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Taxation of interest earned , inside Spanish Bank A/c

Taxation of interest earned , inside Spanish Bank A/c

Old Feb 29th 2008, 11:00 am
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Default Taxation of interest earned , inside Spanish Bank A/c

Hi , any advice or clarification on the following :
- according to various tax notes , "interest earned in spanish bank account is subject to automatic deduction of 18% ( p.a.)" ;
Would this apply to Spanish citizens only ?
The reason I ask is that the :
a ) EU Directive clearly states
that the interest on expat accounts is taxed at :
- 15% ( 2007 , 2008 and 2009 ) ;
- 20% ( 2010 and 2011 ) and
- 35% ad infinitum thereafter .
b ) only 3 countries so far have officially selected the automatic deduction of this tax from the interests earned ( namely : Austria , Belgium and Luxembourg ) , as far as is known , whereas every other EU-EEA country ( incl. U.K. ) also offers the option of disclosure to your tax authorities , instead of deduction ...
Any input/s would be much valued , thanxxxx in advance !
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Old Feb 29th 2008, 12:59 pm
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

It applies to all tax residents in Spain.

18% is deducted as this is the current rate of income tax on savings. No further tax is payable irrespective of other income.

What you are referring to is the witholding tax on "offshore" accounts.
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Old Feb 29th 2008, 4:26 pm
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

Thanks , Fred !
Was it 18% p.a. PER PERSON ? ( Holding thumbs...)
I'm sure this won't be the last word on this theme , but : sounds v. v. good , so far !
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Old Feb 29th 2008, 4:36 pm
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

If you are tax resident in Spain and making an annual tax declaration, then the tax paid on the interest is entered there. You can choose to be taxed seperately or jointly so if you were taxed seperately and had a joint, interest bearing account, you would enter half each. If taxed jointly you would enter the whole amount.

Even if your ultimate tax rate is higher (the standard rate is now 24%) the interest is only taxed at 18%. If your other declared income was very low and your personal allowances meant that you paid no tax, then the 18% could be reclaimed.
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Old Mar 1st 2008, 7:34 am
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

Would it then also mean , presuming one is a resident and taxpayer in Spain : that one could instruct one's offshore bank , to declare the applicable interest earned to Spanish tax authorities ( instead of deduction of same ) and that then such interest would be taxed at 18% , minus personal and other allowances ?
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Old Mar 1st 2008, 7:38 am
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

I imagine that depends on the particular bank but if they are prepared to pay the interest without deduction then you would just declare it on your tax return.
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Old Mar 1st 2008, 8:27 am
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

Thanks !
I think you'd find most of Channel Islands/I.o.M. offer 3 options ( tick one of the following boxes ) :
- deduction as per EU-directive
- disclosure of interest earned , to the fisc of A/c owners' place of residence or
- declaration that neither is applicable , IF the A/c owner demonstrates that he/she/they qualify as non-resident of EU/EEA ;
which leads me to conclude that resident taxpayers in Spain do , indeed , benefit from quite a comfy arrangement , regarding their savings' accounts and taxation in general :
Personal allowance of 5K Euros p.a. ( 6K , for 65+ ) ,
first E1.500 tax-free on dividends received ,
another E1.400 approx that can be claimed under credits re : own property
etc !
Add to this beneficial tax treatment of certain approved life-assurance investment portfolios , now I'm less surprised that Spain is quite so popular with retirees from northern EUrope ...still , it would be interesting to find out , how the medical services compare , to those of Germany , Skandinavia , BeNeLux...
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Old Mar 1st 2008, 8:56 am
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

Yes, the tax situation is an awful lot better than it was with the recent changes.

There are promises of even lower taxation flying around at the moment because of the impending election, coupled with the fact that Spain has a budget surplus.
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Old Mar 1st 2008, 9:31 am
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

One more specific question :
France has now allowed bona fide U.K. NI ( social security ) pensions to be received in France : entirely free of tax and of any social contributions ;
would such genuine "state" british pensions still qualify as taxable income in Spain ?
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Old Mar 1st 2008, 10:16 am
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

State UK pensions are treated as taxable income in Spain.

UK Government pensions are taxed in the UK and are not included in your Spanish tax declaration.
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Old Mar 1st 2008, 1:42 pm
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

Thanks for this ;
I am sure many might find this exchanges helpful , for now or later ,
cheers
R.
P.S. I suppose the usual offshore "discretionary trusts" are still not very much useful , in Spain ?
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Old Mar 1st 2008, 6:13 pm
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Smile Re: Taxation of interest earned , inside Spanish Bank A/c

Originally Posted by Ray51
Thanks for this ;
I am sure many might find this exchanges helpful , for now or later ,
cheers
R.
P.S. I suppose the usual offshore "discretionary trusts" are still not very much useful , in Spain ?
Hi Ray 51,

You are advantaged as a pensioner if you have both Government and State pensions. Your GP must be taxed in UK but you get the full HMRC tax allowance and low rate bands to set against that part of your income and it is totally ignored by the Spanish Hacienda. If you are tax resident in Spain then you can export your SP and it will be taxable as income in Spain however the new tax allowances in Spain almost exactly match a full UK SP when converted to euro and you will pay little or no tax on that pension.

To get this advantage you must inform Newcastle so that they cease to set you SP against your UK allowances and the full allowance is set against your GP. Also because UK PLC buys huge quantities of euro for all sorts of purposes you will get a cracking exchange rate if you have your SP paid direct into your Spanish bank account in euro. They will also pay GP's in euro into your chosen account as well but that does not have to be either the same account or in Spain .

To the best of my knowledge "Trusts" of any kind are frowned on by the Hacienda and can be taxed punitively however "bonds" especially for the retired are treated very favorably by the Hacienda and can contain almost anything and be kept offshore such as Jersy or Gib.

The DWP website has lots of info for the UK side of things but I am afraid you would have to look at say Blevins Franks for info on the Spanish side of things.

Regards,

John.
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Old Mar 2nd 2008, 9:12 am
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Default Re: Taxation of interest earned , inside Spanish Bank A/c

Originally Posted by John & Kath
Hi Ray 51,
however "bonds" especially for the retired are treated very favorably by the Hacienda and can contain almost anything and be kept offshore such as Jersy or Gib.
Regards,
John.
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Thanks for this ; when you say that "bonds" can contain almost anything , presumably you are referring to shares and unit trusts etc...?
Would you happen to know :
a ) if a "bond" receives a dividend , can this be re-invested , rolled-over , or must it be declared in tax return , whether taken in cash , or not ?
b ) what is the position with the interest on cash deposits , held inside a "bond" : the usual 18% tax on interest , or not ( until such interest is actually withdrawn , from the "bond" ) ?
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Old Mar 2nd 2008, 11:13 am
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Smile Re: Taxation of interest earned , inside Spanish Bank A/c

Originally Posted by Ray51
Thanks for this ; when you say that "bonds" can contain almost anything , presumably you are referring to shares and unit trusts etc...?
Would you happen to know :
a ) if a "bond" receives a dividend , can this be re-invested , rolled-over , or must it be declared in tax return , whether taken in cash , or not ?
b ) what is the position with the interest on cash deposits , held inside a "bond" : the usual 18% tax on interest , or not ( until such interest is actually withdrawn , from the "bond" ) ?
Sorry I can't help more on Bonds in the Spanish context but if you look at the various financial websites they all agree that in the Spanish context they are the way forward placed offshore to minimise wealth tax.
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