Viewing posts categorised under: Spain

Removing Confusion on Spain and UK Tax Situation Especially Pensions

By Barry Davys
This article is published on: 23rd May 2022

23.05.22

It is clear from calls and messages to me from people seeking advice there is much confusion regarding taxation when we live in Spain and have income or capital gains in the UK. Sometimes, these calls happen when people have received a letter from the Agencia Tributaria (Hacienda).

My wish is to clarify the situation so that there are no back taxes, fines nor interest to pay in Spain.

This framework will clarify the position and I include specifics regarding pensions. Tax can be, well taxing, so this framework is to help with understanding the overall situation, not to provide specific advice for your situation.

Who’s this for?
This article is for all British people who live in Spain.

Overview
A framework to help explain how do we pay tax on pensions from the UK when living in Spain?

Why to read this article?
This article is written in response to a very sad situation where a pensioner here has been hit by fines, back tax and interest from four years ago because of a mis-understanding on how to organise his tax on his UK pension. It is likely that further fines will follow for other years. The total amount of fines and interest could amount to €21,000

Your commitment
Taking the time to read the article and requesting an initial telephone or Zoom meeting below, if you want help for your specific situation.

Yes, I would like to arrange a conversation about my situation

Your Tax Framework

Top of the framework is to understand that when we have taxable events in more than one country, the country of our residency is the “controlling tax authority”. They have the final say on what tax must be paid.

If you live in Spain more than 183 days in a calendar year your controlling tax authority is Spain. It does not matter if you also pay tax in the UK.

How this works is as follows:

Declare your worldwide gross income and capital gains on our La Renta (M100) Remember it is a self assessment form and so it is our responsibility to do so
At the end of the La Renta form is a box for entering tax paid in a country with a double taxation agreement with Spain. Put the tax paid in this box or insist your gestor does so. Even post Brexit the double taxation agreement is still in force
UK pensions gross income all have to be reported in Spain

If you live outside the UK and provide a certificate of tax residency in Spain you can claim dividends, bank interest and even private pensions without paying UK tax (because you will pay tax in Spain).

Pensions, however, are a great source of confusion. The UK retains the right to tax state pensions, military pensions, civil service pensions and a number of others. Previously these did not have to be reported in Spain. They do now!

Tips on pension tax

On private pensions and most company pensions ask the provider to pay you gross
If you have a UK pension where it is automatically taxed or is a state pension, record all tax paid in the UK and get proof of payment from the pension provider
Report the gross figures in Spain
Your state pension is paid weekly, not 12 monthly so remember to include all payments in the calendar year
Ensure that any tax paid is listed in the La Renta box for countries with double taxation agreements. Result – no double taxation
If the tax paid is missed off this box, try to make a Refund of Tax using UK HMRC form R43 and or form R40. It may be possible depending on your circumstances
One word of warning. Do not use companies offering to reclaim your tax for you. They are expensive, some may be improper and you can easily send the form yourself

For an initial call to find out more, choose a time for a phone call or Zoom meeting that is convenient for you CLICK HERE

In my profession as a financial adviser for international people living in Spain I have a clear understanding of tax rules and recommend that you employ a good local tax adviser. This article is not tax advice as it may not reflect your personal circumstances. It is merely a framework to help with your understanding. I hope this article provides more clarity on the issue and helps when you do go to a tax adviser.

Temporary Annuities in Spain

By Charles Hutchinson
This article is published on: 19th May 2022

19.05.22

Over the last few years, there have been some well-known IFAs here in Spain advising their clients that they can save up to 88% on their income tax in Spain by stating that their pensions are temporary annuities. In some cases, this has caused serious problems for pensioners. There is no way the Hacienda would offer such benefits unless these annuities were such from outset. It would seem logical if this was to be set up as such from outset, the schemes would have to be domiciled here in Spain for the tax reasons I go on to explain. Similarly, the annuity status could not be applied to foreign pension schemes being exported by expatriates from their previous country of residence when they come to live here.

For example, I have come across clients who have transferred their pension abroad under QROPS rules, they then instruct their trustees to pay them a set income for, say, 5 years. In some cases, the trustees would give them a certificate confirming that this income is a temporary annuity. Ironically this not only potentially makes the trustees as culpable as the pensioner but so too the gestor or accountant drawing up that tax return.

An annuity is something you buy from a financial institution (usually a life assurance company) for a certain sum. In return, the company will pay you an income for life or a fixed period. Once purchased, that money is no longer yours and it is irreversible.

