The High Court in the region of Valencia has ruled in favour of a British couple, Mr and Mrs Roy.

It told the Spanish tax authorities to repay them for being charged a capital gains tax levied at 35% instead of 15%.

A spokesman for the Roys’ law firm said it was gathering similar cases, with an average claim worth £14,100.

“This discriminatory law was in force for many years,” said Emilio Alvarez of Valencian law firm Costa, Alvarez, Manglano.

“It will have affected thousands of people,” he added.

Read more…

Spain’s Social Security system is on track to post a surplus in excess of the government’s EUR 8-billion target this year.

MADRID – Spain’s Social Security system is on track to post a surplus in excess of the government’s EUR 8-billion target this year, even in the light of recent increases in unemployment and slower growth in many sectors of the economy, Labour Minister Jesús Caldera said on Wednesday.

Speaking at a conference on the economy organised by Spanish business newspaper Cinco Dias, Caldera rejected “alarmist” claims about the supposed ill health of the jobs market after the number of people looking for work soared in December and January.

“The Spanish economy is still functioning well and creating employment,” Caldera said, noting that even during the slower job market of the last two months contributions to the Social Security system increased by EUR 1.2 billion, or 6.6 percent.

The minister said that so long as that rate of growth continues until the end of the year, the government will surpass its target of EUR 8 billion, and would be on track to boost the Social Security reserve fund to around EUR 90 billion within four to six years. That, Caldera said, would ensure Spanish pensions could continue to be paid for at least a decade without the system running a deficit, overcoming at least some of the difficulties presented by an ageing workforce.

Caldera is heading the Socialist Party’s campaign for re-election in the 9 March general election.

[Copyright EL PAÍS 2008] – Article courtesy Expatica.

After a qualifying period individuals can access their funds in their entirety and use the capital and income in the way that is most tax favourable for them and upon their death, they can leave it to whomever they like.

This compares most favourably with the pension regime in the UK and ex pats around the globe should be making it a priority to remove their funds from the UK as quickly as possible.
A degree of caution should be exercised because some QROPS appear to rely on artificial contracts of employment, which would of course incur huge penalties.

For clear impartial and appropriate advice contact Free My Pension.

The Spanish tax office confirmed at the weekend that it has obtained the names of 100 Spanish citizens believed to have evaded taxes in Liechtenstein

3 March 2008

MADRID – The Spanish tax office confirmed at the weekend that it has obtained the names of 100 Spanish citizens believed to have evaded taxes in Liechtenstein, becoming the 15th country involved in an international probe into fiscal fraud in the Alpine principality.

Tax officials did not disclose the identity of the suspected tax evaders, although most are believed to be wealthy business owners with millions of euros of financial assets deposited in Liechtenstein banks. They are among hundreds of people named on a DVD purchased by the German government from an informant last month, which ignited the international scandal.

Since then 15 countries have said they are investigating tax fraud by their citizens in Liechtenstein. The number of people under investigation by Spain is comparable to those being probed by the United States, while Italy says it is investigating 150 people and France 200. Germany says more than 1,000 of its citizens are suspected of evading taxes to the tune of EUR 4 billion.

According to Spanish authorities, tax officials are attempting to determine the full extent of the evasion carried out by Spanish tax payers. Those who owe the tax office less than EUR 120,000 will face fines and sanctions imposed by the tax office directly, while those owing more than that amount can expect to face criminal charges in court, authorities said.

[Copyright EL PAÍS / LUCÍA ABELLÁN 2008]

A rapidly expanding international probe into tax evasion centred on Liechtenstein spread to Spain on Tuesday.

27 February 2008

MADRID – A rapidly expanding international probe into tax evasion centred on Liechtenstein spread to Spain on Tuesday, with the Spanish tax office confirming that it is joining a growing list of countries investigating citizens with bank accounts, companies and foundations in the Alpine principality.

