Investment Property – Algarve, Portugal, Spain – Your Guide to Tax Planning

If you own investment property in the Algarve, Portugal or Spain, tax planning is a serious issue you must consider. This article is a short introduction to tax planning for people with overseas investment properties.

Over recent years we have seen various changes to Portuguese, Spanish and international tax legislation. The new regulations and powers given to tax authorities present various challenges when it comes to tax planning, says Bill Blevins, Financial Correspondent, Blevins Frank.

Nonetheless it remains possible for many people to use available legitimate structures to lower their tax bill at the same time as keeping on the right side of the taxman. While some people may be tempted to ‘forget’ to declare interest and gains from savings and investments, this is now a dangerous strategy – and one that isn’t necessary because you may be able to move your money into a legitimate vehicle, such as an offshore bond like a Personal Portfolio Bond or a discretionary trust, to achieve the same - or better! - result. It is certainly worth taking a little time and effort to look at the structures available to you in Portugal or Spain and establish how they could work for you - you’ll discover that they provide various benefits besides the tax-saving ones. Let’s look at what the various benefits could be:

If you have bank or building society deposits you need to pay income tax on the interest earned. If your bank in Jersey, Guernsey or Isle of Man is deducting withholding tax you should still declare the interest earnings on your tax return. If you switch between investments you will need to pay capital gains tax on any profits. If, however, you moved your capital into an approved Personal Portfolio Bond the interest and gains will roll up free of tax. There are also various exemptions for withdrawals in Portugal and Spain. Investment changes within the bond are free from capital gains tax.

Ensure your assets go to who you want, when you want, and in the right amounts

I haven’t met anyone who is happy to leave a large portion of their assets to the taxman rather than their children - but I have met many people who have failed to prevent this happening.

UK inheritance tax affects many expatriates (it is based on domicile and not residence) and is charged at 40% on worldwide assets over a threshold of £285,000. Inheritance tax is often called a ‘voluntary tax’ because it can be avoided with timely and appropriate planning. Don’t leave it too late to do something about it. An offshore discretionary trust may help you legally avoid these taxes and in Spain it will also override succession law. Besides this, you can use your trust as a type of will, stipulating exactly how you want your money and assets divided at the appropriate time. You can prevent your money being lost in the event one of your children gets divorced and also control how and when your money is given to a spendthrift child so that they don’t spend their inheritance unwisely.

Peace of mind

It’s good to know that all your financial affairs are set up correctly: to work as productively as possible; to preserve your long-term financial security; to allow your beneficiaries to be looked after and to know that, if the taxman does come calling, you - or your family in the future - have nothing to worry about.

To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranksinternational.com

Investment Properties Algarve

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This article first appeared in ClearView magazine issue #11 (Winter 2006/07) and has been reproduced here by kind permission of Blevins Franks. The information it contains was accurate at the time of going to press. For further information, visit www.blevinsfranksinternational.com