Viewing posts categorised under: Tax

Insight into tax efficient savings in Spain

By Spectrum IFA
This article is published on: 21st June 2013

It is that time of year again when attention turns to tax in Spain. The time of year when we add our worldwide

This year it is particularly important. Firstly, the Renta Declaration has to correspond with our Form 720 (Modelo 720). Secondly, the G8 are addressing the issue of tax which includes implementing more automatic exchange of information between countries.income to the “declaración de la renta”.

Despite this “crackdown”, in many countries there are tax efficient ways of saving. In the UK this includes ISAs and in France the Assurance Vie (Life Assurance) as examples. Tax efficient Saving in Spain is also available in a simple and effective manner using a unit linked insurance. With tax only paid on withdrawals, the fact your investment grows free of tax can make a big difference.

Amount Invested	Rate of Return	Value at 5yrs	Value at 10yrs	Value at 20yrs
100,000€	6.90% Gross Roll Up	149233	208331	406005
100,000€	5.45% (6.9% TAXED AT 21%)	137101	178339	301753
Difference		12,132€	29,932€	104,252€

The rate of return of 6.9% is used as an example only and has been used as it is the average return on a diversified portfolio in the last 10 years.^*

Tax is payable in the following manner

100,000€ invested

grows to

150,000€

which is 100,000€ capital and 50,000€ gain

On a withdrawal of, say, 30,000€

Treated as 20,000€ Capital and 10,000€ gain (ie in same proportions as above).

10,000€ taxed at 21%

equals 2,100€

2,100€ on a withdrawal of 30,000€ is an effective tax rate of 7%

* This rate of return is an example only and does not imply that savings will make this specific rate of return. Indeed, values will go down as well as up. The information is based on our understanding of the law and tax rates as at 19/06/2013 for basic rate capital gains tax payers and may vary in the future. Individual advice is only given after conducting a review of your particular circumstances.

Tax on sale of inherited property in Italy

By Spectrum IFA
This article is published on: 20th June 2013

Did you know that the Capital Gains tax on the sale of inherited property for an Italian tax resident is ZERO.

If you were not already aware, the Italian government does not charge any capital gains taxes on any property which has been passed into your ownership through an inheritance. Something to shout about! And a nice financial planning tool as well.

Top Tax Tips for Expats in Italy

By Gareth Horsfall
This article is published on: 4th March 2013

Here are my top tax tips for living or moving to Italy.

1. Beware of the DIY approach.
Always discuss your tax situation with an experienced and knowledgeable commercialista. Taxes in Italy are not that much different to other countries around Europe and you might be surprised at just how littel you have to pay. The DIY’ers rarely find the tax breaks and end up paying more than they need to.

2. A Tax Residence of choice does not work.
Just because you are spending 3 months of the year in the UK does not mean you automatically qualify for UK residency when in fact you are actually spending more of your time in Italy. The double tax treaty will not cover you in this case.

3. Don’t think you can hide.
If you an Italian tax resident (i.e you spend more than 183 day here a year), then the Guardia di Finanza can find you. There is always a paper trial, utility bills, mobile phone records, airline tickets, credit card and bank statements, as well as visual evidence from neighbours, gardeners, cleaners etc. It is much better to be ‘in regola’ and know that the knock on the door is highly unlikely.

4. Beware the UK 90 day rule.
Quite a few people I meet try to claim UK residency because they go back to the UK for at least 90 days a year out of the last 3 years. This is not a law and is ignored by the courts. The Italian tax authorities would swiftly brush this aside as an excuse if they were trying to determine tax residency in Italy or not.

5. Don’t rely on a double taxation treaty to protect you.
A double taxation treaty is merely a statement saying that you cannot be a tax resident of 2 countries at the same time. So, you have to be resident in at least one country in any one year. The Italian’s will quite quickly assume that you are Italian tax resident if there are any signs of regular/permanent establishment in the country.

6. Be very wary of trying to be non resident anywhere.
If you are claiming to be a non tax resident anywhere then you could misunderstand the rules of the countries that you are living in. It is possible but most countries will deem you to be tax resident even if you spend less than 6 months of the year in the country. They just find it hard to accept that you can be non resident anywhere.

7. Don’t forget to register your presence.
Some people move to Italy and then decide not to report that they are living there and try and live under the radar. It is illegal to NOT complete tax returns and and a criminal offence in Italy. Even if you are paying tax on pensions in other countries, have assets overseas or income from other sources, the tax code in Italy states that as a tax resident you are liable to taxation on your worldwide income and assets. However you might get some Double tax treaty relief’s from Italy for paying taxes in another country already.

8. Tax favoured investments in one country do not necessarily apply in Italy.
The classic example is the UK Individual Savings Account. (ISA). It is not recognised as a tax free account in Italy and is therefore taxed on income and capital gains. You might need to re-examine all your old investments and replace then with tax efficient investment for Italy (namely the Life assurance Investment Bond).

9. Watch out for tax free lump sums from pensions
The UK pension system allows a 25% lump sum pension payment on retirement. In Italy that lump sum is taxable and therefore it might be advisable to take it before you leave for the country. You might also consider moving the pension fund to a QROPS ( Qualified Recognised Overseas pension Scheme). This means you can put the pension outside the UK tax system, avoid having to buy an annuity and potentially avoid the 55% charge on the fund at death.

10. Don’t be worried about tax planning in Italy.
Life in Italy is great. Taxes are not that different to those in other European countries. If you plan early enough and do things properly you will not pay that much more than if you were a UK resident. I often tell clients that for a few hundred euros more, it really is not worth taking the risk.