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Viewing posts categorised under: Spain

Why Financial Planning ?

By Chris Webb
This article is published on: 17th March 2017

17.03.17

Financial planning is about establishing your future financial goals
and aspirations and working out the best way to achieve them.

 

Financial planning is about having a strategy, instilling discipline
and creating a structure to your financial world.

Over the years the “financial world” has changed significantly. This is great news for the consumer as this means there is now a much wider range of solutions and products to select from. Investments platforms have risen out of nowhere, insurance products have become increasingly more competitive and the choices with what to do with your pension are numerous.

As I mentioned, this is great news for the consumer. However, this also comes with a downside. More solutions equates to more complexity, more time required to understand the options and more time to get to grips with the tax, compliance and regulatory side of things. Quite simply, for some it can be a minefield !

Not everyone has the time, expertise or confidence to get the best value from this ever changing world and for those people independent financial advice / financial planning can be extremely valuable and worthwhile.

The Spectrum IFA Group is an independent financial advisory and through our relationships with our business partners we are able to offer access to the right solutions and products for your own personal circumstances.

Once we have a thorough understanding of your circumstances and requirements, we will conduct a full analysis of your situation and provide you with a tailored plan of suitable recommendations. This may result in one solution, it may result in two or three, but the end result is that this will enable you to start making decisions which can only help you towards your financial goals.

Being independent means we can offer products from a wide range of providers, we are not tied to “selling the same box to everybody”.

We will meet with you to discuss all of our recommendations, we will make sure that they are clearly explained, fully understood and jargon-free, so that you can make informed choices about your future, based on impartial advice.

You can ask as many questions as you like and request more information at any time. We do things at our clients own pace, not our own. There is no obligation to proceed with our advice, however once you have a full understanding of why we are recommending a solution for your needs you can then make the right decision….. for you !

Spanish Succession Tax (Inheritance tax)

By Chris Webb
This article is published on: 16th March 2017

If you are a resident of Spain it is important to understand that there will be liabilities due to the Spanish government in the event of a death. Whether it’s you that is inheriting part of an estate or it’s your estate being distributed the taxman is going to want his share.

Many British nationals don’t realise that depending on the asset and its location there may also be a claim from the UK taxman. Just because you are a non UK resident it does not eliminate the requirement to settle taxes in both the UK and Spain. Spanish succession tax will be due either when the assets being inherited are located in Spain, such as a property, even if the recipient of the asset lives outside of Spain OR if the assets are based outside of Spain but the recipient lives in Spain.

For example: if you leave your Spanish property to your children who are now UK residents they will be liable to pay succession tax to the Spanish government. On the flip side if you receive an inheritance from the UK and you are a Spanish resident then again you have to pay tax in Spain.

As mentioned above, if you are a British national and are resident in Spain you could be liable to UK inheritance tax as well as Spanish succession tax. In the UK they require all worldwide assets to be declared, as you will be considered “UK domiciled” by the government. It is almost impossible to be considered as anything other than UK domiciled, even if you haven’t lived in the UK for some time.

There is no double tax treaty signed between the UK and Spain when it comes to inheritance, however if tax has been paid in the UK the amount is usually deductible against the Spanish liability.

To complicate matters further, Spain have a standard set of “State Rules” which lay down the rates and allowances for succession tax as well as individual “Autonomous rules” which means things are different from one community to another. Detailed below are these state rules:
The tax rates differ depending on the value of the amount inherited. These range from 7.65% on the first €7,933, up to 34% on €797,555 and over.
Beneficiaries are graded into four different groups and the more remote the beneficiary’s relationship is to the deceased the lower the tax allowance and the higher the tax rates. These four groups are:

  • Natural and adopted children under 21
  • Natural and adopted children aged 21 and over, grandchildren, parents, grandparents, spouses
  • in-laws and their ascendants/descendants, stepchildren, cousins, nieces, nephews, uncles, aunts
  • all others including unmarried partners

Allowances are available between husband and wife or direct line ascendants/descendants, but this is set at just short of €16.000. If an inheritor is also a direct line descendant under the age of 21, there is an additional allowance of €3,990 for each year they are under 21. The total of this additional allowance is restricted to €47,858 per child or grandchild.

