For those who live off savings, the highest tax rate is roughly half of the highest rate applicable to general income. Also, much like the situation in the UK, by utilising a Spanish compliant investment bond as an investment holding vehicle, there are considerable tax saving benefits to be had.
No tax is payable if no withdrawals are made from the bond and even when a withdrawal is taken, it is only the proportion of “profit” deemed as included in the proportional withdrawal which is taxable. A withdrawal of €11,000 from a bond with an original investment of €100,000, and worth €110,000 12 months later has a taxable element of €1,000. With a savings income rate of the maximum of 24%, a tax liability of €240 would arise on the total withdrawal of €11,000 is only 0.022% of the total.
If the €100,000 had been held directly, then the increase in value of €10,000 over 12 months would have suffered tax of €2,400.
These practices can also have particular benefits in reducing the Wealth Tax exposure substantially.
An unexpected journey
Many UK expatriates find themselves eventually returning to live in the UK. In this situation the offshore investment bond has real tax savings through encashing the bond soon after returning to the UK and benefitting from time apportionment.
This eliminates the profit on the bond which relates to the period of non-UK residence. If the bond was taken out after leaving the UK, and is encashed soon after returning, then only the profit relating to the period of UK residence, when compared to the whole will be taxable.
With the considerable differences in property values, and improvement in the exchange rate, Spain is again becoming an attractive location for Britons to reside. The advances made by the Spanish authorities in modernising their tax system, particularly around declaration and tax collection, will not present any problem to the UK expatriate used to the organised tax system in the UK with its strong levels of compliance.
If a UK expatriate chooses to take advice from a suitably qualified firm, well versed in the interaction of the UK and Spanish tax systems, and how to optimally arrange their tax and financial affairs from a Spanish perspective, then not only will they have peace of mind they are being fully compliant, but they will are also be minimising their tax exposure wherever possible.
Blevins Franks has been providing specialist, professional financial advice to British expatriates for decades, and is an international tax and wealth management adviser to UK nationals living in Europe, with 10 offices in Spain alone.
