By Chris Burke
This article is published on: 23rd November 2022
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
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.
By Chris Burke
This article is published on: 22nd November 2022
After the recent news from the Spanish Government that they are set to change the Autonomo tax payment structure, many questions have arisen. The main questions surround if it will be cheaper, easier and more effective to start an SL than be Autonomo. In this article, I aim to answer this question and clear any doubts that you may have.
What is an Autonomo?
Autonomo is the Spanish word for freelance or self-employed individual. If you provide some kind of service (irrespective of what this is), you need to register as an Autonomo.
What is an SL?
An SL (Sociedad Limitada) is the equivalent to a Limited Liability company, a private limited company (or ltd) in the UK.
What are the main differences between an Autonomo and an SL?
The 6 main differences are:
1. Set Up
To create an SL, there are several steps which must be taken. Firstly, the initial investment required to set up an SL is a minimum share capital contribution of €3000 (according to the recently approved Law 18/2022, of 28th September, also known as “Ley Crea y Crece” the minimum share capital contribution will be €1, as long as the company complies with the requirements approved). The next steps include registering the company with the Mercantile Registry (Registro Mercantil Central), signing a public deed at a notary office and allowing for additional tax documentation.
On the other hand, becoming Autonomo is much more straightforward. No initial investment is required and the process is significantly faster and easier. You must register with the tax authorities (Agencia Tributaria of Hacienda) and with Social Security (Seguridad Social).
2. Liability
An SL is incorporated as a separate legal entity. It is distinct to the entity of its owner(s) and partners. This means that the shareholder’s liability is limited to the capital invested in the business. The personal finances of the owners/partners would not be affected if the SL was to go under. However, Directors of the company are liable (with all their personal wealth) against the creditors, the shareholders, for their actions taken through the company both legally and financially.
However, Autonomos are responsible for all business debts. There is no legal separation between the company assets and the personal assets. As a result, there is more risk in the form of personal property, savings and possessions.
3. Taxation
An SL, as a legal entity, is subject to corporate tax (Impuesto de Sociedades) at a fixed rate of 25% of profits. A discounted rate of 15% over profits may be available for newly established companies in their first two years of operation (the first year in which the company has profits and the following year).
Any transaction that the company might carry out with related parties must be at the market value e.g. the remunerations paid to the Administrator.
In case the shareholder/s is a person developing a professional activity, the Spanish Tax Authorities require that at least a 75% of the profits of the company must be paid to the professional shareholders. Therefore, in the end only a 25% of the profits of the company benefit from the lower tax rates in the Corporate Income Tax with respect to the Personal Income Tax. If you could not prove that the company has its own personal and material resources, the Tax Authorities could argue that 100% of the profits of the company must be transferred to the professional shareholders.
Autonomos pay IRFP on their net income, after associated business costs. The tax is progressive in the sense that the higher the income, the higher the rate of tax. The tax rate results from adding the Spanish tax rate and the one approved in each region (“Comunidad Autónoma”). For example, in Catalunya the tax rate ranges from 7% (20%) all the way up to 47% (50%), if your annual income reaches more than €300,000. The type of business activity that the Autonomo carries out affects the rate of tax. In the first two years there is a 20% reduction in net income as long as in the year prior to starting the new activity you did not develop.
With regards to IVA (VAT), the rate is the same for both SL and Autonomos.
4. Social Security
For an SL, the costs start at €350 per month (with the new regulations entering into force in January 1st 2023, the amounts to pay for Directors of SL to the Social Security will decrease and this cost will start at 310€ per month). The company director must register with Social Security.
Autonomos are normally eligible for a discounted rate for the first two years (however this depends on the field of work). Furthermore, they may also be eligible for a discount in the third year depending on field of work and age.
The Spanish Government brought in new regulations which will commence January 2023. These regulations will change the Autonomo social security payment structure so that the more the Autonomo earns, the more social security they will pay. For lower earners, they may find that they will pay less than they currently do. However, for higher earners, they may find that they will pay more.
