Spanish tax on UK ISA,s

kidmugsy

EdSwippet wrote: »

My guess is that ISAs are not protected by it in any way

I once read something to the effect that most countries have pension schemes so that there are plenty of treaties covering them - and usually confirming the tax-free status of accumulation within them. Whereas, the bloke said, few countries have anything like the ISA so it won't usually be recognised - it will instead be treated as you suggest.

EdSwippet

max11 wrote: »

It is a good point. Do you mean selling the funds / shares and leave them as a cash in the ISA ? Or would the gain be computed from the year you become non-UK resident ?

I mean, sell them in the ISA and then (perhaps, probably) buy them back again, or something similar. Beware foreign country analogues to the UK 'bed and breakfast' tax trap. A sell and repurchase like this will be a non-event for UK tax, but would 'rinse' out any unrecognised capital gains in them in preparation for moving to a country that looks through ISAs as if they do not exist and so treats your ISA as a plain general trading account.

Most countries compute capital gains as sale proceeds less amount paid on purchase. They often don't give a rat's tail about whether you bought those assets perhaps years or decades before becoming a resident in their country. If you have assets that will be exposed to that country's capital gains tax and which have a built-in gain -- likely given markets over the past decade -- then sell and then repurchase before becoming resident there is likely to be a reasonable way to defeat this to the maximum extent possible. For assets with a built-in loss, it can be better to wait until after moving so that you get to take the maximum loss.

max11

EdSwippet wrote: »

I mean, sell them in the ISA and then (perhaps, probably) buy them back again, or something similar. Beware foreign country analogues to the UK 'bed and breakfast' tax trap. A sell and repurchase like this will be a non-event for UK tax, but would 'rinse' out any unrecognised capital gains in them in preparation for moving to a country that looks through ISAs as if they do not exist and so treats your ISA as a plain general trading account.

Most countries compute capital gains as sale proceeds less amount paid on purchase. They often don't give a rat's tail about whether you bought those assets perhaps years or decades before becoming a resident in their country. If you have assets that will be exposed to that country's capital gains tax and which have a built-in gain -- likely given markets over the past decade -- then sell and then repurchase before becoming resident there is likely to be a reasonable way to defeat this to the maximum extent possible. For assets with a built-in loss, it can be better to wait until after moving so that you get to take the maximum loss.

Thank you very much Edswippet, it makes sense.

Just one last thing, if I may, as you have been so kind.

You mention "sell and then repurchase before becoming resident there ". Is this because CG are computed from the last purchase of funds / shares that was made ?Would they look instead at how much money was put into the account originally, irrespective of the value of the last purchase?

Just thinking of other options: sell everything and keep the cash in the account (maybe buying again when resident in the new country - you may have implied this too), or obviously close the ISA account completely.
Thank you

bowlhead99

max11 wrote: »

You mention "sell and then repurchase before becoming resident there ". Is this because CG are computed from the last purchase of funds / shares that was made ?

A gain is selling something for more than you paid for it.

It would be more useful if, when you sell some shares in a company or investment fund as a Spanish resident, you can say you bought it for £10,000 in 2018 rather than £1,000 in 2003. Because the gain would be smaller.

Would they look instead at how much money was put into the account originally, irrespective of the value of the last purchase?

What was put into the ISA account originally is irrelevant really. Think of it like a bank account or a general stockbroker account. Tax authorities are not bothered about what you put into it or withdraw from an account with a finacnial institution. They are looking at what investments you buy and sell and whether you made profits on that buying and selling (CGT on capital gains) and what income you receive (income tax on dividends, interest on funds, bonds or cash, property income distributions etc etc).

As someone mentioned above, worth checking if the spanish tax authority has rules to prevent 'bed and breakfasting' (i.e. selling all your investments on Monday afternoon and buying the exact same investments back first thing on Tuesday morning might not be considered a genuine new purchase with a higher cost base); in the UK, doing that would still result in the cost base of the 'new' shares being the same as the original (e.g. 2003) purchase as the rule exists to prevent people from doing that cheeky workaround.

To be on the safe side, after you have sold your set of investments in your ISA and are looking to buy some new ones, it would make sense to buy some completely different investments instead - there are many investment products from all kinds of providers that do basically the same job but cannot be accused of being literally the same investment as what you just sold.

Just thinking of other options: sell everything and keep the cash in the account (maybe buying again when resident in the new country - you may have implied this too)

If you sell everything and have a large amount of cash in the account when you move to Spain, and then later (when a resident of Spain) buy some investments within that account, and then later make gains or income from those investments, it has the advantage of being relatively 'clean'. Because all the investments would have been acquired since being spanish resident and none of them were acquired when resident in a different country, you can see all the transactions and investment performance nice and clearly and will be dealing with the spain tax authority on it all.

Making something super 'clean' just to be on the safe side (e.g. by selling investments now and buying them back next summer when you are in Spain) obviously has the disadvantage of being out of the market for a long while to be extra cautious about what the rules might be; and then you will miss investment returns. The S&S ISA provider won't give you much in the way of interest on the cash amount sitting in their account, and you won't have FSCS protection on it all either.

, or obviously close the ISA account completely.

If you move back to the UK it will be quite convenient to have £300k in a tax protected account when you land back on our shores, rather than having £300k in an unprotected account and face a restriction that you are only allowed to contribute (e.g.) £20k a year or whatever the ISA subscription limit is to build up your balance of tax protected stuff vs tax exposed stuff.

So, keeping the ISA going is a reasonable thing to do if you are ever likely to come back.

However, you might find that it becomes difficult to maintain and at some point you end up closing it anyway. For example if the ISA provider wants to close accounts to non-residents or they start to charge outrageous fees. If you were based in the UK it is a simple job to find a new ISA provider and do a transfer, most of them are keen to take on new customers. By contrast, a large proportion of ISA providers don't want to take on new customers who are not UK residents. As being a UK resident is one of the key criteria to be able to contribute new money to an ISA, and dealing with overseas customers can be a pain, etc.

So if the existing ISA provider terminates your relationship it could be a hassle to find someone with the appetite to take it on. Once you become properly embedded in Spanish living, and perhaps have proceeds of your UK property to invest as well, it may make more sense to stop using your UK broker / platform and just use a Spanish investment firm for all or a large part of your investments.

max11

Thank you!That is a very detailed and thorough answer!