Strategic financial planning for Mallorca

By Cathal Rochford, Partner, Blevins Franks

There are two key elements for successful wealth management. It should first be specifically set up for your circumstances, objectives and risk tolerance, and then reviewed around once a year to ensure it remains on the right path and up to date. When carrying out your reviews, you obviously need to establish whether any tax rules or financial regulations have changed and, if so, how this affects your financial plannings. But also consider if developments in your personal circumstances mean you should adjust previous arrangements.

However, an effective review of your financial planning, to ensure it is suitable for your life in Mallorca and wishes for the future, needs to go beyond that.

Many people only consider segments of their finances at a time. They may have bought shares in companies they like and/ or invested in funds recommended by an adviser years ago. They may speak to a tax accountant about Spanish taxation and tax planning opportunities. Then they speak to a lawyer about setting up a Spanish will. At some point they look at their pension funds. For truly effective financial planning, however, you need to consider all these various aspects together. For example, how you hold your investments can make a difference to your Spanish tax liabilities. Estate planning in Spain is no simple matter, with its complex succession tax regime and forced heirship rules, and how you own assets can impact on what you can achieve. Finally, when deciding what to do with your pensions, look at all your retirement savings and what income they can generate for you. Here are three key areas you should consider in your financial planning review.

Spanish residency and taxation

The fact that you are resident in Spain, rather than the UK, has a significant impact on your financial and tax planning.

First of all, make sure you know where you are resident for tax purposes, especially if you are new to Spain or spend significant time in both countries. The Spanish and UK residency rules are very different and can be more complex than first meets the eye. The double tax treaty determines where you pay tax if you are resident in one country and earn income in the other.

Regardless of how effective your tax planning in the UK was, you pretty much need to start afresh in Spain. What was tax efficient in the UK is unlikely to be tax efficient here. You need to explore the compliant arrangements available in Spain to establish what would work for your situation and aims, and how much tax you can save.

Estate planning

Do not leave estate planning to the final stage of financial planning. The way you own assets could make a difference to how you can distribute them on death and how much tax your beneficiaries pay, so take this into consideration early on. The Spanish succession tax rules are very different to UK inheritance tax rules and you need to understand these to be able to plan around them.

Succession law in Spain establishes forced heirship rules and protects children over your spouse - in general terms, children are entitled to receive two thirds of an estate’s assets. This can have unwelcome consequences for certain families unless you plan ahead. UK nationals can use the EU regulation ‘Brussels IV’ to distribute their estate under the appropriate UK jurisdiction’s law, but research this first to confirm if it is the best solution for you.

Financial structuring for life in Spain

Perhaps the key rule for financial planning is that it must be specifically structured around your personal circumstances – your lifestyle today and plans for the future, family situation, income requirements, objectives, time horizon and risk tolerance.

If you do not already have a strategic financial plan in place for Spain, you may need to take a completely fresh look at all your investments and consider if they are suitable for you today and the current economic climate. Are they too risky? Do you have adequate diversification? Can they provide income without risking the capital? Could you consolidate shares and funds so they are easier to manage?

At the same time, consider your tax liabilities on investment income and gains, as well as the annual wealth tax, and whether you could use tax-efficient arrangements to hold your investments as resident of Spain. And how will these savings be passed to your heirs? What inheritance taxes will they have to pay? Can the funds be passed on directly or will there be a lengthy probate process?

Every family is different. Your strategic financial planning must be carefully designed for you. All the various aspects should work cohesively together to create an overall wealth management plan that provides long-term financial security for yourself and achieves your wishes for your heirs. For peace of mind that you have covered everything, and have understood the intricacies of Spanish taxation, and that making one financial decision will not have unexpected consequences on another, take professional advice, ideally from a locally based cross-border wealth management specialist.

Blevins Franks has been advising British expatriates in Europe for over 45 years, with a dedicated office in Mallorca for over 20 years. Specialising in international taxation, estate planning, investments and UK pensions, and with advisers living locally, we have in-depth knowledge of the local tax and succession regimes, and the cross-border expertise wealthy expatriates require. We pride ourselves on offering a personal, long-term service, and take the time to get to know you, your situation and objectives, before outlining our personalised recommendations. Contact us to discuss how we can help you with your investments, pensions and cross-border tax and estate planning.

Cathal Rochford, Partner Gran vía Puig de Castellet Boulevard 1, Santa Ponsa Tel +34 971 719 181 cathal.rochford@blevinsfranks.com www.blevinsfranks.com

This article should not be construed as providing any personalised taxation and/or investment advice. The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.