This is the season when your finances can go on holiday and you can forget at least temporarily the fact that you didn’t complete Modelo 720 or that you failed to include all of your assets on the form last year. You won’t have to revert to panic mode until you start thinking about the declaration in February 2015.
Unfortunately life isn’t always that simple, one of my clients has just received a notification from Hacienda questioning his residential status (he has been living here for the last few years and has never disclosed or paid any income tax to the Spanish authorities and probably not to the UK either).
Now what does he do, does he tell Hacienda that he hasn’t been resident all this time and they then go back and check his utility bills and find out that he has? Does he tell the Spanish authorities that he is actually UK tax resident and then the two authorities exchange information (which they do on a regular and increasingly frequent basis) or does he just come clean and admit that he has been living permanently in Spain for the last however many years and during that time he has lived off undisclosed offshore fund and that he didn’t realise he had to complete Modelo 720?
Beginning to get a bit messy we think. We have spared this client’s blushes by excluding some of the other omissions, deliberate or otherwise and as he awaits the outcome of Hacienda’s review he is preparing himself for a significant fine and a huge bill for back taxes.
We guess most people don’t want to live like that with the ever likely threat of Hacienda discovering the real situation and then imposing massive tax penalties and fines.
Wouldn’t it make sense to check your residential status and if you are flouting the law to make a positive decision to rectify the position and at least ensure that the situation cannot get any worse. There are so many pitfalls if you set out to deceive the taxman and Modelo 720 is a brilliant example of how the authorities can collate information about you and then use that data to compare with income tax and wealth tax records looking for any discrepancies that might be lurking in their files.
You cannot have your cake and eat it. There are genuine and very straight forward tax savings schemes, both for pensions and investments, that will work for expatriates living in Spain, people seem to think that whilst favourable tax savings scheme in the UK like ISA’s and pensions abound that there is nothing available to them here; how wrong can they be. Worse still those that cling on to their tax privileged UK pensions and investments find out too late that these financial planning products have no tax benefits in Spain and sometimes can even worsen your tax position.
Modelo 720 isn’t going to go away, unless FATCA and automatic disclosure renders it obsolete. Why not review your investments and pensions now with one of our experienced financial advisers to ensure that you have the best solution for your current circumstances.
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