It is that time of the year when many people make New Year resolutions to improve their life in one way or another. Whether or not you do, this is a good time to consider whether you need to review your financial planning.
To protect your financial security through retirement, and achieve your wishes for your heirs, you need to have a strategic tax and wealth management plan in place. This should cover your savings and investments, tax planning, pensions funds and estate planning. These should all be set up to work together to preserve your wealth over the long-term and meet your objectives.
You need to consider any recent global and local developments that may affect your finances in the coming year, as well as have a long-term strategy. Any changes in your personal circumstances could also warrant a review.
Once you have assessed your situation and financial planning, you will be able to discuss any necessary adjustments with your financial adviser.
Savings and investments
2016 was certainly an interesting year, with Brexit and US elections. More recently the Italian referendum could add uncertainty for the Eurozone and financial markets. Diversification is more important than ever, and you need a long-term strategic asset allocation plan which is specifically designed around your circumstances, needs and risk profile.
Diversification gives your portfolio the chance to produce positive returns over time without being vulnerable to any single area under-performing. There are various levels you should have in your investment portfolio –
- Asset allocation – spreading your capital across different asset classes
- Diversification across geographical areas, sectors, company size etc.
- Owning equities and bonds issued by a range of companies (for example through owning a selection of funds).
- Utilising a multi-manager approach where you diversify across managers and styles.
The starting point should be to obtain a clear and objective assessment of your appetite for risk, to make sure your portfolio is suitable for you.
Remember that as asset prices rise and fall, your portfolio can shift away from the one designed to match your risk profile and objectives. You should review your investments around once a year to rebalance it if necessary.
There are no changes to Spanish income or wealth tax for 2017 – except that the promised abolition of wealth tax has not come to pass.
Make sure your investments and wealth are placed in the most suitable arrangement to limit your tax liabilities. Take advice from someone who is well-versed in the nuances of Spanish taxation, otherwise you could see your investment returns slashed by taxes that could have been avoided or mitigated. Your tax planning must be up-to-date and designed to take advantage of tax planning opportunities in Spain.
Another incentive to review your tax affairs is the global automatic exchange of information regime under the Common Reporting Standard is now in force. The Spanish tax authority will receive information on every resident of Spain, without having to ask for it. Cross-border tax planning can be complex, so you need to ensure you are declaring income and paying tax in the right country.
The first step is to establish your goals. Who would you like to benefit from your estate? Are you happy for them to have control over the money? When should they receive the funds? How much tax will they have to pay?
You then need to obtain specialist advice to ensure that your estate plan is specifically set up to achieve your wishes for your heirs.
Under the EU succession regulation Brussels IV, which came into force in 2015, you can choose whether Spanish or UK succession law will apply to your estate. The default position is for restrictive Spanish succession law to apply to foreign nationals living here, unless they have a will stating otherwise.
Brussels IV does not allow you to opt out of Spanish succession tax, which can be costly in certain circumstances. This is due if the asset being inherited is located in Spain or the recipient is resident in Spain. Tax is paid by each recipient, with varying rates. Inheritances between spouses are taxable. Also, bear in mind that UK inheritance tax may still apply for UK nationals.
Whether it is investments, tax or pension planning, seek advice to ensure you do what works best for your personal situation. Use an adviser who can guide you on all these aspects and provide holistic solutions so you can have peace of mind that your financial affairs are in order.
For more information and personalised advice, contact Blevins Franks on +34 971 719 181.
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Related articles to tax for foreigners living in Spain.
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This article was written on the 9th of January, 2017.