Summer is well and truly here so it’s time to enjoy everything that brings, especially before it gets too hot! It’s hard to beat Spain when we have so many sunny days – a walk along the seafront or a stroll through the forest to keep cool and listen to the nature.

From a financial perspective, I am always here to update you on anything new or tips/hints to keep your finances healthy – this month we are focusing on the following:

• Biometric card for entry & exit to Spain – Autumn 2024
• Inheritance tax & gift tax in Spain
• 80+ state pension for UK persons living abroad

Biometric card for entry & exit to Spain
The EES (Entry/Exit System) will be introduced by the EU in Autumn 2024 – this is an automated system for registering travellers from the UK and other non-EU countries each time they cross an EU external border. It will require third country nationals, including UK nationals, visiting the EU to create a digital record and provide their biometric data (fingerprints and facial image) at the border when they enter the EU’s Schengen Zone. It is expected that Spanish Green Certificate holders may face significant delays and difficulties at borders if they do not have a TIE.

The system will register the person’s name, type of travel document, biometric data (ie fingerprints and captured facial images) and the date and place of entry or exit each time they go through a ‘checkpoint’, which will in real terms replace stamping of passports (so those regular travellers to the EU won’t have to worry about running out of passport pages with stamping!).

Whilst hopefully making travelling easier and quicker, it’s also clear to note that there will be a ‘hard electronic’ record of which borders you cross and how many days you are spending in each country, which from a tax perspective could be interesting. Let´s see how long it takes for this to also become common practice at ‘road borders’.

They purely look at the amount you are inheriting and if you are a Spanish tax resident apply the following to work out how much tax you need to pay them (if any):

• Your relationship to the deceased, (the more distant a relative you are, the more tax)
• The amount being received, (there is a progressive tax upwards with the more you inherit)
• The value of existing assets by the inheritor
• Which region you are tax resident in Spain and where additional ‘local’ laws apply

Inheritance tax starts from zero (allowances) and can reach up to 82% for a distant relative. Therefore, it’s imperative to understand what this number is should the situation arise, enabling you to plan effectively and maximise the remaining monies. It´s only my personal opinion but why would you not want, with proper planning, to maximise those ‘hard earned monies’ your relatives accumulated and left you over their lifetime?

On a side note, if there are relatives in other countries, (perhaps you have siblings), the Will can be set up to make sure you receive the same amount from the estate net of inheritance tax -the executor of the Will can deduct the tax from the ‘pot’ and then distribute accordingly – therefore the tax can be paid from all members receiving the inheritance not just yourself and enabling you to receive the same amount in real terms. This is something I have come across on a few occasions.

Another way is to receive any monies is as a ‘Gift’ whilst the donor is still alive, the tax on these is between 5-9% (again, the closer the relation the less tax you pay, so for a parent making a gift the tax would normally be 5%). Furthermore the location of the assets, (such as property in the UK), will make a difference to the amount paid.

As you can probably appreciate, by understanding these rules you can start to plan how and when best to receive any assets from relatives/parents. This is an area in which we work closely alongside tax advisers/planners almost every day, making sure our clients take sound financial/tax planning advice and a strategy is implemented to make sure the money is:

• Received as tax efficiently as possible
• Managed carefully to provide a tax efficient income for life (and for any other close family members)
• Invested safely and strategically
• Set up in an inheritance friendly manner for future generations

If you would like to discuss any of the topics above in more detail or you would like to have an initial consultation with Chris to explore your personal situation, you can do so here.

Click here to read independent reviews on Chris and his advice.

If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with me.

Due to emotional and unfortunate circumstances faced by some of my clients recently, I am drawn back to the importance of a simple document we created some years back, during our Covid lockdowns of 2020, and have recommended that our clients do the same.

Most have embraced it, some probably haven’t. Personally, I think it’s of benefit to everybody, but we all have our own ways of doing things. A lot of time and effort went into producing the document, based on previous client experiences, and our own. There didn’t seem to be an appropriate name for it at the time, so we simply called it ‘’The Folder’’.

