How abroad operations can assist HNWs cut back tax liabilities

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How overseas operations can help HNWs reduce tax liabilities

The new year was accompanied by a new national lock in the UK. Added to this is our official exit from the EU, and suddenly Great Britain looks far less attractive as a place to live and work, writes Leon Fernando Del Canto, founder of the international tax firm Del Canto Chambers.

Rumors about the introduction of a wealth tax to pay Covid locks certainly do not help.

Is it no wonder, then, that people are pondering how to reduce the stress of these events on both a personal and professional level? The reflections of wealthy people (HNW) often lead to the desire to live abroad.

Entrepreneurs and investors are looking for European countries that can offer a superior quality of life and a safe haven for assets. Spain is proving to be the preferred base for high earners. Seen as a portal into the European markets, investments by British companies in Spain have increased by 80% since 2018 to EUR 3.1 billion (GBP 2.76 billion, USD 3.77 billion) and Spanish real estate is booming.

Covid-19 has helped make virtual meetings more user-friendly. We’re settling in a digitally networked world, shrinking the globe and making a business in a place like Spain or the Balearic Islands much more practical.

Some knowledge of the tax system is required to benefit from the financial incentives on offer. Your tax liability depends on your resident or non-resident status, depending on the type of ownership you own in an investment or property in Spain.

HNW people used to buy their properties through offshore companies, but this practice is subsiding as the Spanish authorities have increased vigilance so that companies established before 2018 and whose tax position has not yet been assessed are under investigation. This has led many wealth creators to find other ways to live abroad.

Ibiza has shown itself to be solid for foreign property investment since 2015. Real estate values ​​rose by 56.5%. However, new regulations regarding building permits have made it more difficult to obtain new building permits, making legal notices a must.

Local tax and property laws in in the Balearic Islands

Spanish resident expats who own property in Mallorca, Menorca, Ibiza or Formentera must pay: personal income tax on property or income rents; Capital gains tax; Council tax; and taxes on assets like boats.

Tax on transfers of ownership is payable on purchases of used property, while VAT is payable on new builds purchased by the contractor.

Income and wealth tax must be declared annually by property owners in the Balearic Islands who are not residents of Spain.

For tax reasons, all income from salary or self-employment must be declared in the country in which you are resident, in addition to Spain.

Double taxation treaty provisions need to be checked in advance.

Spanish testament and inheritance

If you own property in Ibiza or if your beneficiaries live in Spain, you will be liable to inheritance or inheritance tax. Spanish inheritance tax differs from the UK in that there is no exemption between husband and wife.

With the death of one, the other becomes liable for inheritance tax on global wealth, although the surviving spouse may inherit a “vital interest” in the property.

UK residents must pay taxes in both countries, although these liabilities can be set off against each other. Inheritance tax can be reduced by having an offshore fund to protect your wealth.

A Spanish will should be drawn up or the UK updated to cover assets in Spain in addition to a separate foreign will to protect assets in other countries. This will reduce the risk of potential legal or tax conflicts between the application of the Spanish will and the international will.

With Brexit and more bans on the horizon, there has never been a better time for HNW employees to rethink how and where to live and what their portfolios should look like.

With a little knowledge of the potential legal and tax dangers, moving abroad might indeed make sense.

This article was written for the international consultant by Leon Fernando Del Canto, founder of the international tax firm Del Canto Chambers.