Sunday, 9 October 2011

Are UK Banks Safe?

 and Building Societies

In July 2011, the EU announced that eight banks failed the ’stress tests’ which measure how each institution could cope with a challenge to its liquidity. Of those 8 who failed none of them were British. Unfortunately, five of them were Spanish and this was my article at the time, recently updated.

On 7th October 2011, Moodys, the credit ratings agency, downgraded four UK Banks and eight building societies. This, of course, is not the same as the EU stress tests but it does shake confidence.

The downrated banks are RBS, Lloyds Banking Group, Santander (UK) and Co-op Bank. One of the downgraded building societies was the biggest, Nationwide.

Financial Pages in Spain provides financial information for British and Irish expats and property owners in Spain. Very many will have savings in UK financial institutions and this post is to help readers and to put their minds at rest and, potentially, move savings in an orderly way.

There are five important pieces of information you need to know;

  1. Every UK REGULATED account has 100% protection up to £85,000
Protection comes from the Financial Services Compensation Scheme (FSCS) which is Government backed. It covers savings in current accounts, savings accounts and cash ISA’s in banks, building societies and credit unions. The £85,000 maximum is per person per institution. Although you get your protected money back, the timescale is not pre-determined.

  1. UK savings are not necessarily UK REGULATED
Most banks, included foreign-owned ones, are regulated and covered by the FSCS scheme. So for example, Santander (UK) is Spanish owned but UK regulated. Some however are not. These include ING-direct and Anglo-Irish who are regulated in their home EU countries and ‘passported’ into the UK. I may be able to clarify an individual arrangement if you email me.

  1. If the accounts are held in joint names, the protection is DOUBLED
Cash held in joint names is deemed to be held on the basis of ‘half-each’. Therefore, a UK regulated account, with one institution but in joint names has protection of £170,000. Remember to accumulate the total if you have, in addition, a single name account with the same institution

  1. An Institution is not necessarily a single bank and is not a single account
The protection is per institution and not per bank or per account. For example, Birmingham Midshires, Bank of Scotland and Halifax are all ‘sister’ banks within one institution. You need to accumulate your cash with each to ensure that you are under the £85,000 protection maximum.

  1. Savings are more safe if they are spread
For the best protection, first, understand ‘who owns who’ so that you don’t unwittingly save too much with one institution. You can drop me an email if you want clarification.

Even if you have less than £85,000 saved, its still worth considering ‘speading’ as if one went out of business it will take time to gain accessibility.

Most important of all, to quote a well-known saying ‘Don’t panic Mr Mainwaring don’t panic’. There is no indication that these Institutions will ‘go bust’ but there is a need to protect your own savings. In fact, please tell your family and friends – send them a copy. If you have any concerns, by all means email me.

If you haven’t come across Financial Pages in Spain before you might like to make a note of these links;

La Torre Fx - Foreign Exchange

David Goodall
Financial Pages in Spain


Question: Which is the only country in the EU to offer 100% investor protection?

Answer: Luxembourg. If you want to to know more about investing in Luxembourg please email me

Wednesday, 5 October 2011

Spanish Taxes - Payable by Non-Residents

October 2011 - Update

I was asked by a UK based property professional to write the content of a leaflet he wants, for prospective buyers of Spanish houses / apartments. His request was welcomed as too often property agents prefer NOT to tell prospective buyers about taxes, but this is a great initiative.

For many of my regular Spanish resident readers there are elements of this that will not apply but I was writing specifically for a non-resident audience. It equally applies however to non-residents who have already purchased. By all means, email me if you want more detail.

To begin I’ll list three common myths that are wrong. These have all been said to me or written to me;

  • ‘I’m not liable to Spanish Inheritance Tax because I’m not a resident’ – wrong
  • ‘I live in the UK and pay my taxes to the tax office in Salford Quays. I have a house in Spain but I’ve no need to pay Spanish taxes’ – wrong
  • The people who rent my Spanish house pay me in pounds so I don’t need to pay Spanish tax’ – wrong

The following is the leaflet contents I referred to earlier; with update comments

There are 5 key taxes most applicable to non-resident property owners.

Income Tax
Every non-resident owner of a Spanish property has to pay an annual tax to account for their "share" of the property. Although it's called an "income tax" it's not actually based on your level of income, but on a "deemed" or "notional" income, which is a percentage of the rateable value of the property multiplied by the non-resident tax rate of 24%.

This tax is based on the calendar year and is always due within 12 months of the end of the tax year, so for the 2011 tax year, tax needs to be paid by the 31st December 2012.

This tax is paid annually by Non-Residents

Property or IBI Tax
Property rates in Spain is referred to as IBI and, like the UK, this tax will be levied by your local council in Spain. The council will assign a rateable value to your property and then your rates or property tax will be a % of this amount. The % will depend on your council, but in most cases it will be somewhere between 0.5% and 1%. So if you had a rateable value of €50,000 and your local percentage was 0.75%, then your annual rates bill would be €375.