For more distant relatives (e.g. cousins) the exemption is set at €7,933. There is no exemption for beneficiaries who are not related.

A main home in Spain may be virtually exempt from Spanish succession tax provided the beneficiaries are either your spouse, parents or children and they continue to own the property for ten years from the date of death.

The exemption can also apply where the beneficiary is a more distant relative over the age of 65 and they have lived with you for at least two years before death. If these conditions are met, the value of the house can be reduced by 95% in calculating the tax base liable, subject to a maximum reduction in value per inheritor of €122,606. It is important to note that this is only applies principal private residence and is owned by a Spanish resident.

Some examples of where the Autonomous rules differ from the state rules:

In Valenciana, spouses and children receive an allowance of €100,000 each. They can also benefit from a 75% reduction in the amount of succession tax payable.

In Murcia, the taxable inheritance for children under 21 is reduced by 99%, while older children and spouses get a 50% reduction.

In Andalucía, spouses and children can benefit from a 100% exemption for inheritances up to €175,000, provided they are not worth more than €402,268.

Cataluña offers a 99% allowance for spouses. Other Group I and II relatives receive a relief depending on the amount of their inheritance. Personal reductions are €100,000 for spouses and children (more for those under 21), €50,000 for other descendants, €30,000 for ascendants and €8,000 for other relatives. The 95% main home relief is up to a property value of €500,000, with the amount pro-rated among the beneficiaries (minimum €180,000 limit each). The property need only be kept five years rather than the 10 year state rule.

To summarise the key points of succession tax:

  • Tax is paid by each recipient, rather than by the estate
  • Spouses are not exempt
  • Allowances under the state rules are very low – just €15,957 for spouses, descendants over 21 and ascendants, €7,993 for other close relatives and nil for everyone else
  • Under state rules, tax is applied at progressive rates from 7.65% (for assets under €7,993) to 34% (for assets over €797,555). However, multipliers depending on the relationship between the two can increase this rate
  • If you leave assets to your spouse, who then passes them on to your children when he/she dies, succession tax will be due again on the second death
  • Succession tax also applies to pension funds
  • Tax is paid at the time of the inheritance, even if the funds are not accessed at the time. There is a six-month period to pay the tax after the death, although it is possible to apply for an extension in certain cases
  • Succession tax is governed by both state and local autonomous community rules; each community has the right to amend the state rules
  • Whether the state or the local autonomous community rules apply for each case, depends on where the beneficiary and the donor are resident and where the assets inherited/gifted are located
  • If you are UK domiciled you need to consider both the UK inheritance tax rules as well as the Spanish succession tax rules

Whilst the Spectrum IFA Group are not tax advisers, we can help to put you in touch with the right people. It is important to understand the various succession tax rules and how they apply to your situation, as well as how they affect any UK liability. You need specialist advice to understand the intricacies of the two tax regimes, and how to lower both tax liabilities and potentially save your heirs a considerable amount of tax. You can often combine your estate planning with your personal tax planning.

*Sources: Advoco, LegalforSpain, Globalpropertyguide, GovUK, AILO

The ABCs of Spanish taxation when investing in real estate in Spain

By Jonathan Goodman
This article is published on: 8th March 2017

08.03.17

For a long time, Spain has been considered a country of interest for real estate investors. It is a Western European country with many types of attractive properties available: residential, retail, offices, logistics, industrial, and more. And all this in a place that enjoys a stable legal system, over forty million consumers, and a great climate.

The Spanish tax system, however, is one of the most complex in the world. This being the case, it is essential to know the taxation associated to each of your investments in order to avoid surprises. We have written this guide as a quick introduction for first time investors. Nevertheless, you must consider it just an introduction since every property has its own peculiarities. We would be happy to help you make your investments a success.