The potentially massive case of tax fraud emerged earlier this month when Germany admitted to paying EUR 4.2 million for information on German nationals with accounts at LGT, a private bank owned by Liechtenstein’s royal family. Britain, France, Italy, Sweden, New Zealand, Australia and the United States have since launched their own inquiries. Spain on Tuesday became the latest to target its citizens who had allegedly been using LGT to hide money from the tax office.

“We are analysing information about Spanish citizens included in these lists of bank accounts and deposits in Liechtenstein, which were used, presumably, for tax evasion and fiscal fraud,” the Spanish tax office said in a statement.

It said that after it has studied the information it will decide whether to launch further investigations or to turn individual cases over to prosecutors to bring criminal charges.

[Copyright El Pais 2008]

José Luis Rodríguez Zapatero, the Socialist prime minister who is seeking re-election on March 9, is facing a barrage of criticism this week after promising a €400 ($591, £297) tax rebate for 13m wage earners and pensioners. The measure is expected to cost €5bn, or one-quarter of the government’s fiscal surplus of 2 per cent of gross domestic product.

The prime minister said the rebate was aimed at “stimulating” Spain’s slowing economy. With rising inflation and mortgage payments he wanted to put more money in people’s pockets, Mr Zapatero told a Socialist party conference.

But Comisiones Obreras, the biggest trade union, called the €400 rebate “opportunistic” that smacked of being “a one-off payment for voting Socialist”.

“A blatant attempt to buy votes with public monies” complained Convergencia i Unió, a Catalan nationalist party, which said it would denounce Mr Zapatero’s “banana republic tactics” to the Spanish election watchdog.

Other groups, including some Socialist party allies in parliament, said there were better uses for the government’s fiscal surplus, such as education, home help for the elderly, and other social programmes.

While the opposition Popular party calls Mr Zapatero’s proposal “naked electioneering”, its own tax proposals are equally controversial.

In a bid for the female vote, the Popular party proposes that working women should pay less tax than men. The conservatives want to cut the tax bills of female workers by €1,000, arguing this will encourage women to continue working after they have children and mitigate the cost of childcare.

However, lawyers and feminists have attacked the proposal for being unconstitutional.

“The impact of tax cuts for women could have the perverse effect of lowering female wages even further,” said Asunción Ventura, a professor of constitutional law, writing in the newspaper El País. “Women might be forced to accept lower wages knowing that their tax bills would be lower.”

In addition, the two main Spanish parties say they will simplify the tax regime, abolish wealth and inheritance taxes, and lower the corporate tax rate, currently 30 per cent, to make Spanish business more competitive in European terms. The Popular party wants to raise the tax exempt threshold to €16,000 a year – a level it says would exempt four out of 10 Spaniards from paying income tax.

The Socialists say their measures would also exempt low wage earners from paying income tax.

Neither party had planned to fight the election over the economy. But the end of the Spanish property boom and the international credit squeeze has brought economic worries to the fore.

Copyright The Financial Times Limited 2008

If you have deferred benefits in the UK they will either come from a personal pension or from an occupational pension scheme.

Both will entitle you to some tax free cash with the balance of the fund to be used to provide an income either via an annuity or via income withdrawal.

The maximum tax free cash that can be taken from a personal pension is 25% of that fund and the earliest date that you can normally draw benefits is age 50, soon to become 55.

If it suits, you can defer taking any income until age 75 at which time you will either have to take what is known as an alternatively secured pension or purchase an annuity. The most likely course of action will be to buy an annuity.

If you have funds in an occupational pension scheme you might be entitled to more than 25% of the fund as tax free cash.

All pension funds enjoy a tax favourable status, however, any income drawn is taxable.

For more information please visit www.freemypension.com.

A key fact which Britons retiring to live in France need to be aware of is that there is no exemption beyond the €76,000 personal allowance on transfers between husbands and wives on death – and, according to the Institute for Public Policy Research (IPPR), there are some 200,000 expat Britons that permanently reside in the country.

“Clearly, in the case of better-off expats, this relatively frugal allowance means that many Brits will be vulnerable – and if assets go directly to the children, each child only has a personal allowance of €50,000,” said Wilcox.

