Tax avoidance and Tax evasion 2019 Update

Written in June 2019, sometimes interesting to look back!

These subjects have been made relevant from Spanish and UK Budgets in the past decade where  part of the Governments’ increased revenue will come from tackling Tax Avoidance and Tax Evasion. One of the problems I have with the subject is that in speeches politicians often confuse tax avoidance with tax evasion. This matters because Tax Evasion is already illegal. Closing down Tax Avoidance is in the hands of Parliamentarians to change. One way to do this would be to accept Anti Tax Avoidance Directive EU 2016/1164 which has five legally-binding anti-abuse measures and all Member States should apply against common forms of aggressive tax planning. 

Leaving the EU has definitely favoured the UK's billionaires and fellow travellers!

The five anti-abuse measures are;

Controlled foreign company (CFC) rule:  to deter profit shifting to a low/no tax country.
Switchover rule: to prevent double non-taxation of certain income
Exit taxation: to prevent companies from avoiding tax when re-locating assets.
Interest limitation: to discourage artificial debt arrangements designed to minimise taxes.
General anti-abuse rule: to counteract aggressive tax planning when other rules don’t apply.

IMPORTANT;

• Avoidance and evasion are not the same
• Downright favouring the wealthy is a political decision
• Tax avoidance in many cases is legal BUT over aggressive tax 'planning' CAN affect both the EU internal market and tax liabilities e.g. Profit 'shifting' 
• Tax evasion is illegal but needs effective and efficient COLLECTION systems

       

Tax Evasion – Definition

Unlawful attempt to minimise tax liability through fraudulent techniques to circumvent or frustrate tax laws, such as deliberate under-statement of taxable income or wilful non-payment of due taxes.

Whereas tax evasion is an offense (punishable by both civil and criminal penalties), tax avoidance is not.

Whatever politicians or the newspapers say there are no extra legal powers needed to stop Tax Evasion – it is illegal. Though HMRC in the UK and La Hacienda in Spain have to do MORE to stop it and COLLECT the tax.

If you need advice or have a query please email me

Examples of Tax Evasion

• Being resident in Spain but not declaring income to the tax authorities the extent of which is now coming to light
• Not declaring income from property letting
• Spanish resident having an Individual Savings Account in the UK and tax free interest
• Not declaring gross paid interest on offshore accounts
• Wilful refusal to pay tax

Tax Avoidance – Definition

Lawful minimisation of tax liability through sound and currently legal financial planning. Parliament could stop this

I am quite happy to answer any queries you may have but I will refer you to an adviser for authorised and regulated advice, if you email me

Examples of Tax Avoidance

• Pension schemes are legitimate and avoid tax but contributions and benefits have to be within HMRC rules and importantly, limits.
• UK residents having an Individual Savings Account
• QROPS for UK non-residents or intending non-residents
• The legitimate use of offshore trusts to hold assets but not if covered by EU 2016/1164
• The establishment of Trusts or Foundations for charitable purpose

Most Tax Avoidance in the EU is legitimate, subject to EU 2016/1164!  

• In the UK there was an ‘industry’ which looks for ways of creating Tax Avoidance. It is up to the Government and especially HMRC to make sure that the tax rules and laws are not circumvented. It is also possible in the UK to negotiate a deal with the Government or HMRC. This, of course, favours the super wealthy!

* * * * * * *

You can write to me with your personal experiences, ask me a question or to be put in touch with one of my recommended adviser by sending me an email

Linked with this post are two recent articles from my Blog;

Qualified, Regulated and Independent Financial Advice
http://expatsfrombritain.blogspot.com/2019/05/financial-advisers-must-be-qualified.html

Interesting, even in 2021?

Tell me your experiences, write to me by email

David Goodall

Financial Pages in Spain

Email: davidgoodall.spain@gmail.com

Spanish Inheritance Tax (ISD) - professional opinions

January 2012 (Update)
Spanish Inheritance Tax (ISD) is very very different from UK IHT. Yet in many ways, ISD is a 'voluntary' tax which is only paid by those WITHOUT an effective plan.