This article was written by AvaLaw and first appeared on www.avalaw.es

Theresa May addresses Brexit

By Chris Burke
This article is published on: 25th January 2017

25.01.17

Theresa May, given one of the hardest Prime ministerial assignments perhaps of all time, gave her anticipated speech of the UK’s plans to leave the EU.

Why was it so hard?

When you have a referendum vote decided by only 2%, you have almost two equal sides to please. Those who voted to leave the EU, and those who were against it. Rather than alienate them and make them feel bad that the UK is going to leave the EU, like any good leader she had to try and get them feeling positive that, although they didn’t want it, perhaps there is lots to feel optimistic about leaving the Euro. A tough job in anyone’s book.

What did she say?

It was more of a case of what she didn’t say. Like a poker player, there was no way Theresa was going to give away to the other ‘Players’ what cards she was holding, how she was going to play them and perhaps most importantly which were her ‘Trump’ cards. What she did though was tell everyone what Britain was and wasn’t going to accept and how it would be done.

What information did she give away?

She will not settle for a bad deal for Britain, and she is prepared to walk away from the negotiations if she feels the deal is not right for the UK. Indication was also given that any agreement that was reached would be voted on by UK Parliament. She also confirmed that Britain will leave the EU’s single market – despite backing membership less than a year ago – to regain control of immigration policy and said she wants to renegotiate the UK’s customs agreement and seek a transition period to phase in changes. Her 12 point plan which starts with confirming leaving the EU and ending in a smooth, orderly Brexit, had recollections of a speech Hugh Grant gave in the film shown at every Christmas, ‘Love Actually’. It was very strong, very direct with clarity and highlighting the fact that Britain will not be bullied or pushed around. It is perhaps a strange comparison but it was arousing, just like the film, nonetheless.

How did it go down?

In essence very well. Theresa gave an assured, strong performance which the markets reacted to and she made it credible that Britain can still be a ‘Great’ force outside the EU. Whether this is the case has to be seen, but 50% of the reason why people react in life is their perception. And on this evidence, the people’s perception was good. Both from inside the UK and in the EU, most interestingly.

Banks have floors?

By Chris Burke
This article is published on: 24th January 2017

24.01.17

After a surprising final ruling by the European Union’s top court, some Spanish bank shares tumbled by as much as 10 percent recently. Spanish banks, including Banco Popular Espanol SA and Banco Bilbao Vizcaya Argentaria SA, may have to give back billions of Euros to mortgage customers.

Why?

Judges at the EU Court of Justice ruled in Luxembourg that borrowers who paid too much interest on home loans pre-dating May 2013 on so-called mortgage floors, are entitled to a refund from their banks. Banco Sabadell SA fell as much as 7.5 percent, while Banco Popular slipped as much as 10.5 percent, the largest decliner in Spain’s Ibex 35 benchmark.

The court said that a proposed time limit on the refunds is illegal and customers shouldn’t be bound by such unfair terms. Some banks are still making provisions for bad loans, which also adds pressure to profit.

The size of the problem

With €521 billion, home loans are one of the largest parts of Spanish bank lending business as they grew their real estate exposure during a construction boom in the country that burst at the end of the last decade.

BBVA estimated in July that the maximum impact from a negative ruling would be 1.2 billion Euros, while CaixaBank SA said at the time it would have to refund homeowners as much as 1.25 billion Euros. CaixaBank has already provisioned 515 million Euros, it said.

The EU court case comes as Spanish banks are under pressure from low interest rates and weak demand for credit, affecting their traditional business of lending.

The capital ratios of smaller lender Liberbank SA and CaixaBank will be hit hardest by the ruling, brokerage firm Renta 4 said in a note to clients. Liberbank will see a 75 basis points impact on its CET1 ratio, while CaixaBank will suffer a 40 basis points hit. Banco Popular will have a 36 basis points impact.

The ruling doesn’t affect the solvency of Spanish banks nor the strength of the mortgage market in the country, Spanish banking association CECA said in a statement. The Bank of Spain estimates the maximum amount of mortgage floors affected by the ruling is slightly above 4 billion Euros, an official said.

