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La Isla de Las Calmas (mostly!).

Musings from Mallorca. Some on Financial Advice. Some on how to legitimately reduce your Spanish tax bill. Plus some Life Stories from our fabulous Island.

UK Mortgage Rates at an Historic All Time Low - Time to Re-Mortgage?
01 August 2016

Yacht Crew / Seafarer Mortgages

With the Bank of England base rate at an historic low of 0.5% and the distinct possibility of a further reduction in August, there has never been a better time to consider a re-mortgage. The potential savings could be significant.

Why should I re-mortgage?

Seafarers have recently had a pretty bad time of it as regards getting a mortgage. This is partly down to new EU rules around Foreign Currency Mortgages (this includes you if you are not paid in Sterling). However, there are some sensible lenders who are still happy to lend to Yacht Crew:

  • We have access to lenders who can offer re-mortgage rates from as low as 1.74% (2-year Fix), 1.99% (3-year Fix), 2.53% (5-year Fix) for Yacht Crew who are paid in foreign currency. A Fixed Rate has known monthly payments and can protect you against rate rises in the future.
  • If you are comfortable with the rate you pay varying according to the mortgage rate, there are a number of tracker and discounted variable rate mortgages on the market at historically low rates from 1.64% (2-year Tracker).

But I have seen better rates online.

We have seen them as well and we have tried to place Seafarers with these lenders. Result:

“Computer says No”.

We have been spending a lot of time recently picking up the pieces from lender refusals to lend to Yacht Crew. You work in a very “special” business which only certain lenders understand. A lot of lenders fall at the first hurdle of Euro or Dollar income but forget to tell you this at the start.

We have been involved in the placing of mortgage business since 1995 and have significant experience in placing Seafarers with sympathetic lenders.

What might I achieve by re-mortgaging?

With rates as low as they are today and the prospect of further falls very soon. The result of a re-mortgage could be:

  • Lower monthly repayments, or a reduced mortgage term.
  • Change to a different type of mortgage – fixed, tracker, discounted variable rate, etc.
  • Consolidate other debts such as loans and credit cards.
  • Raise extra money for home improvements.
  • Fix your payments for the short or medium-term.
  • There are some very competitive 5-year fixed rates available currently.
  • Use the equity built up in your home to achieve a better rate – many lenders offer lower rates depending on Loan to Value percentages.
  • Get off that Standard Variable Rate (SVR). The majority of lenders do not charge a penalty to switch from the SVR, so now is a good time to look for a better deal.

Things to consider

The mortgage market is complex, with a large number of potential lenders offering different rates with widely varying fees to get the rate. Add to that your foreign currency income, the fact that very few lenders understand your tax position and the benefits of living on board and you have a recipe for a hard time getting a loan.

“Headline Rates” are just that; “Headlines” designed to attract your attention and reel you in. The likelihood of you achieving these rates or even getting a mortgage at all being practically zero, “but as you earn stacks of cash we can introduce you to our “Personal Banker / Financial Adviser” to discuss a savings plan”!

What do I do now then?

Your mortgage is, for most people, the largest financial decision you will ever make.  It is vital that professional advice is taken from a qualified and regulated Mortgage Adviser to make certain that the most appropriate mortgage is selected from the “whole of the mortgage market”, not just “here are 3 rates, you choose!” that you will get from WXYZBARSAN Bank plc.

An initial discussion costs you nothing but a little time. You could find that the savings are worth the effort. 

So stop sitting on the fence, get off and get advice!



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Post Brexit - A Great time to Buy in the UK?
01 August 2016

Brexit Horror Stories

Running scared in the wake of Brexit? All sorts of horror stories were spread around as the likely result of Brexit. Interest rates will rise, house prices will tumble uncontrollably, the economy will collapse and repossessions will increase.

What has Really Happened?

Two weeks later and what do we have? Sterling falling to £1=€1.16, £1=$1.29 (good news for those of you earning in foreign currency as your income will buy more value in the UK than ever), interest rates are widely predicted to fall to 0.25% at the Monetary Policy Committees meeting tomorrow, house prices are stable if not increasing (due to foreign demand) in London and the South East and stable elsewhere.