See what appropriate professionals have to say;

I thought that it might be useful to bring other views on the best solution. Spanish Inheritance Tax (ISD) is and will become and even bigger problem. I think we all need professional advice. 

If you have your own story to tell, please email me

Here are some views from various professional advisers, who have dealt with the problems associated with the ownership of property in Spain and the heartbreaking situations of dealing with inheritance tax.

Chartered Accountant (FCA)

Paul Austen who runs his own practice

Thousands of British people owning Spanish property are unknowingly exposed to this Spanish Tax on their death on the value of their property and the tax falls on the person who inherits the property not on your own estate. Therefore by not protecting yourself against this tax you are handing down a potentially huge liability to your spouse or offspring. Because the property along with any Spanish bank accounts can get tied up in Spanish red tape for sometimes as long as two years, getting money from the property sale is often not an option so your relatives would have to find the money themselves

                                                                                    

Andrew Eastwood (British Lawyer, Legal4Spain)

We are increasingly confronted with complicated estate planning cases involving Spanish property. Our clients often require solutions for legally and legitimately mitigating their tax exposure and/ or putting in place special arrangements, to cater for complicated family or beneficial circumstances. In appropriate cases, UK Limited Company Structures have successfully formed a component part of the solution we have provided in achieving our clients' objectives

Martin Ward FCA – owns Spanish property

Within an hour of starting, it was abundantly clear to me that the UK company route was the only sensible way to go. To be blunt, apart from avoiding the nightmare of ISD, if you think UK tax is complex and bureaucratic, I can assure you, if you don’t know already, that Spanish tax is much worse, so better to get away from it altogether.

It quickly became apparent that a DIY approach to transferring a Spanish property to a UK company was not on the cards... for me or anyone else.

Maria L De Castro (Spanish Lawyer)

Restructuring your property now is a legal, intelligent and very simple process to save a small fortune in future taxes for your heirs.

This property strategy takes care of everything for you. The arrangement uses qualified Lawyers, company formation agents, accountants and business consultants to restructure your property ownership.

You will NEVER lose control of the property, and can rent or sell it as you wish

 As background you may wish to read;

ISD is voluntary and the Widows Story
http://expatsfrombritain.blogspot.com/2012/01/expats-and-property-owners-in-spain-no.html

Spanish Inheritance tax

http://expatsfrombritain.blogspot.com/2011/07/spanish-inheritance-tax-isd.html

Professional Connections

http://expatsfrombritain.blogspot.com/2011/04/professional-connections.html

  

You can get more information by a simple process of working out your own liability or potential liability. Please don’t ‘sweep it under the carpet’!

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

Spanish Inheritance Tax (ISD)

Impuesto sombre sucesiones y donaciones

The New Conservative Government in Spain has a major project to substantially increase the tax it collects in 2012. Yet ISD is effectively a ‘voluntary tax’ that you only pay if you don’t plan for it.

• Details and scope of ISD
• What various professionals say
• Non-residents ARE liable

Are there any solutions? Please read on

No ISD 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.

In recent months, my blog has carried several posts dealing with the very complex subject of Spanish Inheritance Tax (ISD). This is very definitely a subject on which you need professional advice. To access a professional please email me.

• Detailed reading for a thorough understanding of ISD is probably best from my post on July 18^th 2011. This is the link;

http://expatsfrombritain.blogspot.com/2011/07/spanish-inheritance-tax-isd.html

• Here are some views from various professional advisers, who have dealt with the problems associated with the ownership of property in Spain and the heartbreaking situations of dealing with inheritance tax.

http://expatsfrombritain.blogspot.com/2011/06/spanish-inheritance-tax-isd_17.html

• Expats and property owners in Spain - No plan for Spanish Inheritance Tax? This post includes a Widow’s sad story and the inevitable question ‘why didn’t anyone tell us’?

http://expatsfrombritain.blogspot.com/2011/01/expats-and-property-owners-in-spain-no.html

The question ‘why didn’t anyone tell us?’ is probably the one I get asked most often. One of the key objectives of my blog is to provide INFORMATION. I do not and will not take advertisements from financial companies. I give links only to offers and services which I have used myself or I have tested.

