Owning our home is generally considered to be a good idea.

It provides us with creature comforts along with a sense of security, particularly in our retirement years.

Is investing in ‘bricks and mortar’ a good idea?
Perhaps not, if you are selling a UK property whilst resident in Spain, as I am currently.
Apart from capital gains tax considerations and selling costs, a recent BBC News report says:

House prices fall as lenders raise mortgage rates in the UK
House prices fell in April as potential buyers continued to face pressure on affordability, according to Nationwide. The UK’s largest building society said that UK house prices were down by 0.4% compared with the previous month, with the average home costing £261,962 (some 4% below the peak of summer of 2022). The rising cost of borrowing is a key factor behind the recent drop in property values.

Rock-bottom rates long gone
Mark Harris, chief executive of mortgage broker SPF Private Clients, said, “There are likely to be ups and downs in mortgage pricing in the weeks and months ahead, but ultimately borrowers will have to get used to paying more for their mortgages as the days of rock-bottom rates have long gone.”

This is the second consecutive monthly fall in UK house prices, according to Nationwide’s data. Factors influencing regional property prices vary widely across the country, but the national headline figures have been downward. This data is based on the building society’s own mortgage lending, which does not include buyers who purchase homes with cash, or buy-to-let deals. Cash buyers account for about a third of housing sales.

On an annual basis, the pace of house price growth slowed from 1.6% in March to 0.6% in April

You can read the BBC News article in full via this link https://bbc.in/4a0GXfO .

The article highlights the risk of being overexposed to property in your investment portfolio.

Just when you want to cash in, market conditions may not be favourable.

And you cannot usually sell part of a property – it is an all or nothing transaction.

A well-diversified global investment portfolio is a different proposition altogether. It provides access to a range of valuable growth opportunities, it is constructed to ensure your personal risk profile is at the centre of your investment strategy and it can be highly tax efficient for UK expatriates living in Spain.

Please feel free to contact me for more information about this subject or to book a call for an informal chat.

How would you feel knowing that your hard-earned savings could be earning 9.6% pa for the next 30 years but that you have opted for an alternative paying just 2% pa instead? Ok, this is quite provocative as they are two different types of savings.

According to the Schroder 30-year forecast, these could be the average annual returns on the Indian stock market and deposit accounts respectively.

So now you may be rationalising your decision to use a deposit account by saying something like “Oh well, I don’t like the stock markets and I don’t know much about India”. This is fair enough.

Your best friend has just said “We are off to the Caribbean for a few weeks and we have always wanted to go to Patagonia so we may nip across there for a bit after the Caribbean” …. “Blimey, how can you afford that?” is what you might say, or at least think.

How interesting it would be to hear “We put some of our money in shares in Indian companies and they have paid for the trip” Your average return of 2% pa may now seem pretty sickening.

Would you invest for 30 years? Maybe, maybe not. Will you be around for 30 years, depending on your current age?

And here’s a funny thing

• At age 50 your average life expectancy is 82 for men and 87 for women
• At age 60 your average life expectancy is 83 for men and 87 for women

There’s more

• At age 70 your average life expectancy is 85 for men and 89 for women
• At age 80 your average life expectancy is 89 for men and 91 for women
• At age 90 your average life expectancy is 94 for men and 95 for women

The older we get the more our life expectancy increases. All of this means that you could well be around for 30 years or more if you are under the age of 60. You do not however have to have a 30-year investment time horizon. The minimum period we would suggest is five years but after that there is flexibility with timing.

It is not always easy to choose your savings but here is how we help with guidance:

• Leave money aside for an emergency fund (yes, in that deposit account)
• Complete a reliable risk assessment exercise to determine your attitude towards risk
• Show you different combinations of investments around your personal risk profile and discuss the options with you
• Never put all your money in one type of investment eg not all in a deposit account
• Review your attitude to risk regularly because it changes as your circumstances change
• Adjust your investments when required to ensure you are taking the appropriate level of risk for your circumstances

Which of the following applies to your situation?

• Have too much money in bank accounts?
• Have recently received an inheritance?
• Are selling a business or have share options about to vest?
• Have losses on your current portfolio?
• Do not review your risk profile and investments at least annually?

If the answer is yes to any of these questions, please feel free to arrange a call with me using my online system to book a time that is convenient for you.

It is an opportunity to get a better outcome from your savings, provide for your family, and help give yourself a sustainable income in retirement.

Undoubtedly, you will be more relaxed too knowing that you have the right risk profile for your savings and that it is updated annually.

Every so often, I write about this cheery subject but it really is worth getting to know the basics if you do not want to suffer from, or leave your beneficiaries exposed to, the slings and arrows of outrageous tax complications. There are proposed changes to UK inheritance tax which I will discuss below.