5. Financing
It may be easier for an SL to secure financing and more opportunities may be available. Banks and lenders tend to have more confidence in lending to an SL as opposed to an Autonomo. Due to the way an SL is set up, they are generally seen as more solvent.
6. Accounting
An SL is subject to Plan General Contable (general accounting standards) by the Spanish Government. This is a much more complete accounting process. Documentation must be maintained for all financial operations. Annual Accounts must be submitted in the Mercantile Registry annually. Furthermore, Corporate Tax must be paid annually, and VAT must be paid quarterly or monthly depending on the level of income.
On the other hand, the accounting practice required by Autonomos is simpler and straightforward. They are required to submit all sent and received invoices, with quarterly declarations for IRPF and VAT (if VAT applicable). They are also required to make an annual declaration by the end of June each year.
Costs of becoming Autonomo in Spain
Social Security
A self-employed person that has applied for a reduction in the Social Security Contributions because they started their activity before January 1st, 2023 will pay a flat fee of €68 a month for the first 12 months. They will then be eligible for a 50% reduction over the next 6 months. Following this, they can claim a 30% reduction for the subsequent six months. The self-employed worker will start paying full social security contributions after 2 years has passed.
These contributions to the Spanish Social Security system, from January 1st, 2023, will start at 281,50 Euros, although they will be also able to request a reduction for the first 24 months. They are entitled to an 80% reduction during the first 12 months, a 50% in the following 6 months and 30% during the remaining 6 months. After that, a 100% of the contribution must be paid. There is an additional 30% reduction for a further year for male freelancers under 30 years of age and female freelancers younger than 35 years old.
Autonomos over the age of 65 who can prove that they contributed into the social security system for at least 36 years and six months are exempt from paying the full Social Security contribution indefinitely.
The above costs are the only start-up costs required for anyone who wishes to become autonomo. The only initial start-up cost would be the Social Security payment, as detailed above.
Income Tax (IRPF)
Autonomos must pay tax on their profits. There are certain rules on the deductible expenses for a freelancer. Please see the link to this article here on what expenses you can deduct as an autonomo. The differences in the deductible expenses between an Autonomo and a SL are supposedly none. However, using a company credit card for expenses seems more ‘open minded’ than what an autonomo’s receipts can be made up of. After determining profits, there is a 20% additional reduction on the taxable income for the first 2 years. This taxable income will be subject to the progressive tax rates of the general income in the Personal Income Tax that, as stated, can be higher than 50% in the highest bracket, in certain regions.
Also, on a quarterly basis, the Autonomo must pay 20% of the quarterly profits in advance, taking into account of the final annual tax liability levied on the freelancing. This amount will be deducted from the annual tax liability, once determined.
Costs of starting an SL in Spain
Social Security on a director
The company director of the SL must pay social security contributions and these start at €350 per month. However, the reductions in the Social Security contributions (80%, 50% and 30%) will be applicable if certain requirements are met.
Corporate Income Tax
15% in the first 2 years on the profits, if the company is new and the activity has not been carried out before by the director or by another related company. After that, there will be a Corporate Income Tax rate of 25% of profits
Making the choice
It very much depends on your personal circumstances. In general, if you have 3 directors/employees or more and an annual income of 80k then an SL could be the best option. However, this should be determined on a case-by-case basis and very much depends on your personal situation. It is always recommended to take professional advice to establish if this is the correct decision for your business.
The main factor is how much money you make (or will make) and the size (or size to be) of your business. It is much quicker, easier and cheaper to become Autonomo so if you are starting out and you do not have a clear idea of how much income will be generated, this may be the best option. However and as an example, if you would like to sell shares, take on employees or increase the number of partners then an SL might be the better option. An SL may also portray an image of a larger, more professional and solvent business when compared to the Autonomo set up. As a result, if you plan on working with large, established companies then you may find the SL route the better option.
