The news that the prize money from UK Premium Bonds has been cut is a useful reminder for British expatriates that they should review their investments now that they are living in Spain. Many UK nationals continue to hold the same investments they had set up while UK resident, but in most cases they are not suitable for their needs now and are taxable here.
Your investments and tax planning should be set up according to your personal circumstances and objectives. When these change you need to review your arrangements accordingly. Moving to a new country is a major change and should prompt a complete review of your wealth management to ensure it is as effective as possible for your new life.
From 1st August, Premium Bonds will pay out almost 14% less money each month, after the prize pot reduced by £7.8 million. At the same time the total number of prizes was cut by 150,000, so you have less chances of winning.
The £1 million prize will still be given away each month, but the number of £100,000 payouts is reduced from five to three. Likewise there are now only six £50,000 prizes, compared to nine previously. Fewer prizes will also be distributed lower down the prize scale.
The average yield on Premium Bonds is now 1.3%, but of course you cannot know when or if you are going to earn anything, or estimate what sort of return, if any, you may see on your investment.
One key attraction is that they have always been tax free -– if you are UK tax resident, that is!
UK investments and tax efficiency in Spain
You can continue to own Premium Bonds when you move to Spain, but as soon as you become resident here they stop being tax free, and all your winnings are subject to tax.
Many British expatriates also have Individual Savings Accounts (ISAs) and Personal Equity Plans (PEPs). The income derived from them is tax free for UK residents, but again, they are not tax efficient investments for Spanish residents. The income is fully taxable as savings income, at rates of between 21% and 27%.
You are obliged to declare the earnings on your annual Spanish tax return. The local tax authorities are likely to find out about it anyway, considering the high level of exchange of information between European countries these days.
You also need to look at your other UK investments, such as shares, unit trusts, OEICs and investment bonds and consider how they are taxed here, both in terms of income and capital gains. Are they the most tax efficient way of holding your capital? It is unlikely.
However there are very tax-efficient investment vehicles available to residents of Spain that can reduce taxable income, and thus income taxes. With specialist professional advice, you could enjoy favourable tax treatment on your capital investments, wealth and estate.
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.
For more information and personalised advice, contact Blevins Franks on +34 971 719 181.
To keep in touch with the latest developments in the offshore world, check out the latest news on Blevins Franks Tax & Wealth Management Specialists.
Related articles to tax for foreigners living in Spain.
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This article was written on the 10th of September, 2013.