Monday, 24 February 2014

Financial Healthcheck

If someone referred you to an unqualified quack doctor you wouldn’t thank them for it, would you?

Well here’s a deal: I’ll never send you to an unqualified, unregulated financial adviser and I will check them out beforehand. Also, I promise you there will be NO upfront charges.

The peak year for house purchases by UK & Irish citizens in Spain was 2006. Expanding equity in main residences fuelled the desire to buy second homes, many with the specific intention of retiring to Spain. Let’s call it living the dream!

Many emigrated with the specific intention of making Spain their permanent home. Why is this important? Many non-residents are also affected. Let’s look at what has changed since 2006

Major Changes
How many of you readers are affected by one or more of the following changes?

  1. Exchange rates
I made a comparison of mid February 2006 to 2014. Using a sum of £500, say a monthly income or pension the exchange rate reduced. €734 in 2006 became €601 in 2014.

You may think there is nothing you can do but there are options.

  1. Interest rates
If you have savings or investments based on interest rates, you won’t need me to spell it out. Have you considered any alternatives?

Interest rates that affect us are set by the European Central Bank and Bank of England. Both have stated that interest rates will remain low for the foreseeable future.

  1. Mortgages
If interest rates are low, this must be good for mortgages, so you would think. However, there are two factors which cloud this issue;

    • Because of past mistakes, which lead to bank closures, it is still very difficult to get a mortgage.
    • Many people, especially those who borrowed high percentages often can’t get out of deals they made in earlier years. If you are paying more than 2.25% you definitely need a review

The mortgage market has changed substantially since 2006.

  1. UK Pension Schemes
If you have emigrated or plan to, then it helps to know and understand your existing scheme. The rules which are ‘set in stone’ in the UK may be very different if you seek a transfer. This often surrounds retirement age. There have been many changes in the past few years with new ones planned.

One of the values of a Financial Healthcheck is for the adviser to understand and tell you exactly what you have now and to compare with the alternatives. The Financial Conduct Authority (FCA) which took over from the FSA is very strict about pension transfers. You should fully understand your rights & options.

  1. QROPS
Qualifying Recognised Overseas Pension Schemes

The concept of QROPS became available in 2006 but did not really have a market until 2008. Along the way, there have been three major changes and the early 2008 schemes are hardly recognisable today.

If you looked at QROPS before and rejected it, you might do well to look again. If you have a QROPS from before April 2012, you definitely need an independent review. Without obligation, you can find out more.

Remember QROPS is a UK pension transfer and NEEDS regulated specialist advice.

  1. QNUPS
Qualifying Non-UK Pension Schemes were launched in 2010, specifically to exempt funds from UK IHT. Though written as a pension scheme, the rules are very flexible. One of the major advantages is the opportunity to put existing assets, including property, into a QNUPS. Another is having much more freedom over income than a traditional scheme.

QNUPS is not for everyone but your eligibility will become clear during your Financial Healthcheck.

  1. Spanish-compliant Investment Bonds
Because the tax systems are different in all countries, funds in Investment Bonds can have major advantages when written under Spanish rules. This is especially true in respect of income. Remember that in the UK ‘income’ includes interest even if you made no withdrawals.

Anyone with bank, building Society or other interest-bearing funds needs to consider this option, as part of an overall review.

  1. UK IHT & Spanish ISD
This subject is so complex that it cannot be dealt with in a paragraph.

The headline topic for me is that Spanish ISD is levied on the death of the first spouse or partner. It’s bad enough becoming a widow(er) without having to pay a tax too!

It’s also important to understand the difference between residency and domicile which affects these two taxes in a major way.

One factor which affects most UK expats and property owners in Spain, unlike other taxes there is NO double taxation agreement between UK & Spain on Inheritance Tax.

This is just a sample! When did you last review your finances? Can you get better arrangements? Can you save money? Can you cut your tax bill?

Whatever your objective, you can get help. A Financial Healthcheck, without obligation and no upfront fees can be arranged with a regulated & authorised adviser. If the advice involves a pension transfer, an approved (by FCA) consultant will check your suitability.

YOUR Financial Healthcheck
Please send me a few outline details, so that I can source the right adviser for you. In particular, the subject(s) you want to discuss, age(s), your concerns and the area where you live. It will also help if you can give a contact number and the best time(s) to call. Please email me

After checking out where you stand, with peace of mind you can get back to living the dream!

Further Reading
More detailed information can also be accessed from Financial Pages in Spain;

Please feel free to email me on any aspect of financial information, UK or Spain

David Goodall
Financial Pages in Spain

Thursday, 20 February 2014

Spanish ISD and UK IHT - Comparison

As the old saying goes ‘Like chalk and cheese’

  • Impuesto sobre Sucesiones y Donaciones (ISD)

  • Inheritance Tax (IHT)

  • There is no Double Taxation Treaty or Agreement between Spain and the UK on these inter-linked but very different taxes

This will only be a short article because it is vitally important that you get Professional Advice

What are the principal differences?

Spanish ISD

Married Couples: When is tax payable?

 On First Death                               
On Second Death
Are Rules applied Nationally?
There are Regional differences but these only apply to Spanish residents. Non-residents only get National rules

Yes, all rules are based on a set of UK laws
Who pays the tax?
The beneficiaries pay any tax due
The Estate of the Deceased pays any tax payable

Does the tax rate change according to who is the beneficiary?