However, the money in a pension scheme (although legally owned by the trustees) is for your benefit in your lifetime and can be passed to your beneficiaries or spouse, depending on the scheme T & Cs. The income can be stopped, restarted, raised, lowered, or even taken in lump sums (again depending on the scheme particulars). The capital remains at your disposal. Therefore it cannot be regarded in any way as an annuity, let alone a temporary one.

Those who promote these “loopholes” are tapping into one’s natural desire to lower one’s taxes. They are exploiting genuine tax benefits offered to those who have already paid income tax on their savings with which they purchase an annuity for a fixed period. The special low tax rates which go with these annuities are by way of partial compensation for having your tax-paid capital repaid to you. Whereas pension income is always taxed at your marginal rate, mainly because there is tax relief on monies you put into your pension scheme, with both money purchase and occupational pensions. Furthermore, pension “pots” are invested and will attract, if properly invested, investment growth.

Those companies who advise people to do this and those who file a tax return claiming their pension is an annuity (when it clearly is not) are committing tax fraud. And there are very heavy fines for doing such a thing. A tax audit can go back up to 5 years and the tax shortfalls can involve sizeable sums especially when the fines are included. At pension age, this can be very distressing and a very nasty shock to an elderly person.

Spectrum can help you avoid this situation by reviewing any previous advice given and offering an unbiased opinion. We research our products and taxation thoroughly before advising our clients. If you have any doubts about your pension and the advice you have already received, then please contact me for an initial meeting which carries no fee. We want you to have peace of mind so that you can tell others about us. Spectrum is not in the risk business but very much here to protect your wealth.

Inflation in Spain

By Jeremy Ferguson
This article is published on: 26th April 2022

26.04.22

Life just seems to be getting so much more expensive nowadays.

Over the last few years we have seen a quite incredible chain of events unfold. Covid reared its ugly head, and caused a massive change in the way in which we live and travel. During this period of lockdowns and people working from home, spending habits took a massive turn. No one had the chance to go out and spend money in bars and restaurants, go to the cinema, or take weekend city breaks to name but a few.

When things started to go back to normal, we saw big supply chain issues coming to light. Microchips for cars meant new car deliveries became more and more delayed, pushing up the price of second hand cars. Demand for consumer goods for the home, having gone through the roof, also meant the cost of these items started to rise.

Many companies wound down production during the covid period, and then all of a sudden were caught short by the sudden surge in demand. You can argue this happened in the fuel industry, as we saw panic buying and massive queues in the UK at petrol stations.

Then, just as we started to look for a hint of normality, with people slipping back into their old spending habits, the war in Ukraine started, immediately hitting the price of fuel, and the one that surprised me, sunflower oil!

All of these factors have meant that the cost of living for all households is increasing at an alarming rate, inflation is with us again, having been dormant for quiet a while. The one that has really hit most people here in Spain is the increasing cost of Electricity. In December the cost rose from its lowest point by almost 500%, something I have no living memory of happening before. For many people, that is creating a huge dent in their disposable income each month.

Most people I deal with are retired or semi-retired, with their income generated by drawing down from their pensions, and then normally substituting it with drawdowns from Investment Portfolios and cash savings. At this stage of their lives, I believe in most circumstances fear tends to be the driving factor behind their Investment decisions, as protecting the money far outweighs trying to get too high a return each year. That makes perfect sense as income streams during retirement have typically ceased, so the ‘pot’ needs to be looked after carefully. Making plans for how long your funds will last is easy to a degree, when the cost of living simply increases a little each year, but now, with the way things are, the plans that previously seemed sensible will certainly need a bit of a shake up.

If interest rates rise as predicted, then maybe people will be able to look for their cash in the bank to increase in value by earning some interest, but that is something none of us can predict at the moment. If inflation continues at today’s current levels, many people will either have to change their lifestyle, or look to try and increase the annual return on their savings, but by doing that, it typically involves taking more risk, which is completely against where people normally want to be at this stage of their lives.

With the changes we are seeing with outgoings, Investment returns, interest rates and inflation, it has never been more important to spend time regularly looking at financial plans, and adjusting assumptions to make sure you have a realistic handle of how things will look going forward. It’s not rocket science, and I am here to help if you find it all a little daunting, so please free to get in touch via the form below or please email: jeremy.ferguson@spectrum-ifa.com

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.

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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.

Yes, I would like to arrange a call to discuss my personal situation

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.

