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!

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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

Five Spanish Non-Resident Taxes

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;

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 24.75%.

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 2020 tax year, tax needs to be paid before 31st December 2021.

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.

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, since 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 of 24.75%.

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

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 21% 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.

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. This requires SPECIALIST advice.

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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.

Email : davidgoodall.spain@gmail.co.uk

Facebook : https://www.facebook.com/financialpagesinspain

Twitter : @davidgspain

Website : http://www.financial-pages-in-spain.co.uk/

Blog : http://expatsfrombritain.blogspot.com/

You will note that the leaflet does not contain the Spanish titles of the taxes, as it is aimed at a UK audience. 

Further reading recommended, includes the following;

Scam Watch Just say NO to cold calls

Professional Advice  Legal, Tax and Property advice is always best

Money Transfers – Foreign Exchange  beating the banks on bank transfers!

Please email me if there is anything I can help with.

David Goodall

Financial Pages in Spain

Email

Getting a Highly Qualified second opinion

Many changes will take place from January 2021.

Financial Pages in Spain undertakes 'DUE DILIGENCE' to ensure that ALL financial advisers and their firms are correctly qualified, authorised and regulated  and have the necessary experience and knowledge.

APRIL 2020 UPDATE;
In these difficult times it's good to know that you can see an adviser with modern technology. After initial contact by email, phone and text, but only if necessary, it is possible to make video calls

Financial Pages in Spain is happy to provide this service, referring you to a qualified, regulated and independent financial adviser

I have been finding for sometime that many people come to me for a ‘second opinion’ For many differing reasons but they are unhappy with the advice they have been given and send me examples.

Rather than guesswork people also ask me to recommend Accountants, Lawyers, Surveyors and other professionals.

Some of the things people have said to me:

• ‘ It  looked like a mass produced report with just my name and personal details changed’

• ‘ They wanted an up front fee even to talk to me, funny they never mention that in their       adverts’

• ‘ I wasn’t convinced the advice was correct’

But they trust ‘Financial Pages in Spain’ and I am receiving comments which show a great deal of respect. I’ll try to help. Email me In return I refer readers of Financial Pages in Spain to advisers who pass a strict DUE DILIGENCE test. 

Can you help me to help you?

• Please send me both good and bad examples of reports you have received, from financial advisers, I’ll respect your privacy
• Tell me the names of Advisers who've given you bad advice
• If the fees, charges and commissions are hidden in a report and not openly disclosed, please send examples

This sort of information will help everyone and help eradicate some of the greedy practices.

I may not have intended it when I started out but it seems that Financial Pages in Spain is becoming the respected second opinion.

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Whatever your query, please contact  Email me
 is on this link

David Goodall

Financial Pages in Spain

Email me

Further Reading from Financial Pages in Spain

Scam Watch

Readers’ Favourites

Explaining terms and expressions - Mortgages

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

·       Cut through the jargon

·       Check Further Reading

·       Beware: Unauthorised ‘advisers’ about!

Advice
A recommendation about the most suitable mortgage for you made by an adviser. Remember that mortgage advice is regulated in the UK but not regulated in Spain. To receive a recommended adviser click here. Always be wary of advisers who want a large up front fee.

Annual statement
A statement from your mortgage lender, sent every year, showing among other things, the repayments made and the outstanding balance owed.

Approval in principle
A certificate which some lenders will give you that shows the amount they will probably be prepared to lend you. This is not a guarantee, but can be helpful when signing up with estate agents. Since the advent of the credit crunch, these are much more difficult to obtain.

Buy-to-let mortgage
A loan taken out to buy a property which is intended to rent to tenants.

Capital
The amount available to borrow, or borrowed, to help buy the property.

Capped mortgage
A mortgage that has a maximum limit on the interest rate to be paid during a special deal period.

Cashback mortgage
A mortgage that comes with a cash sum (often a percentage of the amount being borrowed).

Deposit
The amount of money being put into buying a property (not including the mortgage money being borrowed).

Discounted mortgage
This has a discounted variable rate of interest for a set period, after which the rate will increase.

Early repayment charge
A charge payable if the mortgage deal is settled ahead of time.

Fixed rate
An interest rate that is fixed (i.e. it doesn't move up or down) for a set period of time.

Income multiples
The factor by which earnings are multiplied to find out how much can be borrowed.

Interest
The charge made by lenders to borrow the money.

Interest rate
The figure that determines how much interest is paid. 

Interest-only mortgage
A mortgage where you only pay the interest charges of the loan each month. This means you are not reducing the loan amount (or capital) itself, and this will need to be repaid in some other way.

Loan-to-value
The percentage of money you want to borrow compared to the cost or value of the property.

Mortgage
A loan which is secured against the property.

Mortgage broker
A mortgage broker helps clients to understand the various mortgage types and deals available. To receive the recommendation of an excellent Mortgage Broker please email me.

