Spanish approved investment bonds.

Spanish-approved investment bonds could be the answer for those of you seeking a lower-risk investment offering interesting returns ... which is also extremely tax efficient.

Below, Robin - our fully-qualified financial adviser - explains how these bonds work, and how they can provide a tax haven for your savings and investments in Spain!

I don't think any expats in Spain enjoy paying tax on their hard-earned investments, so this article should really make your day!

You'll find links to more of Robin's financial articles toward the end of this page.

But first, let's put even more sun into your lives by reducing your tax bill! ...

A tax haven for your savings and investments, in Spain!

Many of those that have retired to Spain have worked hard to build up a nest egg, but they will want to make some of their savings or investments work harder than bank deposits. Also, many are looking to receive income to add to any pension income.

With the security of a familiar company, choosing a lower-risk investment arrangement could be the best option.

For example, one Euro Cautious Managed fund has grown by 27.73% (3 years to 6th May 2007) and one Property fund by 30.05% (3 years to 30th April 2007).

Remember, Euro deposit accounts often only pay 3% per annum (or say 5% in sterling) so investing in a lower-risk fund could offer far better returns whilst countering the effects of inflation eroding your capital.

There are now several well-known companies offering Spanish approved investment bonds that are extremely tax efficient.

By investing as little as �10,000 or �15,000, 100% of your investment starts to work from day one.

If you hold savings on deposit in offshore centres such as the Isle of Man or Jersey, any interest is subject to 15% withholding tax. Alternatively the interest is taxed in Spain if you have declared it.

Remember that the withholding tax increases to 20% from 2008 and 35% from 2011. Bank deposits held in local Spanish accounts may suffer tax as well.

A Spanish approved investment bond could be the answer to produce very low taxes for income withdrawals. Let's look at a case study in more detail ...

Mr Jones invests �100,000 which then grows by 7% to �107,000 after year one. He then takes �7,000 to supplement his income.

The tax on this profit is based on the deemed gain which in this case is �457.94. This is entered on the tax return. The remainder treated as money he invested in the first place and thus not taxable.

Mr Jones marginal rate of income tax is 18%. Therefore �457.94 x 18% = �82.42.

This proves to be extremely tax efficient when compared with holding excessive cash on deposit. Remember EU Retention Tax does not apply.

Should interest be derived from, say, a deposit account in the Channel Islands, 15% retention tax would apply. Based on a deposit paying �7,000 interest, the actual tax payable would be �1,050. After 2011 this will increase to a whopping 35% amounting to �2,450 tax. However, a Spanish investment bond is exempt from this tax.

This type of arrangement could also produce considerable savings from Spanish inheritance tax especially when considering beneficiaries outside Spain (i.e.children in the UK) who could be subject to top taxes in excess of 80%.

spanish approved investment bonds ...

A tax haven for your savings and investments, in Spain!