In April 2013 residents of Spain had to declare their overseas assets on the new Modelo 720. What happens now? Does it impact your tax position? Are there consequences? Do you need to report in 2014?
In April 2013, for the first time, residents of Spain had to declare their overseas assets on the new Modelo 720. What happens now? Does it impact your tax position? Are there consequences? Do you need to report in 2014?
Spanish taxes are higher than they used to be, and when combined with the unpopular Form 720 some expatriates are considering leaving Spain. Think again. With our specialist advice we can show you that Spain remains a tax efficient country for British expatriates and Form 720 need not necessarily be a concern either. You should review your assets now to make sure they are in the best structures going forward.
The next submission deadline is 31st March 2014, though the assessment will be your assets as at 31st December 2013.
In summary, if the value of your assets in a particular category amounts to over €50,000, you need to report all of them. You are obliged to report assets if you are the owner, beneficiary, authorised signatory, or have the authority to dispose of the asset. This includes those held by trusts, companies or fiduciaries.
If you submitted Form 720 in 2013, you only need to report again if:
- The value of an existing asset grew by more than €20,000, or
- You sold an asset/closed an account, or
- You obtained a new asset.
If you became resident in Spain in 2013, you need to file your first, complete Form 720 between January and March 2014.
In most cases, the values you report are those as at 31st December. Whether you reported previously or not, if you need to review your assets to make them more tax efficient and fully compliant in Spain, you should do so now, before the end of the year.
Your tax position
If you have declared all your income and assets correctly on your annual tax returns, your tax position should not change.
However many taxpayers will find they pay more tax going forward. This particularly affects those who declared assets for the first time, or who incorrectly declared them previously. These assets will now be assessed for wealth tax, and any income they produce for income tax, and you have to declare them accordingly.
With specialist advice from Blevins Franks, taxes can be minimised by placing funds into legitimate tax efficient vehicles that allow you to mitigate tax in Spain, sometimes significantly.
Here are some examples of possible unexpected consequences of Form 720.
Offshore portfolio bonds –Life assurance bonds provide many tax advantages in Spain, but only if they are approved here for tax purposes. All UK and most offshore bonds are not approved and are taxed differently. Under Spanish legislation, profits within an unapproved policy should be assessed each year and taxed at the savings income rates of 21%, 25% and 27%. However people have generally only declared their policy if they took a withdrawal, and now that the asset has been reported, the tax authorities will probably spot this discrepancy.
Approved life assurance bonds offer very attractive tax breaks in Spain which are well recognised by the Tax Authority, the Agencia Tributaria. There is no tax to pay on income and growth rolled up within the policy; you only pay tax on withdrawals. You may also be able to set up your policy so that some tax is withheld and you do not need to report it on Form 720 (according to the Agencia Tributaria website Q&As), although additional tax may be due.
Pensions – Some accountants advised clients to include items that did not need to be reported. For example, there was and remains no obligation to report a pension unless it gives rise to a temporary or lifetime annuity. Some people have reported the value of their company pension, even though the income cannot be treated as an annuity. Some accountants have also capitalised income from occupational pensions and reported this capitalised value as an asset. The problem is, if you die and leave your estate to a Spanish resident, these notional pension assets could be assessed for succession tax at up to 34%.
23 September 2013
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised and generalised; an individual is advised to seek personalised professional tax advice.