The banks and building societies have an appetite to lend which has been further enhanced by the Bank of England’s stance of “doing whatever it takes” to support UK plc. (lowering interest rates, reduction of £150bn in capital requirements for banks thereby stimulating lending to name but two).

As far as mortgage lending and available rates go we have seen Santander, Coventry, TSB and others cut their rates by as much as 0.6% and the majority of lenders commenting that it is very much “business as usual” for lending volumes, enquiries and general sentiment towards property purchase be it Buy-to-Let or Residential.

Add to this the fact that 2, 3, 5, and 10-year fixed rates are at the lowest they have ever been and you have a great recipe for buying in the UK now.

Are you guilty of sitting on the fence because of Brexit?

In our experience a worrying amount of people simply sit on the fence and wait, for what I have no idea. Many in the UK are on the lender’s Standard Variable Rate (SVR) of around 5% when there are 5 and even 10-year fixed rates available at under 3%. At the same time the very same people are sitting on tens of thousands of pounds in savings receiving 1-2% taxable returns. Conservative with a capital C or plain inertia, either way it does not make sense.

When we ask these prospective clients why? They say: mortgages are too confusing, my money is safe in the bank and any other “reason” they can think of for what is in reality, apathy and inertia.

Get off your em.. Fence

Whether you earn your income in a foreign currency or in Sterling it is time to get off the fence and take some Financial Advice regarding your Mortgage, Savings, Investments and Pensions while the going is good.

First Time Buyers

Consider the amazingly low fixed and discounted variable rates available, house prices stable or rising and perhaps a little bit of nervousness from homeowners who are not reading this (especially landlords) and are thinking of selling, makes now a great time to be buying.

Buy-to-Let

The same story applies to Buy-to-Let with the caveat that since the budget changes to Stamp Duty and the increased tax burden resulting from the cut in what can be claimed back as costs. Consider also buying via a limited company structure to save tax.

Re-Mortgages

If you have not looked at your mortgage for a couple of years or more, you are on the lenders Standard Variable Rate or you are coming to the end of a fixed rate deal, there has never been a better time to save yourself money by re-mortgaging now. If you only have 10 -years or so left on your Mortgage consider fixing into one of the low-rate 10-year fixes available.

The Importance of Financial Advice

High Quality, Financial Advice will save you money on your mortgage costs, could reduce your tax burden, and will give you peace of mind that you are doing as much as you can towards your current and future prosperity. A good adviser will also make things as straightforward and easy to understand as possible, removing the perceived “complexity” of Mortgages etc.

Do not sit on the fence any longer, get off and get advice.



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Mallorca British - Announcement of Alexander Peter and SegurMallorca Collaboration
13 May 2016

Hi all,

We are really enthusiastic about our new collaboration with SegurMallorca and the newly launched Mallorca British forum. 

Mallorca British Forum Announcement.

SegurMallorca for all your Insurance Needs.

We look forward to working with Toni and his clients around Spain and to introducing business to him also.

We believe the new Mallorca British forum will go from strength to strength and will give this our full support. Take a look, register and make post something interesting or useful to all of us Expat Brits in sunny Mallorca.

 

Sandy

P.S. Who can tell me where I took the photograph?



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UK Expats Lose the Battle to Vote in the BREXIT Referendum!
28 April 2016

UK Expats Lose the Battle to Vote in the BREXIT Referendum!

British expats lose High Court battle over ‘Brexit’ vote

By Monira Matin - International Adviser Publication

Added 28th April 2016

British expats will not have the right to vote in the UK’s upcoming EU referendum after a High Court challenge to the rules failed on Thursday.​

The court case was brought by Italian resident Harry Shindler, a 94-year-old World War Two veteran and British lawyer Jacquelyn MacLennan, who lives in Belgium.

The pair claimed that expats living overseas should have the right to vote in EU referendum, due to be held on 23 June, as it will decide whether or not Britain leaves the EU - a decision, they argue, directly affects them.

The decision means that around 800,000 expat voters who are thought to live in Europe have not been granted the right to vote in this year's referendum.

‘15-year rule’

Under current law, UK citizens living abroad for more than 15 years cannot vote in the country’s elections.

