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  • FIRST POST
    • arnhemrd
    • By arnhemrd 2nd Aug 18, 4:15 PM
    • 39Posts
    • 3Thanks
    arnhemrd
    Spanish tax on UK ISA,s
    • #1
    • 2nd Aug 18, 4:15 PM
    Spanish tax on UK ISA,s 2nd Aug 18 at 4:15 PM
    I am a UK citizen, retired, and turn 65yrs in June 2019. I have a property in Spain and also in the UK.
    I am looking to sell the house in the UK next year and become Spanish resident and move over to Spain full time.
    At the moment I am a non tax payer on my private pension, but may pay a small amount of tax, at UK allowances, when my state pension kicks in. I realize that i will have to declare this income to the Spanish taxman and pay Spanish tax instead.
    I have stocks and shares ISA's amounting to around 350k, plus around 40k cash, and will also have the proceeds from the UK house sale. I understand that I may have to pay capital gains on this sale
    My question is, what is the best way to keep my stocks and shares ISA's tax free, if any?, as i understand that these will become taxable on my being resident in Spain.
    Hopefully i will never need to touch these ISA's so is there any way that these could be 'frozen' for example, no money in and no money out, just let the funds accumulate, until i return to live in the UK or upon my demise.
    I would obviously like to keep the UK tax free investments wrapper if possible, or is there any sort of alternative investments to keep from paying tax on these investments. I dont want to cash these in after years of ISA contributions to keep in a bank account paying little interest.
    If it isn't possible to keep the tax free wrappers on the ISA's, how would the tax on the gains, or indeed the losses, be worked out. Are the dividends and capital growth still classed as a gain if i dont actually draw anything out whilst I'm a Spanish resident?
    I don't imagine that i am unique in this situation, especially with so many expats that have moved to Spain, and so I would be interested to know it there is an easy or alternative solution that anyone has found.

    Thanks in advance,
    John
Page 1
    • soulsaver
    • By soulsaver 2nd Aug 18, 5:27 PM
    • 2,143 Posts
    • 992 Thanks
    soulsaver
    • #2
    • 2nd Aug 18, 5:27 PM
    • #2
    • 2nd Aug 18, 5:27 PM
    I'm interested in responses on this question as I'm considering emigrating, too ..
    .. but you'd maybe get better/more response on the tax board than on savings.
    • xylophone
    • By xylophone 2nd Aug 18, 7:16 PM
    • 27,645 Posts
    • 16,610 Thanks
    xylophone
    • #3
    • 2nd Aug 18, 7:16 PM
    • #3
    • 2nd Aug 18, 7:16 PM
    https://www.gov.uk/individual-savings-accounts/if-you-move-abroad-or-die

    will also have the proceeds from the UK house sale. I understand that I may have to pay capital gains on this sale
    You are selling your PPR before moving?

    https://www.gov.uk/tax-sell-home
    • arnhemrd
    • By arnhemrd 6th Aug 18, 3:09 PM
    • 39 Posts
    • 3 Thanks
    arnhemrd
    • #4
    • 6th Aug 18, 3:09 PM
    • #4
    • 6th Aug 18, 3:09 PM
    Thanks for the reply and the links, but these are based on UK taxation, so will not apply to me if i become Spanish resident.
    I believe ISA tax free status does not apply in Spain and that is what i need to find a way around.

    I know these ISAs are 'frozen' when i am no longer resident in the UK and im ok with that.
    My way of thinking is that if i don't draw anything from them, just let them accumulate, then i should not pay Spanish income tax on any gains.
    Also depending on the timing of my residency application and the sale of UK property i may become liable for Spanish capital gains tax.
    I will also post this on the pensions forum as i feel sure this problem must have been addressed before.

    • EdSwippet
    • By EdSwippet 6th Aug 18, 3:48 PM
    • 825 Posts
    • 797 Thanks
    EdSwippet
    • #5
    • 6th Aug 18, 3:48 PM
    • #5
    • 6th Aug 18, 3:48 PM
    My way of thinking is that if i don't draw anything from them, just let them accumulate, then i should not pay Spanish income tax on any gains.
    Originally posted by arnhemrd
    Most likely(*) is that Spain will simply ignore the ISA tax wrapper, and treat this for Spanish tax purposes as a vanilla trading account. In that case, you would probably be liable for Spanish taxes annually on the dividends received into the ISA (even if in 'accumulation' fund units), and Spanish capital gains tax on any sales.

    In the latter case, the gains could well be computed from the date you bought through to the date of sale, even if most or all of the actual gains accrued long before you set foot in Spain. At minimum, you probably want to sell and then later re-purchase your ISA assets before moving to Spain, to at least minimise the capital gains damage here. If Spain has any nasty anti-offshore-funds tax rules, then if you hold UCITS funds or ETFs in your ISA you at least stand a decent chance of not encountering these. UCITS funds are licensed to be sold across Europe.

