The Federation of European Independent Financial Advisers

Thousands of Spanish residents could be overpaying tax due to their lack of knowledge of the most tax efficient way to hold savings. People overpay income tax, savings tax, capital gains tax, and even inheritance tax, because they are holding their money in inappropriate savings and investment accounts. However, there are often simple solutions to what seem like complex problems. With the correct professional advice from people experienced in Spanish financial matters, savers could see more income and pay less tax.

Often, residents of Spain will turn to their bank to give them advice on what accounts and investment vehicles are best suited to them. The choice in Spanish banks is limited and the risks are often not explained. Many people are stuck in what they thought were deposit accounts, when in fact they are investments, the performance of which could be based on stockmarkets.

There are also those who hold “tax free” savings in the UK, such as ISAs, National Savings Certificates and Premium Bonds. All of these are NOT TAX FREE IN SPAIN. For Premium Bonds especially, there appears to be better returns, when compared to most other options which are paying close to zero interest. However, any interest or gain is taxable in Spain and needs to be declared.

A solution is to have money outside Spain but recognised by Spain for preferential tax treatment.

A COMPLIANT ACCOUNT AND NO WITHDRAWALS MEANS NO TAX DUE
In this example, €200,000 was invested in 2016 and the account holder had no other savings income.

With a non-compliant account, tax must be paid each year on the growth of the account, totalling €6,260 over the 3 years. With the Spanish compliant account, if no withdrawals are taken, no tax is immediately due on the annual growth of the account.

 

*Click the image above to enlarge

AND IF WITHDRAWALS ARE MADE?
Again €200,000 is invested and the account holder has no other savings income. This time the policy grows by €10,000 each year, and the account holder withdraws this amount. With a non-compliant account tax payable is based on the full growth of the account, whatever amount is withdrawn. For a compliant account, tax is only due on the gain attached to the withdrawal.

 

That´s a 91% tax saving over 3 years!

 

​​​​​​​​The above article was kindly provided by John Hayward from The Spectrum IFA Group​ and originally posted at: ​​​​​​​​​​​https://www.spectrum-ifa.com/do-you-know-if-you-are-overpaying-spanish-tax/