This leads me to understand that people working in property, financial advisers, mortgage broking, pensions, lawyers and other financial services must be open in all dealings with clients.

• Openly disclose all commission and charges
• Tell clients how it is – good and bad
• Please, please, please tell them about Spanish Inheritance Tax (ISD)

I am happy to receive feedback, answer questions or refer to appropriate professionals if you email me

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

Seeking professional advice

First anniversary week – Day one

This is the first of five posts on major issues affecting British and Irish expats and property owners in Spain. On first view it may not look like a major issue but I know from emails received that it certainly is.

No trick question but where do think is the best place to seek advice?

• A man in a pub. The classic quote I hear so often is ‘I heard somewhere………’
• An unauthorised, non regulated and unqualified person or company who calls themselves an ‘adviser’
• A properly trained, fully qualified, authorised and regulated, individual or company who not only give you the best advice, but as part of their professionalism carry PI (professional indemnity) cover in case things go wrong.

Is there really a choice?

Why would you not use a professional?

Apart from owning property in Spain for nine years and struggling to find professional advice, in the last year my Blog has lead me to many professionals. If you need advice, please email me.

My own connections included the following professionals;

• Regulated financial advisers( FSA, CNMV, DGS)
• Suitably qualified accountants
• Professional lawyers
• Chartered surveyors in Spain
• Members of the Association of Property Professionals
• Company formation for property ownership specialists

If you email please let me know your question and where you live. I may be able to answer myself, just point you in the right direction or refer you to a suitably qualified person.

For more detailed reading you may wish to look at previous posts to my Blog

http://expatsfrombritain.blogspot.com/2011/04/professional-connections.html

http://expatsfrombritain.blogspot.com/2010/11/unauthorised-advisers-about.html

Please remember that my Blog is about unbiased, factual financial information. You can look elsewhere for information but remember that an advert will certainly be biased towards the company who paid for it. I have no problem with that but remember it’s biased!

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

Spanish Inheritance Tax (ISD)

The most important statement in this article, and one commonly misunderstood is as follows;

‘The beneficial exceptions from the various Communities (AC), never apply to Spanish non-residents.’

This complex issue is often ‘swept under the carpet’ but eventually everyone is affected. In particular, the prospect of a widow(er) paying inheritance tax on the death of their spouse can come as an enormous shock.

·         There are State (National) rules and variations by the Autonomous Communities (AC)

·         State (National) rules always apply to non-residents

·         Autonomous Region rules will apply ONLY to Spanish residents

·         There is no Double Taxation Agreement on inheritance Tax between Spain and the UK

This subject will continue to remain high on my Agenda, as the vast majority of expats in Spain are affected. Non-resident property owners may not think they are affected – unfortunately they are! Please email me if you want clarification of your own position

Impuesto sobre Sucesiones y Donaciones (ISD) is also called Succession Tax or Inheritance Tax and is a tax on inheritance and gifts, paid by the recipient of the inheritance or gift. It is due only if the recipient is resident in Spain or the asset being inherited or gifted is an asset located in Spain such as real estate or moveable property situated in Spain. If the property is owned by a UK company ISD is not payable on the death of a shareholder of the company.

Allowances are available depending on the relationship with the deceased or donor. In the first instance the Spanish State rules apply but these can be varied by the different Autonomous Communities (ACs) providing conditions set by the relevant AC are met. The State rules always apply to non-residents owning assets in Spain.

There is currently no blanket exemption between a husband and wife under the State rules. Where a married couple are both residents in Spain and one spouse dies, the surviving spouse can be fully liable on the worldwide assets inherited from the deceased spouse, subject to the allowances and reliefs available.

The worldwide estate of British expatriates who are UK domiciles on death will also be liable to UK inheritance tax, as well as to Spanish succession tax on chargeable Spanish assets. Any succession tax paid in Spain can be deducted from any UK inheritance tax liability on the same asset. There is such a fundamental difference between the inheritance tax in the two countries that no double taxation agreement exists on this issue. Please email if you need referral to a professional advisor.

