Be Legal – Be Smart – Be Prepared
The importance of helping clients become what we at Stein call “Financially Well Organised” cannot be overstated. It will save you and your beneficiaries grief, time and very significant money.
When advising clients about their Financial Planning, I usually recommend to only retain money in Spain that is either going to be Notarised, i.e. when buying a home, a business, a car or boat etc… or money that is going to be spent on funding their desired lifestyle.
Other assets and cash should be retained outside of Spain in a Spanish Compliant Tax Structure.
However, it is always important to retain a level of liquidity that is relevant to the cost of your lifestyle, especially if you are living off investment income. If keeping your liquidity (usually a bank deposit) below 50K EUR works for you, neither your Bank Deposit, nor your Spanish Compliant Tax Structure, needs to be declared on your Modello 720 annual Wealth Tax Returns.
All other worldwide assets in access of 50K EUR do need to be declared.
Retired to Spain – Growing Older – Property Owner – Tax Situation
Most people, especially the British, like to own the property that they live in. However there is a time in life, as we grow older when owning a property can be a burden on the surviving partner especially in Spain where Inheritance Tax is charged on the death of the first spouse to die.
Owning property in Spain can leave a loved one with a tax bill that seriously erodes the surviving partners standard of living at a time when they are most vulnerable having become bereaved.
Property is good investment in good times but we have consistently been able to deliver significantly higher growth from well selected equity linked investments.
The main disadvantage with property is that it is not a liquid investment. Property also has high acquisition costs when buying and also when selling. It often takes a long time to sell, especially in recession. Furthermore it is notarised; therefore is an easy target for Tax Collectors to attack to raise additional revenue, especially when austerity measures are enforced!
Spanish Tax Residents who owned a 450,000 EUR property and are in their 60’s with a grown-up family and grandchildren. Their concern was taxation and succession planning.
They decided to sell the property and moved into a beautiful rented apartment in a central location and now rarely use their car.
The profit after tax from the sale of their property is re-invested in a Spanish Compliant Tax Structure with other investments and they manage their bank account to stay below 50k EUR each year.
Their rental income, which is paid from the proceeds of the sale of their property, would only be a 1.8% draw off the capital each year. They have some pension income and have now decided to take additional income to do some special things while they are still young and fit enough to do so. We rarely become fitter or healthier with age!
The additional income drawn down from their investments in the Spanish Compliant Tax Structure is taken as an annuity and subject to between 2.4% to 3.25% income tax, due to the special tax treatment of annuities in Spain.
They are happy in their new environment and now have significant additional income which affords them a better lifestyle and to do the things they always wanted to do but never thought they would be able to afford. They have even spent some money on the rental property to make it more personal to their needs.
The clients are realists and appreciate death is guaranteed. We all discussed the taboo subject of life after the other has passed on. They are comforted that they have a Financial Plan and their arrangements are secure and simply organised. When one of them dies the Spanish Tax Structure passes without probate delay or inheritance tax to the survivor.
However; they tell me that the most satisfying part of being “Financially Well Organised” is knowing they can both maintain their lifestyle without the other and when the survivors time comes, their entire estate passes to their children and grandchildren without probate delay or Inheritance Tax.
We very often find that the Family Lifestyle is heavily reliant on the historic main earners pension and on death a significant part of this income is lost. This can be very debilitating at a very sensitive time and property ownership and Inheritance Tax adds to the stress
At Stein we do not want our clients to be saddled with the additional burden of taxation and having to make life changing financial decisions at the time of stress and sadness of losing their partner.
All planning, no matter at what time of life you currently are, starts with becoming “Financially Well Organised”.
If you would like to have a private meeting and a Financial Assessment without obligation, please let me know by emailing email@example.com or calling me on my private mobile, number +34 653122716.
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 except 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.
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