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Spanish tax on UK property

By John Hayward
This article is published on: 29th March 2022

29.03.22

In February I wrote about the impact on investments with Russia’s invasion of Ukraine and inflation rearing its ugly head. For the last month or so, the movement of global stock markets has attracted comparisons to a violin player’s arm joint and the undergarments of a professional lady. This is possibly the future for investments for a while although there appears to be more positive than negative movement (at the time of writing in case there has been a sudden catastrophe).

In the meantime, away from the uncertainty of how much a tank of fuel will cost in 6 months’ time, I want to mention something regarding Spanish tax on UK property.

31st March 2022. The end of the declaration period for everyone’s favourite, the Modelo 720. Although this is not a tax declaration, it does highlight assets and how these might be taxed in the future, whether this be capital gains tax, wealth tax, inheritance tax, or income tax. Focusing on the latter, I believe that it is generally not appreciated that a tax resident in Spain has to pay income tax on a UK property, even if it is not rented out.

Download your guide to tax in Spain here

It is (fairly) well known that, if you are a not tax resident in Spain, and you own a property in Spain, and you receive rental income, you have to pay Non-Resident Income Tax (NRIT) or Non-Resident Imputed Income Tax (NRIIT) if you do not receive rental income, perhaps both depending on how much of the tax year (1st January to 31st December) it is rented out. Imputed rent is a fictional amount of rent that the Spanish tax office decides is what you are receiving based on the cadastral value. It works the other way around. That is, if you are a tax resident in Spain with a UK property, and you do not rent it out, you still have to pay tax on the imputed rent.

How is the tax calculated? UK properties do not have a thing called a cadastral value. Some have said on the (not always reliable) worldwide web that it would be the rateable value that would be used. The actual rule is that, if there is no cadastral value, the tax is based on 50% of the original purchase price with the application of a rate of 1.1%. That gives you the imputed rent. It is this figure that would be used for income tax purposes.

For some people, this may not introduce a problem, especially when considering the double tax treaty between the UK and Spain. It is the fact that those who should have been declaring this “income” have not been and my message could prompt a chat with their tax agent. The Spanish tax office is regularly sweeping up what they (or their computer) see as outstanding items, often up to 4 years old in line with Spain’s statute of limitations.

Contact me today for more information on how we can help you to protect your assets from unnecessary taxation and make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

Ukraine – stockmarkets’ reaction

By John Lansley
This article is published on: 10th March 2022

10.03.22

The Russian invasion of Ukraine on the 24th February shocked the world and the brutal treatment of Ukrainians continues to instill horror and a feeling of helplessness. The world was beginning to breathe a collective sigh of relief about Covid’s impact diminishing, but now there is a new emergency threatening not just Ukraine but also the wider global community.

How it plays out is anyone’s guess and the purpose of this note is not to try to add to the comment and analysis we are reading every day, but to attempt to put into perspective how it has affected global stockmarkets, and hence people’s wealth. The major markets are indeed down compared with the end of December –

FTSE100 -6.5%
DowJones -9.7%
NASDAQ -18%
Eurostoxx -18.3%

(Note that the blue chip FTSE100 and DowJones indices have fallen less than 10%, whereas the tech-heavy NASDAQ has fallen much more, after its huge gains in the last couple of years. Europe is a lot closer to the war of course.)

But not all of these falls are due to the attack – markets had fallen already due to fears over increasing inflation, and a certain amount of profit-taking, but it’s true that from late-January the tension due to the increasing Russian rhetoric and the amassing of troops near the Ukrainian border was causing uncertainty, and that markets were becoming increasingly volatile. Most thought that the situation would be diffused – how could Putin possibly risk global stability by going ahead with his war?

Looking back two years, we all remember what we were doing as the first Covid restrictions were announced, back in late March 2020. Stock markets fell quickly. Between the highs of late January/early February of that year and the 20th March, the falls rivalled the crash in October 1987 –

FTSE100 -32.4%
DowJones -34.7%
NASDAQ -29.3%
Eurostoxx -33.7%

There followed a slow but steady recovery, with the UK and Europe generally restoring all the lost ground since then by the end of 2021, US blue chip companies gaining much more and the NASDAQ, with its tech-laden businesses, peaking at 233% higher than 20.3.20.