Lawyers acting on behalf of the expats had hoped to get a judicial review into section two of the EU Referendum Act 2015, which established ‘the 15-year rule’, for unlawfully restricting their right to freedom of movement under EU law.

But the judges ruled that the law does not restrict their rights and rejected their legal challenge.

Shindler - who has lived in Italy since 1982 – and other British expats have long argued that the 15-year cut-off is “arbitrary” and that rules governing UK general elections are not being applied evenly.

Resident aliens

Aidan O'Neill QC, the lawyer representing the expats, told the court that should Britain decide to leave the EU then Shindler and MacLennan would become "resident aliens" in Europe.

They would no longer be EU citizens and their right to live, work, own property, and receive health care free at the point of use, could be placed in jeopardy, he added.

Ruling

However, in their ruling the judges said the UK government was entitled to adopt a cut-off period “at which extended residence abroad might indicate a weakening of ties with the United Kingdom”.

They noted that there would be “significant practical difficulties about adopting, especially for this referendum, a new electoral register which includes non-resident British citizens whose last residence in the UK was more than 15 years ago”.

Supreme Court challenge

Shindler and MacLennan have vowed to continue their legal battle by taking the case to the Supreme Court.

Gibraltar gets EU vote

The lawyers in Thursday’s ruling also questioned why the residents of Gibraltar, who would not normally be able to take part in the UK’s general elections, are allowed to vote in June’s referendum.

In 2013, while drafting the EU Referendum Act, MPs argued that the British overseas territory’s 2,000 inhabitants should be given the right to decide whether they wanted to be a part of EU.

Meanwhile, in February, Jersey’s chief minister was forced to deny claims that it rejected an invitation by the UK government to take part in the Brexit vote.

This comes as Hollywood actor John Rhys-Davies set up a petition earlier that month calling for people living in the crown dependencies of Jersey, Guernsey and the Isle of Man to be allowed to vote in the referendum – so far the petition has only gathered 1,737 signatures. 

Original article here:

http://www.international-adviser.com/news/1028897/british-expats-lose-court-battle-brexit-vote?utm_source=Adestra&utm_medium=email&utm_term=&utm_content=British%20expats%20lose%20High%20Court%20battle%20over%20%E2%80%98Brexit%E2%80%99%20vote&utm_campaign=international_adviser_newsletter_3_28_04_2016#sthash.a2kg4vET.dpuf



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Expat in Spain or Moving to Spain?
27 April 2016

by Sandy Paterson

Expat in Spain or Moving to Spain?

Austerity measures introduced as a result of the financial crisis in Spain have given rise to the Spanish Tax Authorities (Hacienda) looking to “top up the pot”, with Expat’s seen as a “soft target”. Sound familiar?

However, there are legitimate Spanish tax compliant solutions from internationally recognised companies which can be used to protect much of your savings and wealth from taxation.

Residency

As always with taxation the need to establish residency is key, so are you a Spanish Tax Resident?

Establishing residency in Spain is relatively simple. You are a Spanish resident if you:

  • Live in Spain more than 183 days (not necessarily in one sitting). Or;
  • Have your “centre of vital interest” in Spain. These rules have been tightened to catch those who deliberately spend less than 183 days a year in Spain to avoid tax.

How do you avoid this?

Solutions are available such as Spanish Compliant Investment Bonds, these are very useful because they:

  • Do not need to be declared on Modelo 720
  • Are structured to be “compliant” for Spanish tax
  • Allow tax liabilities to be calculated by the bond provider and paid directly to the Hacienda
  • Avoid probate on death
  • Are Inheritance tax efficient
  • Have very favourable tax treatment in Spain, although still taxable to a small extent
  • Can access a large range of investments to suit different risk profiles, including low risk capital protected funds 

Using compliant investment bonds created specifically for Expats in Spain saves tax and keeps the Hacienda at arms-length.

Other questions I’m asked by Expats:

What happens when I die?

For Spanish residents succession law applies to worldwide assets and when assets are passed between spouses either during life or on death. Since August 2015 the EU has allowed you to choose your native country or country of residence with regards to Inheritance Tax. Which should you choose?

Are my current investments tax efficient?