Finally, you cannot establish an SL and then change to Autonomo. If you want to change to Autonomo when you have established an SL, first you need to liquidate the SL. It is much easier to go from Autonomo to SL. It may make financial sense to do this as you may end up paying a reduced rate of tax. SL’s pay a flat rate of 25% (15% for the first year in which the company has profits and the following year), however if you are a high earning Autonomo then you may find yourself paying up to 47% (50%). The general consensus is that it makes sense switching from Autonomo to SL once you are consistently making profits of more than €80,000 per year, or taking into account all other factors.
If you would like to speak with a Financial Adviser in Spain, Chris Burke is experienced, qualified in personal financial matters. Chris can review your current pensions, investments and other assets, with the potential to make them more effective and tax efficient moving forward. 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.
By Chris Burke
This article is published on: 21st September 2022
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 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.
By Chris Burke
This article is published on: 17th August 2022
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
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.
By Chris Burke
This article is published on: 10th August 2022
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:
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.
By Chris Burke
This article is published on: 26th July 2022
In this months regular article I’ll be discussing three main concerns I’ve heard from clients recently:
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.
By Chris Burke
This article is published on: 25th April 2022
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
By Chris Burke
This article is published on: 7th April 2022
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.
By Chris Burke
This article is published on: 7th March 2022
Off the back of the current situation in Ukraine, many of my clients have been asking me what this means for their investment and pension portfolios. Irrespective of the size and scope of the conflict, any declaration of war has global repercussions. Instability in one area of the world will result in a ripple effect, effecting other areas of the world regardless of the countries involved. Yes, this is likely to affect your investments and your pensions but the key takeaway is that you should not worry. If you are panicking, please reach out to me and we can have a conversation about it. There are even areas of opportunity in war times and stocks in certain sectors have even bucked the trend and outperformed. In this article, I will discuss investing in war times, including the current conflict in Ukraine, and the impact that this has on the stock market performance and the wider economy.
The Current Conflict in Ukraine
In the case of the current conflict between Russia and Ukraine, the heavy sanctions inflicted on Russia already have and will continue to heavily effect the global economy. The sanctions are amongst the harshest sanctions ever imposed on a country, and include preventing the Russian Government from accessing up to 600 billion USD in foreign cash reserves which they hold in foreign banks around the world, banning Russia from SWIFT (thus preventing Russians from using various credit and debit cards to make payments) and the freezing of the assets of some Russian individuals around the world ranging from bank accounts, property and even private yachts.
Various multinational companies have also ceased or reduced their operations in Russia (at least temporarily). For example, Apple have closed their Russian stores, Shell and BP have sold their stakes or abandoned their Russian operations and a magnitude of aviation companies such as British Airways, Lufthansa and Boeing have either halted their flights to Russia (note that there have also been significant alterations to the accessibility of international airspace) or in Boeing’s case, suspended parts, maintenance and technical support for Russian airlines.
The conflict does not solely impact the Russian economy. A large number of countries throughout the world export products to Russia. If this is no longer possible, then they will see a reduction in profits, which will then go on to affect their balance sheet. Furthermore, many countries in the world import products from Russia. The key product in this case is oil, a vital energy source. Although the supply of oil has not yet been cut, we have already seen a rise in petrol prices in many countries such as the UK. Other popular Russian products such as vodka are likely to be hit. Due to the decrease in supply, we are likely to see both shortages and a rise in price of Russian products such as vodka.
However, it is very difficult to predict exactly what will happen. For this reason, when making personal finance related decisions it is recommended that you engage in a professional discussion with a professional financial adviser. In times of war in particular, it is recommended that people seek the advice of an expert to help them manage their portfolios.
Previous Wars and Their Impact on Stock Market Performance
It’s important that we consider previous wars and the impact that they had on the stock market. Some civil wars and internal conflicts, such as those in Sierra Leone (1991-2002) and the Central African Republic in 2013, caused severe disturbances in those countries’ economies. However, from a global perspective, these wars did not cause disturbances in the stock market of first-world nations such as the USA. On the other hand, large-scale wars such as World War 1 and 2 did effect the US market, even before the US entered the conflict.
