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New reporting law
The big story here in Spain is the new asset reporting law. This is a significant game changer. The government warned that it would get tough on tax evaders once the amnesty closed at the end of last November, and they will now impose very high penalties on anyone failing to declare their offshore assets under the new law.
The first reporting deadline is 30th April 2013, and reports can be submitted in March and April. In future years it will be 31st March, with reports to be filed from January.
Under this new obligation, all Spanish residents, whatever nationality, have to declare all assets held abroad if the value of each asset class amounts to ?50,000 or more. This includes bank accounts, shares, bonds, funds, life assurance, property etc. You will need to report assets if you are the owner, beneficiary or an authorised signatory. It includes assets held in a trust.
A new form will be released for this purpose, to be submitted on top of your annual income tax and wealth tax returns.
The penalties for failing to comply can be devastating. It is possible, for example, that you would need to pay more than the total sum held in your offshore bank account.
You therefore need to make sure you get it right. Blevins Franks, which specialises in tax planning for British expatriates in Spain, will guide you on what you need to declare. At the same time it would advise you on steps you can take to make your assets more tax efficient.
The 2013 Budget was approved on 20th December and thankfully did not contain the same sort of tax rises as the previous year.
Those with worldwide chargeable assets above the wealth tax threshold (residents have an individual allowance of ?700,000 and main home allowance of ?300,000), though, will be hit by the tax for another year.
Wealth tax has been extended to apply for assets held as at 31 December 2013. This also applies to residents of Valenciana and the Balearic Islands, which had initially continued applying the 100% credit before dropping it for 2012.
From 1st January 2013, capital gains on assets held for less than 12 months are taxable at your marginal income tax rate. This is up to 52% (54% in Andaluc? and 56% in Catalu?) instead of the current fixed rates (21% to 27%) applicable to investment income and gains.
Lottery winnings over ?2,500 are now subject to tax at 20%.
2013 income taxes
Income taxes in 2013 remain high. As introduced last year, an additional contribution of between 0.75% and 7% is added to the scale rates of income tax for 2012 and 2013 income. Additional tax of between 2% and 6% applies to savings income for the same period.
You may well see a noticeable increase in your tax bill when you prepare your 2012 return.
Speak Blevins Franks to find out what you can do to reduce tax on your savings, investments and wealth.
UK statutory residence test
Until now HMRC has only provided guidelines as to what makes a person resident or not resident for tax purposes in the UK, as there has been no statutory guidance. This has caught some people out.
The situation should improve when a new UK statutory residence test comes into effect on 6th April. There will be definitive tests to determine if you are UK resident or not resident. If you do not fall into either category, your residence status will depend on the number of connecting factors you have with the UK and how many days you spend there in a tax year.
While the test is a big improvement on the current situation, it is still very detailed and complex so you should take advice to make sure you get it right. It will not override the UK?s double tax treaty provisions with Spain, so you also need to be clear on Spain?s residency rules and how they interact with the UK?s, and how the treaty affects both of these.
Other UK news
The UK?s new tax agreement with Switzerland came into effect on 1st January. Any UK resident who does not authorise their Swiss bank to disclose their assets to HM Revenue & Customs (HMRC) will have a one-off levy of between 21% and 41% deducted on 31st May 2013 to clear past tax liabilities. Future income and gains will be subject to a withholding tax of 48% on interest, 40% on dividends and 27% on capital gains, paid over to the UK exchequer on an anonymous basis.
Over the coming years I would expect other countries to strike similar deals with Switzerland as a pragmatic way of collecting tax revenue from hidden assets. Austria has a deal starting this year as well.
There is a general worldwide move towards exchanging information and levying taxes at rates not seen for many years. The world is changing, but there are still ways to protect your assets, and these are becoming more and more important as countries adopt austerity budgets. Seek advice from established professional tax and wealth manager in Spain Blevins Franks.
8 January 2013
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; an individual should take personalised advice.