ISA’s are very tax efficient ways to save or invest, as you pay no tax on savings interest, (not that you get any these days), and virtually no tax on investment returns. They are therefore usually the first type of saving or investment account that people will have. For this reason, and the fact that there is a generous annual allowance to save into them, you like many other may have built up sizeable amounts in ISA’s.
You may also have reached, or be approaching retirement, and relying on this tax efficient ISA nest egg, to provide extra income to supplement your pension. For some, an ISA may even be their ‘pension’.
ISA’s and moving to Spain
So if you’re moving, or have moved to Spain, can you keep your ISA? The short answer is yes. According to gov.uk:
If you open an Individual Savings Account (ISA) in the UK and then move abroad, you can’t put money into it after the tax year that you move (unless you’re a Crown employee working overseas or their spouse or civil partner).
You must tell your ISA provider as soon as you stop being a UK resident.
However, you can keep your ISA open and you’ll still get UK tax relief on money and investments held in it.
You can pay into your ISA again if you return and become a UK resident
Great – you can keep your ISA, and continue to benefit from it’s tax efficiency! Well not exactly. When you move from the UK to Spain, you also move from the UK tax system to Spain’s tax system. So you will continue to get UK tax relief, however your ISA will (or should), get Spanish tax treatment.
Taxation of ISA’s in Spain
If you receive interest, income or cash in a gain from your ISA, this is taxable in Spain.
The starting tax rate is 19% of the first €6000, 21% up to €50,000, and then 23% thereafter.
Of course these days you get very little interest on savings, so to be taxed on the very little that you do get would be just another kick in the teeth.
Example: £100,000 in a cash ISA paying the best rates currently available, might get up to £2,000 in interest annually, on which £380 tax would be due.
Stocks & Shares ISAs
These types of ISA’s, typically have a larger balance, and are also more likely to produce a bigger return. Many cash in the return their ISA makes at the end of each year, or have it paid out as income. If you continue to do this in Spain, it is taxable.
Investments in Spain, are taxed when you realise or benefit from a gain, e.g. if you cash in the whole investment, or part of it to take the gain as income.
Example: £100,000 stocks and share ISA achieves annual growth of 6%, £6,000. This growth would be subject to £1140 tax if taken out.
In addition to this, the Spanish tax authorities see through the ISA ‘wrapper’, and may also see certain returns in underlying investments as taxable regardless of whether you have actually realised them. Equally, a switch of funds, or sale of one investment to invest in another, would trigger tax on any gain, even though kept inside the ISA. In other words any tax efficiency achieved from UK tax relief would be cancelled by tax in Spain.
Does Spain have ISA’s?
Spain does not have anything equivalent to the UK’s cash saving ISA. There are however products which can be considered as an alternative to a stocks and shares ISA. They can actually offer better tax efficiency whilst your money is invested, and also have favourable tax treatment when you take money out.
We’ll be writing more about these products and how they work in a follow up article, Tax Efficient Investments in Spain.
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