QROPS pension schemes rules are strictly laid down and determine whether or not an overseas pension is given the status of Qualifying Recognised Overseas Pension Scheme (QROPS).  When expats such as ourselves are considering transferring their pension from the UK to an overseas pension scheme, complying with the rules is paramount.

A successful QROPS transfer

For a QROPS to be successful, each of us must take into account all of the following elements.  If a client does not receive proper advice on these elements before considering moving the UK pension, it is likely that the QROPS application will fail. Be aware of the numerous non-qualified “QROPS shops” opening along the Costas. This is a lucrative business for the providers and for the client/pension holder, but we should all deal only with fully qualified and authorised advisory firms. Please be aware of this vital aspect of your planning. Check the authorisation – is the adviser a member of the Chartered Insurance Institute (C.I.I.)? If so, ask to see their membership card. Is he/she UK and internationally qualified? Ask to see the proof!

The rules

The rules required to meet the Qualification standard are well documented but little understood by the wider public. Should an application be accepted we should be aware of two most important issues.

The first issue is the jurisdiction (resident country) of the QROPS. It may be a QROPS in Luxemburg, Guernsey, New Zealand for example. There are many other countries where QROPS are based – some less secure and desirable than others.  You do not have to be resident in the same country as your QROPS.  So for example, in Spain you can have a Guernsey QROPS. Resident status of the pension scheme may well have impact upon the security of the capital sum involved.

The second issue – an obstacle for many QROPS, has been the ability to transfer a  pension to where plan-holders are able to take the entire fund as a single payment.  Do not expect to be able to “pension bust” simply by moving to a QROPS.  It is a pension after all. Even UK rules allow for access to the entire fund for the over 60s in some circumstances without the need to transfer the fund abroad – this is for holders of smaller value funds only. The main advantage of a QROPS is that we do not have to buy an annuity at retirement.  This means any money left in the QROPS pot after death can be passed onto the family or other death beneficiaries.

Notes;

It should be noted though, that UK rules allow for similar choices (death and drawdown of income and cash) without the necessity of moving the pension fund abroad. This means in many circumstances we may initially deal with a QROPS enquiry, but ultimately, leave the pension fund within UK control and rules. (This is commonly the least costly route for each client.)

Clients who may wish to exercise control over their assets within their pension fund may prefer the QROPS route as this opens a ‘hands-on’, much wider and less ‘controlled’ investment choice.

Investment choices and options

Retirement may be imminent or some time off – What is a good investment for one part of the economic cycle will not be so attractive later. For example, as we approach retirement we may wish to move our investments to a lower risk environment. In retirement, typically, we will more than likely require income from pension fund. A good QROPS will allow access to thousands of funds thus opening opportunities before retirement and reducing risk as retirement approaches.

Our ongoing day-to-day service

Another factor often overlooked at the start of the QROPS.  In addition to the change of economic circumstances mentioned above, what happens if our own circumstances change?  Perhaps a move elsewhere – or even a return to the UK.

What do we need to do to start taking benefits for our QROPS pension? In all these circumstances, and many more, you will need ongoing advice.

Retirement

Options include – how much of the fund do we wish to take in cash? Withdrawals from your investments in a QROPs range from zero to 100% of a figure provided by the Government Actuary Department (GAD). This maximum figure is calculated using interest rates at the time of retirement and your age amongst other factors.

Death

All QROPS families will have to deal with this issue at some time!  Typically, the Spouse will continue taking the full pension on the death of the QROPS holder. With many conventional pensions, the widows/widowers pension is only half or less of the original.
Finally, as with many aspects of pension planning whilst there are rules, how these rules apply to you is the important factor in the decision making process.  Choose an adviser who is not only qualified, but understands both the QROPS and UK pension rules and legislation and just as importantly, how each individual client would like to see their pension fund invested and ultimately taken.

In the same way as a company has a set of accounts, so in effect, does each country. 

Every country has a balance-sheet which includes it´s assets and liabilities.                A simplified version lets us examine the current “crisis” and assess some of the risk. 

A State’s profit & loss ‘Balance-Sheet’ Account

Raising Money vs. State Expenditure

Taxation                                                                          Education budget

Bonds (capital raising from the markets)          Health budget

Sale of Assets (e.g. state owned buildings)       Defence budget

Interest on past loans or bonds                             Bail outs and rescues

We can easily see that if a country has to bail out a bank this can be a drain on the Government´s finances and make the situation worse.  There is a direct relationship between bank bail outs/rescues and a State’s financial health. (This creates a sovereign debt)

To improve its finances a Government can cut expenditure.  Examples include pay cuts for public servants and reduced spending, reducing the pensions of public paid employees.

