System (ETIAS), which is set to come in to force towards the end of 2022. This system will allow for the electronic tracking or arrivals and departures.
Spanish Residency Permits – Green Card and TIE
Those who were resident in Spain before the Brexit will keep their Spanish citizens’ rights. They should have the old green NIE card or a new TIE. The TIE, also known as the ‘Tarjeta de Identidad de Extranjero’ in Spanish, should state on it ‘Articulo 50’, meaning that it was issued as part of the Brexit Withdrawal agreement.
Although according to Spanish Law the green card remains valid, Brits have been encouraged to change it. Certain authorities have been said to no longer accept this card as suitable verification. Furthermore, the TIE is far more durable, can simplify administrative processes and acts as a valid form of ID as it contains a photo. In Spain, the law is that you must carry a form of ID when outside of your home. The TIE is allowable whereas the NIE ‘green card’ is not.
Spanish Residency Permits – Post-Brexit Arrivals
There are several ways in which you could apply for a residency permit post Brexit. However, although far from impossible, it must be said that this process is significantly more complicated than if you had arrived pre-Brexit. Working visas have proved challenging to obtain and, depending on your individual circumstance, sponsorship may be required.
If you are retired, you may be able to apply for a Non-Lucrative Visa and Residency Permit. To qualify, you must prove that you are financially stable (with sufficient resources to support yourself moving forward) and have suitable medical insurance along with a clean police record. It is also imperative that you go through the application process in the UK, before arriving in Spain.
Another option is the Golden Visa. You must invest a minimum of €500,000 into a qualifying investment scheme or property. If you were the obtain the Golden Visa, you would not need to abide by the 90 in 180-day rule and you could enter and exit Spain as you please. Please note that this does not give you freedom of movement around Europe, but only in Spain.
If you would like to speak with a Financial Adviser in Spain, Chris Burke is experienced, qualified and legally able to discuss your financial matters. Chris is also able to review your current pensions, investments and other assets, with the potential to make them more effective and tax efficient moving forward.
If you would like to find out more or to talk through your situation and receive expert, factual advice about living in Spain after Brexit, don’t hesitate to get in touch with Chris via the form below – or click the button below to make a direct virtual appointment here.
Sustainable & Ethical Investment funds in Spain
By Chris Burke
This article is published on: 25th April 2022
25.04.22
More and more people are contacting me regarding sustainable investments in order to understand the choices available, whether they offer a good return on your investment and would you get any more return if you didn’t invest sustainably/ethically? We all know the planet needs our help but we also want to know that our hard-earned monies are working for us – it can be a difficult emotional trade off.
Sustainable & Ethical investing has hit the world by storm over the last few years. By the end of 2019, professionally managed assets using sustainable strategies grew to $17.1 trillion, a 42% increase compared to two years prior, according to the U.S. SIF Foundation (2021). The organization also estimated that $1 out of every $3 under professional management is now invested under ´´sustainable practices´´.
Recent studies have also shown that Sustainable Investment funds, as well as providing ways to invest responsibly, provide both financial performance and lower levels of risk. For this reason, in part, many deem including sustainable investments in their portfolio is a ‘no brainer’.
Let’s say for example that you are in the market to buy a new dishwasher. You’ve analysed several products and have narrowed your choice down to the last two. Both products cost the same amount and wash dishes equally as effectively, yet one of them uses less electricity and is considered safer due to the addition of extra safety features. Which one would you pick?
When comparing the returns of sustainable funds and traditional funds, is there a financial trade off?
A common belief held by investors when comparing mutual funds that are performing to a similar standard is that the one with a sustainable investing model may not perform as well. However, a Morgan Stanley (2019) report has debunked this myth. The report analysed the performance of 10,723 mutual funds from 2004 to 2018 and found that the returns of sustainable funds were in line with comparable traditional funds, stating that ‘there was no consistent and statistically significant difference in total returns’.
When comparing the levels of risk of sustainable funds and traditional funds, is there a trade off?
The Morgan Stanley (2019) report found that sustainable funds experienced a 20% smaller downside deviation than traditional funds, a consistent and statistically significant finding. In years of higher market volatility (such as 2008, 2009, 2015 and 2018), sustainable funds downside deviation was significantly smaller than that of traditional funds. The study took an in-depth dive into in the last quarter of 2018 during which we saw extreme volatility in the US equity markets. Despite negative returns for almost every fund, the median US Equity sustainable fund outperformed the median US Equity traditional fund by 1.39%, and also had a narrower dispersion.
These findings may come as a surprise to many. There is a general consensus amongst investors that by investing in sustainable funds, you will also miss out on financial gains. The research based on concrete evidence of market performance over the past few years suggests that this is not the case, and that there is in fact no financial trade off when investing sustainably. Over the forthcoming years, I believe that the adoption of sustainable investments will continue and that we will continue to see the opportunity gap between investor interest and adoption narrow.
If you would like to speak with an expert on Sustainable and ESG Investments, Chris Burke is able to discuss with you the new investments in this area. Chris is also able to review your current pensions, investments and other assets, with the potential to make them more sustainable 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 click the button below make a direct virtual appointment.
