Keith reviews the summer currency market and shares his views of what the autumn holds for the euro and the pound.
Pound enjoys improved summer
Although the pound enjoyed a sustained 1.20 – 1.22 range against the euro throughout the much of the summer, the beginning of Autumn will prove somewhat troublesome for strategists, economists and policy makers as holding at this higher level will exacerbate fears of a double dip recession and cause concerns over the fragility of the UK’s economy, thereby undermining consumer confidence and alienating the private or retail investor.
Double-dip recession?
The potential for a double-dip recession is the most prevalent concern for the Government at the moment. The Con-Lib coalition has until recently been ignoring the effect of its austerity measures on growth, preferring to talk up their moral compulsion to act swiftly, but glossing over how significant an impact they will have on unemployment and consumer confidence in the wider economy. Credit and access to liquidity for small to medium sized businesses is still a very big issue and has been since the beginning of the financial year. Whilst one should remain optimistic about Britain’s ability to weather a potential return to negative growth in the long term, in the short term the pinch is genuinely yet to be felt by many households. Youth unemployment is the highest it has ever been, and this is not because employers don’t want to take on new staff out of principle, it is because their access to cash has been cut off by the banks who are challenging the viability of the majority of SMEs based on their disappointing performance over the past 18 months.
Retailers have benfited
Over the past two years retailers have benefited from an increase in the foreign footfall in high profile shopping destinations like London. The weakness in the pound meant that retail sales figures were higher than expected over the summer of 2010 with an influx of foreign money coming from Europe, the US, Australia and South Africa; but the improvement of the pound against a number of major currencies since Prime Minister Cameron came to office, coupled with a rather inflexible attitude towards visa applications for tourists and students from the emerging markets, may cause the MPC and the Government to take a closer look at who, if anyone, is really benefiting from a stronger pound at this stage. It is fair to say that importers are enjoying a little respite because they are able to buy cheaper within the EU, but the exporters are increasingly worried that the pound’s improvement since May has already dented the UK’s chances of a sustainable recovery and its competitiveness globally. It must be conceded that 14% of British GDP is based on the export market, but UK Plc needs all the help she can get given fierce competition from Germany and the Far East.
Speculation of UK interest rate rise
One of the main drivers behind the improvement in the pound has, and continues to be, speculation over the increase in UK interest rates. Traditionally an increase in interest rates is the default measure used to curb inflation. Strangely though, the Governor of the Bank of England stated earlier in the year that he expects inflation to settle down by the end of the year anyway, which highlights a stale mate between liquidity and risk within the banking sector. More money being brought into the markets would grease the wheels of the retail sector because small businesses are able to borrower at fairer rates. Quantitative easing is likely to be raising its ugly head again over the coming few months, precisely because the Bank of England can’t afford to use interest rate increases as a weapon against inflation. One has to question why the market is so optimistic about rates going up, and going up quickly in the beginning of 2011. Banks including RBS are widening their margins when it comes to loaning to individuals. House prices are in fact dropping fractionally despite limited stock that would normally see demand increase and thusly values go up. So we are still clearly sitting very much in a credit dry market.
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Pay IHT in two jurisdictions?
Non-Domiciled property owners in Spain are sitting on a ticking IHT time bomb. Most owners do not understand that their Heirs and their Estate will pay IHT in two jurisdictions, Spain and their Country of Domicile. The reason for this is that in Spain the individual inheritor is taxed whereas in other countries, like the UK, it is the estate that is taxed. This could mean that on the death of an owner the surviving partner, or the owner’s Beneficiaries, could have a Tax Bill that virtually wipes out the entire Spanish Inheritance. Added to this is the cost of Probate in both countries for the Inheritors too. Most Lawyers in Spain recommend to Owners that having a Spanish Will deals with the problem; this is incorrect as a Will only deals with the issue when there is a death and does not remove Taxation in Spain.