This tax is also based on the calendar year but will normally be payable between June and September each year, again this will be dependent on your local council.

Payable to the local council annually by Non-Residents

Rental Income Tax
Up until the end of 2009, rental income tax was 24% of the gross income you received on any rentals. So if you generated €1000 by renting out your property, then you would have to pay €240 in tax. You could not offset any expenses - i.e. cleaning, utilities, insurance, mortgage interest, marketing, management fees etc.

However, from the 1st January 2010, the rules have changed, which means that you can now offset expenditure when calculating what income, or effectively profit, will be subject to tax.

In theory rental income tax returns need to be submitted each quarter, to account for income received in the preceding 3 months

Only payable on the income generated by Property Rentals

Capital Gains Tax 
When a non-resident owner sells their property, they will make a capital gain or a loss upon the sale, which is the difference between what they paid for the property and the proceeds of the sale. The buyer of the property should always withhold 3% of the sales value and pay this to the Spanish tax office as an "advance" of the buyer’s potential capital gains tax. It is then up to the buyer to calculate their gain or loss, and if a gain has been made this will be subject to 19% tax. The buyer should pay the 3% within 1 month of the sale date, and the seller then has a further 1 month in order to submit their calculation of a gain or loss and the corresponding tax returns.

Payable by non-residents on sale. Professional advice should be sought as the witholding tax  can often be recovered, especially as values are currently low

Inheritance Tax
Inheritance tax for non-residents is a tax on the beneficiaries and not on the deceased as it is in the UK. The tax rates themselves can vary depending on the relationship of the beneficiaries to the deceased, the amount that is being gifted, their age, and even their wealth in Spain and in the very worst situation tax rates can reach levels of 81%!

The other major issue for UK people is that transfers between husband and wife in Spain are not tax exempt as they are in the UK, so if a spouse were to die, then the surviving spouse, in most cases, will need to pay inheritance tax (as well as probate) in order to take on the additional 50% share of the property.

It will normally take approximately 6 months to deal with the probate issues in Spain and pay any outstanding inheritance tax, before the property deeds can then be altered.

No Inheritance Tax is payable if the property is owned by a UK company, since even if a shareholder dies, the company can continue in existence and the shares passed on to a beneficiary under UK rules.

Explode the popular inaccurate myth - Spanish Inheritance Tax (ISD) is payable by Non-Residents and Spain and the UK have NO Double Taxation Treaty or Agreement on IHT.

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This is a very basic outline of taxes in Spain, applying to non-residents. Both residents and non-residents are always encouraged to seek professional advice.

Skype : davidgoodall.spain

Twitter : davidgspain


Financial Pages in Spain

You will note that the leaflet does not contain the Spanish titles of the taxes, as it is aimed at a UK audience. The Spanish descriptions and English translations can be found on my website at

Further reading on Spanish taxes will include the following;

As always, please email me if there is anything I can help with.

David Goodall
Financial Pages in Spain

Tuesday, 4 October 2011

Tax Planning in Spain

For tax planning read Tax saving

·        QROPS and QNUPS
·        Offshore Trusts
·        Understanding residency and domicile

It’s an odd fact, but true, that a country like Spain can be regarded as a tax haven with careful planning and expert advice. QROPS, QNUPS and establishing Offshore Trusts are just three examples of effective tax planning.

Tax Planning for Spanish Inheritance Tax (ISD) is a specialist subject and is covered in some depth at the following post; .Please remember that ISD is payable by both residents and non-residents in Spain.

When I was planning to move to Spain, a few years ago, I came to the conclusion that, in tax planning terms, the UK was a good place to accumulate wealth, including pensions and Spain was good for retiring and spending the accumulated wealth. The same is true to some extent, even though the UK Budget 2009 (Labour) and the 2010 version (Coalition) may have changed some pension rules.

Many firms of advisers will offer a financial review based on all circumstances. It can be very misleading to deal with pensions, tax and even mortgages in total isolation from other financial issues. For example, I was recently told about a lady who had a problem with her mortgage and the solution was found by imaginative use of her pension. Email me for links to a professional adviser.

Effective tax planning has three key issues;

  • Residential status and domicile
  • Where your assets are held
  • The nature of your current and future income

Last year,I came across a financial adviser who could not even distinguish between residency and domicile, when I checked the advice he gave one of my readers I was horrified. There are still advisers giving misleading, bogus and poor advice.

It is imperative that you seek out a professional adviser. I can help if you need me to recommend the right advice. Email

Spain can even be a tax haven but you will only benefit through sound professional advice.

It is also important to understand the distinction between tax avoidance and tax evasion. This is covered in some detail by the following;

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You can write to me with your personal experiences or to be put in touch with my recommended adviser by sending me an email I’m very keen to get your feedback