The money will come, in part, from higher taxation. In the UK today, a menu of proposed increases in taxation has been leaked. In Spain, a loophole in wealth tax legislation that allowed some unit linked insurance savings plans to be exempt from wealth tax has been closed. What is significant is that these changes are coming now, before we are even clear of the lockdown and virus.
The changes to taxation in Spain are likely to include savings tax, inheritance tax and wealth tax in particular. Changes were already being discussed and the economic fallout from the pandemic provides the reason to bring forward these changes. Specifically, the EU has told us to harmonise inheritance tax across Autonomous Communities as there are big differences in the amount of tax to be paid.
In the draft budget for 2020, there is a proposal to change savings tax. At present, we have three bands of tax. The top rate for gains and investment income over €50,000 is 23%. A new band will be introduced for gains and investment income over €160,000 of 27%. We should expect this change to happen soon as it is already in the budget which is going before Parliament for approval. The first case I have seen where this will apply would lead to an additional €48,000 in tax. It is pertinent to bear in mind that these tax rates can apply to the gain on some property sales.
In addition to the wealth tax change described above, we understand that others may now be considered.
Planning actions
Help is at hand. There are planning actions that can be taken to minimise the tax issues. Here is a three point plan to minimise the effect of these changes:
1. Savings Tax. Move investments into Spanish tax efficient investments. These are available and you do not have to move your investment to Spain to qualify. They are available in Sterling as well as Euros and USD. If you would like confirmation on which of your current investments are tax efficient in Spain, I am happy to review them with you.
2. Inheritance Tax. This requires very careful consideration before making decisions to manage inheritance tax. Making sure you can maintain your lifestyle is an important part of this planning, especially for the survivor in the event of one half of a couple passing away. Once these criteria have been met, planning is feasible. A recent case of planning has saved £87,719 in UK inheritance tax for a couple living here in Spain. For nearly all of us from the UK, our estate at death will be assessed for UK inheritance tax.
3. Wealth Tax. Sometimes, the planning for wealth tax is simple. In other cases, not so simple. Care is needed and it is worthwhile asking for a review.
We have had our cake in the form of stimulus to protect the economy. We will shortly find we will have indigestion from eating the cake in the form of higher taxes. Fortunately, we still have a few indigestion tablets available to relieve our pain.
If you wish to discuss tax on your savings, inheritance tax or wealth tax please feel welcome to call. If this helps, you can match your availability for a call with mine online here.
