Viewing posts categorised under: Spain

Stock markets falling, should I sell?

By Charles Hutchinson
This article is published on: 6th March 2020

06.03.20

There are four big subjects dominating the public arena at present: life after Brexit, life after the coronavirus, life after climate change, life after the dramatic falls in the global markets.

We live in an interdependent world where news is instant across all continents (although I’m not sure whether the penguins are interested). We are aware of climate change, the antics of Widow Twanky Trump, the spread of the coronavirus and Brexit (an outdated game in which the British people have kicked off in the hope of a repeat performance of their imperial past). Hopefully we have taken onboard the catastrophy of climate change in time (not Widow Twanky, yet) before we are reduced to a desert of Mars proportions. Hopefully the coronavirus threat is a storm in a teacup. Hopefully Brexit will work out. These are all uncertainties – except one: the global stock markets.

All life is cyclical; this is enshrined in history. Take any historical event of extreme proportions; the pendulum will at some point begin to swing back the other way. The only possible exception I can think of is the reincarnation of the Dinosaurs and the Dodo. There will be other tyrants, exterminations, plagues and climate changes at some point; but in our lifetime at least you can depend on the markets bouncing back. Why? As I have described in other articles, the markets are like the tides, they come in and they go out. The sea does not disappear over the horizon in a great hiss of steam into the sunset. Money has to have a home and it is to the markets, at the end of the day, that money’s guardians largely turn. In a post apocalyptical world, bartering will still continue, even if it is with seashells and potatoes. Money is merely the lubricant of trade, whether it be between you and I or corporations or countries.

Believe it or not, the professional market traders relish market falls (or corrections, as they call them) because it presents them with the buying opportunities which are needed to make money. The falls are caused by a mixture of inexperienced emotional investors and market makers (to create the buying opportunities). What is sure now is that markets will move up again and it might be sooner than expected. No person, company or country can stay in lock down for long. We have to eat and carry on our normal lives. Sooner or later, a cure for COVID-19 will be found (they announced yesterday promising results with HIV and Ebola antiviral drugs). The old may be vulnerable, but they don’t need to go out to work, tilling the fields or driving the engines of manufacturing. They are mostly at home enjoying a good rest after a lifetime’s toil. So with a bit of care we may be able to keep them protected until the virus burns itself out.

The lesson is clear: stay invested, or if you are a little brave buy into these low levels to enjoy a potentially better return and maybe average down (don’t commit all your spare investment capital at once but buy into the falling markets in stages to increase the odds of buying near the bottom to increase your potential profits).

Remember, Spectrum does not risk our clients’ hard earned capital. We just know the tide will come in again and as long as we are in sound and sturdy boats (investment funds), it will take everyone back up the beach to new heights. Spectrum chooses fund houses for their experience and expertise, some of whom have been around for more than 200 years. It is their fund managers’ job to react to world events on a daily basis. We use them to protect our clients’ money. We arrange for our clients to access these superb funds through structures called Investment Bonds (or Insurance Wrappers) which are Spanish compliant and which offer unparalleled security (against corporate collapse) and low taxation with both income tax in Spain and the UK and also inheritance tax in Spain.

If you would like to talk to me more about this subject and the points raised, please contact me as per below and I would be happy to discuss this further.

Moving to Spain – When should I take financial advice?

By David Hattersley
This article is published on: 2nd March 2020

02.03.20

For the majority of those who move to Spain, speaking to a qualified financial adviser, who is regulated where you plan to live, is something which happens after you have made the move. But, talking to one before you embark on the journey can help avoid some of the issues that expatriates can find themselves encountering.

Many UK based advisers are not fully regulated to offer advice for Spain and may not be aware of the most current regulations or tax efficient solutions for your needs. A Spanish regulated adviser can ensure you are financially prepared for your move in terms of any investments, savings and taxes which can be due on both income and windfalls you may be expecting after your move. A local adviser will also be able to clarify the potential impact of Spanish succession tax.

