We are approaching that time of the year again, when anyone who is resident in Spain needs to submit their annual Form “Modelo” 720 listing their overseas assets. The deadline is 31st March, so you need to start thinking now about what you need to declare this year.
We are approaching that time of the year again, when anyone who is resident in Spain needs to submit their annual Form “Modelo” 720 listing their overseas assets.
The deadline is 31st March, so you need to start thinking now about what you need to declare this year. If you have previously submitted a form you only need to declare assets if they have grown a certain amount, or if you have sold them. If you have investments in Sterling you need to take exchange rate into account, which may mean you need to declare assets you did not expect to.
Summary of the rules
There are three reporting categories, based on bank accounts, investments and immovable property, and you have to report all assets in a particular category if the value of your total assets in that category amounts to over €50,000. This only applies to assets located outside Spain.
You are obliged to report assets if you are the owner, a settlor who can benefit from a trust you settled, authorised signatory, or you have the authority to dispose of the asset. This includes assets held by a company, a trust or fiduciary.
You need to report even if your personal share of assets is less than €50,000. With joint assets, each owner needs to declare the full value (not pro-rated) and indicate their percentage.
In most cases, assets are valued using the wealth tax rules as at 31st December each year. For assets held within financial institutions (eg, bank accounts), you also need to declare the average balance over the last three months of the year.
You need to report the value of the assets in Euros, so any investments held in Sterling, US Dollars, Swiss Francs etc, need to be converted. The rate to be used is that as at 31st December of the relevant year.
You declare assets owned as at 31st December of the previous year. So for your 2015 Form 720, you declare the assets owned as at the end of 2014.
If you have already submitted Form 720 in the last two years, 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.
Exchange rate movements need to be taken into account here.
The Pound to Euro exchange rate at 31st December 2013 (so for your last Form) was 1.20. If at that date you had Sterling denominated assets of £250,000, they were valued at €300,000.
On 31st December 2014 the £/€ exchange rate was 1.28. This means that even if your £250,000 investment had not grown in value, in Euros it is now worth €320,000. The increase of €20,000 means that you need to report the growth on this year’s form.
Exchange rates may play an even bigger part this year, depending on how central bank policies in Europe, the UK and anywhere else you hold assets play out. This year we have seen the Euro weaken. At the end of January we saw an exchange rate of 1.34, making £250,000 worth €335,000. This is already €15,000 more than the value at the end of last year.
While we cannot speculate now what the exchange rate will be at the end of the year, this shows what a difference exchange rate movements can make. It is something you need to be aware of and plan for if necessary.
The introduction of the obligation to report all overseas assets in Spain – and the penalties are very high if you do not – was a huge change for residents of Spain, whether Spanish or foreign nationals. Many are paying more tax as a result – particularly those who declared assets for the first time, or 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.
Combined with higher taxes, some expatriates have considered leaving Spain. However Spain actually remains a tax efficient country for British retired expatriates if you take specialist advice. Form 720 need not necessarily be such a concern either. You should review your assets now to make sure they are in the best structures going forward.
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.
10 February 2015