Inheritance tax in Spain has pretty much disappeared, for some and for the time being. For example, in the Valencian Community, there is an inheritance tax (and gift tax) allowance of €100,000 for spouses, grandparents, parents, children, and grandchildren. For younger beneficiaries, the allowance is higher, as it is for those with qualifying disabilities. Since 28th May 2023, there is also a 99% reduction on the tax bill for spouses, etc. This means that there is little or no tax due for the relevant category. I am not going to write about the different tax bandings but you can contact me if you want to know more.

Taxes in Spain tend not be abolished but rather put on hold or reduced, temporarily. In Valencia, this “new” 99% reduction is the same as the old 99% reduction which was in place up until 2013 when it was reduced to 75% and subsequently 50%. Asset distribution is an important consideration, making certain that, should the thinkable happen, i.e. the reduction is changed again, spreading wealth as tax efficiently as possible is key. (Spending everything is also a way of reducing any inheritance tax liability albeit to the disappointment of those expecting some handy cash.)

Therefore, planning is necessary to decide which child receives which asset. (See below for proposed UK inheritance tax change).

Although you might read that the double taxation agreement between Spain and the UK does not cover inheritance tax, tax paid on the UK estate can be deducted proportionately from the individual’s tax liability in Spain.

Proposed changes to UK inheritance tax
The UK government is looking to move from a domicile basis to a residence basis. To determine where one is domiciled can be a complicated exercise.

The UK government website states: HMRC will treat you as being domiciled in the UK if you either:

• lived in the UK for 15 of the last 20 years
• had your permanent home in the UK at any time in the last 3 years of your life

The proposed change, effective from 6th April 2025, will be to charge individuals who have been UK resident for 10 years and keep them on the radar for 10 years after leaving the UK. This would mean that after 10 years in, say, Spain, only UK assets would be subject to UK inheritance tax. This leads us back to my point about asset distribution. Where possible and necessary, assets should be allocated to beneficiaries based on their residence to maximise the tax allowances in both the UK and Spain.

We specialise in arranging savings and investments in a tax efficient manner and have saved clients and their families thousands in taxes on the death of a spouse, partner, or parent, or even an unknown uncle in one case. I am certain that we can help you too.

Are you British and living in Spain?

One of the hardest things I have to explain to a lot of clients who live here is what the difference is between residence and domicile. My objective is always to explain things in a way that makes sense and is understood, so typically endeavouring to simplify things as best I can, very often using analogies or examples that will help me get the relevant point across.

Residence is simply where you reside, typically, where is  your ‘main’ home? That answer will then normally determine your residence, so if you live in Spain, you will be a resident here. That will then normally (not always, but in the majority of cases) also determine where you will be paying tax.

Domicile however is something very different, but I always like to say that in most cases your domicile is simply determined by where you were born. So if you were born in the UK, having spent a large part of your life there before moving to Spain, your country of domicile will highly likely be the UK.

Over the years I have seen many articles published here about how you can do certain things to change your UK domicile, and they were always full of so many ifs and buts. Without going into detail, the reality is, it is really quite difficult to lose your UK domicile. However, the reason people would try and do this is usually focused on UK Inheritance Tax (IHT) planning. This is the bit people have sometimes struggled to comprehend. If you are UK domiciled, you will pay IHT on your assets outside the UK, regardless of where you live. So ‘clever’ people would try and help you lose your UK domicile so you could avoid UK IHT in the event of your demise.

That could now all be a thing of the past, as the UK Government has recently proposed changes to how IHT is calculated. Essentially, what they are proposing is that IHT in the UK is moved to a basis where residency, and not domicile, determine whether the estate on death is subject to tax in the UK or not.

Under these proposals to move to a ‘residence based regime’ from 2025, the estates of Britons living abroad will no longer be charged UK IHT on their estates globally, as long as they have lived outside of the UK for more than the last ten years.

This could have significant and valuable implications for the amount of tax levied on death on the estates of Britons who have lived here for more than ten years.  For many people, this could be very positive and welcome news.

Being the cynic I am, the question has to be asked, why would they do this?  Well, as an example, currently the UK is a very attractive place to own property and be resident as a non-UK domicile. This creates many favourable tax breaks for these people. This is one of the reasons we hear of the huge swathes of property in London being in the hands of foreign owners.

Chancellor Jeremy Hunt announced in his most recent Budget that generous tax breaks for non-domiciled individuals will be replaced with a“fairer system” from April 2025, with new arrivals to the UK paying the same tax as everyone else after four years. This of course means that if you are changing to a residence based test in the UK, then people who no longer live there would, or should, be treated with similar fairness.

So, retirement abroad could suddenly become a much more attractive prospect for many people as a result of this change, so fingers crossed it actually happens.

If you have any questions about being a Spanish resident and Inheritance Tax, please feel free to get in touch to see if I can help answer things in a clear and concise manner.