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Top tips for expat finances | Spain
By Chris Burke
This article is published on: 10th October 2023
This month’s Top Tips are as follows:
- Wills – Why almost everyone should have one
- How to build a pension in Spain, quick example
- Why have your investment in a tax ‘Wrapper’ rather than an investment platform?
Wills – why almost everyone should have one
If you die whilst living in Spain or owning property/assets here, the expression is known as dying ‘intestate’. To quote why you should not want this to happen (apart from the obvious!) the Law societies words are as follows:
“Dying intestate not only means your final wishes will probably go unheeded, but the financial and emotional mess is left for your loved ones to sort out. This need not be your final legacy.”
So, if are not bothered about the administration you leave behind, the only circumstances under which I would suggest you might not want a Will (I still think you should, but it’s your choice) are if you are single or married with no children.
If you have children under the age of adulthood, in my professional opinion there are no excuses for not having a Will for the following reason: God forbid something should happen to both parents, how would the law know who you would want them to be raised by and how? Those left behind (grandparents for example) may not agree with your wishes but they should respect them. Imagine if you didn’t stipulate and the state decided against your families wishes………………….
Building a pension in Spain, quick example
“Chris, I want to save for retirement but I note the annual amount you can save into a private pension in Spain is €1,500, what options do I have?”
Well, some people tell me they could overpay into the state pension to obtain more, I say good luck with that. One of the ways they now calculate this is the average of the last 25 years of your salary/income, so the days of a great Spanish state pension for most are over.
I could go into great depth here but for ease’s sake, the following saving / investing example could give you an income of approximately €25,000 per year, so along with a full UK state pension that would give you a total income of approximately €38,000 per year and hardly any tax to pay:
- Initial investment of €50,000
- €2,000 per month contribution for 20 years
- Total investment value at the end: €926,247.78
I did say it was quick! This is of course is in tomorrows money (inflation roughly doubles every 24 years). With my clients we go into much more depth and analysis, but it gives you an idea.
Why have your investment in a tax ‘Wrapper’ rather than a platform?
Because of Tax, Tax, Tax!!!!!
Need I say anymore, THE most important aspect to consider as a Spanish tax resident.
When you withdraw money from an investment platform you are taxed on the ‘profit’ you take out. So, for example you start/invest €100,000, it grows to €120,000, you withdraw €10,000, tax is payable on the €10,000 as that is profit.
However, with a ‘tax wrapper’ you pay a different tax, Spanish Proportional tax, which is calculated by the following formula:
Initial investment amount, divided by current investment value, multiplied by the amount you are withdrawing.
So, to copy the above example, you start/invest €100,000, it grows to €120,000, you withdraw €10,000, tax is payable on the gain proportionally which is calculated the following way:
€100,000 divided by 120,000 multiplied by €10,000 = €8,333.
This €8,333 is the amount tax exempt, so you are ONLY taxable for €1,666 as opposed to €10,000 for an investment platform gain.
You can also add Children over the age of 14 to Tax Wrappers who benefit from this in the future, as well as partners/spouses. So, the additional cost of the Tax Wrapper can more than outweigh the tax savings over time.
Some of today’s Tips can be quite complex, if you are not sure don’t hesitate to get in touch.
For those of you who don’t know me that well, I am a bit of an 1980’s fan. I was brought up on prawn cocktail, roast beef with all the trimmings and trifle for pudding. I still even now listen to 1980’s music channels………anyway, I am going to share each month some of my favourite TV commercials from back then until you tell me to stop OR I get inspired with something else!
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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 Chris.