Whilst most countries are raising tax, many are also raising capital by borrowing more/ issuing bonds.  In some cases, such as Ireland, this capital raising is simply to repay other loans and bonds that have reached their maturity and the country is obliged to repay at the prescribed time.  It is the ability or potential inability of a country to repay the loan which is the most important factor in a sovereign financial crisis.

A company has an increase in it expenditure if the cost of its raw materials rises. These raw materials include the cost of employing the workforce, purchased and other items.

Many companies which rely heavily on Government contracts are currently very nervous about the degree of austerity measures but many companies have found their income has held up relatively well.  Production lines for many companies are holding up as the demand for their products continues to surge in the Far East and other developing nations.

How should we apply the above scenarios to the financial sector?

When deposit money into our own bank accounts we expect that money is still “ours”.  The account is in fact just a simple method of recording how much we have invested and are owed by that bank.  What has actually happened is to agree that the bank can use the money for any purpose it sees fits in return for a service, for example the payment of interest.  Thus if a bank then lends it to a person or government that defaults the bank needs money in its reserves to cover the shortfall when it in turn needs to repay the account holder. When the defaults get so big that there is no money left in the reserve, account holders will not get their money back. In this event, for many banks, there is a fall back onto a compensation scheme. These schemes were put in place when Government credit ratings were good and they also had reserves. 

A Government with sovereign debt problems may raise taxation, issue bonds and even print money as we have seen in the past and is happening now.

This is a way of simplifying the current world sovereign debt crisis and the impact it has on us all. When making investment decisions we should consider:

Governments can be brought down by having to bail out or rescue banks

Governments cannot bring down a company unless that company relies upon government contracts for most of its income

When you pay money into the bank, you are giving the bank authority to use the money as they wish.

If you are looking to develop your own practice in Spain, or even start afresh in the Costa Blanca, why not give us a call and discuss what we are able to offer. Alternatively, send a copy of your CV to our email address and we will arrange a meeting.

We look forward to hearing from you.

During times of weakness in world markets, is investing in these markets beneficial or should we wait?

Adverse and apparently unattractive market conditions are inevitable from time to time, often triggered by dramatic events (e.g. 9/11). The key is to minimise the effect of any downturn and to maximise the subsequent recovery.

Clients should consider:

1. Their administrative platform

An important first step is to utilise and leverage the functionality of a well- established platform utilising diverse range of products offering administration and/or fund management. Active management means that switches are executed quickly minimising potential falls in uncertain times…..whilst offering investment opportunities on the up-turn. We help client choose the best platform for their on-going needs.

2. Cash accounts

Portfolio Cash Accounts are available to all investors, offering an ideal short term shelter in adverse markets.

Competitive interest rates – bank bonds – term deposits – current accounts

3. Pension service & pension consolidation service

Would you prefer your pension holdings, like your invested capital, to be held in cash pending an investment decision or waiting for favourable market conditions?

With investors over the age of 45 typically having more than 1 pension, a review of investment approach and consolidation into a single pension or overseas QROPS  could be appropriate. A pension with the added flexibility and client understanding is hugely beneficial.

4. Capital consolidation

It could be the ideal time to consolidate holdings onto your favoured administrative platform. In this way we are able to actively manage clients’ portfolios and minimise risk associated with numerous holdings and administrators.

Simplify the portfolio and add “hands-on” management  to all your invested capital.

With insurance, sometimes called assurance, the policy is a between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay.

In exchange for payment, known as the premium, the insurer pays for damages to the insured which are caused by covered perils under the policy language (eg fire, theft).

Insurance contracts are designed to meet specific needs and thus have many features not found in many other types of contracts

Assurance is a guarantee to pay (assuming all conditions are adhered to) Hence we refer to life assurance (as we will all die sometime) and cars are insured.

We are able to insure against the following common perils:

Death

Serious illness and disability

Accidental death or disability as a result of accident

We are able to arrange the following policies:

Car

Home

Funeral

Business risk

Insurance companies also offer:

Investment funds

Life assurance investment portfolios

Trusts

A basic will document can be purchased from the tobacconist (estanco). In Spain, tobacconists are licensed to sell official government forms. This is not the best route to follow for ex-pat residents unless completely at home with Spanish requirements and obligations.

The will is registered at the Registry of Last Wills and Testaments (Registro General de Actos de Última Voluntad), where it is given a certification number.

The will can be applied for 15 working days after the death by anyone who is able to produce the relevant documentation.

