Rapid developments in IT systems, financial databases and data-sharing platforms over recent years now mean that it is easier than ever for nation states to share and exchange financial information relating to the investments, income, taxes, savings accounts, properties and pensions of individuals who have assets placed in multiple locations across the world.
Inevitably, this also means it is now crucial to ensure you disclose your full list of assets whenever required.
As a British native you might be a little complacent in this regard. The UK has one of the most stringently and best-regulated financial advice sectors in the world, and in many cases if your adviser fails to disclose your full spectrum of assets and interests it is he or she, rather than you, who will be liable.
However, the landscape is markedly different in Spain where even a benign mistake, either by you or by your financial adviser or accountant, can lead to an investigation, prosecution and, potentially, liability on your part. So, there is – or at least should be – real emphasis on getting things right the first time and finding an expat financial adviser in Spain who has credentials and regulation which you can trust.
Unfortunately, this is frequently easier said than done for new expats who may not be familiar with how things work in Spain. For example, pretty much all income and investment growth are taxable annually, including ISAs and premium bonds, which are both taxable regardless of whether you receive income or take withdrawals.
In fact, all Spanish residents are legally required to declare any assets they hold outside Spain worth more than €50,000 (per asset class). These must be reported using a form known as Modelo 720, which divides assets into three groups:
- Cash, deposits, ISAs
- Financial assets (bonds, investments, pensions, insurances)
Any failure to disclose assets correctly on Modelo 720 can result in Agencia Tributaria issuing substantial fines, so it is best to plan prudently in a way that ensures you are intelligently reducing the tax liability on your investment income.
As a general rule all of the following types of assets and investments attract capital gains tax of between 19 and 23 per cent:
- Investment funds/stocks/shares
- Interest from Banks
Furthermore, and again as a general rule, the following types of income attract an income tax of between 19 and 45 per cent:
- Rental income
- Pension income
- Premium bonds
Start planning for 2019
While the deadline for Modelo reporting has passed in 2018, it is never too early to start planning for the next deadline. One piece of good news is that if you manage your wealth and investments prudently you may be able to use expenses to offset some of the tax on gains, while long-term property rental can result in you receiving significant discounts on rental income.
More good news is that if you have a long-term growth-focused investment strategy, you can make larger tax savings. However, it takes planning to reach this stage with confidence. If you would like help planning and managing your wealth and investments in Spain, talk to Blacktower expat financial advisers in Spain today.