An additional complication in Spain is the variety of laws in each autonomous area. The classic example is the differing laws between Andalucia, Murcia & Valencia, so it makes sense to deal with a regulated adviser who is based in or near the autonomous area you are moving to.

Many people buy in Spain with plans of using their new Spanish property to retire to, either now or eventually. If it is the latter, in the interim period the property may be used to produce rental income, either via summer rentals or long term rentals, so there will be tax considerations. Depending on how long you are planning on living in Spain each year, residency may also become an issue. When holding property both here and in the UK, “Cross Border” regulations and differing types of tax are applicable to each country. Having a “Partner“ relationship brings its own complications.

Everyone’s situation is unique and there is no single ‘recipe’ that we can give to navigate buying a property in Spain. A regulated local adviser has no vested interest in which property you buy, yet will have a long history of experience of the path you are undertaking and will be able to help you create a plan to fit your own specific circumstances.

Investing an hour of two of your time to go over your project with an adviser before you make the move to Spain can provide direction, peace of mind and financial comfort when planning your new adventure. Rules and regulations can change. The potential impact of Brexit provides an example of how quickly this can happen, so consider taking action sooner rather than later.

Why don’t you contact me to arrange a free, no obligation discussion of your plans – either you will get confirmation that everything is in order, or perhaps some points will come up that you hadn’t thought about. Please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations that we provide.

Save Thousands in Gift and Inheritance Tax in Spain

By John Hayward
This article is published on: 27th February 2020

27.02.20

In Spain, you can transfer money or other assets to your children or grandchildren during your lifetime, but these transfers can be subject to gift tax. Tax on gifts in Spain is payable at the time they are made.

However, many autonomous regions have special tax allowances or deductions for these gifts. In the Valencian Community, for example, each child or grandchild could be eligible to receive €100,000 without attracting any gift tax, whereas the tax on €100,000, without any allowances, would be at least €12,000. Also, gifting an asset now will mean that any growth on that asset will be free of any future inheritance tax.

The same allowance is available on inheritance, which means each child can receive €200,000 of your wealth, tax free, saving many thousands in inheritance and gift tax.

Gifting your property whilst you still live it in it, with rights to remain, is another option which many people consider. Known as usufructo, children will inherit the bare ownership of the property, possibly paying some gift tax now, but freeing property from the estate when considering inheritance tax.

As with most things relating to Brexit, what will happen next year is not known publicly at the time of writing. Also, it has been suggested that gift and inheritance tax is about to change in Spain. Therefore, if you are thinking of gifting money, or other assets to your children or grandchildren, this might be an opportunity that will not be around for much longer.

Modelo 720 Reporting Time – 2020

By Chris Burke
This article is published on: 26th February 2020

26.02.20

Just a reminder that time is running out for submitting your Modelo 720 declaration for 2020. The deadline this year is the 31st March and is fast approaching.

All those tax resident in Spain (those living in Spain for more than 183 days a year or where Spain is the main base for your business) should be aware that as a result of legislation passed on 29th October 2012, residents in Spain who have any assets outside of Spain with a value of €50.000 (or alternative currency equivalent) or more, are required to submit this declaration form to the Spanish authorities.

This declaration can be made online, through the Tax Office`s web page www.agenciatributaria.es where the Modelo 720 formcan be located (type in Modelo 720 into the search block on the top right hand side of the page). It must be filed between January 1st and March 31st of the first year of residence to avoid being investigated or fined by the Spanish authorities. I would personally recommend speaking with your accountant / Gestoria to avoid mistakes.

To warrant a declaration the total value of assets should exceed €50.000 in each or any one of the categories; e.g. if you have 3 bank accounts and totalling up all the balances it exceeds the €50.000 limit you are subject to making the Modelo 720 declaration. However, if you have a bank account at €30.000 and, say, investments valued at €30.000 then there would be no reporting requirement as they are in separate categories and each individual total value does not exceed the €50.000.

A declaration must be submitted individually, regardless of the percentage of ownership (in joint accounts). For example, if you have a joint bank account with a value exceeding €50.000, although your particular (say €25.000) share is below the threshold, each owner would still be required to submit an individual declaration based on the total value of the account.