Reduce tax
Other advice given is that double Taxation treaties between Spain and the UK will help with the Tax being reduced, this is true in identical Taxes but these are not, as in the UK it is the Estate which is Taxed and in Spain it is the Beneficiaries who are Taxed. It therefore should not be assumed that one Tax can be offset against the other as they are both totally different taxes on totally different entities. Many Owners are advised to re-finance the property as IHT is not charged on the property amount if there is an outstanding mortgage and loan, but this may end up leaving the Beneficiaries with a huge debt they cannot pay off and many lenders will only finance the ownership if suitable life insurance is taken out, so the property is paid for on death and the Tax still becomes due. Owning a property with your children is a favourite, this is not a good idea either as their share of the property may end being at risk through financial or marital issues and if they die before the parents then the parents have to pay Taxes to get the property back.
The Wincham solution
Our solution to the IHT/ISD problem in Spain is for the owner/s to invest the property into a UK Private Limited Company which they would own as Shareholder/s of the Company. Contrary to popular misconception there would be no 7% Transfer tax payable on this specific transaction unlike other property transactions in Spain. There is also no Capital Gains tax implication in Spain when you invest a property into a UK Limited Company, as the Hacienda has a method of calculating an investment value based on the original purchase price as shown in the Public deed and Spanish Tax Residents who are over 65 when they invest their property into a UK Company do not have any CGT liability in most Regions anyway.
Eradicate all taxes in Spain
This method may eradicate all Taxes in Spain in the future, in respect of the property, as under EU Treaties a UK Company is only Taxed in one jurisdiction, the UK, and no Taxes are payable onwardly in Spain. A UK Company is not an Offshore Company as in Gibraltar or the Isle of Man as they are charged an annual Tax by Spain of 3% for not being part of the European Community.
Dealt with in the UK
Shares in the UK Company can be dealt within a UK Will and depending on the structure of the Company; the Shares may be exempt from Inheritance Tax in the UK as well. A further advantage of the Company Structure is that attributable expenses such as Mortgage Interest, Council Tax Bills, Water, Electricity, Repairs and Maintenance can all be Tax Deductible by the Company; this may also include car hire and flights for the Directors. Unfortunately if you own a property in Spain in your own name then you may not be allowed to offset income against expenditure by the Spanish Tax Authorities. The benefit in kind Tax for Directors of a UK Company which own property abroad has now also been removed.
Simple solution
This is a simple solution costing less than most probate and legal fees in Spain when there is a death of an Owner of the property and requires no NIE numbers for the Beneficiaries to inherit. Our unique service is available to all Nationalities including both Residents and Non Residents of Spain and can be completed within 2 to 4 weeks if required.
System developed for many years
We have been developing our systems and process for many years as we strive to be the market leader in this type of transaction so this means Clients are dealing with a Company who has been researching the transaction for a long period of time and has an extensive customer base that has used this method and are extremely happy with the service they have received from us. Clients can also be assured when talking to Wincham they are dealing with professionals who are operating in this type of business on a daily basis, unlike other professionals who are not, but still advise about the method and due to their lack of understanding and knowledge confuse or put off interested owners from exploring the concept. We find Clients are failed time and time again by both Spanish and UK professionals as they are unable to advise on more than one jurisdiction. The Clients website where they can register for their free illustration showing the IHT/ISD liability in Spain is www.winchamiht.com
Wincham is an International organisation that has been established since 1994 helping Clients purchase and own property in Spain using a corporate structure to combat Taxation in Spain. In recent years we have seen a significant increase in the number of people who are concerned about ISD in Spain and are now looking to address the situation to protect their Beneficiaries. Wincham has offices in both the UK and Spain and within our organisation we have qualified professionals in both jurisdictions including Gestors, Economistas, Tax Consultants, Estate Planners, Lawyers, Will Writers, Chartered Accountants, Members of the Institute of Credit Management and a Companies House Formation Agent.
This information has been provided by Mark Roach, Company Director and Spanish Tax Consultant. Wincham Consultants Limited
Pre-paid funeral plans now available in Spain
The UK’s premier funeral plan company Golden Leaves, are now providing ‘Pre-paid Funeral Plans’ here in Spain.
With the pre-paid funeral plan you do exactly what the name suggests. You pre-pay and pre-plan your own funeral. From the choosing of the hymns and church to the choice of flowers, everything is decided at the time of contract.
The benefits
There are some major benefits to this type of funeral plan, such as
- Inclusive plans with no hidden extras
- Plans Secured and Guaranteed at today’s price.
- YOUR funeral arrangements are YOUR choices
- You will be accepted irrespective of age or health
- Flexible payment terms – Lump sum or instalments
- All the advice and help you need to make an informed decision
To find out more click here.