Remortgaging
The process of changing your mortgage for a different one, without moving home. In the right circumstances this might be done to find a more competitive arrangement.

Repayment mortgages
A mortgage that pays off both the home loan and the interest at the same time.

Standard variable rate mortgage
A loan at the lender's normal mortgage rate – i.e. without any discounts or deals.

Secured Loan
A mortgage is a secured loan. This means that if you fail to repay it, your lender may be able to sell your home to get its money back.

Survey
A report on the condition of the property being purchased.

Tracker mortgages
A mortgage with an interest rate that is usually linked to a particular rate that is set independently from the lender and moves up or down with it. The most common tracker mortgages in Spain are Euribor linked. Euribor is the wholesale money market for Euros.

Term
The length of the mortgage.

Valuation
A brief inspection, for the benefit of the lender, of the home being purchased. This is to make sure they are not lending more than the property is worth and that the property is suitable security for the mortgage. It also checks that the property exists!

Please remember that in Spain, unlike the UK, mortgages are NOT regulated products. This means that that you must be careful who advises you. If your first instinct is to use a bank then you will not get advice, merely a product sale. Maybe a comparison from a recommended adviser. Please email me for a contact.

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	UK IHT
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?	Yes	No
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?	Yes	Yes

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

Spanish Inheritance Tax

Five Spanish Taxes affecting Non-Residents

Non-Resident Taxes

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

davidgoodall.spain@gmail.com

Getting Professional Advice

IMPORTANT : I never recommend advisers who charge up front fees

Follow Financial Pages in Spain

This is one of the major issues affecting British and Irish expats and property owners in Spain. On first view it may not look ‘major’ but I know from emails received that it certainly is, especially if things go wrong.

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

• Hearsay. The classic quote I hear so often is ‘I heard somewhere  ……’ What often follows is either wrong or out of date!

• An unauthorised, non regulated and unqualified person or company who call themselves an ‘adviser’. Always ask about their qualifications.

• 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? If you think that cost might be a problem, ask up front! I am playing my part in establishing why expats should always get PROFESSIONAL advice, whilst at the same time convincing professionals that their advice should represent VALUE FOR MONEY.

Apart from owning property in Spain for ten years and originally struggling to find professional advice, in the last year and a half through my Blog I have found many professionals. If you need advice, please email me.

My own connections included the following professionals;

• Regulated financial advisers
• Suitably qualified accountants
• Professional lawyers
• Chartered surveyors in Spain
• Members of the Association of International Property Professionals (AIPP)
• 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.

Never trust Unauthorised Advisers

I always recommended qualified and regulated advisers

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

PS

Testimonial

 "I stumbled across David's blog one Sunday afternoon when looking for advice on living and working in Spain. 

Each post encouraged me to email him for advice, so I did. However, imagine my surprise when I got an answer a few hours later. Don't forget this is a Sunday! He's referred me to a specialist who sounds like she can help.

Thanks again David.

Al Elliott, Manchester, UK ' 

Getting a Second Opinion

I recently looked at correspondence received from readers of ‘Financial Pages in Spain’ and can tell you the majority are summarised as;

Can you give me a Second Opinion?

For QROPS, QNUPS, UK Pensions, Investments and tax issues they are unhappy with the advice they have been given and send me examples.

Rather than guesswork people also ask me to recommend Accountants, Lawyers, Surveyors, tax advisers and other professionals. Any professional advice can be sought from ‘Financial Pages in Spain’

Some of the things people have said to me:

• ‘ It  looked like a mass produced report with just my name and personal details changed’

• ‘ They wanted an up front fee even to talk to me, funny they never mention that in their adverts’

• ‘ I was convinced the advice was wrong’ (by the way – it was!)

But they trust ‘Financial Pages in Spain’ and I am receiving comments which show a great deal of respect.

I’ll try to help. Email me

Can you help me to help you?

• Please send me both good and bad examples of reports you have received, from financial advisers, I’ll respect your privacy

• Tell me the names of Advisers who refuse to disclose commissions

• If the fees, charges and commissions are hidden in a report and not openly disclosed, please send examples

This sort of information will help everyone and help eradicate some of the greedy practices.

I may not have intended it when I started out but it seems that Financial Pages in Spain is becoming the respected second opinion.

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Whatever your query, please write to me. My email is on this link

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

Why go to Seminars?

'Free cheese is just a mousetrap'

All of the seminars I see advertised in the Expat Press might be better described as ‘Starting up the Sausage Machine’ It’s time to be aware – the big, impersonal firms call this ‘Seminar Season’.

Let me explain;

The primary purpose for holding the seminar is to maximise on telephone numbers, email and addresses. The more the better! It’s just the start of a predictable process.