“Then tax from 5 up to 40 per cent will be levied – and many Brits are unaware of the fact that the kids actually have more rights than the spouse under French law.

“Unmarried Brits who live together are also very exposed – as the French will hammer you for 60 per cent.

“But the French tax authorities also have a system known as ‘assurances-vie’, which will allow unlimited amounts to be sheltered from punitive Gallic IHT laws – but it is crucial to set up an IHT mitigation plan before taking up residency.”

Spain, currently host to 761,000 full time resident Brits also has quirky death tax laws. Unlike the UK, assets in Spain do not pass automatically to spouses tax-free on the first death, and the surviving spouse can be vulnerable to Spanish inheritance tax.

“The tax-free allowance is just €15,957, and a further 34 per cent kicks in on amounts over €79,755 – but, in some circumstances, for example if they are not a blood relative, expats can be liable to pay 82 per cent under current Spanish law, unless they have made pre-domicile arrangements,” said Wilcox.

More and more expat Brits are also being caught out by UK IHT, which is payable on ‘worldwide’ assets when they die, depending on their domicile status.

“To change to a domicile of choice, a person needs to prove that they are a resident of that new country and that they intend to reside there permanently or for an unlimited time.

“Retaining residential property or even a burial plot within the UK can give the Revenue enough ammunition to challenge your domicile of choice abroad,” warned Wilcox.

“Pretty much regardless of where you are going, it is important to remove assets from one’s estate before leaving.

“But in doing so, it is vital to ensure that reliable trustees looking after those assets have the power to release funds as necessary back to the donors and, where required, to other named beneficiaries. Failing to do this is where so many expats fall down,” added Wilcox.

Story from mortgageintroducer.com

Then of course, within Europe, we now have the Savings Tax Directive. Some jurisdictions have been able to retain banking secrecy and instead apply a withholding tax but the ‘ultimate aim’ is to have all EU countries and participating jurisdictions (including Switzerland) automatically exchange information, hopefully from 2011.

The UK’s tax revenue, HM Revenue & Customs (HMRC) was evidently not satisfied with these arrangements and, by taking leading high street banks to court, managed to override the Directive’s withholding tax provision. These banks were forced to disclose information on their offshore clients. This was a highly significant victory – it proves that tax authorities are winning the battle against tax evasion and are now able to push banking secrecy rules aside and obtain confidential information and trace tax evasion.

The Revenue is now investigating at least 100,000 taxpayers and a further 60,000 have come forward voluntarily to get their affairs in order. It also plans to expand its investigations to all the banks in the UK.

The UK is not the only country taking ever successful steps to prevent tax evasion and recoup lost tax revenue. Here in Spain, the authorities also take the matter very seriously and are currently on a mission to tackle property fraud. In July Luis Pedroche, director of the Spanish agency for tax collection, announced that a full third of the agency’s resources will be dedicated to preventing and controlling real estate fraud, one of the biggest sources of tax evasion in Spain.

Sur in English has also reported that a new computer programme, which will link the computers used by property registry offices and public notaries throughout Spain with the national tax agency, so it automatically knows when a house is sold. The programme will compare the sale price to the average property prices in its area and flag up if the declared value is suspiciously lower than it should be.

The tax office is also increasing the number of inspectors working on this area of tax evasion. It will be encouraged by its success so far – 90% more investigations were carried out in 2006 than in 2005.

So what will happen next? Considering the success the UK Revenue has had, the writing is well and truly on the wall for banking secrecy – it is only a matter of time before its demise, though quite how much time remains to be seen. Many consider the EU too optimistic when aiming to eradicate it within Europe by 2011, but at some point it will happen. In any case, from 2011 the withholding tax will rise to 35% in 2011 and many would be able to pay a lower tax rate in their country of residence.

The current withholding tax option is rather misleading. It appears to give people a choice as to whether to declare these savings or not. Legally, though, there is actually no choice, worldwide income should be declared even if you are paying the withholding tax.

