How my Independent Financial Adviser in Spain
Mr Blood has lived in Spain for eight years. However, as a result of a pension mis-selling review in the UK by a large UK bank he received compensation to cover a pension shortfall. The client was extremely satisfied with the amount of the compensation. Advice was requested from his independent financial adviser (IFA), Barry Davys of The Spectrum IFA Group, on how to invest this compensation to ensure that his pension fund returned to its true value.
Whilst this payment of compensation is tax free in the UK, Mr Blood is resident in Spain. In Spain these types of payment are taxable. Fortunately, the IFA knew the differences in the tax regimes. Barry had a tax lawyer calculate the amount of tax due on the compensation payment and Mr Blood was, not surprisingly, horrified to find that the tax to be paid was 82.947,91€.
Despite the client having signed a letter of acceptance with the bank and the compensation having been paid, Barry reviewed the case and found that the letter of acceptance did not sufficiently identify the issue of Spanish tax, having only emphasised the UK tax situation. Barry opened negotiations with the bank. As the regulatory requirements in the UK required the bank to put the client in a “no loss” position, the payment of tax resulted in a loss. To be fair to the UK bank they accepted this principle and agreed to pay a further compensation to cover the loss from having to pay tax.
The payment of a further 82,947€ could have seemed like a satisfactory outcome. However, any payment to cover the client’s loss as a result of the tax payment would be subject to taxation on the additional payment too. Our adviser again instructed a tax lawyer for the calculation of the gross amount required to ensure the client was put back in a no loss situation. Further negotiation by the IFA resulted in a grossed up additional payment to the client of 178,000€. This resulted in Mr Blood being recompensed in full for the loss.
Case Study Key Points
The key points in this case study show that a knowledge of UK and Spanish tax law was required to identify the problem. Secondly, knowledge of regulatory requirements helped ensure a successful negotiation between the bank and the IFA. Using specialist tax lawyers to calculate liabilities strengthened the client’s position. Finally the IFAs knowledge of UK and Spanish pension law helped to identify what options were available for reimbursement.
On payment of the additional compensation Mr Blood commented;
“I was frankly shocked to learn that the Spanish Hacienda doesn’t recognize compensation for a loss as exactly that; a compensation. My initial dealings with the bank quickly highlighted my lack of experience with financial matters, and I was relieved that Barry agreed to negotiate on my behalf. His in depth knowledge of the financial services industry and his negotiation style delivered for me the best possible outcome I could have wished for me and my family. I sincerely believe this outcome was only possible with his support.”
Barry Davys was also pleased. “It is extremely gratifying to be able to help someone in this way. The years of studying taxation, pensions, regulations etc. feel worthwhile in situations such as these. It is an extremely interesting time in Spain with many changes in taxation from 1st January 2015. I look forward to the challenge of helping international people with their financial planning to put them in the best possible position”.