The seminar is ‘informative’ but the commencement of a product sale. Imparting knowledge is completely dedicated to the aim of selling a specific product.

You are encouraged, whilst you drink their coffee or eat their cakes to see their ‘local expert’. His title (I’m not sexist but they are) could be all manner of exaggerations like Director, Partner, Regional Manager or Financial Planning Consultant. The only title he won’t have is actually what he really is – Salesman. He’s not an adviser, he doesn’t act as an agent, he represents the company as a salesman.

You complete a Fact Find. Most likely called Financial Planning Questionnaire or something equally pretentious but it comes to the same thing. The salesman will come back to you with a Report, just for you, within two to three weeks.

Remember that the salesman won’t tell you he is giving advice because if it all goes wrong later, somebody else is responsible!

Your Report, the one especially for you, is produced in what can best described as a Factory. It has pre-produced products called reports, which have six or seven changes added to match your circumstances. That’s why you completed the Fact Find, not to give you advice or plan your future requirements but for the Factory to produce your Report.

Most Reports you get will not disclose the commission being paid. This may come as a surprise, as in the UK, mandatory disclosure of commission has existed since 1993. Even if the company is FSA registered, they rarely disclose commission!

The Report may seem very professional but you were part of THEIR PROCESS not YOUR NEEDS.

I regularly recommend advisers and if you want individual financial planning please email me

The advisers I recommend will give you all of the following;

• An individual and appropriate process to establish your needs and an individual recommendation
• Always disclose commission and fully explain the charges associated with their advice
• Give you a NAMED individual who will be your adviser and who is ultimately RESPONSIBLE for the advice given
• Assess your attitude to investment risk and match that to any advice given
• Not charge an up front fee

Give me a few brief details of what you seek and I’ll be happy to make the appropriate recommendation to a Professional, Regulated and Qualified Financial Adviser. Just email me

You may wish to look at some other Posts from my Blog

Getting Professional Advice

http://expatsfrombritain.blogspot.co.uk/2012/01/getting-professional-advice.html

Getting a Second Opinion (important if you’ve had a ‘Report’)

http://expatsfrombritain.blogspot.co.uk/2012/01/getting-second-opinion.html

Tax Avoidance and Tax Evasion

http://expatsfrombritain.blogspot.co.uk/2011/04/tax-avoidance-and-tax-evasion.html

If there is just one major element of the 'Seminar' process it is this - FSA regulated firms who REFUSE to openly disclose commissions & charges - it's YOUR cash. Ask up front if they will declare all the commissions, in their Report. 

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

July 2012 Review - Financial Pages in Spain

Taxation, Pensions and Positive Spain were the most popular posts during July 2012

Positive Spain? You may justifiably ask ‘why’ but it’s what the readers made the number one read post during July. ‘Spain – The Sun still Shines’ looks through the economic gloom at life in Spain

http://expatsfrombritain.blogspot.co.uk/2012/06/spain-sun-still-shines.html

There were two outstanding Taxation issues which were most popular in the last month

Spanish Inheritance Tax (ISD)

This detailed post sets out the essential differences between Spanish ISD and UK Inheritance Tax (IHT). It goes into detail of how the ISD works and the fundamental need for professional advice

http://expatsfrombritain.blogspot.co.uk/2011/06/spanish-inheritance-tax-isd.html

Five Taxes which affect Non-Residents

Originally written in April 2012, its popularity was maintained through July 2012. ‘Financial Pages in Spain’ can provide a PDF version, if required, by sending an email request. The full post is;

http://expatsfrombritain.blogspot.co.uk/2012/04/five-spanish-non-resident-taxes.html

Making up the top five read posts during July 2012 were two very relevant and current Pensions matters

UK Pension plan or scheme but you live in Spain

In many respects, this article is essentially about knowing your rights and what your options are. Many people who have contacted me are very pleasantly surprised about their choices.

http://expatsfrombritain.blogspot.co.uk/2011/08/uk-pension-scheme-or-plan-but-you-live.html

Additional QROPS – Update

Reading the popular and free press naturally limits information that the advertisers want to feed you. Readers of ‘Financial Pages in Spain’ have expressed surprise at finding a high quality (low volume) alternative. Maybe it’s in part as I have an exclusive arrangement which will NEVER be advertised in the Press.

http://expatsfrombritain.blogspot.co.uk/2012/07/additional-qrops-update.html

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‘Financial Pages in Spain’ continues to grow, as I can see from the statistics. Whilst Spain and UK dominate the views of both the Website and Blog, there have been readers from 49 other countries including New Zealand, Malta, France and also Russia. The growth in Ireland has been very noticeable.

Any issues which arise can be answered on an individual basis if you email me. I’m happy to receive questions from anywhere but my real expertise relates to the UK and Spain.

I am happy to take suggestions from readers about future articles. Please email me with your own ideas or issues that you think need raising.

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com