Offshore Insurance Bonds- Spain

Offshore Insurance Bonds           


Offshore insurance bonds have been one of the most widely sold investment wrappers sold , predominately, to British expats as being a tax efficient way to invest.

Of course, this presupposes the assumption that all jurisdictions apply UK tax rules- which, of course, they do not.

We have written about offshore insurance bonds before in the context of high and undisclosed commission and inflexible terms and conditions. However, that is only half the story in jurisdictions like Spain.

Offshore Insurance Bonds- Foreign Bonds

These non-Spanish non-compliant bonds are known as Foreign Bonds. UK rules allow the funds to roll up without incurring a tax liability, and to take up to 5% per annum as ‘income’ for 20 years, until final encashment. This allows the investor to plan when to pay tax and possibly manipulate income to reduce the ultimate tax bill. If anyone, resident in Spain, has taken out such a bond I would suggest they take tax advice as soon as possible.

The rules in Spain for these offshore insurance bonds are very different from what may be written on the glossy brochure given to the investor by the shiny-suited salesperson.

Offshore Insurance Bonds- Tax in Spain

It is not the withdrawal that determines the taxable event. Spanish Income tax is payable on an annual basis. It is calculated as the difference between the surrender value as at 31 December of the current year adding back any withdrawals taken during the year less the surrender value as at 31 December of the previous year. ( Art. 14.2.h de la Ley IRPF  )

It would therefore seem that there are no tax advantages and, in fact, those that were sold them may find that they  could have issues with the Spanish Tax Office for non-disclosure.

Many that invested in offshore insurance bonds have not actually made any profit at all. Largely due to a combination of the excessive fees and commissions and poor investment advice. As the Income Tax is calculated on a foreign bond on an annual basis, based on the difference in the bond value year on year, any losses or reductions in value of the bond can be reported in the current year and carried forward for 4 further tax years. If investors have not been reporting these losses then they cannot be used to offset possibly future tax charges on gains.


Investors cannot assume a British designed product is going to be taxed the same way in different countries and should always take tax advice when investing if they do not know the local rules.

There are Spanish tax compliant insurance bonds that offer some tax advantages but they often come at a price that may offset/remove the advantages.  Also, there are restricted numbers of funds that are available, tying the hands of professional investment advisers who apply a whole of market approach to investing.

In the event of Brexit, any UK domiciled funds held within such complaint bonds could remove their tax beneficial status. Have the people that sold these funds alerted their clients to this?

If you have any type of offshore insurance bond it is worth getting a second opinion from another suitably qualified adviser and, for those with foreign bonds that are not Spanish Tax compliant, a trip to a tax adviser is recommended as soon as possible.


The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.


This article was republished on 21st November 2019


Chris Lean

Chris is a Chartered Financial Planner who writes blogs and articles to simplify and explain some of the financial issues that affect UK expats. Subjects include; hot topics, regulation and the ever-changing world of finance.

Related Stories:
Advise Me

Share this story