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Spanish Compliant Investment – what’s it all about and is it really necessary?

If, like me, you have ‘been around a bit’ (in the nicest possible way 😉), you will remember the days of TESSAs and PEPs … the ‘good old days’ when the investment world seemed so much simpler … until 1999 when it all changed with the introduction of Individual Savings Accounts (ISAs). ISAs have naturally developed over the years but have stayed with us. They have been used now in the UK for many years for tax- free growth and tax-free returns alongside either onshore or offshore life bonds, which also offer great tax planning opportunities with the benefit of tax deferred growth (note tax deferred, not tax free) when you live in the UK.

Whichever of those you have invested in, if you are now living in Spain or are planning to, the move throws a whole new set of complications at you in respect of the tax efficiency of your existing savings and investments.

I’ve touched on Spanish Compliant Investments in other articles, but have never written one specifically on the subject until now. A question I am often asked is whether the money needs to be brought into Spain to benefit from a Spanish Compliant Investment … the answer is no, and furthermore I never recommend money is brought into Spain unless it is needed, mainly due to potential embargoes on bank accounts (an unusual situation where if the Hacienda believe you owe them money, or if you have, for instance, an unpaid traffic fine, the Hacienda can take money directly from your account without your permission). Spanish Compliant Investments are held within Europe and benefit from special tax breaks.

So let’s consider what most people are looking for from their savings and investments and how a Spanish Compliant Investment might fit your needs as a resident of Spain …

Growth or Income

Making the most of the savings you have, looking for a better return than the bank or building society, but without taking big risks is high on the priority list for most people. I come across many expats with ‘the pot’, the savings they have built up over time, or inherited, or gained through the sale of a property; their life savings. When we provide investment advice, we realise it’s a bit like being responsible for the Crown Jewels and that’s exactly how we treat it!

Matching our investment advice to clients immediate and long-term plans is crucial. In our advice process we consider a number of factors including (but not restricted to) income requirements, attitude to risk, capacity for loss and whether the client is likely to remain in Spain or move on.

Tax efficiency

This really is important to get right. There are a number of issues to consider in respect of your existing Bank/Building Society savings when you are tax resident in Spain. Premium Bonds, ISAs, offshore life bonds, UK life bonds, shares, unit trusts/OEICs and any other investments not specifically Spanish Compliant do not offer you any tax efficiency as a resident of Spain, and as tempting as it is to stick with what you know, you are leaving yourself at a disadvantage that could cost you thousands in tax. Let’s look at each issue in a bit more depth and consider the difference for savings held in a Spanish Compliant Investment …

Income Tax whilst invested:

The growth/interest on any non-Spanish Compliant investment should be declared to the Hacienda each year and will be taxed. Tax is payable on the growth/interest received each year whether you use your savings or not, whether you withdraw the growth or not, and losses cannot be carried forward or used to reduce your tax liability. In Spain savings income is taxed at the following rates (as published for 2023):

19% for the first EUR 6,000 of taxable income.

21% for the following EUR 6,000 to EUR 50,000 of taxable income.

23% for the following EUR 50,000 to EUR 200,000 of taxable income.

27% for the following EUR 200,000 to EUR 300,000 of taxable income.

28% for any amounts over EUR 300,000.

This has a severe disadvantage for you as the investor because tax is not deferred, meaning that you are deemed to have received a certain cash value. Even though no money may have actually been received or credited to your bank account it is considered income for your Spanish tax return equal to the amount of growth, which can add up to a large amount over time.

A Spanish compliant investment is also taxed at the same rates, but only on the deemed growth when a withdrawal is made, this provides the benefit of tax deferral and can often lead to significant savings, particularly when you consider that part of any withdrawal is also deemed return of your own capital and is not taxed at all. This offers a high degree of tax efficiency under Spanish law.

Let me give an example of how this works. Assume that you invest €300,000 for a 5 year period and that both investments achieved growth at 5% per annum. The Spanish compliant investment allows gross rollup whilst invested whereas the non-compliant investment is taxed each year even if no withdrawals are taken, resulting in the overall return being much lower. Here are the outcomes:

Inheritance Tax:

There is no protection from potential Spanish inheritance tax issues in the event of death on any non-Spanish Compliant savings and investments that you hold. In the UK inheritance tax is charged on your estate and 40% tax is payable on the value of your estate above the nil rate band (currently £325k) … it is the estate that is taxed, not the beneficiaries.

In Spain inheritance tax is charged per beneficiary (not on the total value of the estate) and calculated according to how closely related each beneficiary is to the deceased. The beneficiary’s pre-existing wealth is also taken into consideration when calculating the tax due (the wealthier a beneficiary is before inheriting, the more inheritance tax they pay!). If you are not related (for instance, living together but not married) the tax due is increased by between 100% and 140% and you do not qualify for any allowances or deductions.

Also worth noting is that in Spain savings and investments do not pass tax free between spouses on death, unless they are specifically Spanish Compliant. This is a major consideration when planning your finances as a resident of Spain! Although some regions now have generous allowances for those closely related, effective planning means that you and your partner can be protected from any potential liability on death in respect of your savings and investments. We aim to ‘future proof’ our clients as much as possible so that they are not solely reliant on government policy or allowances, which can change from one year to the next! Spanish Compliant Investments held in joint names are not declarable for inheritance tax on first death, irrespective of any allowances or government policies, and as such offer valuable protection for couples looking to protect each other in the event of either of their deaths.

Finally, with a Spanish Compliant Investment there is no need to wait for Wills to be processed on death and all the bureaucracy that comes with that in respect of either probate or the Hacienda.Proceeds from a Spanish Compliant Investment are paid out immediately and directly to your named beneficiaries, which makes life a lot easier for your loved ones and frees up cash that can be used to pay any inheritance tax bill (in Spain your inheritance tax bill must be paid before assets can be inherited by your loved ones … a consideration, for instance, if you are leaving property to your children).

Modelo 720:

The value of assets above €50,000 held outside of Spain that are not Spanish Compliant should be reported on the Modelo 720. This includes property, savings and investments, shares, current accounts etc. The Hacienda positioned it as an information gathering exercise when it was introduced. It later transpired that whilst the Modelo 720 itself is not used for income tax liabilities, it is often used when calculating inheritance tax, which is payable on your worldwide assets when you are resident in Spain.

A Spanish Compliant Investment is not reported on the Modelo 720 by you as this is done automatically by the provider for all their clients on one return, leaving you free to enjoy life, avoiding potential penalties for not correctly reporting assets!

As you can see, there are all kinds of things to think about when deciding to live in Spain; what’s tax efficient in one country is not necessarily tax efficient in another. It’s important to get advice specific to your particular situation before you move and ongoing advice after making the move, as guidelines and rules can change. How you hold your assets can have a big impact on the tax you pay in Spain!

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 –

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

29 May 2023

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