Your UK & Offshore (Isle of Man, Jersey etc.) bank accounts and investments including ISA's and National Savings are not recognised under Spanish Law and are liable to Spanish tax at the highest rate. They need to be declared (Modelo 720) above a certain sum. Have you declared yet?

UK pension or QROPS?

Given the importance of your pension, ensuring the tax efficiency and safety of your pension fund needs careful planning. Should the pension remain in the UK or is it better elsewhere, in a QROPS for example? How can Income be structured to pay the lowest possible tax?

Advice is Crucial

Professional, Independent Financial Advice combined with locally compliant products will help you reach your financial goals tax-efficiently, and without being tripped up by the Hacienda.

Get in touch with us now to discuss your options. In the meantime you could request one of our FREE Financial Guides.



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Spanish Tax Rules and Expats
27 April 2016

by Sandy Paterson

Spanish Taxation Rules and Expats

Background

During the course of the last couple of years a number of changes were made to the Spanish Tax system which have significant implications for Expats in Spain.

This is not just happening in Spain of course, Governments around the world are looking for additional tax revenue and with the amount of information being shred about individual’s finances between countries Expats have become a “soft target. 

This focus on unpaid tax around the world has seen nations entering into financial disclosure agreements with each other, with any country not “signing up” being regarded as financially “dodgy” and some even being blacklisted. Clearly investments held “offshore” have come under scrutiny. Declaring offshore investments & assets has always been a legal requirement in most EU countries but many people have been completely unaware of this, or have been sticking their head in the sand believing that the taxman cannot see these investments so they won’t be able to tax them. Be warned this is most definitely not the case now, your information is being shared.

Recent very public “naming & shaming” of companies and individuals using tax loopholes to avoid paying tax has been used as a tool to deter others by the UK the Government. The UK is now not alone in this as countries affected by financial crisis are desperate to pull in as much tax as possible to prop themselves up. This has left some individuals owing taxes to more than one country on the same assets.

Spain, despite recent financial woes is still the number one destination for UK Expats to retire to, leaving the Spanish Government with a nice easy target for additional tax revenue from the ever growing expat community. 

Delaration of Assets (Modelo 720 Form)

Under the new rules, Spanish Residents (are you certain you are not considered resident in Spain? (see below)) must declare overseas assets worth more than €50,000 on the Modelo 720 Tax Form. This includes:

  • Property (your old home you kept and now let out in the UK perhaps).
  • ISA’s (the Spanish Government looks straight through the tax wrapper as if it was not there)
  • Bank accounts
  • Protection policies

Are you a Spanish Resident?

Whilst it seems complicated establishing residency in Spain is actually relative simple. You are a Spanish resident if:

  • You live in Spain for more than half a year (not necessarily in one sitting). Or;
  • You have your ‘centre of vital interest’ in Spain. These rules have been tightened up to make sure those who deliberately spend less than 183 days a year in Spain to avoid tax.

Non-declaration of assets could result in significant fines, sometimes more than the amount of the undeclared asset’s entire value. There have already been cases where Expats have suddenly been presented with a tax bill and a fine despite having thought that their assets were “invisible” to the Spanish Hacienda.

What can you do to avoid this?

Spanish tax compliant solutions are available such as Spanish Compliant Investment Bonds, which are very useful for the following reasons:

  • They do not need to be declared on Modelo 720
  • The structure of the Bond is such that they are “compliant” as seen by the Hacienda
  • Any tax liability due is calculated by the bond provider and paid direct to the Hacienda
  • Avoid the need for probate on death
  • Multi currencies available
  • Inheritance tax efficient
  • Whilst they are still taxable to some extent, the tax treatment is very favourable in Spain when compared to not using this method so potentially large tax savings can be made
  • There is a very large range of investments, asset classes, different risk profile investments available within the bond including some capital protected funds for low risk investors

The use of Spanish compliant investment bond products created specifically for Expats in Spain enables you to save tax and have the peace of mind needed for a comfortable retirement.

Get in touch to discuss how we can help you save tax. In the meantime request our FREE Guide to Spanish Tax Compliant Investments.