What am I saying?
The invasion of Ukraine is indeed a horrible affair, but so far the major markets of blue chip companies have fallen far less than when Covid first threatened the world. Portfolio valuations will have fallen of course, but most contain not just shares but also other types of investment that will not have fallen quite as much as stock markets themselves, and so most clients will not be seeing falls such as the headline figures above.

As was the case during the early stages of the Covid pandemic, fund managers and portfolio managers were very active in trying to reposition their portfolios to reduce exposure to problem areas and at the same time taking advantage of sectors that might benefit from the new financial climate, such as online businesses. At times like these, portfolio managers really earn their salaries and the results will reveal their successes and failures.

Yes, these are difficult times, and, as an investor myself, I appreciate how easy it is to feel threatened by events outside my control. But I am confident that the professionals who are looking after our money will continue to do so to the best of their ability.

If you would like to discuss these issues further, or if you have any questions relating to financial planning and how to invest safely as a resident of Spain, do please contact me.

Investing During War Times

By Chris Burke
This article is published on: 7th March 2022

07.03.22

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	Nations that imported more than they exported lost gold reserves, negatively impacting their economies, because the slow economic conditions saw greater demand for exports When Archduke Franz Ferdinand was assassinated, what is considered as the start catalyst of the war, the stock market was barely effected When Austria-Hungary declared war on Serbia in 1914, the Dow Jones dropped by 30% and the market had to close to maintain order and stability. When it opened a few months later, it sawed up by 88% and continued to rise until late 1916 When the US declared War in Germany in 1917, the stock market took a hit and continued trending downwards into 1918. It didn’t recover fully until mid 1919, on the news that the war was over
World War 2	The US was just emerging from the Great Depression in 1939 when the war started. In the early days of the war the Dow Jones increased over 10%, offering hope that the geopolitical environment would put an end to the challenging economic times. However, the conflict started to disrupt international trade and after this initial boost, the market started to fall significantly Rapid action from various impacted Governments around the world prevented the stock market from falling further than it did From 1939 to the end of the war in 1945, the Dow Jones was up 50%. Considering the economic conditions, this was a rather unexpected gain. The gain was put down to the various international cooperation agreements which succeeded in stabilising and growing the US economy
Korean War	The Dow Jones dropped around 5% on the first day – the war was a shock to most investors The recovery was fast, and by the time the war ended in 1953 the Dow Jones was up almost 60%. This is thought to be due to a number of Government policies such as increasing taxes and not borrowing money to fund the war.
Vietnam War	The Dow Jones grew by 43% from the start to the end of the war (1965 to 1973), despite its low popularity However, it was not all plain sailing. The Government’s decisions on funding the war caused inflation, setting off a mild recession in 1970
Gulf War	The Gulf War only lasted for 7 months. Due to its shortness, it is more difficult to separate the changes caused by the conflicts from those related to other world events. For example oil prices increased, causing a brief recession, which is an unusual event for war times When comparing the Gulf War with the previous wars, the US economy has changed a lot. The economy changed from processing natural resources and manufacturing capital goods to primarily knowledge based work (producing information and services). This may have meant that the stock market reacted differently during this war compared to previous wars.
Afghanistan War	The Afghanistan War lasted for almost 20 years, making it difficult to measure the impact of the war There were two crashes (2008 Global Financial Crisis and 2020 Covid Pandemic) which were both followed by quick recoveries, however these were largely unrelated to the war Industries such as Real Estate, Data Processing and Information Services and Computer Systems design and related services saw huge growth, suggesting that the war did not influence them. Shares in industry-leading defense contractors also profited significantly during the 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.

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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:

What has changed for the Modelo 720?

By Chris Webb
This article is published on: 5th March 2022

05.03.22

ITS STILL HERE BUT WHAT´S CHANGED……

We are fast approaching the 2022 deadline to file the Modelo 720.

Here we are in March 2022, nine years on from when the Spanish authorities launched their new “anti-fraud” plan to prevent tax evasion. We were initially advised it was aimed at Spanish nationals trying to hide their assets overseas, but quickly realised that most people affected were the International community with assets back home……

This law was introduced back in 2013, at the time the authorities didn’t really highlight this requirement very well and most of the country were not aware it had been passed. Fast forward to 2022 and I am still meeting people on a regular basis who have never heard of it.

So here it is, a brief outline of the Modelo 720 and what you need to do.

WHO HAS TO REPORT?
Any person, permanent establishment or company who is tax resident in Spain and is the owner, titleholder, representative, authorised person, beneficiary, or has disposal powers of assets located outside of Spain worth more than €50 000 (see assets below), must report the value of these assets.

