Despite the UK-style regulation, Speed Financial Solutions does not operate a fully-fee based model as mandatory under RDR, choosing instead to charge a 0.5% per annum ongoing fee.
“It’s not fully fee-based because there is no commission ban in Spain at the moment,” Speed notes, adding that the firm is RDR ready if required.
Referring to her Malaga-based firm as a “bespoke boutique-style business”, she says the unique selling point of the family run firm is that none of its advisers have sales targets. “I disagree with asking my adviser, ‘How much business are you going to be bringing in this week?’ It completely goes against my beliefs.
“My main concern is we give the right advice to clients, and if sometimes that means walking away from the business, or recommending a product to a client that we will not earn a commission on, then so be it.”
In search of clarity
Advising expats in Spain throws up its own challenges, not least understanding the country’s complex tax code, which currently allows each of the 17 autonomous regions to set their own tax rates.
In 2011, the Spanish government reintroduced a previously abolished wealth tax that applies a tiered levy on worldwide assets over €167,129. Not long after, it also brought in the Modelo 720, a tax return requiring every Spanish tax resident to declare their foreign assets worth over €50,000.
Modelo 720 was initially positioned as an information-gathering process, says Speed, adding that the tax authorities claimed it would not be used for tax purposes.
Since the summer of 2014, the Spanish tax office, known as the Hacienda, has been comparing the wealth tax and Modelo 720 returns for discrepancies, raising thousands of enquiries.
“What we are now finding is that in the event of somebody’s death, when the lawyers are doing the inheritance tax calculations, they will automatically include anything that is listed on the Modelo 720.
“If clients are willing to put something on the Modelo 720, they’ve got to now understand it may be subject to Spanish inheritance tax, which is a very different system to the UK,” she says.
Malta Rops rule
Last October, Spain unveiled a new rule requiring British expats to declare the money they have in Malta-based recognised overseas pension schemes (Rops) that allow ‘flexi-access’ in line with the UK’s pension freedoms introduced in April 2015.
The move came after the Hacienda decided if a Spanish resident can access the whole capital within a pension fund it should not be treated any differently to a life assurance policy for Modelo 720 reporting purposes.
When asked if overseas pensions may now be subject to Spanish tax, Speed, who has been working closely with a local UK solicitor to make sense of the new rules, says it is unlikely. “A trustee from Malta rang me for advice on this because it has been unclear. We work closely with a local lawyer who, when calculating inheritance tax liability, has never listed a pension. It is as clear as mud,” she says.
Common Reporting Standards (CRS)
Another concern for clients is the Common Reporting Standard (CRS), which goes live later this year. Spain is one of 100 countries set to share information on taxpayers’ assets and income later this year, in a bid to tackle tax evasion. The information will include personal data such as name and address, country of tax residence and tax identification number.
