Cross Border Financial Planning Issues

Fiduciary Wealth Team

Have you really thought about the wider financial implications moving to Spain entails? This goes well beyond the need to establish formal residency and to begin paying your taxes locally if you are spending more than 183 days in any year in your new country of residence.

If you have savings and investments that were set up in the UK to take advantage of the tax rules there you need advice on how these will be affected by your new residential status. For example you may have invested in tax free savings plans in the UK (ISA’s) but need to be aware that not only can you no longer add to these investments but also that any income generated will be taxed in Spain. Similarly you may have invested in a UK offshore bond, and been eligible to draw 5% of the original investment tax free each year. Now that you are Spanish resident this benefit no longer applies and this type of investment can be heavily taxed here.

Nor can you hide behind the fact that you hold money in an offshore bank account. As a Spanish resident you are subject to tax on your worldwide income including any bank interest even if you never withdraw it. Under the terms of the EU Savings Directive most jurisdictions including Jersey and Isle of Man are now exchanging information with your local tax office and for the few that do not the rate of withholding tax that will be retained has increased to a staggering 35%. Whilst the EU Savings Directive is limited to individuals at the moment proposals are in place to extend the scope to Trusts, Foundations and Companies as well as a wider range of financial instruments beyond simple deposit accounts.

As well as seeking out a comprehensive review of your savings and investments you need to consider what to do with your retirement planning benefits. Many people are aware of QROPS and the fact that you can transfer your UK scheme into this type of arrangement but what are the real benefits? HMRC has recently redrafted QROPS legislation to stop unscrupulous advisers flouting the rules by offering clients a way of releasing 100% of their pension fund as a lump sum together with a general tightening up of some of the reporting requirements. In many cases a bona fide QROPS scheme will allow a UK expatriate to draw pension income at a tax rate of under 3% whereas the same income being drawn in the UK might be taxed at 20%, 40% or even 50%.

Perhaps the biggest area of uncertainty and concern for those exiting the UK is inheritance tax and the impact a move to Spain will have. Of course Spain has its own succession tax but unlike the UK this is levied on beneficiaries and the value of assets they receive rather than the estate of the deceased. It is important to understand that just exiting the UK doesn’t mean you no longer have a liability to inheritance tax. In the worst case scenario your assets could be subject to taxes in both countries and your beneficiaries might ultimately end up a lot poorer than they imagined.

Moving to Spain, or any other country for that matter means making a complete review of your financial arrangements to ensure that these are tax efficient and fit for purpose for your new situation. You need to speak to advisers who have cross border expertise and who understand pensions and investment and financial planning strategies in both the UK and Spain.

For an appointment to discuss your requirements in detail contact 956796911 or email