Do You Live In Spain But Still Have UK Investments?

21.06.16

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Once you become resident elsewhere, you could lose some benefits of your UK investments, but you gain new opportunities that could make your money go much further.

Once you become resident elsewhere, you could lose some benefits of your UK investments, but you gain new opportunities that could make your money go much further.

Many UK nationals have accumulated savings and investment portfolios using an array of options such as National Savings to Individual Savings Accounts (ISAs), Personal Equity Plans (PEPs) and Premium Bonds. Unfortunately, once you take up residence in Spain, the tax incentives provided by the UK schemes fall away and the income and gains may become wholly taxable under Spanish law.  

Your investments and tax planning should be set up according to your personal circumstances and objectives. When these change, you need to review your arrangements accordingly. Moving to a new country is a major change and should prompt a complete review of your wealth management to ensure it is as effective as possible for your new life.   

Premium bonds and ISAs

Premium bonds were launched 60 years ago by Harold Macmillan; today around 21 million people own these bonds. They do not provide any automatic interest earnings or capital growth, but the possibility of winning a large prize made them quite appealing. However, the prize fund has been slashed over recent years, with further cuts from this June.  

One key attraction is that they have always been tax-free. So even if you are lucky enough to win the £1 million jackpot, you do not pay any income tax on this. They are not tax-free if you live in Spain though.

As a Spanish resident, any winning are taxed as general income. So they are added to your general income for the year and taxed at the scale rates of tax of up to 48% in Andalucía and Cataluña, up to 47.5% in Islas Baleares, up to 46.5% in Islas Canarias, up to 46% in Murcia and 45.98% in Comunidad Valenciana.

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, and tax-free ones at that, that they do not need to be declared in Spain. In fact they do, and with the new global automatic exchange of information regime which started this year, the Spain tax authorities will be informed about 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 they are taxed in Spain. Are they the most tax efficient way of holding your capital?  

Investment bonds are another vehicle people use in the UK to hold their savings. UK residents can withdraw 5% of their original investment each year with no immediate liability to UK tax. This 5% tax-deferred allowance 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 bonds.

UK rental income

If you rent out property in the UK, this income remains taxable in the UK. It is also taxable in Spain if you are resident here, and must be added to your other general income and taxed at the scale rates of tax. A 60% reduction is available in Spain against the net rental income, but only for long-term lettings. The UK tax paid on this income can be offset against the Spanish tax on the same income.   

The UK government has made changes over recent years that make owning UK property less attractive. Non-residents are now subject to capital gains tax when selling UK property, on gains from 6th April 2015; previously they were exempt. The rates of Stamp Duty Land Tax (applied to additional residential properties and buy-to-let) are going up. And the rules about offsetting mortgage interest against rental income are changing, so that higher rate taxpayers will pay more tax.

Bank interest

Bank interest, whether earned from Spanish, UK or offshore banks, is taxed as savings income at rates of 19%, 21% and 23%, depending on the amount earned.

There are very tax-efficient investment vehicles available to residents of Spain. With specialist professional advice, you could enjoy extremely favourable tax treatment on your capital investments, as well as on your pension income. Speak to an adviser who can guide you on both UK and Spanish taxation, and the interaction between them, as well as on the savings and investment options for your capital.

Any questions? Ask our financial advisers for help.

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; an individual is advised to seek personalised advice.

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.

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