This is the first reporting document of the tax year, to be completed between 1 January to 31 March each year. So what is it?
It’s a requirement to report any assets held outside of Spain with a value of over €50,000 euro when you are a resident of Spain. It’s part of the battle to beat tax evasion by the Hacienda, originally intended for Spanish nationals, but applies to anyone living in Spain, so it also applies to foreign nationals living in Spain. The formal Hacienda explanation of what should be reported is split into three categories as follows, and each category constitutes a different reporting obligation:
- Accounts in financial institutions located abroad
- Securities, rights, insurance and income deposited, managed or obtained abroad.
- Real estate and rights over immovable property located abroad
Reporting Date: As mentioned above, the return can be completed any time from 1 January to 31 March each year for assets held in the previous tax year.
Is a Modelo 720 Return required each year? No, you only need to complete a new return if the value of your assets in each category has increased by more than €20,000 euro since your last return, or if you have sold an asset, or closed an account since your last Modelo 720 return.
Penalties for non-reporting: Penalties are applied independently for each of the three reporting obligations contained in the Form 720 information return, as each of them constitutes a separate reporting obligation. The Hacienda can go back up to four tax years.
What value date do I use for my savings and/or current accounts/investments? The Hacienda use the average balance for the last quarter of the year and the balance as at the 31 December. So, if you have a savings account abroad for instance, that had a balance of €67,000 in April, a balance of €43,000 on 31 December and an average balance for the last quarter of €42,700, the account should not be declared because, although it has exceeded €50,000 throughout the year, neither the average balance of the last quarter nor the balance at 31 December exceed that amount.
What if I have more than one account abroad (or any other asset)? If the total of all accounts in one category exceeds €50,000 euro they should be declared.
What if it’s an account held in joint names, or by a number of people (or any other investment in joint names)? If the account/investment balance at 31 December exceeds €50,000 euro, it should be declared, regardless of the number of account holders. The total balance should be reported without apportionment, indicating the percentage of participation.
My accounts outside of Spain are not euros, they are another currency, so what exchange rate should I use? You must report the balances corresponding to the current account applying the exchange rate in force on 31 December of the year to which the declared information corresponds. This same reference will be taken in relation to the valuation of the average balance of the last quarter corresponding to each account.
I have closed my account/investment outside of Spain, but how do I declare the closure if my account was not a euro account? The exchange rate in force on the date of cessation of ownership must be used to determine the balance.
I own property or land outside Spain with an acquisition value of more than €50,000 euro, how do I report this? The acquisition value should be adjusted to the exchange rate in force on 31 December of the year to which the declared information corresponds.
What about property or land with an acquisition value of more than €50,000 euro owned by a number of people? Yes, there is an obligation to report the property when this limit is exceeded regardless of the number of owners of the property. The total acquisition value will be reported without apportionment, indicating the percentage of participation.
I own a property outside Spain that I have acquired as a result of a gift or inheritance, should that be declared? Yes, you should use the acquisition value at the date you formally inherited or were gifted the property.
Should the costs of purchase be included in the purchase value of a property? Yes, the acquisition value will include expenses inherent to the purchase and taxes.
I have a Spanish Compliant Investment based in Dublin, Ireland … does that need to be declared? With respect to life insurance policies that the policyholder has taken out with foreign insurance companies operating in Spain under the EU freedom of services regime, there is no obligation for you to report them, provided that, the representative of such insurance companies provides the tax authorities with the information provided for therein. In other words, if the provider themselves complete a bulk Modelo 720 on behalf of all holders of Spanish Compliant Investments you do not need to add the investment to your individual Modelo 720 return. Check with your financial adviser that this applies to your investment.
Do I have to report my unit linked investment/investment bond/investment platform held outside of Spain that is not called ‘Spanish Compliant’? Yes, unless it is specifically called a Spanish Compliant Investment in it’s product information. Only formal Spanish Compliant Investments meet the reporting requirements of the Hacienda. Otherwise, you should declare your investment on the Modelo 720. Furthermore, each individual underlying investment that has a separate ISIN or other identification number, must be reported individually. The value of the investment wrapper as a whole cannot be used. This is one of the reasons why a Spanish Compliant Investment is a popular choice for many expats … the required reporting is done for you!
In the case of assets held in the name of a trustee outside of Spain, who’s responsibility is it to report? If the "settlor" is resident in Spain (the person who placed their assets in the trust), he or she is obliged to report the assets and rights located abroad as the owner of the same. This is an important point, as some expats have historically placed their investments into a discretionary trust in the belief that as they no longer ‘own’ the assets that they have ‘freed’ themselves in respect of their reporting requirements … this is not the case as Spain do not recognise trusts. Also, if the beneficiary(s) are Spanish residents, and they are actual and effective beneficiaries, i.e. they are not "potential beneficiaries", they must report on the Modelo 720.
What about my UK pension or QROPS? At the point that the foreign pension plan provides for the possibility of exercising the right of redemption in favour of the participant under the terms of plan, the beneficiary should inform of the rights existing in the plan, indicating the surrender value as at 31 December.
I hold Stock options, should these be declared? No
Should I declare the shares I hold abroad? Yes, the value as at 31 December should be used.
I hold a stake in a foreign entity's share capital (not traded on organised markets), should I declare that? Yes, you should use the notional value from the last approved balance sheet.
Should changes caused by exchange rates in the valuation of assets be taken into account when determining the increase in the overall valuation of assets? Yes, with the exception of property and land. In the case of property and land, once the acquisition value has been determined, changes in the exchange rate that occur in years subsequent to the year of declaration will not be taken into account to determine whether there has been an increase in total value of more than €20,000 euros, for the purposes of filing a new Modelo 720 return for the real estate.
For the rest of the assets and rights subject to the reporting obligation, fluctuations in the exchange rate must be taken into account for the purposes of valuing each set of assets as a whole and determining whether they should be re-declared, using the exchange rate as at 31 December.
Is there an obligation to report works of art, boats, jewellery, or cash not deposited in accounts? No, but the question is different where these assets are the underlying assets and rights, for instance, if held within a wrapper, in which case they should be declared.
I hope this has given you some clarity in respect of the Modelo 720 requirements. The information provided has been taken directly from the Agencia Tributaria website at the time of writing, which they state was updated in March 2022. It is actually fairly easy to simplify your finances so that you are unlikely to be required to complete a Modelo 720 on a regular basis. The Modelo 720 is not used for income tax purposes, but we are aware that it is regularly used for assessing inheritance tax obligations.
At Speed Financial Solutions, our aim is to ensure that you are able to enjoy life while we take care of your finances, ensuring you’re set up in the most tax efficient way for your particular circumstances and maximising any investment opportunities as they arise. If you are considering how best to set up your finances for your life in Spain please contact us.
Speed Financial Solutions are a highly qualified and regulated financial services provider looking after clients throughout Spain and the UK. Established in 2010, we provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your financial planning.
Our Principal, Andrea Speed, is a qualified Discretionary Investment Manager specialising in Investment and Risk, Taxation and Trusts, and a qualified Pension Specialist. Andrea is also a Fellow of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII (Level 7) and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels. Along with a Fellowship, Andrea is a CII Chartered Financial Planner.
Please take a look at our website – www.speedfinancialsolutions.com
For further information contact us on Tel 951 315 271 or 951 318 529
We are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Our Financial Review is completely free of charge and without obligation. Follow us on Facebook for regular updates.
This communication is for information purposes only based on our understanding of current legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
25 January 2024