By Sam Kelly, Managing Partner, Chorus Financial.
Spain is well known for having high taxation, and inheritance tax (IHT) is no exception. However, with the right financial planning, spouse to spouse, Spanish and UK IHT can be avoided altogether.
A typical scenario here in Spain is that of my clients, a husband and wife, who have been retired here in Spain for 12 years, and own a property here. They also have 2 investment properties in the UK and savings and investments totalling approximately £300k. They want to leave their entire estate to their two children who both live in the UK.
As it stands, their joint UK inheritance tax allowance is being used up by their investment properties, which means that when they pass away, there will be a UK inheritance tax bill of £120,000, or 40%, on their £300k of savings and investments. This bill could be even higher when the potential for Spanish IHT is taken into consideration.
As many of you will know, UK inheritance tax can be avoided through appropriate trust planning, but in Spain trusts aren’t recognised, so the key to avoiding Spanish inheritance tax is getting the right, local advice. There’s also spouse-to-spouse inheritance tax to deal with in Spain, which can often result in 6-12 months of frozen accounts and probate, at the worst possible time.
Fortunately, there is a solution which covers all three problems. By placing their savings and investments into a Spanish Compliant Investment Bond, they can target investment growth, retain flexible access to their funds, make regular withdrawals for income, holidays, a new car etc, and the immediate benefit is that this avoids both spouse-to-spouse probate here in Spain, and any Spanish inheritance tax (and probate) for their children. Spanish compliant bonds are offered in Spain by household names like Old Mutual and The Prudential, who have over 30 million clients between them, so you know you’ll be getting a plan from a company you know and can trust.
Once the Spanish compliant bond is set up, you can then gift it into a recognised trust arrangement, and this protects against that UK inheritance tax bill. So, with 2 simple steps you have avoided spouse-to-spouse, Spanish, and UK inheritance tax, and for this particular couple they will pass on an additional £120,000 to their children.
As Chorus are one of the only truly independent financial advisories in Spain, our robust IHT planning can cost less than half in annual fees, than even the most basic investment options offered by other firms. As an example, the proposal above, including the investment management, product fees and IHT planning, is costing our clients just 1.5% per annum. Our clients, who are cautious investors, have targeted annual growth of around 4% per year, after all fees.
Whether you’re looking to improve the returns on your savings or investments, explore your pension options, or come up with robust IHT planning solutions, a free consultation with Chorus is the best place to start.
Chorus Financial is a trading style of Tourbillon Limited, authorised and regulated by the Financial Services Commission (Gibraltar), Licence Number FSC1118B and registered with the UK FCA as an EEA Authorised firm, reference 539348.