Global markets in the past operated very differently from how they operate today. For example, prior to World War 1 every country operated independently and the countries that operated in global trade were seen as at ‘gold standard’ level. London was the world’s financial capital and used in this way when a financial centre was necessary, however the requirements and responsibilities were very different when compared to nowadays.
At the close of World War 2, significant changes were made to the global financial system which increased interdependence between countries. The World Bank and the IMF (International Monetary Fund) were created, and from then on stocks reacted very differently from World War 1 and World War 2 when conflicts arose.
It’s also important to consider the popularity of the war on the home front and the amount of time in which the war goes on for. For example, the Vietnam War and the Gulf War both saw very different stock market outcomes in the USA due to the difference in popularity of the wars amongst Americans. Furthermore, the Afghanistan War lasted almost 20 years. In this 20 years, the markets saw both highs and lows. Ultimately, the longer a war goes on the less reactive a market is to its influence. A war may start to be seen as a ‘Business as usual’ type of operation.
I created the below table, summarising previous wars and their impact on the economy and stock market performance (I used the Dow Jones stock market as a comparison).
| WAR | EFFECT ON ECONOMY |
| World War 1 |
|
| World War 2 |
|
| Korean War |
|
| Vietnam War |
|
| Gulf War |
|
| Afghanistan War |
|
Do any Patterns Emerge from Historical Stock Market Performance During War Times?
In the early days, there is certainly volatility. For example, both the FTSE and the Dow Jones took a dip last week (25/02/22) when Russia invaded Ukraine, however both have recovered since then. Logic dictates that this volatility continues throughout war times, however history has shown that this is not always the case. Yes, during pre-war times and at the beginning of a war (especially if there is no escalation period and the war breaks out suddenly without warning) stocks prices tend to decline due to shock and uncertainty. However, once war begins, history has shown that the stock market goes up, as has been the case with the Dow Jones and the FTSE this week (as of 03/03/22).
Generally speaking, there is no need to panic. Panic selling stocks and investments at the start of a war could prove to be a very bad move, considering that early sharp drops tend to be followed by steady gains. However, it is also important to note that the world is changing and that historical patterns may not play out again in future conflicts. Economics and the way in which the stock market behaves is very complex and depends on a variety of internal and external factors such as earnings, valuation, inflation, interest rates, and overall economic growth. Regardless of world events, investors should maintain proven strategies to protect and grow portfolios. The best way in which you could do this is to speak with an expert, and have your investment portfolio professionally managed.
If you would like to speak with an expert, Chris Burke is able to review your pensions, investments and other assets, with the potential to make them more 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:
By Chris Burke
This article is published on: 29th January 2022
Over the last few months, I’ve noticed a large increase in enquiries relating to ethical investments. It’s brilliant to see so many people looking and willing to make a positive difference to the world, whilst also in many cases seeing an equally positive return on their investments. However, I often get questioned ‘What exactly makes an ethical fund ethical?’ and ‘What exactly do the companies that are defined as ethical funds do to make themselves ethical?’
Traditionally, ethical investing has focussed on omitting companies which operate in a non-ethical manner (for example, companies that produce arms or alcohol). However, it is just as important that when investing ethically we also consider the positives as opposed to solely filtering out on the negatives. There are many funds and companies out there who actively make amends to be more ethical, sustainable and make the world a better place, which doesn’t always get taken into account when negatively screening. In this article, I will go over positive screening criteria that I look for in an Ethical or Sustainable Fund. What exactly makes an ethical fund (or company), ethical?
Communication, Lobbying and Engagement
Funds that regularly communicate, lobby and engage with the companies in which their funds invest in. Although there is no guarantee that doing this will make a difference, communication is never a bad thing and there is potential for it to result in positive changes. For example, a fund could issue an ultimatum to a company if they do not act to reduce their carbon footprint. If the firm does not act, then the fund may well disinvest.
