EXPAT INVESTMENT PLANNINGThe Spanish Bond
The Spanish Bond presents a unique investment account tailored for expats residing in Spain, combining the benefits of investment and life assurance. This financial instrument offers a range of advantages, including certain tax benefits that can contribute to its appeal.
What is the Spanish Bond?
The Spanish Bond provides expats with the opportunity to enjoy a feature known as "gross roll up" within the account. Gross roll up refers to the ability to defer taxes on investment gains and income generated within the account. This means that the investment growth and income generated are not subject to immediate taxation, allowing for potential tax deferral and the potential for greater compounding of investment returns over time.
By taking advantage of gross roll up within the Spanish Bond, expats in Spain can potentially enhance the overall growth and profitability of their investments. The ability to defer taxes allows for a more efficient use of capital, as the gains can be reinvested and continue to compound within the account.
Who is it for?
The Spanish Bond is a product available to Spanish residents who intend to stay in the country for the long term and throughout their retirement.
Particularly, it will be beneficial to those who wish to grow and protect their wealth, whilst minimising local taxes. The gross-roll up feature will complement any investment growth over the lifetime of the account.
It’s important to bear in mind that as with any investment, this product carries market risk. The exact level of risks depends on the individual portfolio recommended and its exposure to stocks and shares around the world.
KEY FEATURESGross roll up, allowing tax-free investment growth
Investment growth and capital preservation over the long term
Wealth Tax efficient
Locally compliant in Spain
LIMITATIONSIt can be set up on a commission basis
Minimum investment of £100,000
It can be more costly than other investment accounts
Typically cannot hold individual shares
Spanish Bond: Our Verdict
For expats in Spain with £100,000 or more to invest, the Spanish Bond emerges as the optimal choice considering its tax advantages and tailored benefits.
The combination of investment opportunities and life assurance, coupled with the tax benefits such as gross roll up, makes the Spanish Bond particularly attractive for British Expats in pain.
The deferral of taxes on investment gains and income generated within the account allows investors to maximise their investment growth and potentially enhance their overall returns over time.
As always with insurance products, it is vital to consult with a financial adviser or tax professional who possess expertise in Spanish tax regulations and investment strategies.
At The Wealth Genesis, our expert advice team can provide bespoke, flat-fee advice based on your individual circumstances and help to secure your Expat retirement in Spain.
FAQs
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Tax Deferral: Any growth in the policy value is not taxable until the policy is surrendered or a withdrawal occurs.
Taxation on Withdrawals: Taxes are applied to the proportion of the policy gain, not the total growth of the portfolio.
Exempt from Modelo 720: Spanish bonds are exempt from the Modelo 720 reporting requirement.Spanish Withholding Tax: Taxes are withheld at source, simplifying the tax process.
Joint Life/Last Death: No Spanish Inheritance Tax (IHT) liability upon the first death in a joint life policy.
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There are limitations when using non expat specific solutions such as;
Limited Investment Choice: Spanish-compliant bond policies generally offer access to only Spanish or Eurozone-based funds, which can lead to higher fees and restricted fund options, often resulting in lower performance compared to international alternatives.
Euro-Only Policy Options: These policies are denominated in euros, exposing you to exchange rate risk. There is no flexibility to switch to a more favourable currency, such as sterling, if the pound strengthens in the future.
Lack of Portability: Spanish Bonds are not portable. If you leave Spain, you cannot convert the policy into a structure compliant with another jurisdiction, such as an offshore bond. In contrast, international investment products allow for greater flexibility and portability across various regions.
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The main advantages include gross roll-up of growth within the policy, estate planning benefits, and reduced taxation on withdrawals. While expat Spanish Compliant Bonds typically come with higher fees, these costs are justified by the additional benefits they offer.
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The first step is to consult with a regulated, independent expat financial adviser. During this conversation, you can outline your position and priorities, allowing the adviser to assess your situation and determine whether a Spanish-compliant bond is the most suitable option for you.
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These investment policies are taxed only on the growth element when a withdrawal is made, using the following rates:
19% for the first EUR 6,000
21% for the next EUR 6,000 to EUR 50,000
23% for the next EUR 50,000 to EUR 200,000
27% for the next EUR 200,000 to EUR 300,000
28% for amounts over EUR 300,000
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Yes, however, there are key areas to consider:
Product: Who is the Spanish bond provider, what is their credit rating, and who are they regulated by?
Investments: Are your investments aligned with your risk appetite, and are they liquid—meaning, can you withdraw your money at any time without penalty?