The whole point of creating your folder is to ensure that there is a record of your assets, your important contact information and plenty more. It is a single file or folder and can be digital or physical. This folder will allow you to detail any important information / assets where it is vital a record is kept. We think we have covered everything and believe this document will make things a lot easier for everybody in many different circumstances.

Recent dealings with my clients reminded me to review my own folder and unsurprisingly there were a few changes to be made………

There are many scenarios where you´ll be thankful for making the folder. When I moved house I went straight to the folder and had all the company’s contact information as well as all the policies or account details which were relevant. This made informing them all much easier. I´ve also lost family members where finding their folder reduced the stress in dealing with their estate. In these moments of stress, you can find yourself trawling through endless pieces of paperwork to ascertain asset and account details, then you get that lightbulb moment…….. why wasn’t it all documented.

And that’s exactly why the folder was created.

Apart from dealing with personal practicalities, like moving house, I believe the folder comes into its element when having to deal with the loss of a loved one. Rather than spending hour after hour trying to unravel their finances, all the information is to hand, in one folder. Having experienced both sides of this situation (one with a folder and one without) I completely understand the additional pain caused by what should have been easy administrative tasks. The folder took most of that pain away. Speaking to some of my clients recently I know they are feeling the same………….

As I mentioned earlier, the folder can be physical or digital. For the physical folder it is vital to only list information that would not create a problem should that folder end up in the wrong hands. So, I have only listed the names, telephone numbers, policy / account numbers of all our assets. It would give enough information for someone to be able to deal with our affairs with minimum hassle.

Some still ask, is it worth the effort?
Well, I think it is. A time of loss can be stressful enough without having to try and piece together the deceased’s financial affairs. This can be a really difficult time for family members. However, preparing the folder is much more than avoiding stress; if you leave behind an administrative nightmare you could delay the access of inheritors or beneficiaries of funds and potentially cost a small fortune in legal fees. Imagine trying to track down investments you have no record of or pensions that may have been held for 50 years or more?

To give you an example of this, the UK Department of Work and Pensions estimate that there is currently more than £400 million sitting in unclaimed pensions pots in the UK. Good luck trying to find out if you have one!

• Personal pension documents
• Employer pension details
• Details of any entitlement to state pensions
• List of bank accounts with account numbers, login details
• Details of any credit cards
• Property, land and cemetery deeds
• Proof of loans made
• Vehicle ownership documents
• Stock certificates, brokerage accounts, investment platform details, online investment account details
• Details of holdings of premium bonds, government bonds, investment bonds

This list is based on my own experiences and those of my clients – you need to be thorough when completing the folder, ensuring nothing is left out.

And don’t forget to review your folder. I will admit to being guilty of not keep my folder up to date and tend to only look at the folder when something significant changes in our lives. It´s easy enough to overlook a change in insurance company or something that at the time doesn’t seem hugely important. I reviewed mine recently and it was just that – small changes to our circumstances, but apart from being hidden deep within our emails there was no other record of those changes.

I would recommend reviewing the folder on an annual basis, but if you’re extra diligent you should review and update every time something changes. For example, if you change insurance companies then add the new details and delete the old. This is a continuous job, its not something you do once and never look at again.

Most importantly – please remember to tell someone about your folder!

Someone needs to know you have made one and whether it´s digital or physical. If its digital they need to know if there´s also a password. Personally, I have sent copies of mine by email to family members, so they have a record of it. They don’t need to know your passwords, just the basics.

Remember, there is very little point going to all this effort if know body knows it exists.

I hope you consider completing your folder. Unfortunately, most people only consider it when they´re trying to deal with a situation and as mentioned, they have that lightbulb moment. Taking an hour out of your time now will save someone many, many hours later down the line.

If you have any questions about The Folder or other aspects of your finances, please feel free to reach out on chris.webb@spectrum-ifa.com

When to sell your UK home and whens best to move to Spain

It’s a big decision to make, selling up in the UK and moving to Spain, but it’s also a decision that needs careful planning when it comes to making sure you don’t get caught up in the Spanish Tax system unnecessarily.

The best way to explain what I mean is to look at a typical example.