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UK Style Pension Freedoms now available for Expats.
27 April 2016

Navigating the Pensions Minefield for UK Expat’s in Spain

Navigating the Pensions Minefield for UK Expat’s in Spain

Background

The sweeping changes to UK Pensions announced in the Budget have cut a swathe through what used to be “de rigueur” for financial advice regarding investing in, taking income from, transferring abroad or what happens on death with regards to your pension. Add to that the dramatic reduction in the number of available QROPS brought about by HMRC writing to all such schemes to ask them to re-state their suitability to on the HMRC list (link below) and we have a new “pensions landscape” to consider.

https://www.gov.uk/government/publications/list-of-qualifying-recognised-overseas-pension-schemes-qrops/list-of-recognised-overseas-pension-schemes-notifications 

You will also notice on this page that QROPS are now referred to as ROPS, HMRC having dropped the word qualifying as this gave a false impression that they were somehow endorsed by HMRC.

What are the Changes?

In brief the changes which have taken place are:

  • Pension drawdown has become much more flexible
  • You no longer have to convert your pension fund into an annuity at retirement (this has actually been true for a few years now but was not widely known)
  • People who have already opted for an annuity can potentially trade them for a lump-sum from 2016
  • The Pension Commencement Lump Sum (PCLS or better Tax-Free Cash) does not change from the original 25% but can now be taken as a series of lump sums. 
  • The remaining fund of 75% can be taken as income as a series of lump sums rather than monthly (taxable)
  • Major changes to the death benefits depending on age, leading to interesting succession planning possibilities
  • You may take the entire value of your pension pot as a lump sum (25% tax free and the remainder subject to tax at emergency tax rates, some of which you may claim back in your tax return later.

Interestingly news from Royal London has indicated that nearly 70% of people have opted for this route with quite a number being shocked by the tax charge. Even more worryingly a large number of these people have simply deposited the money in their bank and are paying tax on the interest received (if they even get any). This is frankly mad and as an Independent Financial Adviser infuriates me that advice was not sought, even a short, cost-free phone call could have at least highlighted the tax problem and other available options.

The cynics amongst us (who me?) may believe that collection of additional tax revenue was the true purpose of the new “pension freedoms” in the first place.

So what about QROPS?

You could be forgiven for thinking that HMRC would simply “export” the new freedoms over to QROPS. This however is not practical for a few reasons:

  • Different jurisdictions have different rules
  • The flexibility and pension freedoms now available in the UK do not apply to QROPS from April 2015,although this has now chaged for some jurisdictions!
  • QROPS benefits cannot be taken prior to age 55 except in the case of serious ill health. Taking QROPS benefits prior to age 55 was one of the big “sales pushes” of previous schemes. This has been removed and is one of the main reasons such a large number of schemes have disappeared from the HMRC list.

HMRC View of QROPS (now ROPS)

The following excerpt was taken directly from the HMRC website:

 “HM Revenue and Customs (HMRC) can’t guarantee these are Recognised Overseas Pension Schemes (ROPS) or that any transfers to them will be free of UK tax. It is your responsibility to find out if you have to pay tax on any transfer of pension savings.

HMRC will usually pursue any UK tax charges (and interest for late payment) arising from transfers to overseas entities that do not meet the ROPS requirements even when they appear on this list. This includes where taxpayers are overseas. HMRC will also charge penalties in appropriate cases. 

Tax relief is given on pensions to encourage saving to provide benefits in later life. Accessing benefits (directly or indirectly) before age 55 will result in a liability to UK tax charges in all but the most exceptional circumstances. You should seek suitable professional advice including from a regulated financial adviser”.

Message from the Author

Pension legislation, tax implications and the recent changes / freedoms have forever changed Pension Advice.  This is a hugely complex area of financial planning and we have not even discussed the various investments which can be held in a pension. 

The Pension freedoms available in the UK have now been made available to certain UK expats and this is an area where advice is needed as you may well benefit from transferring to a QROPS.

As mentioned in the last paragraph of the excerpt above by HMRC “You should seek suitable professional advice”. Speaking as an Independent Financial Adviser in Mallorca I clearly have a vested interest in saying “I couldn’t agree more”. But you have to consider that you also have a vested interest in seeking Qualified, Independent Advice, after all the cost of making a mistake will far outweigh the cost of advice.

Get in touch directly or click on the link at the bottom of the article to access our range of financial guides including QROPS.