What will happen in 2017?

By John Hayward
This article is published on: 23rd January 2017

23.01.17

There cannot be many people who were able to answer this question accurately in 2016. There were many “shocks” most notably the Brexit vote and the election of Donald Trump as President of the USA. There were several celebrities who died in 2016 but, more importantly, we may have lost loved ones which had financial implications, aside from the grief.

There are many events already planned for 2017 but I suggest that in December our conversations will focus on aspects that are not already known by the vast majority of people.

How do we cope with the unknown?
Our role, at The Spectrum IFA Group, is to help people cope with all things financial. With interest rates at such a low level, banks have little to offer, especially to the cautious investor. In fact, Spanish banks have an additional problem since the European Court of Justice ruling in December. They could face billions of euros in refunds due to inequitable “floor clauses” they had in their mortgage agreements.

Here are some of the ways we help:-

Improved exchange rates – banks may not charge for currency exchange but often offer poor rates. We can help you protect your income today as well your capital in the future.

Higher income/returns on investments – Whether a cautious or speculative investor, we have access to some of the top investment companies. With their expertise, they are able to make financial decisions prior to an event. Most people will react to an event when it is too late.

Tax friendly and compliant investments – We specialise in providing access to products that are tax efficient in the country of tax residence and which are portable within the European Union. This means an investment, whether this is a personal arrangement or a QROPS/ROPS (Overseas pension scheme), is tax efficient wherever the policyholder lives.

Registered and regulated in Spain – With the upcoming Brexit, it is possible that companies, who are not registered in Spain, or in other EU countries, will not be able to function. The Spectrum IFA Group has a Spanish company that holds a licence in Spain. Once the UK leaves the EU, companies based in the UK and Gibraltar may no longer be able to operate and service their clients in Spain.

Back to the question. We deal with the unknown by being prepared. This generally means applying caution and care. It means having access to experts who can react much quicker to events, if not predict them. We live where you live and so, if something needs dealing with urgently, we are available

Spectrum sponsor the DFAS event – Costa del Sol

By Charles Hutchinson
This article is published on: 16th December 2016

16.12.16

The Spectrum IFA Group again co-sponsored an excellent DFAS (Decorative & Fine Arts Society) lecture on 14th December at the San Roque Golf & Country Club on the Costa del Sol.  We were heartily represented by one of our local and long-serving Advisers, Charles Hutchinson, who attended along with our co-sponsors Richard Brown, Lewis Cohen and Harriette Collings from Tilney Bestinvest. Tilney Bestinvest also very kindly hosted a lunch afterwards for selected potential clients, the DFAS Chairman and the Lecturer.

The National Association of Decorative & Fine Arts Society (NADFAS) is a leading Arts charity which opens up the world of the arts through a network of local societies (such as DFAS in Spain) and national events throughout the world.

With inspiring monthly lectures given by some of the country’s top experts, together with days of special interest, educational visits and cultural holidays, NADFAS is a great way to learn, have fun and make new and lasting friendships.

At this event, over 120 attendees were entertained by a talk on Dutch Genre Painting by Lynne Gibson who is one of the UK’s top experts in this field. She was excellent and kept the audience gripped and entertained with her knowledge and humour – especially the hidden saucy side to the art which she revealed to great effect!

The talk was followed by a drinks reception which included a free raffle for prizes including CH produced Champagne, mince pies and a lovely coffee table book on Dutch Genre Painting.  Tilney Bestinvest also supplied a wooden permanent calendar designed and beautifully crafted by Viscount Linley, the Queen’s nephew, which caused a further stir after their last year’s prize!

All in all, a great turnout and a very successful event at a wonderful venue.  The Spectrum IFA Group were very proud to be involved with such a fantastic organisation and we hope to have the opportunity to do so again.

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Should you cash in your final salary pension?

By Chris Burke
This article is published on: 14th December 2016

14.12.16

Potentially millions of people with defined benefit or Final Salary pensions have seen their transfer values shoot up in the last year.