For example, Blackrock are pushing for more disclosure from companies. Specifically, they are asking companies to disclose how their business model will be compatible with a net-zero economy. By actively communicating and lobbying the companies which they include in their ethical funds, this will make companies take note and, hopefully, change for the better. If all investment management corporations followed suit, the chances of companies in general becoming more ethical and sustainable would increase.
Climate Change
Funds that contain companies which actively establish policies relating to reducing the impact of climate change. This could mean reducing their carbon footprint by reducing their mileage or switching their vehicle fleet to electric cars, or by utilising sources of renewable energy such as solar panels and wind turbines.
Various investment management companies such as JP Morgan, Schroders and Templeton all have specific climate change funds. The criteria by which each fund selects does vary, however the goal of all of them is to appreciate by investing in companies which adapt to risks posed by climate change and resource depletion. For example, Schroder do not filter based on sector but they select companies which are based on five themes: clean energy, energy efficiency, sustainable transport, environmental resources and low carbon leaders. JP Morgan operates a specialist thematic approach, utilising artificial intelligence and data science to create a portfolio of sustainable companies. Templeton select companies which exhibit superior climate-change practices and favour companies that provide low carbon solutions, companies transitioning to a low carbon economy and companies that are resilient to climate change.
Human Rights
Funds that favour companies who tackle human rights issues. This could mean by actively reviewing and ensuring that they do not break any human rights issues such as child labour, poor labour or generally poor working conditions. For example, if a firm was to use the services of a subcontractor, then they could actively and regularly audit them to ensure that no human rights issues are present.
Abrdn have a strong human rights stance, as demonstrated in a recent report. As they have an ESG friendly approach for their company as a whole, this naturally flows through into the companies that they select for their fund range (although they don’t have a specific human rights fund). The company performs regular human rights assessments to monitor that they are on track. As stated in the report, their human rights status is underpinned by four core beliefs and they are supporters of the ‘Protect, Respect, Remedy’ framework agreed by the UN Human Rights Council in 2008.
Positive Contributions to Society
Funds that generally screen for companies that make a positive contribution to society. For example, funds that look for companies that create products such as medical products that could save lives or industrial machinery that could help make people’s jobs safer. Furthermore, companies that offer good working conditions including pay, hours and the environment could also be screened positively. A positive working environment could see positive human resources policies within an organisation relating to disabilities, assistance with parental care and flexible working. If a company donates a sizable percentage of their profits to charity, then they could also be included here.
There are many examples of investment companies and funds which positively contribute to society. M&G have one of the most extensive ranges of ethical and sustainable funds ranging from funds that invest in long-life, immovable infrastructure assets to funds that invest in companies which companies that contribute towards the Paris Agreement goals. Furthermore, Prudential have been named as one of the World’s Most Ethical Companies by the Ethisphere Institute for the 7th year running. The award is based on five key categories: ethics and compliance program, culture of ethics, corporate citizenship and responsibility, governance, and leadership and reputation. Prudential were one of six financial services companies out of 132 honourees.
Welfare of Animals
Funds that look at companies that show a general interest in the welfare of animals. For example, this could be ensuring that farm animals have quality facilities, enough space to roam and a lasting, regular supply of food and water. It could also focus on funds that include firms who do not facilitate tests on animals. However, it is important to be aware that a lot of firms test on animals in accordance with ‘best practice’. But is this ethical? The more ethical choice would be to not test on animals at all.
Various funds show a clear interest in animal welfare. This is stated in the various fund factsheets and prospectuses. Morningstar conducted an analysis of funds that are against animal testing. The fund which came out on top, The Vegan Climate ETF Index, describes itself as having zero animal exploitation.
If you would like to find out more about ethical investing, or invest your pension or investments in a more ethical manner, don’t hesitate to get in touch with Chris via the form below.