Mr and Mrs Smith decided enough was enough, and they put their home in the UK on the market with the intention that once it sold, they would move to Spain. The house sold to the first viewer for £500,000 in February 2023, with a quick completion needed, so things moved fast. The couple had owned the house since 1980 when they paid £100,000 for it, so a nice £400,000 profit.

If they Upped sticks to Spain in March of 2023, then this could have terrible implications, which many people aren’t aware of. Essentially, in many circumstances (not all, depending on your age etc.), Spain will tax you on the capital gains made on a UK property if you are considered a tax resident in Spain in the year in which you sell the property, even though it was your main residence. This of course is not what we are used to in the UK.

So, in this example, because the couple moved to Spain in March of 2023, they will spend more than 183 days in Spain this year, deeming them tax residents in 2023. Therefore, the £400,000 profit made on the sale of the UK property will first need to be converted to Euros, and then capital gains tax will be applied at a rate of between 19% and 26%, meaning a tax bill due in 2024 of approximately €112,000. Imagine the shock when sitting with your tax adviser in 2024 to file your first Spanish tax returns, and he informs you how much tax you will have to pay.

So this is exactly why careful planning needs to take place when sorting out the timing of your move to Spain.

In this theoretical example, by simply delaying the move until after the summer, then Mr and Mrs Smith will no longer have spent 183 days in Spain in 2023, and will have still been UK tax residents that year. By doing this they will have completely avoided any tax implications here in Spain, a huge saving for them.

So, the cost of a short term rental after selling their home, or staying with family, may seem a bit of a hassle, but it will certainly be worth it in the long term.

There are also other things to consider. Tax free lump sums from UK pensions are taxable here, as are the profits on any ISAs you may have, so it’s not just selling the house that needs careful planning when timing your exit from the UK.

Make sure you leave the UK in the most tax efficient way before starting the next stage of your life here in Spain.

Watch the podcast with Jeremy Ferguson and UPSTICKS.ES below

Mortgage Interest rate update – June 2024
On June 8th, the European Central Bank (ECB) announced the decision to lower interest rates, from 4.5% to 4.25%. It was as expected, with the institution itself pointing out for months in advance that June would likely be the time for a change.

Companies and governments will be able to continue financing themselves at a lower cost, having adjusted to interest rates that have reached their highest levels since 2001. The announced cut is of course marginal, especially in comparison with the dramatic increases from zero in July 2022 to 4.5% in September of last year – two years during which the cost of financing skyrocketed and banks turned off the credit tap.

Inflation is now showing signs of subsiding. The ECB’s objective was to cool the economy in order to stop the upward spiral in prices, and it seems to have succeeded – the inflation rate in the Eurozone reached a maximum of 10.6% in October 2022 and currently prices are growing at a more subdued rate of 2.6%, according to May data. At this level, it is close to the ECB target of 2%. The rate cut is designed to lower borrowing costs, thereby encouraging consumer spending and business investment. This increase in economic activity is expected to help balance inflationary pressures and move us further towards the ECB’s inflation target.

The Eurozone has recently been experiencing a noticeable slowdown in economic activity. Additionally, geopolitical tensions and trade uncertainties have exacerbated these economic challenges, prompting the ECB to act. This move aims to address the Eurozone’s slowing economic growth and persistent inflation concerns, reflecting the ECB’s strategic role in supporting economic stability. And, although economic growth has been anaemic (barely 0.4% in the euro zone in 2023), the ECB may have saved the economy from recession, understood as two consecutive quarters of negative growth.

ECB President Christine Lagarde indicated that the ECB is prepared to implement further measures if necessary, depending on future economic direction. The central bank will continue to closely monitor key economic indicators, such as growth rates, inflation trends, and external economic factors, to guide its policy decisions. Mortgage interest rates in Spain have started to fall, which is good news for borrowers, but there is no certainty on the timing or the scale of future rate cuts.

Should you have any enquiries regarding the content of this article, or any other questions relating to mortgages in Spain, please do not hesitate to reach out to us for further information.
Patricia Nadal: spain@spectrum-mortgages.com

www.spectrumspanishmortgages.com