Are your investments tax compliant in Spain?
By John Hayward
This article is published on: 30th March 2016
Many UK nationals resident in Spain will have premium bonds, ISAs, unit trusts, and other vehicles which, although tax efficient in the UK, are not in Spain and are therefore non-compliant for tax purposes. Tax on the growth on these investments may need to be paid in Spain each year, whether withdrawn or not. The advantage of a Spanish Compliant investment, “wrapped” within an insurance policy, is that tax is only payable on gains when these are withdrawn. The gains are charged at SAVINGS TAX rates and NOT INCOME TAX rates. Tax savings can be significant when investments are organised in line with Spanish regulations.
Tax increase on pension funds
The lifetime allowance on pensions will reduce from 6th April 2016. For those who have pension funds over £1 million, 55% tax will be payable on the excess taken as a lump sum. A 25% charge will apply to income although, for a higher rate taxpayer, this extra tax could mean an overall rate of 55% as well. For every £10,000 of income, £5,500 would go in tax. There are people who have not reached this level of pension fund. However, let´s say that there is currently £800,000 in pension savings. With 5% increases each year, in 5 years´ time the funds will be worth over £1 million. There are ways to protect against this charge, up to certain limits and with restrictions. This is one of the reasons why a QROPS arrangement could be suitable for those living overseas as these additional tax charges do not apply to QROPS.
Additional Spanish Succession Tax for non-EU membership
With effect from 1st January 2015, any non-resident who inherits a Spanish asset, and is an ascendant (parent or grandparent), descendent (child or grandchild), or a spouse of the deceased, will be treated in the same way as a Spanish resident, receiving the same allowances and benefits. The tax will then be dependent on the autonomous region in Spain where the deceased was resident or where the asset is situated. This treatment only applies to EU citizens. The EU referendum on 23rd June in the UK could have a serious impact on what future taxes could be due for residents of the UK who inherit Spanish assets.