Although this declaration of assets abroad is solely informative and no tax is charged, failure to file, late filing or false information could result in fines.

For this reason, we recommend that everybody arranges to declare their assets. Once you have made your first declaration it is not necessary to present any further declarations in subsequent years, unless any of your assets in any category increases by more than €20.000 above the initial value declared.

Arts Society de La Frontera & Spectrum – Costa del Sol

By Charles Hutchinson
This article is published on: 24th February 2020

24.02.20

The Spectrum IFA Group again co-sponsored an excellent Arts Society de La Frontera lecture on 19th February at the San Roque Golf & Country Club on the Costa del Sol. We were represented by one of our local and long-serving advisers, Charles Hutchinson, who attended along with our co-sponsors Currencies Direct, represented by area manager Ignacio Ortega and Alexandra Derudder. Also present was the society’s European Chairman Jo Ward.

The Arts Society is a leading global arts charity which opens up the world of the arts through a network of local societies and national events throughout the world. With inspiring monthly lectures given by some of the UK’s top experts, together with days of special interest, educational visits and cultural holidays, the Arts Society is a great way to learn, have fun and make new and lasting friendships.

At this event, over 130 attendees were entertained by a talk entitled ‘John Singer Sargent, master of the society portrait’ by Mary Alexander, who is one of the UK’s top experts on this subject. She gave an excellent lecture which was highly informative and educational, opening up the artist’s world to show his versatility away from not just being a portraitist and his much travelled life.

The talk was followed by a drinks reception which included a free raffle for prizes, including a CH supplied lovely coffee table book on the artist, champagne and an elegant pot plant. Currencies Direct also supplied a presentation bottle of brandy.

All in all, a great turnout and a very successful event at a wonderful venue which has just been renovated throughout; looking through the windows, one can see the golf course completely dug up and redesigned.

The Spectrum IFA Group was very proud to be involved with such a fantastic organisation during its current global expansion and we hope to have the opportunity to do so again.

Advice before you arrive in Spain

By John Hayward
This article is published on: 21st February 2020

For the majority of those who move to a Spain, speaking to a qualified financial planning adviser, who is regulated and licensed in Spain, is something which generally happens after you have moved to Spain. It makes sense to understand the implications of moving to Spain in relation to existing investments and the taxes that come with those. Positioning one´s wealth correctly prior to moving can save thousands in unnecessary taxes.

Therefore, by talking to an adviser, especially one that has lived in Spain for more than 15 years and has experienced the life with his own family, before you embark on the journey can help avoid some issues which expatriates can find themselves encountering:

Many UK based advisers are not fully regulated to offer advice for those in Spain.

They are almost certainly of the most current regulations or tax efficient solutions for your needs, especially as the rules differ from one autonomous region to another.

A Spanish regulated adviser can ensure you are financially prepared for your move, in terms of any investments, savings and taxes which can become due on both income and windfalls you may be expecting after your move.

Tax free and favoured investments such as ISA´s, lump sums from pension funds, and Premium Bonds, are not tax free in Spain.

For those planning on using a property as the main source of income, an understanding of the overall cost and the Spanish taxes that property attracts is essential.

Making a Spanish Will, even if one has an English Will, is vital in order to make certain that wealth is distributed correctly.

Organising a funeral in Spain is a much quicker process than in the UK. For many the funeral is very traumatic if only for what needs to be organised, in Spanish. We can help you arrange a plan for you and your children to escape this trauma.

People overpay when it comes to currency exchange, many using their bank. What appears to be a free deal actually can cost you a lot of money. The exchange rate banks give can be way off the commercial rate. We can save you potentially thousands on your currency especially when you purchase or sell a property.

Investing an hour of two of your time before you make the move to Spain can provide peace of mind and financial comfort when planning a new adventure. We can help with all of the above, and much more.

Please contact me today to find out how we can help you. We do not charge for reviews, reports, or recommendations we provide.