Embassy information on death of a national in Spain
British Embassy
Giles Paxman
Address:
British Embassy
Torre Espacio
Paseo de la Castellana 259D
28046 Madrid
917 146 300

http://ukinspain.fco.gov.uk/en/

Alicante Address:
Plaza Calvo Sotelo 1-2
Apartado De Correos 96 521 6022

There are certain taxation and other obligations which sellers should be aware of.

When setting the price of the sale, the owner should be aware that 3% of the declared value is the ‘Retention’ and as such held back at completion to cover any tax liability owed to Spain. This is a sum which is the responsibility of the seller to pay.

The Fiscal Representative of the Buyer will complete a tax form detailing who bought the property, and who has sold the property. The amount to be paid will be retained by the Buyer, and paid when the form is processed by the Treasury Department.

If the Seller has not paid their annual taxes whilst owning the property, the 3% retention will be retained by the Treasury Department.

However, if the Seller is up to date on all tax payments, there is the opportunity to reclaim this amount when filing for Capital Gains Return.

Capital Gains Tax Return
This is a tax calculated on the difference between the purchase price of the property originally, and the sale price of the house in this transaction. The difference between these two amounts is the profit which has been made. To gain a true figure, you must also deduct any expenses.

The type of expenses which can be deducted are:

• Notary Costs
• Land Registry Costs
• Purchase Tax Certificate (Certificate of 7% or 8% taxes plus additional 1% taxes, where applicable)
• Details of Costs of Selling

The amount left after deductions is generally subject to tax at 19% when the sellers are Non-Residents of Spain. If the Capital Gains amount is more than the 3% Retention, the difference is required to be paid. If the Capital Gains is less than the 3% Retention, the difference should be returned by the Treasury (assuming that all annual tax returns are in order).

We work closely with a number of top quality Fiscal Representatives who will calculate for our clients, their tax obligations if any. In order to make things easier for both buyer and seller, it is normal to pass all paperwork to your Fiscal Representative to collate and liaise with the representatives of the buyers.

Certificate of Habitation

If you are intending to sell your property in Spain you must have a current Habitation certificate “Cedula de Habitabilidad”.

These are issued by the town hall to a builder on completion of new properties, stating each property has been passed as habitable. Once obtained, the Habitation Certificate has a validity of five years and states that the building conforms to the original plans submitted to the town hall.

When the five years expires, the owner of the property should renew the certificate via the town hall, who will issue the new certificate, a Licencia de Segunda Ocupación in the name of the owner of the property.

Sellers should also be aware that they are liable to pay for reconnections of utilities so if meters have to be reconnected, they will need to pay for this.

• Call the local police (Policía Municipal). Tel: 092

• Contact a doctor (if the police do not) who will certify the cause of death and issue a certificate of death

• A funeral service may be arranged at a tanatorio who will arrange to remove the body

• Register the death within 24 hours at the Civil Registry (Registro Civil) which is located in the local local Town Hall

• In most regions of Spain a body is required to be buried or cremated within 24 to 48 hours of death

If the death occurs in a hospital, the administrative authorities will manage the process.

The Death Certificate

In the event of a death, the last doctor to treat the deceased (or one who confirms death and identification of the body) issues the certificate of death. This document certifies a person’s death. If the death occurred in difficult or unusual circumstances or involves an investigation, an order from the judicial authority may be issued to confirm the death.

Registration of a Death

Within 24 hours of a death, the certificate of death must be taken to the Civil Registry to formally register the death. The registration includes the date, time and location of the death. Registration is normally done by a member of family, a friend or neighbour of the deceased. In most cases the death should be registered with the Civil Registry office of the area where it occurred. The certificate of death stating the cause of death must be presented in order to make a registration.

Contents of the registration

The registration of death form should contain the following information:

• Name and surname of the deceased

• Names of the deceased’s parents

• Marital status

• Nationality

• Date and location of birth

• Birth registration details

• Last known place of residence

• Date, time and location of the death (see death certificate)

• Place of burial or cremation, if indicated on the death certificate or the certification from the authority or civil servant in charge of the cemetery

When the death registration has been completed a burial licence is issued and the funeral can take place. The Death Certificate (Certificado de Defunción) will be issued by the Civil Registry office. Multiple copies can be requested.

Funerals in Spain

If the deceased has made specific arrangements for a religious service, burial or cremation their wishes should be followed. Burial or internment are most common in Spain. If the deceased or next of kin request a cremation this must be made known to the doctor in charge of certifying the death as it will be noted on the certificate. Funeral insurance is available in Spain or funeral expenses can be paid in advance to the undertakers.

