Offshore bonds have always had a part to play in investment and tax planning whether for high net worth individuals, non domiciled UK residents or those potentially leaving the UK either on a temporary or permanent basis. Spain has its own unique version of an offshore bond.
Why should you consider a Spanish tax wrapper? Well with this type of arrangement you can defer all taxation on your savings until you make a full or partial withdrawal and then limit the tax payable to capital gains on the growth element of your investment. In practice this could mean a tax rate in single digits on your savings as the following example shows:
Value after 5 years 450,000
Withdrawal required 60,000
2/3rds deemed 1/3 rd deemed
capital = 40,000 growth= 20,000
(no tax) Tax on 6,000 @ 19% 4080 (taxable)
plus additional tax @21%
*Effective tax rate on 6.80%
*The low effective tax rate in the example above is due to 2/3rds being considered return of original capital (presumed to have been taxed before) and therefore not subject to tax.
Tax is paid directly to Hacienda by your provider ensuring that you do not have any problems with the local tax authorities and there are a broad range of fund options available to suit every risk appetite. In addition this type of arrangement is currently outside of the scope of the EU savings directive which applies to all types of income producing investments including bank deposits and your plan may potentially be structured in a way to mitigate Spanish succession taxes.
If you are now considering legitimising your affairs in Spain and becoming a Spanish tax resident you could potentially exploit residency and domicile rules to your advantage by effectively en-cashing your UK offshore bond (if you have one) whilst non UK resident to avoid being subject to UK income tax on any gains. The funds could then be transferred into a Spanish tax wrapper which provides tax deferral on savings and reduced rates of tax on any gains.
How does this compare with your present arrangements? Are you spending more than 183 days in Spain without declaring yourself a tax resident fearful that your savings are going to be heavily taxed? Have you created expensive offshore companies or structures in an attempt to avoid tax and which might now come under the scrutiny of a revised EU savings directive? Have you left money invested in products that are tax efficient in the UK without realising this may no longer be the case whilst resident in Spain?
Whatever your circumstances, doesn’t it make sense to review your current investments to ensure that these are not only tax efficient based on your current residential status but that they also meet your current and future investment objectives? Knowing that you have a fully compliant investment makes it a lot easier to sleep at night!
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