Planning for the Inevitable

By David Hattersley
This article is published on: 13th February 2020

The Grim Reaper is not a nice subject, but its finality remains. There are those left behind, alone after the loss of their Spouse or Partner. There is a grieving process. But at the same time is the harsh reality of due process. Wills, Probate, Succession Tax, Inheritance Tax and Death Certificates spring to mind, with added complication in a “Cross Border” society. One hopes that we can offer sympathy, support and help, but trying to soften the blow for loved ones is best prepared for with forward planning such as Wills, Funeral Plans, Life Insurance and Estate Planning.

Circumstances prior to death take many forms. Recent family experience has bought all of this into sharp focus; there was the duality of emotions, allied to the need to help in a professional capacity in what was a complex mire. The double edged sword of living longer applies. Death can be quick, or prolonged due to substantial improvements in many critical fields such as cancer treatment.

“Lingering Death” can take months or years. Drugs can help alleviate Dementia & Alzheimer’s, but do not provide a cure. These illnesses are certified causes on a Death Certificate. What isn’t is the loss of “Independent Existence”. This is a gradual erosion; loss of a lifetime spouse/partner, location, loss of mobility and simply carrying out simple day to day tasks all take their toll. It creates an immense strain on the family, financially and emotionally. ”Long Term Care” often starts in the home, but eventually Long Term Care in a Residential Nursing Home can become the only option.

In Spain costs are substantially less than the UK, but for some the UK becomes the only option due to language and family support. Careful planning in advance can sometimes mitigate the more onerous UK costs and “taxes” or help prolong the benefits of living in Spain. But it is complex and many factors need to be considered well in advance, taking into account “Cross Border Taxes” and differing rules.

It is hard to consider the impact of all the above and many people prefer to ignore it, but I feel compelled to bring this important subject into the open. There are things you can do to make things easier for your loved ones; if financial and legal aspects are well planned out, that is one less thing for them to worry about. I will be posting a series of articles dealing with the many differing issues that I have come across and the steps you can take to overcome them, as it will affect us all one way or another.

Don’t despair or defer; positive steps can be made to mitigate future headaches as much as possible and we are here to help. One of the best ways forward is to sit down with someone who understands the possibilities and to make a plan. Contact me now if you would like to discuss what you can do to make the future easier.

Inflation is the killer

By Chris Burke
This article is published on: 12th February 2020

12.02.20

Tip 1 – Maximising your savings – inflation is the killer
In the UK, ‘Stealth Taxes’ are the normal weapon governments use to raise taxes now. These are taxes that don’t affect everyone on a daily basis, or maybe not today, but could do significantly at some point. For this and other reasons, these taxes don’t usually cost them votes and raise a good level of tax money.

I argue one of the biggest Stealth Taxes is inflation, and the two reasons I believe this are: because of my 90-year-old father, and also because I need proof, to be shown something before I believe it.

As you can see from the above graph which dates back to the beginning of the eurozone, inflation has generally fallen. Up until 2008 it was perhaps on average 3%; from the crisis at the end of 2008 more likely 2%. So, what if a glass of wine goes up by 2% a year, I hear you say, or the menu of the day as well, that’s nothing. Well, yes it is. When you compound that over a period of years it makes a big difference. For example, people have come to see me with some money sitting in a bank account earning nothing. They know this, but they don’t know what else to do with it. They like the security of a bank account for the value of the money, and the security of having access to it if they want it. So 6 years later, they come back to see me again and say ‘Yes, we have definitely decided we want this money to do something for us (let’s says its 100,000). Can you help us, please?’ There are two things that immediately come to my mind here, firstly, not everyone is disciplined and hasn’t spent some of that money by then. Secondly, and perhaps more importantly, they don’t actually have 100,000 anymore, they have 88,000 in real terms. So, each year they have lost 2,000: imagine every year you draw 2,000 out from your bank account and flushed it down the drain; how painful would that be? That’s exactly what you are doing by not managing your money effectively. We are also in an incredibly low inflation environment at the moment. Imagine if it went up to 3 or 4%?