Burial

Each municipality has a cemetery. Spanish cemeteries have a system where a coffin is inserted in a recess, or niche (nicho) (rather than buried in the ground). A niche can be rented for a pre-determined number of years. The remains are interned in the niche and once the period expires the body is moved to a common burial ground.

Cremation

Cremation is not widely practised in Spain and not all areas have crematoria. Prices vary depending on location.  It is important to contact certain institutions:

• Any public or private institution for that the deceased worked for or received payment from

• The Director General of the Public and Personal Pensions (Dirección General de Costes de Personas y Pensiones Públicas), or the Institute for Social Security (Instituto Nacional de la Seguridad Social INSS) as appropriate. Pension payment can then be altered accordingly, to widows pension or orphan allowance for example

• Banks and insurance companies (life insurance). Banks often insist that an accident policy is taken out when an account is opened

• To find out if the deceased made a will or to obtain a copy of the will, contact the Registry of Last Wills of the Ministry of Justice, (Registro de Últimas Voluntades del Ministerio de Justicia)

Repatriation of a Body

If the deceased or their next of kin requests that the body be repatriated to the country of origin this must also be communicated to the attending doctor when the death certificate is being completed. If a body is to be repatriated the passport should be kept with the body, it cannot cross international borders or fly without it. Repatriating may be covered by insurance. If this is the case, the insurance company will make arrangements. A body can be cremated in Spain and the ashes flown to the home country. Ashes must be accompanied by a certificate.

Death of a Non-Resident or Tourist in Spain

In the event of the death of a visitor to Spain:

• Contact the travel insurance company. It will take over many of the arrangements

• If there is no travel insurance the family will have to cover all the expenses

A smooth purchase

We are well places to help with all aspects of a purchase.

For most people, the purchase of a home in Spain, whether for permanent residence or for holidays and investment, the attraction of the country is very obvious.

Climate, affordability, access from Northern Europe and of course the warmth of our Spanish hosts.

The house buying process in Spain is relatively easy. For first time buyers in Spain or abroad, the key to a smooth purchase is the advice from experienced companies or individuals.

The initial steps;

Once you have found the property you have set your heart on and you are ready to commit to purchase, you will be expected to pay a holding deposit of €3000 to €4000.

This will remove property from the market and fix the agreed price.

It is essential that the holding reservation is refundable should there be any encumbrances found on the property.

The best course of action is to have a lawyer appointed before the most suitable property is located, then you will be ready to go and not miss out on the house you really want.

Without a reservation being paid, the seller has no obligations to sell to you at any given price and so leave a deposit when you are sure you want to proceed.

If the sale is “off plan” as a new built site, then stage payments will likely be required. Ensure you have enough available capital as a mortgage is very difficult to find for land or incomplete buildings.

Signing of the Deed (Escritura)

As distinct from property purchase in the UK, all property transactions are conducted before a Notary

The Notary checks and witnesses the signatures of the relevant parties.
The Notary will also check the legal papers and seek to ensure a non-Spanish speaker understands what they are signing. For this purpose it is essential someone acts for a non-Spanish speaker in this capacity, usually, the lawyer or associate.

At this stage, checks are made to ensure the relevant taxes and community charges are paid and up to date.

After signing, the title deeds are sent to the Land Registry where they are registered.

The costs of buying in Spain should be estimated at around 10% to 12%% given the arrangement of land registry, Notary, mortgage fee if applicable, and of course purchase tax.

Each buyer needs to ensure they have a fiscal number (NIE number).
This is the identification by which the Spanish state allocates wealth and assets to individuals.

For example, we need an NIE number to purchase a house, or a car. This can be a lengthy, though inexpensive process if done individually.
In our experience, it is best left to experts and Spanish speakers to arrange on your behalf and should cost no more than €100 per person. This number stays with you for life.

Taxation;

Covered in more detail in the “taxation” information pages, may be summarised as follows:
Sadly, taxation is as certain as night follows day, we are able to effectively reduce the amount we pay by careful planning.

When a Spanish property is bought, it is unsurprising that a contribution is required to local schools, police, and community in a form of council tax commonly referred to as “SUMA”.
The local taxes are considerably less than those of the UK.

Additionally capital gains tax is imposed on disposal for a gain…..of course, Inheritance Tax on death.

It is therefore sensible to employ a local fiscal representative to handle your affairs, and essential if a resident.

Ask us for information about fiscal representation.

Spanish Wills;

It is essential to make a Spanish Will to dispose effectively of assets in Spain.
Spanish Inheritance Tax rules are complicated and having a Will eases the process for beneficiaries on death.

