Please see below the latest financial update from Blevins Franks
Please do not hesitate to contact Paul should you have any questions related to this or other financial matters.
Should you keep your UK ISAs when living in Spain?
By Paul Montague, Partner, Blevins Franks
928 433 411 | canaryisles@blevinsfranks.com | www.blevinsfranks.com
While ISAs are a valued savings arrangement in the UK, they lose their essential tax advantages when you move abroad. Here we look at the tax implications in Spain as well as other considerations.
ISAs (individual savings accounts) were introduced in 1999 to replace PEPs (personal equity plans) and TESSAs (tax-exempt special savings accounts) to encourage more people to save or invest, with the tax-free returns offering a strong incentive.
Today around 22 million people have ISAs, with a total market value of £725 billion. While there is a limit to how much you can contribute annually, the value can grow over time thanks to compound interest on cash ISAs or dividends and capital gains made in stocks and shares accounts. Over 250,000 people hold at least £250,000 in their ISA, with over 3,000 of them worth £1 million or more.
It’s likely that you have at least one ISA, you may even have a large portfolio spread over different accounts. While you may be satisfied with their management and returns, what happens when you leave the UK and take up residence elsewhere? Can you keep your ISAs? And should you keep your ISAs?
Owning ISAs as an expatriate
You are not obliged to sell your ISAs when leaving the UK, and you can continue to own them as a non-UK resident.
However, you cannot contribute any more funds into them or set up new accounts. Only UK residents with a UK address can do that.
Tax implications
The tax-free income and growth ISAs offer in the UK is very welcome, but once you move abroad the tax-free status no longer applies and you lose the tax advantages.
The interest, capital gains and dividends will be subject to tax in your new country of residence, including going towards a potential wealth tax liability, if applicable.
If you haven’t yet left the UK and want to close your ISAs to reinvest the capital in your Spanish property, for example, or in tax-advantageous investment arrangements for Spain, it is beneficial to close your ISAs before you depart. You will not have to pay tax on the gains if you sell while still a UK resident. In contrast, if you keep your ISAs you will need to pay tax on them in your new country each year.
Spanish taxation
As a tax resident of Spain, any income generated from your UK ISA must be declared here. Your interest, capital gains and dividends will be taxed as ‘savings income’ at progressive rates:
Up to €6,000 – 19%
€6,000.00 to €50,000 – 21%
€50,000 to €200,000 – 23%
€200,000 to €300,000 – 27%
Over €300,000 – 30%
Additionally, the value of your ISAs will be included when your worldwide wealth is assessed for Spain’s annual wealth taxes.
Residents of Spain are also obliged to declare overseas assets on the form Modelo 720 each year if assets in one of three categories (bank accounts, investments, property) amount to over €50,000. This can be a tricky form to complete if you own many different investments, but be careful as penalties are imposed for incomplete submissions.
Declaring the interest and gains
Spain taxes residents on a worldwide basis. In most cases you need to declare all your income, wherever it is generated and even if it taxed in the source country. Some British expatriates mistakenly think that since ISAs are tax free in the UK, they don’t need to be declared in their new country of residence, but that it is not the case. Remember that the global exchange of information under the Common Reporting Standard means that your local tax authority is informed about your overseas assets and income each year.
If your share ISAs are managed portfolios, it may be difficult for you to determine all the gains realised within them each year. The investment manager may not be able to supply much data since the gains are not taxed in the UK. Any information they give you will be based on the UK rules and not on your local regulations. You need to establish how to calculate gains made on shares bought and sold on different dates, ensuring you comply with tax regulations in Spain.
The more different assets you have – for example, if you own many different ISAs as well as shares owned directly and/or other investment funds, the more complicated it is to submit your annual tax returns. The same goes for completing Modelo 720.
Tax planning
If you are assessing whether to continue holding your ISAs or to reinvest the capital elsewhere, it is a good opportunity to consider consolidating your investment capital. You can, for example, hold a wide range of investment funds within a life assurance policy. This will make it much easier for you to keep track of your investments and to fulfil your tax declaration obligations. These arrangements can also provide significant tax benefits in Spain, as well as estate planning and probate advantages.
If you have not left the UK yet, it usually makes sense to sell your share ISAs before you change your tax residence to avoid capital gains tax. (Care needs to be taken, though, if you are only temporarily moving outside of the UK and specialist advice should be sought.)
Seek personalised cross-border advice for Spain and the UK, so that you hold your investment capital in the most tax-efficient manner for yourself and your heirs in future.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.