My father, in his latter years of retirement, does not stop commenting on how prices have increased, what they used to be and how expensive things are (don’t worry; he is not destitute, just astute). We don’t really notice this on a daily basis, the main reason being we are still working and earning an income. We can always replace what we spend within reason. However, when you finally have no more income and only savings and investments, it really hits you.

Action Point 1 – make sure your assets, no matter what they are, are being managed effectively for you, bearing in mind that one day your income will stop, alongside giving you access to emergency funds should you need it.

Tip 2 – Brexit – last chance saloon for moving UK pensions
Last month I attended seminars bringing us financial types up to date with everything going on in 2020, including Brexit/UK pensions and one of my worst fears was confirmed. When Brexit is officially rubber stamped, you will be charged 25% if you want to transfer your UK private or company pension outside of the UK. This means your pensions freedom of choice will have effectively ended, as who would want to pay that tax to move it? So moving forward, your pension would remain in the UK. What would that actually mean? Well, it would have to adhere to UK rules moving forward, which in essence are starting in real terms to reduce the benefits you could receive (another stealth tax). It could be the best place to leave your pension anyway, but what we suggest is detailed analysis of what you have and what your options are, before you don’t have a choice. We conduct this on a complimentary basis for you, giving you the knowledge to make a decision. For many people the right advice is to leave their pension where it is, but for some moving it is by far the best thing to do.

Action Point 2 – Check whether your UK pension should take advantage of the last potential chance to the European freedom of pensions movement.

Tip 3 – Investments outside Spain tax
Not many people are aware that assets they have outside of Spain are/can be taxed differently to those inside it. In essence, most assets outside Spain held by a Spanish resident need to have tax paid each year on any gain made, regardless of whether you access them or not. The reason why this is important, is that deferring tax until a time when you can reduce/mitigate it is one of the biggest ways to increase your wealth.

There are options similar to UK ISAs and other asset planning available that can help you be Spanish compliant and potentially save you taxes.

Action Point 3 – Try to have your assets Spanish compliant. Evaluate what assets you have, how they are taxed and make sure they are tax efficient moving forward.

Mortgage Rates in Spain

By Spectrum IFA
This article is published on: 31st January 2020

31.01.20

At Spectrum International Mortgages we do an annual update on the rate development in Spain. We do this every year in February and this year will be no different.

As ever, the rates we mention are based on the market at the moment of publishing and we cannot guarantee that these rates will be available in the future, nor that they will be applicable to every individual case. Additionally, it is worth noticing that the banks in Spain still do not offer interest only mortgages, which means that both the fixed rate mortgages and variable rate mortgages are capital repayment loans.

Duration in years	rate in % (with correct client profile)
10	2.00
15	2.10
20	2.25
25	2.35
30	2.50

Looking at variable rates, we observe around 1.2-1.5%+EURIBOR

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As opposed to last year, we are now seeing that the Spanish banks have a bigger focus on financial profile rather than residential status. This means that although non-residents are still offered a lower LTV than residents, the fact that they are non-residents no longer has the same impact on rates, terms and conditions as it did last year around the same time.

The rates above are still so called “clean” rates, meaning that except for the first year, there are no other products from the bank attached. It is still normal practise for the banks to have clients set up e.g. different insurances, credit cards, investment funds or pension plans to decrease the rate. Arranging a mortgage through us, you will be able to avoid this in the vast majority of cases. Every case is handled individually and rates will vary depending on individual circumstances, but as a guideline, this is a realistic scenario for the moment.

How will that unfold for a mortgage of 280,000€?

To apply this in reality, let me provide you with an example of how a mortgage of 280,000€ could look when going through Spectrum International Mortgages:

Property price	400,00€
Mortgage amount	280?000€ (70%)
Duration in years	20
Fixed rate	2.25%
Monthly instalments	1,449.86€

Cash needed to complete the operation 168,000€ (30% down payment ->120,000€ plus approximately 12% taxes and costs -> 48,000€ = TOTAL of 168,000€

Products contracted for the first year: life and house insurance. After the first year both insurances can be cancelled with the bank and set up externally, which is normally advisable.

