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Spanish-Approved Investment Bonds (Part 2)

Here’s part 2 of spanish approved investment bonds, where we ask Robin the following question …
Q. Robin, in your previous article, you briefly explained the virtues of a Spanish approved investment bond.

Could you expand further upon the benefits, in particular, the reduction of tax and investor security offered?

And Robin answers …




A. This can probably best be explained by using a typical case scenario – let’s use an imaginary married British couple who are now resident in Spain.

Let’s say Mr and Mrs Prudent receive a net monthly income of €2,000 into a local Spanish bank account from their combined UK pensions. Of course, they rely on this for their day-to-day expenditure.

If Mr and Mrs Prudent hold savings in a local deposit account their interest will be taxed and 18% will be deducted at source.

Similarly, if they hold deposits in an offshore bank account this interest will also be taxed at source, currently 20% and rising to 35% from 2011.

Strictly speaking they have another option which is to advise their offshore bank to pay interest gross, although this means that they must declare this on their Spanish income tax return which is then taxable.



Example One: If Mr and Mrs Prudent hold €20,000 on deposit in a local Spanish bank which pays 3.5% interest this equals €700 per year.

After 18% tax at source €126 would be deducted leaving them just €574 ‘net’ interest.

Example Two: If they also hold $100,000 on deposit in an offshore bank which pays 5% the tax is even worse.

The €5,000 in gross interest that they receive will, after the deduction of 20% tax at source, mean that they pay €1,000 and would be left with just €4000 ‘net’ interest.

The tax in this example will rise to €1,750 from 2011.




Mr and Mrs Prudent would prefer something where they can:

  • pay less tax
  • obtain better returns
  • protect their savings with more security than most banks offer

This is particularly relevant after witnessing the Northern Rock ‘debacle’ and during these times when the credit crunch has reduced the financial strength of most banks.

A good solution …

Spanish approved investment bonds could be the ideal solution for Mr and Mrs Prudent and one that answers each of the three points made above.

They would allow them to place their savings into one tax friendly vehicle that can provide excellent returns and the reduction of tax can be significant.

Spanish approved investment bonds grow free of tax and only withdrawals or income are taxed.

Minimum investments start from as little as $20,000 or the Euro equivalent.

Prudent choice …

Mr and Mrs Prudent are cautious when it comes to investing and don’t want the ups and downs associated with stock markets.

Therefore, they choose to invest €100,000 into a Spanish approved investment bond and allocate a large part of this to deposit type interest bearing accounts but with a difference. By utilising such a bond they can gain access to ‘liquidity’ funds that provide them with a very high degree of safety because these funds in turn hold numerous deposits with banks.

They deem this far safer than holding excessive cash in just one bank and they can choose Euros, Sterling or even US Dollars.

As the value grows no tax is deducted, unlike bank interest.

Of course, tax is paid on the amount taken as income – let’s look at two case studies …




Mr and Mrs Prudent invest €100,000 which then grows by 7% to €107,000.

They decide to leave all of this growth in their investment because it is not needed at the moment.

No tax is deducted or payable and the whole €107,000 remains in their account.




Mr and Mrs Prudent invest €100,000 which grows by 7% to €107,000.

They decide to supplement their income and take out €7,000.

As only the capital gain is taxed, Mr and Mrs Prudent will pay only €82.42 in tax, a tax rate of just 1.177%! This tax is deducted at source with nothing else to pay.

Spanish approved investment bonds allow you, in general, to choose when you take withdrawals/income at a time that is better suited to you from a taxation perspective.

These products have the flexibility to adapt to changes in circumstances, including changes in residency status.

Most companies offering such bonds are subsidiaries of very large global financial services companies and are regulated in first class jurisdictions which benefit from strong regulatory controls, such as Dublin and Luxembourg.

These arrangements can also protect family wealth with considerable savings from Spanish inheritance tax especially if beneficiaries live outside of Spain (i.e. children in the UK) who could eventually be subject to taxes in excess of 80%.

Click here to read Part 1 of Robin’s article on Spanish approved bonds.

     Robin’s a professionally-qualified financial advisor, his
company having some 40 regulated advisors throughout
the EU. If you’d like to ask him a question, or contact
him to discuss financial or investment matters in
confidence, please fill in the short form on this page.




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