A transfer value, also known as a CETV (cash equivalent transfer value) can be exchanged for giving up the future projected benefits for your pension. In effect, the company buys back the pension.

Over the last 18 months in particular these values have soared.

In many instances people are being offered tens of thousands of pounds more than a year ago with some even being incentivised by their Pension scheme to leave, with a bonus given for doing so. The main reason for this is that the pension company no longer wants the responsibility of having to pay the pension when you retire. Life expectancy in Europe now is 84/85 and in effect people are living longer, meaning the pension scheme has to pay you longer.

For someone with an annual pension income worth £20,000, it is not uncommon to be offered 30 times that amount – in other words, £600,000 in cash.

However this is not the right thing to do for everybody, and there can be significant disadvantages.

‘Unique Circumstances’

Many people have seen their pension transfer values doubled since two years ago, now making it very worthwhile to re-visit these and see what the best advice would be, given this growth in values.

What is a defined benefit pension and the difference between these and a Defined Contribution pension scheme?

Workers with defined benefit pensions know exactly how much they will receive in retirement. Such schemes are either based on a worker’s final salary, or on their career average earnings. Workers with defined contribution (DC) schemes save into a pension pot, which they then use to buy a retirement income. The size of the pot depends on stock market performance. The reason for the increase in transfer values is continuing low interest rates, and particularly low Gilt Rates. Gilts are bonds issued by the Government to raise money, and the rate/interest of these is a major factor used to help calculate a transfer value for a DB pension scheme.

Pension schemes depend heavily on bond yields for their income, and with yields at record lows, many are struggling to meet their commitments to pay future pensions. So they have been offering larger and larger sums to people who are prepared to give up their pension rights.

Transferring your DB/Final Salary pensions can offer a more flexible retirement income, the possibility of extra tax-free cash and upon death the remainder of the pension can be paid out to any beneficiary’s rather than paying a reduced income only to a spouse/dependent partner and then ending.

However, keeping a DB/Final Salary pension can also offer you certainties such as an income for life with Inflation protection, Risk-free income, which does not depend on the ups and downs of the stock market.

There are currently major uncertainties surrounding Brexit and the UK leaving the EU, particularly for those people living outside of the UK. With the almost constant review and changes of UK pensions laws/taxes and the fact that 90% of UK DB/Final Salary schemes are underfunded, it’s important you review your options and the right decision with your pension.

In all circumstances, you should talk to a professional and have your own pension/situation evaluated and see what the best advice there is for you.

President Trump “The brand and businessman”

By David Hattersley
This article is published on: 15th November 2016

15.11.16

Firstly excuse the pun, but if one considers Donald Trump as a “brand” then he did one great job in getting elected as President of the USA. Somehow he sensed that the electorate had grown tired of the political elite and that the establishment needed to be changed and shaken up. That is common knowledge, after all Farage did it based on the cigarettes and beer outside a pub. The same applies to Margaret Thatcher.

Putting it into perspective though, others have gone on to challenge the established order in their respective business fields that then became global household names. The likes of Branson, Doug & Mary Perkins (Specsavers) , Michael O’Leary (Ryan Air) and James Dyson all challenged the status quo and vested elitist interests at the time, much to their dismay and their eventual demise. All the former have gone on to be recognized as global brands that have led a revolution in their fields in their own lifetimes.

In this respect President Trump has, forgive the pun, “out trumped” the recognized establishment in recognizing a true niche market that would follow him. He marketed a particular brand, appealing to a certain audience that felt that it had been left behind in the event of globalization and other ills.One now has to consider the impact on the rest of the world and its impact on investment. In his early days as President elect, he has already shown signs of an element of pragmatism, like a businessman would do towards the need to understand and temper the advertising campaign – for example, recognising what is good in Obamacare and what needs to be modified fiscally to make it a success.