Who pays on what assets?
Spanish resident beneficiaries pay on worldwide assets, whilst non-residents pay only on Spanish sited assets

UK domiciled deceased Estates pay on worldwide assets. Residency is NOT an issue
Will Tax Planning reduce or eliminate the tax payable?

Please note that only one answer is common to both ISD and IHT. Tax Planning is vital

Additional reading is also recommended;

ISD in more detail

Five Spanish Taxes affecting Non-Residents

Please email me with any query you may have or to be referred to a Specialist Professional for advice

David Goodall
Financial Pages in Spain

Monday, 3 February 2014

Explaining Terms and Expressions - Pensions

Explaining terms & expressions is important but nothing beats Regulated and Qualified Financial Advice

·       Cut through the jargon
·       Check Further Reading
·       Beware: Unauthorised ‘advisers’ about!

A Day
6 April 2006 was the day the UK Government pension simplification rules came into effect.

ASP - Alternatively secured pensions
At the age of 75 an alternatively secured pension would allow an individual withdrawal of income, similar to an unsecured pension fund such as income drawdown

AVCs – Additional Voluntary Contributions
A pension top-up for an occupational pension scheme. The scheme members pay contributions into an arrangement run by the employer to boost the main pension.

FSAVCs – Free-Standing Additional Voluntary Contributions
A pension top-up policy for an occupational pension, but separate from the employer’s pension scheme and normally run by an insurance firm.

Comision Nacional del Mercado del Valores is the principal financial services regulator in Spain and responsible for authorising investment products. A CNMV adviser can be recommended, please click here

Direccion General de Seguros y Fondos de Pensions is the Spanish regulator for insurance products which can be marketed in Spain. Email me to be referred to an authorised adviser

Took over from the FSA in April 2013. The Financial Conduct Authority is the UK's financial services regulator. The FCA also ‘passports’ authorised advisers to operate in Spain. For a recommended adviser click 

Group Personal Pension
A type of personal pension offered by some employers but not classified as occupational (see money purchase pension).

Lifetime annuity
A lifetime annuity converts money from a pension fund into pension income, which is taxable. There are different types to suit different circumstances and generally treated favourably for tax purposes in Spain.

Markets in Financial Instruments Directive is the EU legislation which covers investment intermediaries and their activities. It also enables, for example FCA approved advisers to be' passported' into other EU countries such as Spain .

Money purchase pensions
Some occupational pensions and all personal, group personal, stakeholder, FSAVCs and some AVCs are money purchase pensions. The contributions are invested in, for example, the stockmarket or bonds. The size of the fund depends on the contributions and how well the investments perform. At retirement, there is a choice of options to provide you with a retirement income.

Occupational pension
These are only available through employers and run by pension scheme trustees. There are two types – salary-related (defined benefit) and money purchase (defined contribution).

Pension Liberation
It should be made clear that Pension Liberation is illegal. Typically, unauthorised advisers offer access to your pension before the statutory retirement minimum age of 55. Proven cases attract a penalty of up to 55% of the funds liberated.

Personal pension
A pension policy taken out by an individual from an insurance company or another financial institution and into which personal contributions are made. It may also be offered by employers.

Protected rights pension
This is the part of a pension fund which was used to contract out of the UK State Second Pension (SERPS or S2P) that must be used to buy a protected rights annuity.

QNUPS -  Qualifying Non UK Pension Scheme, which meets the criteria set by the regulations the UK government brought out in February of 2010. This means that for a UK or non-UK resident, there is an opportunity to make contributions to overseas schemes, established as QNUPS, with the knowledge that those funds will be sheltered from UK IHT. Individual advice should be taken in all circumstances from a regulated and authorised adviser. Please email for a recommendation. Also see reading below

QROPS - Qualifying Recognised Overseas Pension Schemes
These became available from A-Day. It is a pension scheme set up outside the UK that is regulated and recognised for tax purposes as a pension scheme in the country in which it is located. QROPS have been established in various countries across the world, many in jurisdictions with beneficial tax rules. For specialist advice click here Also see reading below

Salary-related pension scheme (final salary or defined benefit)
A type of occupational pension. The amount of pension you get is worked out on your salary at or near retirement, or when you left employment, and your pensionable service.

Stakeholder pension
A type of personal pension that has to meet certain standards set by the UK Government. An individual can take one out or it may be available through an employer, but is not classified as occupational. 

State Pension
The UK Pension Service (part of the Department for Work and Pensions) will pay the basic State Pension based on an individual’s National Insurance contribution record. In addition, individuals may also qualify for the State Second Pension based on their own earnings and National Insurance contributions.

State Second Pension
The State Second Pension is an additional State pension paid on top of your basic State Pension. This was called SERPS. Self-employed people cannot build up a State Second Pension.

Tax-free lump sum
More accurately, tax free cash should be called Pension Commencement Lump Sum (PCLS). This is an amount of cash set by tax law which you can take at retirement free of tax under UK rules. Salary-related occupational pension schemes may have different rules on the amount of tax free cash you can take.

Unsecured Pension (Income Drawdown)
This is an alternative to buying an annuity but provides an income whilst the pension is still invested. At age 75, the unsecured pension must cease and be replaced by either a Lifetime Annuity or ASP. For non UK residents or those intending to become non-resident, QROPS could be another alternative.

Pensions Advisers, including the ones that I recommend, will be happy to cut through the jargon. Email me for a recommendation

Further reading

QROPS 2015


La Torre Fx – Foreign Exchange

David Goodall
Financial Pages in Spain