    (*) Based on extrapolation of personal and bitter experience by having lived outside the UK, but in a country that is not Spain. I do not know any of the precise details of Spain here, and you will need to consult the UK/Spain tax treaty (if any). My guess is that ISAs are not protected by it in any way, but a surprise to the contrary would be something pleasant. I am just some random bloke on the internet, so do not assume that I know what I am talking about.
    • soulsaver
    • By soulsaver 6th Aug 18, 3:57 PM
    • 2,143 Posts
    • 992 Thanks
    soulsaver
    • #6
    • 6th Aug 18, 3:57 PM
    • #6
    • 6th Aug 18, 3:57 PM
    As I said - try the tax board on here, but you may get more good info from a Spanish expat forum... and it may all change re Brexit.
    • xylophone
    • By xylophone 6th Aug 18, 3:59 PM
    • 27,645 Posts
    • 16,610 Thanks
    xylophone
    • #7
    • 6th Aug 18, 3:59 PM
    • #7
    • 6th Aug 18, 3:59 PM
    https://www.blevinsfranks.com/news/blevinsfranks/article/spain-uk-investments-taxation

    ISAs too are fully taxable in Spain in the hands of Spanish residents at the corresponding savings income tax rates (19%, 21% and 23%). This applies to income and gains from cash and share ISAs.

    Some expatriates mistakenly think that, since they are UK investments, and tax-free ones at that, that they do not need to be declared in Spain. In fact they do, and with the new global automatic exchange of information regime which started this year, the Spain tax authorities will be informed about your UK investments.
    • kidmugsy
    • By kidmugsy 6th Aug 18, 8:35 PM
    • 12,176 Posts
    • 8,617 Thanks
    kidmugsy
    • #8
    • 6th Aug 18, 8:35 PM
    • #8
    • 6th Aug 18, 8:35 PM
    https://www.blevinsfranks.com/news/blevinsfranks/article/spain-uk-investments-taxation

    ISAs too are fully taxable in Spain in the hands of Spanish residents at the corresponding savings income tax rates (19%, 21% and 23%). This applies to income and gains from cash and share ISAs.

    Some expatriates mistakenly think that, since they are UK investments, and tax-free ones at that, that they do not need to be declared in Spain. In fact they do, and with the new global automatic exchange of information regime which started this year, the Spain tax authorities will be informed about your UK investments.
    Originally posted by xylophone
    That makes Ed's suggestion of realising capital gains before the OP enters his first Spanish tax year a good one.
    Free the dunston one next time too.
    • AnotherJoe
    • By AnotherJoe 6th Aug 18, 11:16 PM
    • 11,811 Posts
    • 13,757 Thanks
    AnotherJoe
    • #9
    • 6th Aug 18, 11:16 PM
    • #9
    • 6th Aug 18, 11:16 PM
    and will also have the proceeds from the UK house sale. I understand that I may have to pay capital gains on this sale
    Originally posted by arnhemrd
    You'd be crazy to do that. Sell it before you move.
    • FatherAbraham
    • By FatherAbraham 7th Aug 18, 7:30 AM
    • 914 Posts
    • 680 Thanks
    FatherAbraham
    As I said - try the tax board on here, but you may get more good info from a Spanish expat forum... and it may all change re Brexit.
    Originally posted by soulsaver
    Brexit is unlikely make any direct difference to personal taxation, since fiscal policy has always remained a competence of member states, and was never within the remit of the Union (other than a degree of harmonization concerning VAT levels because those could otherwise be used to distort the Single Market).

    This is why taxation treaties are referred to in these sorts of questions, not Union law.
    • max11
    • By max11 20th Oct 18, 11:30 AM
    • 219 Posts
    • 11 Thanks
    max11
    In that case, you would probably be liable for Spanish taxes annually on the dividends received into the ISA (even if in 'accumulation' fund units), and Spanish capital gains tax on any sales.

    In the latter case, the gains could well be computed from the date you bought through to the date of sale, even if most or all of the actual gains accrued long before you set foot in Spain. At minimum, you probably want to sell and then later re-purchase your ISA assets before moving to Spain, to at least minimise the capital gains damage here.
    Originally posted by EdSwippet
    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 ?

    thank you
    • kidmugsy
    • By kidmugsy 20th Oct 18, 11:47 AM
    • 12,176 Posts
    • 8,617 Thanks
    kidmugsy
    My guess is that ISAs are not protected by it in any way
    Originally posted by EdSwippet
    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.
    Free the dunston one next time too.
    • EdSwippet
    • By EdSwippet 20th Oct 18, 1:46 PM
    • 825 Posts
    • 797 Thanks
    EdSwippet
    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 ?
    Originally posted by max11
    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
    • By max11 21st Oct 18, 9:30 AM
    • 219 Posts
    • 11 Thanks
    max11
    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.
    Originally posted by EdSwippet

    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
    • By bowlhead99 21st Oct 18, 3:39 PM
    • 8,306 Posts
    • 15,196 Thanks
    bowlhead99
    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 ?
    Originally posted by max11
    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
    • By max11 21st Oct 18, 7:54 PM
    • 219 Posts
    • 11 Thanks
    max11
    Thank you!That is a very detailed and thorough answer!
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