WHEN DO YOU REPORT?
Between 1 January and 31 March of each tax year.

WHICH ASSETS MUST BE REPORTED?
There are three main asset classes that need to be reported if the total value of each class is over the €50 000 limit:

Bank/Building Society accounts located outside of Spain – It is important to note that if you hold several bank accounts and the TOTAL amount held exceeds the €50 000 limit, then ALL the accounts need to be reported, even those with a nil balance.

Investments / Life or disability insurance policies – If you are the owner or policyholder of an investment or insurance policy then these will need to be declared if they exceed €50 000. Again, there is a requirement if you have multiple investments or policies, that if the total value exceeds the limit then they will all need reporting. Interestingly if you are holding what we describe as Spanish compliant Life Insurance Bonds, then the onus of reporting on the Modelo falls to the institution themselves.

Property – Owners or part owners of an overseas property where the value exceeds the limit must report these properties.

NOTE – You need to report the Modelo 720 again if any of your asset classes have increased by over €20.000 since they were last reported

WHAT IF YOU DON’T REPORT IN TIME / CORRECTLY / OR AT ALL?
This is where things have changed in 2022. Previously The Spanish Tax Authority had implemented a series of heavy penalties for those who do not comply with the regulation.

These penalties can be imposed for late filing, incomplete/inaccurate filing and even for presenting the information to them in a way not deemed acceptable. Pre 2022 these fines could equate to 150% of the asset value. In a recent European court ruling these fines were deemed excessive and have been ruled out by the authorities. It is important to note though that the courts did agree a need for the Modelo 720 itself.

Whilst the excessive fines have been struck out please don’t think that there are no repercussions for not filing. The Spanish authorities will release a new penalty / fine structure that will be more acceptable to the European courts.

For further information you can visit the Agencia Tributaria website here Modelo 720 to see the latest information, in Spanish.

If you need any guidance or have any queries regarding your Modelo 720 please let me know.

ESG funds and green gardening

By David Hattersley
This article is published on: 10th February 2022

10.02.22

I love maintaining the grounds of our home. It keeps me fit, is rewarding when a job is well done, and gets me off the computer into the fresh air.

We live on the edge of the National Park that is the Montgo, surrounded by pine trees and other natural vegetation. We decided to keep an area that many would describe as wild and unkempt as a “nature reserve”.

The joy of a variety of animals and bird life gathering at dawn and dusk at the pool as their “watering hole” has provided many an hour of entertainment. So many bird species and colours nest here, and visit us year after year with their offspring. In the summer even the occasional Parakeet/ Cockatiel fly in, Hawks circle above on the thermals looking for their prey, and Swallows “dive bomb” the pool for flying insects.

Perhaps the most amusing are the squirrels that use the balustrade surrounding the pool as their personal M25, rather than the death defying leaps from tree to tree. They drink from the deep end hanging on for dear life with their front paws in the pool, and suspended by their rear haunches.

It’s the animals’ natural habitat, and source of food. Pigeons eat the dry seed pods from the yellow Mimosa, the other birds attracted by brightly coloured berries from bushes. They drop the seeds or deposit them via “natural wastage” through their system. Bird’s beaks pollinate flowers as they move from plant to plant. Squirrels store their nuts and then forget where they left them, ie lost their nuts. All of this leads to natural germination of new plant growth.

Of course there are drawbacks, fire being our biggest fear with the latest in January this year that was only 500 metres away. A round of applause for the skill of the pilots in their helicopters and planes dispensing their water drops on steep slopes and the “ ground Fire-fighters “ that camped out overnight on the mountain slopes to ensure the fire did not restart.
Our grab bags were ready for immediate evacuation.

Like everything in life there is a balance, yin and yan. De-forestation also has other issues that impact our very lives. I ‘ll refer to this in part 2, and its quite a surprise. But we have to consider the fire risk of our natural area, man’s need vs environment. It is a compromise that needs “Forest Management “rather than total destruction. This takes time, effort, planning and thought.

On a minor basis this is no different to company investment funds that are moving to a strict code pertaining to ESG. As a company The Spectrum IFA Group continue to add new additional ESG funds to the portfolio of fund managers that are truly supportive of this vital part of investing. The most recent one is the Liontrust ESG fund and we welcome its inclusion.

As this is becoming a vital component to any individual’s portfolio, feel free to contact me as detailed below, or download our guide to responsible investing and ESG funds here