For more information on currency exchange you can click here.
Do Not Wait Four Years Before You Probate in Spain.
As Spanish Tax Consultants we provide an alternative method of ownership of your Spanish property to help protect against Spanish Inheritance Tax. Whilst discussing our methods with interested clients we hear of many crazy suggestions from advisors in Spain who purport to have solutions for some of the problems faced by non Spanish owners of property in Spain. One of the most common suggestions we hear about is that clients are advised to do nothing following a death for 4 years and hope that the Taxman in Spain does not find out there has been a death of an owner of the property. The reason for this suggestion is that the Statute of Limitations in Spain is 4 years and this means that by ignoring the Tax for 4 years it may be possible to escape paying the Tax 4 years and six months following the death, as you are given a further 6 months to deal with the Probate. Whilst this is possible and we have seen Probate cases where the Taxes have been evaded in Spain by employing this method, there are many situations that could arise should you decide to take the risk.
Legal Requirement
The beneficiary has a legal requirement to probate in Spain and pay all the Inheritance Tax in Spain within 6 months, otherwise fines and interest will be charged on top of the Tax which is due already. The Spanish Government can also embargo the property which means large fines would have to be paid before Probate could be completed. I am currently working on a case where a client has just paid in excess of €19,000 in fines and interest in addition to the cost of Probate and Taxes in Spain just to move the property from her deceased mothers name to hers. Our research shows that interest can be charged by the Spanish tax office at anything up to 20% for assets which are not probated within the allowed period.
Annual Tax Declartions
Every year the registered owner of the property has to submit annual Tax Declarations to the Spanish Government, this is very difficult for a deceased person to do and we are aware that the Tax office is looking closely at properties and levying hefty fines where annual tax submissions have not been submitted. The utility and Council Tax bills will have to remain in the deceased’s name and it is illegal to continue to use a deceased person’s bank account. The intended beneficiaries cannot sell the property whilst it is in the deceased’s name nor raise finance on it to pay any Taxes or Probate costs. What would happen should one of the beneficiaries pass away before the 4 years has expired? This event would result in one probate having to be dealt with before the second deceased’s beneficiaries could inherit.
Bank account frozen
On death the Spanish bank account of the deceased may be frozen until the Taxes are paid so how would the beneficiaries get legal access to this money? Even if the money was withdrawn illegally after death, the Tax Authorities may request a copy of the bank statements in Spain at the date of death to see what amount was in there. If there were funds present on death then this would be Taxable also in Spain.
Limitations on Taxation
Whilst the Statue of Limitations on Taxation in Spain is 4 years this would not be relevant if the Spanish Government could subsequently prove a fraudulent non disclosure had taken place. There is no such Statute of Limitations for fraud, and therefore, there is a very real risk the Spanish Authorities would claim that there was deliberate criminal withholding of information and thereby enforce the Tax retrospectively. Misuse the Statute of Limitations in this manner is a criminal act and highly dangerous method of Tax evasion – not to be advised!
Solution to Spanish IHT
Our solution to the Spanish Inheritance Tax problem in Spain is for the owner/s to invest the property into a UK Private Limited Company which they would own as Shareholder/s. This transaction does not attract the 7% Tax payable when a property moves from one owner to another. There is no Capital Gains tax implication in Spain when you invest a property into a UK Limited Company as the Hacienda has a method of calculating an investment value based on the original purchase price as shown in the Public deed. Spanish Tax Residents who are over 65 when they invest their main residence into a UK Company do not have any CGT liability in most Regions either.
Eradicate property taxes
This method may eradicate all Property Taxes (excluding I.B.I.) in Spain in the future, as under EU Treaties a UK Company is only Taxed in one jurisdiction if it is a non resident Company of Spain and does not trade in Spain. A UK Company is not an Offshore Company unlike a Gibraltar or the Isle of Man Company. Offshore companies are charged an annual Tax by Spain of 3% as they are not within the European Union and this charge is not levied on companies within the EU. Shares in the UK Company can be dealt within a UK Will and depending on the structure of the Company; the Shares may also be exempt from Inheritance Tax in the UK. This results in a very simple and cost effective way of dealing with the transfer of the property, within the UK Company, to the intended beneficiaries and does not involve any of the Spanish authorities in the transaction.