It also depends on who he appoints as his “Board of Directors”, to help him carry through the reforms that are needed for his “New Company” will succeed. No doubt and hopefully, the same will apply to business in general, the need to negotiate where need be, to gain better terms, but at the same time realize the greater picture. He is after all now the CEO of the USA, and that needs to be understood first and foremost.The old order is being replaced, old perceptions will no longer be relevant, and that too can have an impact. As much as Thatcher-ism and Reaganomics changed the world, the Brexit and President Trump’s election will change it too. One has to follow that the old order has been overturned and that whilst the new company has just started, it too needs to act like a company, a far cry from the current political elite. It is almost that a revolution is taking place.

In relation to investments, this means change, but change brings opportunities. Realising this takes skill, and the selection of funds and managers that recognise that change, rather than following old ideas that are now outdated, need to be considered. At the moment though, one cannot take knee jerk reaction as the inauguration does not take place until January 2017, so investors need to keep an eye on the near future, whilst considering other investments that are unlikely to be affected by the above changes.

The Brexit or Invoking the Law of Unintended Consequence.

By David Hattersley
This article is published on: 28th October 2016

28.10.16

Since the Brexit vote most news has been about potential Trade deals, and Sterling’s fall. However it perhaps has gone unnoticed, that from a variety of differing scenarios with outcomes by no means certain, a Constitutional crisis could be gathering steam.

It all stems back to the European Referendum Act 2015, that didn’t consider the variety of outcomes and was legally non binding. In addition, the power of the Royal Prerogative that was curbed when King John signed the Magna Carta in 1215 is being used by the Government, and in essence his successor Theresa May, to make or break treaties with other countries including the EU, in this case invoking Article 50 without the need for it to be passed into law via an Act of Parliament.

Critics of this say that the 1972 Act (based on the UK joining the Common Market) ceded power from the UK Parliament and allowed EU law to pass into UK law. This gave the British people protection under a new constitution based on EU law (based on Napoleonic Law). The UK has never had a written constitution that protects it citizens and gives them certain rights. It is being argued by a variety of bodies via legal challenges against the PM for using the Royal Prerogative to take away rights bestowed to Parliament. Some go as far to say “enforced removal” of citizenship rights from 65 million people would be “completely unprecedented “in modern democracy. Expat campaigners are also arguing that the “rights enjoyed by British citizens beyond these shores are so fundamental that legislation is required to take them away”.

The legal challenge has been mounted to the process of withdrawing the UK from the EU without a vote in Parliament and is going to the High Court, to be heard within the next two weeks. If the government lose due to Judges imposing their will (note unelected!), it would then be ironic for this eventually being heard by the European Court of Justice, the UK’s next step .

If the UK government win this current legal challenge on the basis “ Respecting the outcome of the referendum and giving effect to the will and the decision of the people “, that too could lead to further challenges for whom the right to vote was taken away i.e. a large percentage of Ex Pats and those Europeans citizens in the UK.

Additionally, working on that basis could give credence to Scottish Independence should they have a 2nd referendum and vote to remain in Europe. The same could be said of Northern Ireland, which has its own Parliament as well, and perhaps even Gibraltarians, as they overwhelmingly voted to remain.

The other major crisis in the making is the “Great Repeal Bill” debate that is due to be put to the House next year. A number of scenarios could occur. Many M.P.’s supported remain and the government still has deep divisions within its ranks. With only a majority of 10 seats in the House, a loss could force a vote of confidence, an early election, and a greatly disenchanted and potentially a disenfranchised electorate that voted to leave.

If they win then it passes to the House of Lords, who overwhelmingly wished to remain in the EU, and should they vote against it, take note Leave campaigners, an unelected body voting against the wishes of the majority!!

The Law of Unintended Consequence reigns supreme, or quite simply chaos. It makes Spain’s recent political turmoil insignificant, and I wonder how many of those that voted to leave or indeed did not vote at all, would have wanted these potential outcomes.

What would be even more ironic would be that the UK Government, in its current format, with many of the Ministers that supported the Leave campaign in positions of power, having to go to the European Court of Justice to overrule either singularly or both the UK Judges or the House of Lords to push through the Brexit, whilst at the same time preside over the breakup of the Union.