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UK State Pension in Spain
27 April 2016

UK State Pension Payments into Spanish Account

UK State Pension Payments into Spanish Account

A relatively little known fact is that, UK pensions paid directly into a Spanish bank account cannot, legally, be charged any form of commission or other charges, also Government / State Pensions are converted at Government set exchange rates which are set monthly. For May 2016 this rate is 1.2708 and here is a link to the rates page.

https://www.gov.uk/government/publications/hmrc-exchange-rates-for-2016-monthly Make sure to look up the Euro rate under Eurozone as you will not find EU countries listed seperately.

If the pension is paid into a UK bank account and then transferred then the normal charges apply, which will be more costly than a direct transfer to a Spanish account.

In addition to the State Pension, Occupational pensions can usually be paid directly into a Spanish account but some pension providers make a small charge usually around £3 or so. Exchange rates will vary but are generally at wholesale rates.

The UK State Pension is always taxable in Spain under the terms of the double taxation treaty. Be careful here because if you don't apply to have it paid gross in the UK you could end up paying tax to both the UK and the Spanish taxman, with the ensuing nightmare of trying to get it back from the UK tax office. Below is the link to the tax form UK/Spain (SI 1976 number 1919) (Form Spain-Individual) from HMRC.

http://www.hmrc.gov.uk/cnr/spain-individual.pdf

Alternative Methods

You could also arrange for a currency broker to convert the money from your UK account before the transfer to your Spanish account. This is often cheaper than paying bank fees. 

By using a foreign exchange specialist it is possible to agree a fixed exchange rate, with rates set up to a year in advance. This may help avoid sudden fluctuations in your spending power.

Another way of avoiding transfer charges would be to establish an International Account with sterling and euro accounts in the same bank. You should then have no charges for pound to euro transfer.



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Seven Habits of Financial Success for Yacht Crew
27 April 2016

by Sandy Paterson

The Seven Habits of Financial Success for Yacht Crew

Picture the time when you are ready to leave the high-life that is Yachting, hard to believe I know but stay with me.

Your Yacht-free life is ahead and the choice of what to do now is all yours, or is it? I have come across many who either cannot leave even if they wanted to, or are left “painted into a corner” financially because of a lack of planning. 

Back in the present, it’s easy to fall into the high-life of a crew-member (junior or senior). Tax-free income, food and accommodation all paid and 2500 – 7500 Euros a month burning a hole in your Helly Hansen pockets.

Assuming you do not want to end up “painted into a corner”, what habits can you cultivate to make sure you have choices in the future? 

The Seven Habits

Amazingly obvious in some cases, together they will help you invest in yourself. Let’s face it nobody else is going to.

1) Spending Money

Set yourself a monthly limit, once you have reached it, stay on-board where you cannot spend more. Without this nothing else will work.

2) Bank Accounts & Currency Brokers

Why pay huge fees and lose money on exchange rates every transaction by using your debit card to move money. If you earn your money in Euros have a bank account In Euros. If you need other currencies open a multi-currency account. An Offshore Seafarer Account is probably best.

When exchanging larger sums using a currency exchange broker will save money long-term. Debit cards are easy, but stop and think what could you do with that money instead?

3) Get out of Debt

Start with the highest rate debt (usaully credit cards) check for 0% balance transfers on Credit Cards and use them. 10000 euros in the bank earning 2%, whilst holding credit card debts at 22% does not make any sense, pay them off.

4) Emergency Cash

Now you can build up some emergency cash. Ideally 3-6 months’ income in your Seafarers Account then leave it alone. Immediate access is the priority not interest rates. Set this aside as it is for emergencies only.

5) Education

Decide which courses will further your career and set aside the money. Don’t forget personal development outside of Yachting. Invest In your education and the benefits will far outstrip the cost.

6) Property

Where do you want to live, how much deposit is needed? This medium-term money should be in tax efficient savings plans designed with seafarers in mind and advice is crucial to get it right. 

7) Freedom to Decide

Invest for the future to give yourself options when Yachting life is finished. This involves long-term investment and tax planning to ensure you reach your goals and professional advice is invaluable.

Ideally save 25% or more of your monthly income. Yes it’s a lot, but bear in mind if you were shore-side you would be paying at least that much to the tax-man, so get saving.