Once a tax authority finds out about a previously undeclared bank account – whether through changes in the Savings Tax Directive rules or other methods – it will want to establish how much income was undeclared over the years, how much tax was unpaid, where the money came from and whether it was correctly taxed at the time (eg, capital gains tax, inheritance tax etc).

There is still no need to pay more tax than necessary but you must use legitimate methods to do so. For example you can move your savings and investments into tax efficient structures (ones that fall outside the Savings Tax Directive) and reduce or eliminate tax on your income and capital today as well as on any assets you leave your heirs in the future.

Article by Blevins Franks

How much would your 1970s salary buy you today? Would you like to be living on the wages you earned in 1977 but still have to pay today’s prices? It’s a frightening thought. That’s inflation for you.

The point is that unless you take steps to see that your income and capital keep pace with inflation, in 30 years time you may find that you can only afford the supermarket bill and nothing else.

After all, 30 years in retirement is quite realistic at the beginning of the 21st century. Medical and scientific advances means that a healthy 65-year-old man can expect to live until he is in his late 80s or early 90s and a woman ever older. Life expectancy has increased enormously and will increase further as healthy living becomes more prominent and medical and scientific research continues successfully. With people also taking early retirement in their 50s, some can expect 30 or 40 years in retirement, almost half of their lives!

Pensions were meant to provide an income for life but that was when people weren’t living so long. State pensions do not keep pace with an individual’s real inflation rate and company pension schemes are not coming up to expectations and in some cases being stopped.

If you are living outside the UK, state benefits can be unavailable to UK nationals. The older you grow the more likely you are to require health treatment and nursing care. The cost of private health insurance and long-term nursing care is expensive and tends to be consistently higher than inflation.

It is widely accepted by economists that the official inflation rate rarely reflects people’s personal inflation rate. The basket of goods that governments use to calculate inflation contains a representative selection of goods for people across all ages and all incomes. But people in various age groups and different income brackets don’t spend their money on exactly the same things and their personal inflation rates are generally higher than the official rate.

Indeed, research has shown that in the last year it has been much higher. At the end of 2006, personal or ‘real’ inflation for retired people in the UK was around 9% when the official inflation rate was 3%. At the time of writing the inflation rate for retired people has dropped to around 2%. The fall in the official rate is partly based on lower food prices due to a price war between supermarkets but food prices are expected to rise soon due high wheat prices. Oil has also recently hit a record high of $82 a barrel, which means utility bills could rise again. This shows that inflation can vary significantly and can be much higher than expected.

The reality is that unless you invest to overcome the destructive effects of inflation the purchasing power of the money you have today will be worth just over half the amount in 20 years time. For example, if your personal inflation rate is 4%, £100,000 today could only buy £66,483 worth of goods and services in ten years time and £44,200 worth of purchases in 20 years time. That’s a drop of 34% and 56% respectively. You may as well have thrown half your money down the drain. The effect is the same.

If you have a personal inflation rate of 6%, a £100,000 nest egg today would be worth £53,862 in 10 years time, or 46% less than now, and just £29,011 in 20 years time – that’s a drop in value of a whopping 71%! If you should live 30 years into retirement your money could be worth virtually nothing unless it keeps pace with inflation.

All this means that people in retirement have to plan to increase their income and capital growth so that the purchasing power of their money remains strong during their retirement years. Keeping the bulk of your wealth in a bank account is not the answer even though it may feel a safe option. Inflation will attack your capital particularly if you spend the interest income. Even low inflation can have a detrimental effect over time.

It is not just inflation that is so damaging to your savings. Interest is subject to taxation and minimises the actual value of interest you are earning.

To protect yourself from inflation and taxation you need an investment plan that provides capital growth and earnings higher than inflation and where your money is legally shielded from unnecessary taxation. This can be achieved with an investment portfolio based on diversified asset allocation placed in a vehicle that can legitimate reduce tax liability.

Article by Blevins Franks