The tax authorities in Spain and the UK will now start to receive new information on their taxpayers’ offshore assets and income.
This is carried out under the Common Reporting Standard (CRS) for automatic exchange of financial account information in tax matters. 100 countries have so far committed to obtain information from their financial institutions and pass it on to the clients’ country of residence.
50 jurisdictions began collecting data from January last year, and had to pass it on by September 2017. Another 50 began collecting information from January this year, ready to share it by September 2018.
This automatic information exchange will be repeated every year going forward.
The information being shared about the financial assets you own outside your country of residence includes personal data such as your name and address, country of tax residence and tax identification number. You have probably received requests from financial institutions to confirm these details.
The information to be reported about your accounts includes the investment income you earned over the year (interest, dividends, income from certain insurance contracts, annuities etc), account balances and gross proceeds from the sale of financial assets.
The financial institutions that need to report include banks, custodians, certain investment entities such as investment funds, certain insurance companies, trusts and foundations.
When local tax offices receive this information they will be able to verify whether the taxpayer has accurately reported income and assets on their income and wealth tax returns. In Spain, the authorities can also compare data with Modelo 720 declarations.
In the UK, HMRC has sent out very clear warnings to taxpayers about the consequences of not paying tax correctly on offshore assets.
In a document entitled “If you have money or other assets abroad, you could owe tax in the UK”, the Revenue advises that the tax world is becoming more transparent and that it is getting tougher on those who are not paying the right amount of tax across their offshore tax affairs.
The document states:
“From 2016, HMRC is getting new financial information about our customers from more than 100 jurisdictions – including details about overseas accounts, structures, trusts and investments. HMRC is already using information, supplied by overseas banks, insurers, and wealth and asset managers, to identify the minority who are not paying what they owe.”
It asks recipients if they are confident that their tax affairs are up-to-date, advising them that it is their responsibility to regularly check they have declared all UK tax liabilities and bring their affairs up to date if necessary.
It is clear that, if someone has not paid the correct amount of tax, HMRC will now find out about their money and overseas assets. Penalties are increasing for offshore tax evasion, resulting in potentially life changing consequences. Criminal prosecution is also a possibility, depending on circumstances.
While this document is aimed at UK taxpayers, it is worth paying attention wherever you live, as the principles are the same.
First of all you need to establish where you are resident for tax purposes, then ensure you are fully declaring all your income and wealth as required by law. If you live in one country and earn income in another, be clear on where you need to declare it and where it is taxable. Following the double tax treaty correctly.
Cross-border tax planning can get very complex, so take specialist advice to ensure you get it right as well as to take advantage of compliant tax mitigation opportunities.
The HMRC document also notes that: “Personal circumstances change. For example, you may have recently inherited assets overseas. Tax laws change too. All of this means that previous advice can be out-of-date, with costly consequences.”
If you do receive an inheritance from another country, it is important to establish if and where you have to pay tax on it. If you are resident in Spain, you have to pay succession and gifts tax on assets you receive as a gift or an inheritance, even if they are located abroad and never brought into Spain.
Another point worth considering about inheritances is that if your affairs are not in order now, this could cause problems for your family when they inherit these assets.
The tax regime in Spain does provide compliant tax planning opportunities for your investment capital, so you do not end up paying the headline rates of tax. Spain can be an attractive country for retirees to live in from a tax point of view. Take personalised, specialist advice to structure your assets to in the most tax efficient way for Spain.
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.
Blevins Franks Mallorca specialises in giving advice for tax-driven, wealth management investments. […] Blevins Franks Tax & Wealth Management Specialists
Blevins Franks Financial Management Limited (BFFM) is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided outside the UK, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts and companies. Blevins Franks Tax Limited provides taxation advice; its advisers are fully qualified tax specialists. This promotion has been approved and issued by BFFM.
This article was written on the 19th of September, 2017.