State Rules

Beneficiaries are divided into the following four groups depending on the closeness of relationship to the donor or the deceased:

• Group 1: Natural and adopted children and other descendants (such as grandchildren, great-grandchildren) under 21
• Group 2: Natural and adopted children and other descendants aged 21 and over; parents and other ascendants (such as grandparents, great-grandparents), and spouses
• Group 3: In-laws and their ascendants/descendants, step-children, brothers and sisters, cousins, nieces and nephews, aunts and uncles
• Group 4: All others including friends or unmarried partners

State Allowances

There are tax-free State allowances on inheritances (not life-time gifts) for members of the different groups as follows:

• Groups 1 and 2: €15,957
• Group 3: €7, 993
• Group 4: nil

Group 1 inheritors under the age of 21 can have an additional deduction of about €4,000 for each year they are under 21, restricted in total to €47,858 per recipient.

There are further reductions where the recipient is physically or mentally disabled depending on the recognised degree of disability.

Relief for main home

There is a 95% allowance against the inherited value of the main home of the deceased up to €122,600 per inheritor, provided that the beneficiary belongs to Group 1 or 2 or is a remoter relative over the age of 65 who lived with the deceased during the two years prior to their death. The property must be retained by the beneficiary for 10 years following the death, but it does not need to be the beneficiary's main home.

Succession tax rates vary from 7.65% to 34%. The tax liability is subject to multipliers based on the pre-existing wealth of the recipient, which can take the highest effective rate of tax to about 80%.

Gifts

Gifts made by the same donor to the same person within a period of three years, taken from the date each gift is made and on the value at the time it was made, are aggregated and treated as one transaction for gifts tax. To determine the tax rate applicable, the value of all previous gifts made to the same person within the last three years plus the current gift are added together. The average rate of tax on the theoretical total is then calculated and applied to the latest gift.

Autonomous Communities (AC)

The Autonomous Communities (ACs) can vary the State rules in the taxpayer's favour. The State allowances and reductions apply in the first instance provided that the relevant conditions have been fulfilled. Any enhancement to the State allowances and reductions granted by the AC will then replace the State deductions, again providing any additional conditions imposed by the AC are fulfilled.

Please note, however, In the case of real estate in Spain owned by a non-Spanish resident, the State rules will always apply on the death of the non-resident owner. The beneficial exceptions from the various Communities (AC), never apply to Spanish non-residents.

In some ACs, spouses and children can receive a 99% reduction in the inheritance tax payable on death. This reduction currently applies in the Canary Islands, Balearics, Murcia Region, Madrid, and Valencia Community.

In Andalucía, spouses and children are exempt from inheritance tax where the taxable value of the inheritance received is no more than €175,000, and the wealth of the recipient does not exceed €402,678.

In Cataluña, personal allowances increase significantly from 1 July 2011.

In many ACs, unmarried couples registered as a pareja de hecho are recognised as spouses.

It is important to look closely at the rules relating to a specific AC’s to obtain full details of the range of allowances and exemptions available. I can put you in contact with professional advisors in most regions, if you email

Succession tax is paid under the AC's rules if the deceased was habitually resident there, in the case of an inheritance; or, in the case of a gift of real estate, if the real estate is located in that AC; or, in the case of a gift of any other assets, in the AC where the recipient is habitually resident.

To be habitually resident in a particular AC, you must have been resident there for five continuous tax years. So, the deceased or donee (as the case may be) must have been continuously resident in an AC for the past five years for that particular AC's rules to apply, otherwise the State rules will apply.

Summary

These complex rules and arrangements indicate that careful planning is required. You can get an indication of how this affects you by clicking on the link on the right of the page ‘Check your Spanish Inheritance Tax liability’. Seeking the information does not constitute any commitment on your part.

You can feel free to email me on any of these issues.

This complex issue has been researched using information available on web pages, consulting contacts and the writers own knowledge. It cannot constitute advice and professional guidance maybe required.