For more information, please contact our specialists in the mortgage team

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Inheritance Tax in Catalonia

By Chris Burke
This article is published on: 27th January 2020

With all that has been happening this year, it could well have slipped many people by that significant changes have been made to the inheritance laws in Catalonia, particularly for those who are resident there and receiving an inheritance from someone outside of Catalonia.

Previously, spouses and descendants received great allowances in respect of tax due to be paid, starting from 99%. However, for those receiving inheritance as a descendant this has been reduced, at the worst to only a 60% reduction. This raises two main questions, firstly, what would the tax payable be for an inheritance, and secondly, is there a better way to receive this, for example, as a gift rather than an inheritance, which itself has different tax rates?

It is important to understand how an inheritance is taxed in Catalonia. Major factors are the relationship between the deceased and the inheritor, what asset is being received and where the money comes from, i.e. which country. In the UK it is fairly straightforward: if someone dies being resident in the UK and leaves you assets up to £325,000 there is usually no inheritance tax (paid by the estate); anything over this is taxed at 40%. However, in Catalonia it is not that simple (Surprise surprise, I hear you say!) and alongside what is declared and may be tax payable in the UK, you must also declare and pay the relevant tax in Catalonia. Any assets you already own can also be taken into the equation of what tax is payable.

Inheritance tax in Catalonia is paid for by the receiver, not the estate, and very importantly, you have 6 months to declare this inheritance, EVEN if you haven’t received it yet (this is from the date of decease) or you will be fined the following way on the amount of tax you are liable to pay:

5% in the following 3 months (i.e. months 6-9 since death)
10% from 3 months to 6 months
15% from 6 months to 12 months
20% plus interests after 12 months

But if you know that you will need more time you can ask for an extension of an additional 6 months during the first 5 months from the death. In this case, the surcharges described above will not be applicable and you will have an extra period of 6 months.

There are some discounts on inheritance tax in Catalonia. To start with, there is usually no tax to pay on the first €100,000 being received if you are a spouse or child of the deceased. For other descendants the allowance is €50,000. If you are an ascendant the allowance is €30,000 and for any other relation the reduction is €8,000.

From this point on, there are further reductions between 97-99% and there are also other factors to be taken into account, such as are the children under 21, disabled, or if you receive the main home (“vivienda habitual”), family business or shares in certain type of companies.

As you can see, the calculation is not straightforward. The quickest and simplest way, I feel, to give you an idea of what tax you would pay is if I give examples using the most typical scenario of people we help, which is of a parent resident in the UK leaving their child, who is living in Catalonia, an amount of money/assets not including property (as we said there would potentially be extra tax deductions for receiving this). The guidelines are shown below for someone tax resident in Catalonia, over 21 years old, owning assets themselves of less than €500,000. Note that the ‘domestic trousseau’ has also been included (the domestic trousseau is a tax on inherited household items, for example furniture, by default calculated as 3% the estate value):

Amount to be inherited	Tax due in Catalonia
€100,000	€84
€250,000	€6,969
€500,000	€29,888
€750,000	€64,908
€1,000,000	€109,297

One possibility we would check for a client is whether it would it be better to plan the future inheritance and anticipate it, receiving the monies through a donation that is taxed between 5% and 9% between parents and their children (with some specific requirements). Additionally, please note that if a previous donation has been made, this must also be considered in order to calculate the effective inheritance tax rate. We always suggest getting in touch to confirm exactly what the amount would be, and for help declaring it. For the assets themselves, it is worth knowing that many assets overseas are not always efficient to have while living in Catalonia.

For example, investments or ISAs in the UK are declarable and tax is payable in Spain on any gain annually, EVEN if you do not take any of the money, unlike in the UK. It is possible to have these monies in a Spanish compliant structure, still in sterling if you prefer, where you can benefit from the money growing through compounding and potentially greatly mitigating tax. This is where we help our clients to get organised efficiently and can manage the assets if needed.

If you have any questions relating to this article, would like help planning for this eventuality, or anything similar, don’t hesitate to get in touch.

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