What’s the problem with my UK financial adviser if I live in Spain?

By Sam Kelly,
Managing Partner,
Chorus Financial

What’s the problem with my UK financial adviser if I live in Spain?

It’s certainly taken a few years, and perhaps Brexit has been a catalyst, but we are receiving more and more referrals from UK IFAs here at Chorus, who have had to tell their clients they can no longer be their adviser.

There are two main reasons for this. Firstly, licences. For a UK IFA to be able to give advice to a Spanish resident, they need to also be licensed in Spain with the CNMV (the Spanish investment regulator). Clearly, not many UK based IFAs will have the volume of Spanish resident clients to justify having a Spanish licence, and although many UK IFAs have continued to advise their non-UK clients, they really shouldn’t be, and this is starting to catch up with them.

If you have a UK IFA, I would advise contacting them to ask for reassurance that they have the appropriate licence in place to advise a Spanish resident.

The second reason; appropriate knowledge of Spanish taxation and access to appropriate products. Here in Spain we have products that have been specifically designed for Spanish residents, taking into consideration Spanish tax laws, reporting requirements etc. These products are known as ‘Spanish Compliant Investment Bonds’ and over the years we’ve seen a number of companies offer them, including Quilter International, Prudential, Lombard International and SEB. For an IFA to be able to recommend such products they must be licensed in Spain. Correctly structured products can offer substantial tax and financial planning benefits, just as incorrectly structured products can do the opposite. You can find out more about the taxation of this type of product at https://www.chorusfinancial.es/how-are-spanish-compliant-investment-bonds-taxed/

However, if you hold a UK investment bond – these are offered by lots of companies like Aviva, Prudential, Sterling etc, you may not be aware, but these automatically retain a 20% tax on the growth, before you see your returns. This tax is not reclaimable under the Double Tax Agreement between the UK and Spain, meaning that when you draw your money from such investments, you are subject to further taxation at local Spanish rates of either 19%, 21% or 23%. This means you will lose nearly half your gains on such products to tax, simply because your UK adviser put you into a product designed for UK tax residents, rather than Spanish tax residents!

There are almost identical products available here in Spain, designed for Spanish tax residents, from the same household name companies you used when you lived in the UK. As an example of the tax efficiency, if you invested £100k into a properly compliant Spanish bond (rather than the UK version), and it grew by 10%, and you withdrew that £10,000 growth, you would pay just £171 in tax on the withdrawal, with any further tax deferred. As a Spanish compliant product this tax would be calculated for you and paid on your behalf direct to the tax authorities, with nothing more for you or your accountant to do.

If we compare that to the first scenario, not only are you saving many thousands of pounds in tax, but you are also not responsible for paying an accountant to calculate your tax liability for you and having to pay this direct to the Spanish authorities.

One area to be wary of is if you are recommended a Spanish compliant bond with a tie-in or a high annual fee – these products are now available with no tie-in from as little as 0.25% per annum through Chorus.

Although I certainly don’t think these errors from UK IFAs are deliberate, they are very common and can cause serious problems and unnecessary taxation for you further down the line. We understand you may have a long-standing relationship in place with your UK adviser, and they may have done a great job for you when you lived in the UK, but at the end of the day, your financial well-being has to come first.

For appropriate, local financial advice here in Spain, without any hidden fees or commissions, please contact me directly on +34 664 398 702, s.kelly@chorusfinancial.es or visit www.chorusfinancial.es.