Wincham Consultants Limited.
Wincham is an International organisation that has been established since 1994 helping clients purchase and own property in Spain using a corporate structure to combat Taxation in Spain. In recent years we have seen a significant increase in the number of people who are concerned about ISD in Spain and are now looking to address the situation to protect their beneficiaries. We have offices in both the UK and Spain and with qualified professionals in both jurisdictions including Gestors, Economistas, Tax Consultants, Lawyers, Will Writers, Chartered Accountants, Members of the Institute of Credit Management and a Companies House Formation Agent. Wincham is able to offer an efficient and cost effective solution to clients who wish to ensure that their family will be able to enjoy the benefit of a Spanish property in the future. Please visit our website at www.winchamiht.com to apply for your free Spanish inheritance Tax illustration.
This information has been provided by Mark Roach, Company Director and Spanish Tax Consultant, Wincham Consultants Limited.
Car Insurance, motorcycle Insurance, and LCV insurance.
All motor vehicles and trailers must be insured when you drive in Spain. Failing to do so could result in fines between 600€ and 3,000€ as well as points taken from your licence, or even a prison sentence.
It is not essential for vehicles that are insured in other European countries to have international insurance. However, you must at least carry a copy of your insurance documentation and payment receipt as proof.
The different categories of insurance available
Third Party - (responsabilidad civil obligatoria) is the minimum required by Spanish law and insures against a 3rd party claim. Some of the better companies include fire cover at no extra cost with this basic cover, however always check this out before you sign up.
Please note that neither drivers nor passengers are covered and must be insured separately if required, see Driver and Passenger Insurance.
Third Party, Fire and Theft - (responsabilidad civil obligatoria, incendio y robo) known in some countries as ‘part comprehensive’. It includes cover against fire (incendio), natural hazards such as rocks falling on your vehicle, theft (robo), broken glass such as windscreens and legal expenses (defensa penal).
Fully Comprehensive - (todo riesgo) this covers all of the risks listed under a third-party, fire and theft policy plus all other types of damage to your vehicle irrespective of how the damage was caused.
Some insurance companies will not offer comprehensive cover to vehicles that are more than two or three years old, so you may need to check. If you have a finance or lease agreement on your vehicle you may find that it is compulsory to have comprehensive insurance.
Please be aware that not all insurance companies pay for a replacement car whilst your own vehicle is being repaired. Although you will find that the better companies do offer this as an option when you take cover with them.
Driver and Passenger Insurance – (seguro de ocupantes) is usually an option that can be added to insurance policies. This cover allows the driver and/or passengers of the vehicle who have been involved in an accident to claim for bodily injury. It also offers compensation for their incapacity to work or for their beneficiaries should they be killed.
There are normally different levels of driver and passenger accident insurance, so speak to your insurance representative about the options.
No-claims Bonus- (bonificacion/sistema bonus-malus) is normally valid if you have had insurance within the last two years and you have not made a claim. You will usually be asked to provide written evidence of the no-claims bonus as given by your previous company, not just a copy of your last renewal notice. Some companies may also request that this be officially translated into Spanish.
Documentation
It is now becoming common practice for the need to provide your insurance company, at the time of taking out the policy, with copies of the following:
- registration document
- up-to-date ITV certificate
- NIE/passport for the owner and named insured drivers
- driving licences of those as above
It’s worth noting that most policies in Spain cover any driver of the vehicle, however it is recommended that any additional regular drivers of the vehicle be named on the policy.
For information on foreign plated vehicles click here.
For information on ITV tests click here.
For information on breakdown insurance click here.
For information on basic motoring requirements click here.
For a free no obligation quotation click here.
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Little movement.
Over the past 72 hours GBP/EUR has moved painfully little. The average range over the latter half of this week for this usually animated currency pair has been a mere 85 points, meaning that traders have either been waiting to move based on poor or positive economic data, or other markets have attracted their attention. This other market is the US dollar. This has taken a beating against both the pound and the euro on the back of poor unemployment figures, and in anticipation of sluggish growth going forward.
