ISAs, premium bonds, UK investment bonds, UK rental income etc are all taxable in Spain, but there are tax-efficient alternatives.

However well we have settled into our new way of life in Spain, most UK nationals living here continue with some British lifestyle habits. Whether it is a Sunday roast with all the trimmings, watching UK tv channels and sport etc., there are some ties we do not like to lose and comfort in familiarity.

The same applies for UK investments. You may, for example, have accumulated Premium Bonds, Individual Savings Accounts (ISAs), etc. over the years, or bought shares in UK companies, and prefer to hang on to them because they are familiar and feel like a safe option. But are these suitable investments now that you are living in Spain?

In particular, once you take up residence in Spain, the tax incentives provided by Premium Bonds and ISAs in the UK fall away and all income and gains are subject to tax in Spain.

Premium Bonds and ISAs

Premium Bonds were launched 60 years ago and today around 21 million people own some. They do not provide any automatic interest earnings or capital growth – which means their value will be eroded over time by inflation, but the possibility of winning a large prize can make them quite appealing.

The other key attraction is that they have always been tax-free in the UK – but unfortunately they are not tax-free if you live in Spain.

As a Spanish resident, any winnings are taxed as general income. They are added to your general income for the year and taxed at the scale rates of tax of up to 48% in Comunidad Valenciana and Cataluña; up to 47.5% in Islas Baleares, 47.4% in Andalucía, 46.5% in Islas Canarias and up to 45.8% in Murcia (as at May 2019).

ISAs too are fully taxable in Spain in the hands of Spanish residents at the corresponding savings income tax rates (19%, 21% and 23%). This applies to income and gains from cash and share ISAs.

Some expatriates mistakenly think that since they are UK investments they do not need to be declared in Spain. In fact they do if you are resident in Spain, and with global Automatic Exchange of Information now taking place under the Common Reporting Standard, the Spanish tax authorities are informed about some of your UK investments.

Other UK investments

You also need to look at your other UK investments, such as shares, unit trusts, OEICs and investment bonds and consider how these are taxed in Spain. Are they the most tax-efficient way of holding your capital? Besides income tax, what tax will you have to pay on the gains when you sell them?

In the UK long-term residents benefit from a 5% tax-deferred allowance when making withdrawals from UK investment bonds. However this does not extend to Spanish residents. In many cases the Spanish tax treatment of such investments is not particularly beneficial, so seek advice if you have these products.

Bank interest

Worldwide bank interest is taxed as savings income in Spain, at rates of 19%, 21% and 23%, depending on the amount earned.

UK rental income

If you are resident in Spain and rent out property in the UK, the income could be taxable in both countries, though the UK tax paid can be offset against the Spanish liability. In Spain it is taxed at the scale rates of income tax. A 60% reduction is available in Spain against the net rental income, but only for long-term lettings where the tenant uses the property as their main home.

It's not all about tax

There are very tax-efficient investment vehicles available to residents of Spain. With specialist professional tax advice, you could enjoy extremely favourable tax treatment on your capital investments. Blevins Franks can guide you on both UK and Spanish taxation, the interaction between them and tax planning opportunities.

Taxation is not the only reason to review your savings and investments, however. You need to ensure they are suitable for your life in Spain (for example, what currency should they be in?) and your future expectations; your objectives (are you looking for income or growth?); your time horizon and, importantly, your risk tolerance. Too many people have portfolios which were built up over the years and are no longer suitable for them today.

Blevins Franks is a cross-border adviser which provides holistic advice covering investments, tax efficiency and estate planning.

Contact us for personalised investment and tax planning advice

The 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; individuals should seek personalised advice.