A Will relating to Spanish assets only should not cost more than €170 each person unless financial affairs are complex.

Mortgages;

We are able to arrange mortgages up to 80% for residents and non-residents alike.
Rather than UK equity release, this creates a debt on the Spanish property which may be valuable in the event of untimely death as it reduces the value of a deceased’s Spanish estate for Inheritance Tax purposes.

A mortgage may therefore be used to reduce taxation.

Resident status;

Legally, any foreigner should be able to stay in Spain for up to 90 days as a tourist. There is a debate as to the validity of this Spanish legislation as the EU permits free movement of it’s people between states.

However, should you intend to stay longer, a “Residencia” permit should be obtained via your gestor or lawyer.

We take no responsibility for the guidance and information given herein as the preceding notes are for information purpose only, and not intended as a substitute for professional advice.

Resident Taxes in Spain

Once you are in possession of your residents Permit “Residencia”, your tax situation changes from that of a non-resident property owner to one of a Spanish resident now making an annual Income tax declaration on world-wide income.

These declarations have to be presented in June having been completed by the end of May.
The fiscal year is a calendar year, January to December.

New arrivals will of course need to provide two returns in the first resident year, one in the UK (April to April), and the Spanish declaration in June.

The tax is based on world-wide income. This includes, pension, annuities, interest, salary, gains or losses in stockholdings (shares and bonds), rental income in Spain or elsewhere.

Income from the following is excluded;
UK Crown Service – Armed Forces – Local Government – Fire Service – Police Service – Teaching (not all posts qualify).

Note: NHS positions do not qualify as Crown Service.

Crown Service and other categories aside, should tax be paid on income at source in the UK, you should apply for form FD9 from the tax office in the UK.
This stops tax deduction in the UK and avoids any double taxation (Spain and the UK).

Please remember that although Europe is becoming very united in many ways, we have differing tax systems, methodology and rates.

The Income tax rate in Spain varies dependent on income, as in all moderm tax systems
Spain uses a personal allowance similar to the UK, but at a different rate.

Extra allowances apply for the over 65s and other circumstances such as dependants, disabilities etc.

INHERITANCE TAX (IHT) IN SPAIN

IHT is often referred to as a voluntary tax.
This is because there are a number of legitimate ways to avoid the ravages of IHT. There are particular difficulties in Spain which will be highlighted in these notes.

It is impossible to offer a comprehensive guide which would be applicable to everyone’s circumstances and so we offer a summary of the tax here.

The rises in Spanish estate values primarily as a result of rising property prices in recent times, have caused people to think seriously about making provisions to reduce this burden.

This is a real concern in Spain for residents who are married.
Unlike the UK where IHT is imposed upon the value of the estate, in Spain IHT is imposed upon the beneficiary. Significantly, upon the spouse as well as children and more remote inheritors.

Impuesto Sobre Sucesiones y Donaciones, often referred to as GHT, is the Spanish name for Inheritance Tax but for the purpose of this account, we will refer to the tax as IHT.

The rate for the tax rises through 16 different bands.

Once the base rate has been established, then other factors are applied.

The surcharge applied increases the more distant to relationship the deceased is to the inheritor. Unrelated wealthy heirs have been known to pay a rate of IHT in excess of 80%!

In the case of a Spanish resident heir, all the assets will be subject to Spanish IHT.
For non-resident heirs, only assets situated in Spain will be subject to the tax. For non–residents, these assets could typically include property, bank accounts and cars.

The key point to remember is that the assets situated in Spain (or deemed to be situated in Spain), are taxed in Spain.

The difficulties faced by widows and widowers should not be understated.
For those who are property “rich” and “cash poor” this can become a real problem on death of the spouse.
In the UK, no IHT is imposed on death of the first spouse if assets are passed to the surviving spouse…not so in Spain.

There is a dispensation which whilst potentially valuable is little used.
If on death, a person has spent three years plus prior to death as a tax resident of Spain, and the surviving spouse spends at least a further ten years in Spain after the death of the spouse, then a 95% deduction is allowable.
The dwelling house must not be sold in the ten year period.

The autonomous region of Valencia has recently introduced a more favourable regime in respect of death duties. More information available on request.

A sobering thought is that after payment of IHT on death of a spouse, then the estate when passed on to other beneficiaries on death of the second spouse will be taxed again !

Important note;

We have tried to give important but basic guidance in these notes.
No action should be taken or these notes relied upon as a substitute for personal financial or legal advice.

We take no responsibility for the guidance and information given herein as the preceding notes are for information purpose only, and not intended as a substitute for professional advice.