Expat Financial Advice in Spain
Fine weather, food, wine and a relatively low cost of living makes Spain very attractive for British expats, but since Brexit expats that have not officially registered to live in Spain are now being forced to, and so getting investments and tax affairs in order has become a priority.
There are considerable differences between Spain and the UK regarding investments, pensions and how you are taxed. It's vital to structure wealth by taking qualified advice, understand ways to minimise tax liabilities and avoid penalties which in severe cases, could include criminal charges.
Tax in Spain for Expats
Many countries have double taxation agreements (DTT/DTA) with Spain, including the UK to prevent expats being taxed twice. You are considered tax resident if you spend more than 183 days annually in Spain, your family dependents live there and/or you conducted your business there. Tax is due after deductions for social security, pension contributions, business costs and personal allowances.
You're required to submit tax returns and pay tax on local income as well as your worldwide income if you:
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own a business or operate as self-employed
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receive an annual income from savings or from a capital gain on investments in excess of €1,600
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receive annual property rental income in excess of €1,000
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are declaring Spain as your tax residency for the first time
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possess overseas assets valued over €50,000 (declared under Modelo 720)
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earn more than €22,000 per annum
Where you live in Spain affects tax. State taxes are standardised but each of Spain's 17 autonomous regions applying their own rates which are also due. Income tax is progressive and ranges (in 2022) from 19% up to 47% for earnings of more than €300,000 per annum. Tax also applies to income from savings from 19% up to 26% for earnings exceeding €200,000 per annum.
The myriad of taxes and correct reporting in Spain makes taking tax advice essential, and highlights the importance of compliant investment solutions to minimise your liabilities and reporting responsibilities.
Tax-efficient Investing in Spain
Offshore bonds have seen sold prolifically but often incorrectly because of the advisor commission on offer. Isle of Man and Guernsey offshore bonds are not compliant in Spain, putting investors at risk from incurring exit fees and higher taxes if declared to the tax authorities. There are very simple ways to make bonds efficient by using compliant products, removing fixed charges, creating bespoke low-cost fee structures and increasing flexibility.
There are specific circumstances when insurance bonds should be used, including being an expat where locally compliant products are available. In Spain, these minimise and report taxes automatically but without them, you are responsible for the reporting and tax on savings is levied as follows:
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19% up to €6,000
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21% on €6,000–€50,000
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23% on €50,000–€200,000
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26% on annual income from savings exceeding €200,000
Spanish Compliant Investment Bonds
The Spanish Collective Investment Bond (SCIB) is a life company product which used correctly, provides significant advantages over 'unwrapped' products, including:
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gross roll up on growth with tax only applied on surrenders or withdrawals
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automatic reporting to tax authorities
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taxa levied on the growth element only of surrenders and withdrawals
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zero tax due if no withdrawals are made
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no reporting as an overseas asset required under Modelo 720
To highlight the benefits of using the SCIB and differences in taxation on withdrawals, here's an example investment of €150,000 withdrawing investment growth of €10,000.
Non-compliant Investment
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Tax Calculation of Withdrawal: €6,000 taxed at 19%, €4,000 taxed at 21%
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Formula: (€6,000 x 19%) + (€4,000 x 21%)
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Tax Due: €1,980
SCIB Locally Compliant Investment
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Investment Calculation: (initial investment ÷ surrender/current value) x withdrawal
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Formula: (€150,000 ÷ €160,000) X €10,000 = €9,375
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Growth Element Calculation: €10,000 - €9,375 = €625
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Tax Calculation: €625 x 19%
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Tax Due: €118.75
Selecting Expat Investment Funds
Investment funds within your SCIB must qualify as 'UCITS' (undertaking for the collective investment in transferable securities). UCITS securities generally ensure that qualitative criteria have been met, however, it's still possible for advisors to receive commissions for selling some UCITS funds, so always check no lock-in periods or exit charges apply, more on which can be found here.
Choosing an Expat Advisor
As with investments in any country, it is vital you speak with qualified and regulated advisors to ensure you get the best advice. It's also crucial your advisor works on a transparent fee-basis so always clarify the following points:
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If fixed periods and redemption fees apply or the advisor is 'paid by the institution', confirm how much they get paid and how
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Look for fee-based investment advice with transparent and understandable set-up and ongoing fees that are fully disclosed and agreed before continuing
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Advisors should look to reduce platform charges and receive remuneration only for the services they provide and not from institutions
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Clarify underlying fund charges. Your advisor should minimise these to give you every possibility of a positive outcome
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Do due-diligence on funds being recommended and check regulations, track record and key statistics
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Take a look at our page on 5 simple questions you should ask you expat financial advisor
To speak to a qualified and regulated advisor in Italy and remove your expat investment concerns, get in touch and you'll get the local expertise you are looking for.