Sources:
“Sustainable Investing Basics, 2021,” US SIF Foundation: The Forum for Sustainable and Responsible Investment, https://www.ussif.org/sribasics. Accessed March 24, 2022
“Sustainable Reality – Analysing Risk and Return of Sustainable Funds, 2019,” Morgan Stanley, https://www.morganstanley.com/content/dam/msdotcom/ideas/sustainable-investing-offers-financial-performance-lowered-risk/Sustainable_Reality_Analyzing_Risk_and_Returns_of_Sustainable_Funds.pdf. Accessed March 24, 2022
Wealth Tax in Catalonia
By Chris Burke
This article is published on: 7th April 2022
07.04.22
How to reduce it and know how it works
Catalonia is a great place to live for so many reasons. However, like the majority of places in the world, there are taxes to pay too. Although nobody likes to pay taxes, there is a societal need for them. They help fund the public health system, providing care for our families and for ourselves in later life, schools, so our children can receive a formal education and roads, so we can safely and effectively travel. However, in spite of this there are ways in which we can organise our taxes in an efficient manner to ensure that we are paying no more than the amount that we need to pay.
The Wealth Tax (known as ‘El Impuesto de Patrimonio’ in Spanish) is an example of a tax which is an additional tax in Catalonia that many people deem to perhaps be unfair. I mean, why should you pay tax just because you have done well in life, or your parents have and passed this wealth onto you? In summary, it is a tax that you pay on your net wealth (assets owned minus liabilities). The tax is paid on the assets that you hold which fall over a certain threshold. The threshold in Catalonia is €500,000 whilst the threshold throughout the rest of Spain is €700,000. There is a €300,000 exemption for your main residence, meaning that you will not pay tax on your main residence if it is valued under this amount. If your main residence is worth more, you can deduct €300,000 from the valuation and you will only be liable to wealth tax on the excess amount.
Here is a list of the assets that are and aren’t liable to Wealth Tax in Catalonia:
| Assets that Wealth Tax is applicable to |
Assets that Wealth Tax is not applicable to |
| Real estate | Household contents (except for Art) |
| Savings | Shareholdings in family companies |
| Shares | Commercial Assets |
| Cars | Intellectual Property and Pension Rights |
| Boats | |
| Jewellery | |
| Art |
Source: Balcell’s Group
The rate of wealth tax depends on the amount by which you are over the threshold. The general rule is that it ranges from 0.20% to 2.50% in Spain. However, in Catalonia the rate is slightly higher, ranging from 0.21% to 2.75%. You are required to declare your wealth as part of your annual declaration (in Spanish, ‘Declaración de la Renta’) on form 714 at the end of the calendar year, making any payment by 30th June the following year. The below tables display the Wealth Tax rates for Spain as a whole and the variation of the wealth tax to pay depending on the autonomous community (Communidad Autonomo) in which you reside. However, this is an overview to what is a complex calculation, so if you require personalised information, please get in contact with Chris.
| Settlement basis up to (euros) | Fee (Euros) | Other net base up to (euros) | Applicable Rate % |
| 0.00 | 0.00 | 167,129.45 | 0.20% |
| 167,129.45 | 334.26 | 167,123.43 | 0.30% |
| 334,252.88 | 835.63 | 334,246.87 | 0.50% |
| 668,499.75 | 2,506.86 | 668,499.76 | 0.90% |
| 1,336,999.51 | 8,523.36 | 1,336,999.50 | 1.30% |
| 2,673,999.01 | 25,904.35 | 2,673,999.02 | 1.70% |
| 5,347,998.03 | 71,362.33 | 5,347,998.03 | 2.10% |
| 10,695,996.06 | 183,670.29 | Thereafter | 2.50% |
Source: Balcell’s Group
| Autonomous Community | Wealth Tax % Variation |
| Catalonia | Between 0.21% and 2.75% |
| Asturias | Between 0.22% and 3% |
| Region of Murcia | Between 0.24% and 3% |
| Adalusia | Between 0.24% and 3.03% |
| Community of Valencia | Between 0.25% and 3.12% |
| Balearics | Between 0.28% and 3.45% |
| Extremadura | Between 0.30% and 3.75% |
Source: Balcell’s Group
There are ways in which you can mitigate the wealth tax you are required to pay, as noted in the above table, some assets are exempt. Therefore, if you transfer your wealth into these assets then they will not be included as part of your wealth tax calculation. For example, you may not be liable to wealth tax on assets that you transfer to shareholdings in family businesses or certain household or commercial assets.
However, this is not a straightforward process and certain criteria must be met. For example, if you transfer your capital to a ‘family business’, then there are strict regulations on what constitutes a family business, which assets qualify and how you do this. And if you were to utilise your capital to purchase household contents, certain items such as art are not exempt.
Another way to mitigate wealth tax is by relocating. There are a few countries in Europe in which you would not have to pay the wealth tax such as Sweden, Luxembourg, Denmark, Germany and Austria or France. In the UK, they are considering implementing a wealth tax. If you prefer to stay in Spain, then residents of Madrid are exempt from wealth tax so it may be beneficial relocating there.
Finally, you can effectively double your wealth tax exemption threshold by getting married! The wealth tax exemption threshold will then be increased as everyone person is entitled to it. This also counts for the main residence allowance; therefore you may not be liable on wealth tax on your main residence up to €600,000.
Being efficient with your monies/assets from a tax perspective is almost as important as making your money grow. 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.
Disclaimer: Spectrum IFA do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.