Other things to consider

Whilst setting up for your future consider the following:

    •    Establish your residency, this is masively important and dictates your tax status. You would be amazed how many yachties we come across who are unsure or even incorrect about where they are considered resident.

    •    Don’t forget the freebies – ask your Captain what Medical Insurance, Pensions and any other benefits you may get and consider asking for more!

Seek out Professional, Independent Financial Advice from people who know the Yachting scene.

Take a look at our dedicated Yact Crew Website for further information.



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Myth Busters: UK / Spain Tax Treaty
27 April 2016

Myth Busters: UK / Spain Tax Treaty

by Sandy Paterson

Posted: 15th October 2015 | Written by: Patrick Maflin

Reproduce with permission of the Author.

Screen Shot 2015 10 15 at 14.08.00

The Seafarers Earnings Deduction (SED) is arguably the taxation scheme of choice for most Seafarers nowadays working on foreign going yachts. It is open to all EU member states whose citizens qualify as resident in the UK under the Statutory Residence Test (SRT). 

However as the UK and Spain have different fiscal years the former running from April to April and the later according to the calendar year it is possible to be resident in both ‘contracting states’. In the event of this happening the Double Taxation Treaty must be considered.

Residency lies at the heart of any tax question; it is the deciding factor when establishing where an individual owes tax. Globalisation and the freedom of movement has given rise to an increasing number of individuals being resident in more than one country at the same time. This in turn presents its own series of problems, which this article will explain with suggestions as to what can be done to avoid them. 

Seafarers are arguably one of the most likely professions to experience problems from Double Taxation. Those who have been in the industry for several years may still file returns in the UK but may now have family living in Palma. Spanish Residency law clearly states that if your spouse lives in Spain irrespective of whether you spend less than 183 days a year there you are considered a resident for tax purposes. Additionally the factors highlighted below are to be considered when evaluating one's residency status:

-       Spends more than 183 days a year in Spain
-       Centre of Vital Interests (Personal & Economic Interests)

The UK/ SPAIN Double Taxation Agreement (DTA) was signed on 14th March 2013 and came into force 12th June 2014. The treaty is designed to help citizens from both countries to avoid a situation by which Double Taxation occurs and is based on the OECD Model. The residency Article in the DTA provides ‘tie-breaker’ rules for determining residence, where an individual is resident in both countries under their respective domestic laws.

Screen Shot 2015 10 15 at 14.23.06

The ‘tie-breaker’ rules outlined in Article 4 consist of a series of tests to be applied successively until residence for the purposes of the agreement is attributed to one State or the other: 

Permanent Home: An individual is a resident of the State in which they have a permanent home available to them (though not necessarily owned by them). If they have a permanent home in both States it is necessary to look at the next test:

Centre of Vital Interests: An individual is a resident of the State to which their ‘personal and economic relations’ are closer. If it is not possible to determine this, or they have no permanent home available in either State, then it is necessary to look at the next test:

Habitual Abode: An individual is a resident of the State in which they have their habitual abode. If they have an habitual abode in both States or in neither, then the final test must be applied.

Nationality: An individual is a resident of the State of which they are a national. If they are a national of both States then the agreement below applies:

Mutual Agreement: The competent authorities of each State shall settle the question by mutual agreement.

It is imperative that an individual does not arrive at a point by which contracting States ‘settle the question by mutual agreement’. This in turn means that both States can claim tax at source and will be held on account until an agreement is arrived at. In our experience this process can take up to 4 years and can see 60% of a client's income being held on account.

This article highlights the perils that crews face when exceeding 183 days in Spanish waters or establishing a permanent home while continuing to file under the Seafarers Earnings Deduction. It is advisable if you feel that you are in breach of any of the points highlighted in Article 4 of the DTA that you either relocate your permanent home or centre of vital interests or contact the Spanish authorities and notify them of your wish to become resident.

The Spanish authorities are even more aware nowadays of yacht crews who flaunt the system to reap the mutual benefits of living in Spain and filing in the UK. If your case were ever to go to treaty you will find in spite of the treaty that exists that the process will be lengthy and drawn out. 

Any tax advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein. 

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