Page 28 - Spanish Insight - April 2020

Legitimately reducing

your Spanish tax bill

make for higher net worth people. pension of €5,000 per annum.
By Steven Langford, Partner, Blevins Franks
Mr Smith Their combined Spanish tax liability, without
This article was written before the coronavirus Mr Smith (not his real name) is resident in any tax planning, is approximately:
situation escalated in Spain. We understand Andalucía. His Spanish property (main home) Income tax: €76,382
that tax planning may not be a high priority is valued at €2,000,000. His various capital Wealth tax: €76,070
right in these challenging times, but this article investments amount to €5,000,000, plus Total tax: €152,452
will be still be relevant when life starts to another €1,000,000 in cash deposits. He has a
return to normal. UK pension fund worth €1,000,000. But like Mr Smith, they can restructure their
assets to significantly reduce their Spanish tax
Spain continues to be a favourite destination His investment portfolio and savings generate liability.
for expatriates, including those making the an annual income of €315,000 (income and/or
most of their retirement years. And with the realised gains). He receives pension income of Tax liability after restructuring:
residence rules for UK nationals potentially €40,000 per annum (€30,000 from his private Income tax: €5,842
changing from January 2021, many people are pension and €10,000 of state pension). Wealth tax: €23,666
moving their plans forward to make sure they Total tax: €29,508
are lawfully resident in Spain before Brexit His annual Spanish tax liability in Andalucía,
takes full effect. without any tax planning in place, is They can reduce their Spanish income tax
approximately: bill by €70,540 and their wealth tax bill
While you may be focused on all the benefits Income tax: €79,930 by €52,404, making a total tax saving of
of living in Spain, you also need to understand Wealth tax: €128,364 €122,944.
how being Spanish resident will affect your tax Total tax: €208,294
position. Once you meet any of the criteria Of course, everyone’s circumstances are
that make you tax resident here (you spend However, if he takes specialist advice and different and you may not be in a position to
183+ days in Spain, or your centre of economic restructures his assets to take advantage of the achieve the same level of results. But these
or vital interests is here), you are liable for tax planning opportunities available in Spain, examples clearly show that the way you hold
Spanish tax on your worldwide income, he could reduce his combined tax bill by over your assets and take income from them can
gains and wealth, and subject to the Spanish 80%. This involves using Spanish compliant make a considerable difference to how much
succession and gift tax regime. investment arrangements, transferring his tax you pay in Spain.
private pension fund and adjusting the way he
Besides the expected income and capital gains takes income. It is certainly worth asking a specialist
taxes, Spain additionally imposes an annual adviser, like Blevins Franks, to review your
wealth tax which generally affects those Tax liability after restructuring: investment portfolio, pensions and other
with net worldwide assets over €1,000,000. Income tax: €7,765 assets. They can also evaluate your current tax
Combined together, this can result in a Wealth tax: €25,876 liabilities, consider your personal situation and
discouraging annual tax bill. Total tax: €33,641 objectives, and look at what Spanish compliant
arrangements would work for you and how
Spanish taxation therefore can present a This represents a total tax saving of €174,653: much tax you could save. You may be very
dilemma for the wealthier individuals and €72,165 in income tax and €102,488 in wealth pleasantly surprised by your new tax bill in
families who wish to live in Spain. Do they tax. Spain! www.blevinsfranks.com
become resident and face high taxes? Or do
they just visit often but not enough to become Mr & Mrs Jones These are simplified, estimate tax calculations for
tax resident? It is a similar situation for married couples. illustrative purposes and based on 2019 tax rates
Mr and Mrs Jones (not their real names) are (pending the 2020 state budget). Summarised
But you do not necessarily need to fear also wealthy Andalusian residents. tax information is based upon our understanding
taxation in Spain – in fact you may find you of current laws and practices which may change.
improve your tax situation by becoming They own a €2,000,000 Spanish property Individuals should seek personalised advice.
resident. While tax rates can look high, the equally in joint names (main home). They
Spanish tax regime does present tax mitigation each have €2,500,000 in capital investments Keep up to date on the financial issues that
opportunities – the way you hold your assets which generate an annual income of €150,000 may affect you on the Blevins Franks news
can make a significant difference to how much for each of them. They also both have page at www.blevinsfranks.com
tax you pay. €500,000 in the bank (€7,500 income each).
Mr Jones has a private pension fund worth
Here are two examples which illustrate just €1,000,000 from which he receives an annual
what a big difference restructuring assets can income of €30,000. They both receive a state
28 Spanish Insight April 2020