Mervyn King with be speaking later on next week, and hopefully this will ignite interest in European transactions. UK financial earnings have been positive overall, and this may have helped to hold the pound at around the 1.20 level, but the pound will no doubt come under pressure over the course of the next trading week, and the markets will wait with baited breath to see what sentiment Governor King chooses to express. He will make a point of mentioning the level of lending to SME’s and individuals, and with banks such as RBS widening their profit margins it seems that pressure regarding capital adequacy is coming to bear and affecting borrowing criterion.
The Germans seem to emerging from something of a lull which suggests that next week could prove euro positive up to a point; at least we should see some movement after what has been a distinctly uninspiring five days.
Would you trust an economist?
A strange question you may think but maybe not when you consider that if you invited 10 economists to dinner and asked them to forecast the economic outlook for Europe for the next 12 months, not only would you probably lose the will to live, but you would also get 10 very different answers.
Remember, you can count on one hand the number of economists who predicted the current downturn, so how can they really predict the upturn when it comes? The reason I muse upon this is that for the past month the economic data coming out of Europe and the UK is confounding the critics who indicated that the tough austerity measures would see another slump, as it in fact indicates that we could be seeing the famous green shoots of recovery.
Stellar July for Euro
The Euro has enjoyed a stellar July as it safely passed the bank stress tests, or as I call them, the exercise of rearranging the deckchairs on the Titanic. But whatever your view, the market certainly liked what it saw, even though many of us still have lingering doubts about the state of the European banking system… but hey “why let the facts get in the way of a good story.”
German unemployment falls
German unemployment fell for the 13th straight month in a row and manufacturing data points once again to growing exports for northern Europe. Last month I highlighted the lack of safety deposit boxes in Madrid, and this was taken by some as a sign of a weak Spanish banking system. The point I was trying to make is the black economy is thriving, with an estimate of €17 billion being diverted out of the eyes of the tax man each year. Again it’s no coincidence that 85% of all €500 notes are in circulation in Spain and I doubt many of them pass over the counter of your local Caja. So despite a crippling rate of unemployment above 20%, with most of this inflicted on the youth, Spain is surviving.
Inflation a problem for the Bank of England
In the UK the Bank of England’s main problem is inflation and as far back as March this year they said that the tough austerity measures to be brought in would curb this rate. Well that hasn’t happened; inflation continues to stay “sticky” and if anything looks like it may rise. The last BoE vote on interest rates even saw one member call for a rate rise to combat the inflation problem. It’s unlikely we will see a rate rise in 2010 but the threat of inflation is there and can’t be that much of a surprise since the BoE printed an extra £250 billion to keep the economy afloat.
USA heading for a serious fall
Now the real basket case is the US who are heading for a serious fall. Obama’s plan to chuck trillions of dollars at the US economy is looking like a huge mistake. At a time when Europe and the UK are embarking on a series of austerity measures like the world has never seen, Obama is spending, spending, spending and “worrying about the bill tomorrow.” But that bill has to be paid sometime and since the meltdown in 2008, the US already owes the rest of the world an extra $3 trillion. California, which if measured as an independent economy would be the 5th largest in the world (yes really!) is effectively broke with many public sector workers being put on a 3 day week. So once again, all the economists who screamed about how the US would lead the world……nil points!
World a strange place
The world is a very strange place at the moment and I have my own view. I think the world has changed dramatically in the past 10 years the real money is now found inChina, India and the Middle East. We live in a facebook economy where employment can be found by recommendation and trends quickly established. The bloated indebted countries reside in the West, however if tough austerity measures are implemented they should survive intact. The Euro Zone still has a tough time ahead and needs a complete overhaul of its labour laws if it is to get youth employment on the rise again. However it’s not as bad as it seems…
But why listen to me? Economists are pointing to 2011 as another tough year when once again the World could tip back into recession………and they always get it right don’t they?
Keith Spitalnick LLB (Hons)
Regional Sales Manager
For more information on currency exchange you can click here.
Friday fun
More insurance claims to make you smile! Have a great weekend.
- The pedestrian had no idea which way to run as I ran over him.
- The pedestrian had no idea which way to run as I ran over him.
- I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.
- I had been learning to drive with power steering. I turned the wheel to what I thought was enough and found myself in a different direction going the opposite way.
- The guy was all over the road. I had to swerve a number of times before I hit him.
- I had been driving for forty years when I fell asleep at the wheel and had an accident.
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