Tax information for Spain

Skandia Ireland is established in the Republic of Ireland and as such is not liable to payment of Irish tax on income or capital gains attributable to its policyholder funds. There may be an amount of withholding tax on income, which cannot be reclaimed.

Skandia Ireland contracts are life insurance policies for personal income tax purposes. Please note that it is also necessary for the collective funds to be acceptable to the tax authorities if the life policy is to be tax advantaged. Therefore the funds are restricted to those listed in the ‘Spanish Collective Investment Bond Fund List’ which forms part of the Terms and Conditions which govern the Policy. Skandia Ireland will update the ‘Spanish Collective Investment Fund List’ from time to time.

Tax relief on premiums

There is no tax relief on premium payments

Tax on total surrender

The gain or loss on the proceeds of a life policy is included in the personal income tax return. The gain or loss is the surrender value less the premiums paid.

Tax on partial surrender

Calculation of a gain or loss is the same as for total surrender. However, the part surrender amount has to be apportioned between redemption of capital (part of the premium) and profit, and so will affect future calculations.

Tax on death

Where there is not a valid nomination noted on the policy, personal income tax is payable on the difference between the premiums paid and the benefits received in the same way as total surrender.

Tax on maturity

As Skandia Ireland’s contracts are life insurance policies, this is not applicable. 

Tax on fund switching

There is no tax on fund switching.

.

Wealth Tax

Wealth tax will apply for the tax years ending 31 December 2011 and 31 December 2012 following a Royal Decree made on 16 September 2011.

The rate of wealth tax will vary depending on which autonomous region the client lives. For example, in Madrid the rate is currently zero. This is because the autonomous regions have powers to reduce the national wealth tax rate for their region.

For our policies, the surrender value as at 31 December should be used to calculate wealth tax.

If one of our policies has been written subject to an irrevocable beneficiary nomination, then the value of the policy is exempt from wealth tax.

Gift and inheritance tax

Where there is a valid nomination noted on the policy, then a Spanish resident beneficiary will be liable to gift and inheritance tax on the death benefit. If the beneficiary is not resident in Spain then Spanish tax will not apply.

The regulations of the Spanish regional authorities will affect the rates of tax and any allowable deductions, independent advice should be obtained on this.

Withholding Tax rates

The personal income tax regime has been temporarily modified by Royal Decree 30 December 2011 to increase the tax rates that apply for years 2012 and 2013. The increased tax rates will apply from 1 January 2012.

All gains on policy payments from 1 January 2012 will be taxed at a flat rate of 21% which is withheld by the insurer. There will be no further personal income tax liability for the policyholder on the first €6000 savings income received in a tax year. This also includes interest on savings accounts and dividends received in the same tax year. There will be a further 4% personal income tax liability which the policyholder will need to account for on the next €18,000 savings income and a further 6% personal income tax liability on savings income above €24000. Should there be a loss rather than a gain then the loss can be off set against other income tax liabilities. 

Reporting of gains

Any withheld tax is payable to the Spanish tax authorities by Skandia Ireland’s tax representative in Spain, who will also submit reports of all relevant amounts and details, including the tax identity of the beneficiary of the payment, to the authorities. The tax withheld will reduce the tax payable by the individual as calculated from the self-assessment tax return.

Whilst Income Tax will apply differently to foreign insurance contracts issued by third country insurers and non-compliant Freedom of Services providers in Spain (please refer to Spanish Income Tax – Insurance policies for further information on this), the other taxes referred to in this article will equally apply to foreign insurance contracts and non-compliant insurance contracts.

Skandia Ireland insurance products are ‘unit-linked’. This means that part of the premium (the ‘Allocation Percentage’) buys notional units in Skandia Ireland’s internal unit-linked policyholder funds. In the case of the Spanish Collective Investment Bond, the contract itself represents a unique unit-linked fund. There are no investment guarantees associated with Skandia Ireland funds. In particular, there is no guarantee of return of capital so less maybe received back than is paid, particularly in the early years.

Skandia Ireland offer a fund range with varying risk characteristics, shown in the fund factsheets with information about the fund. For the Spanish Collective Investment Bond a range of
collective funds shown in the ‘Spanish Collective Investment Bond Fund List’ is offered.

The value of the units of the funds linked to the Policy determines the value of the Policy. The value of the units of the funds will depend on how the assets of the funds perform and can fall as well as rise. In addition, if any of the assets are denominated in a foreign currency, there will be exchange rate risks.

Depending on the assets of the funds, there may be limits on the liquidity of the assets, which may include a restriction on the days on which units may be created or cancelled. If there are difficulties liquidating any assets of the funds, Skandia Ireland may defer any transactions involving allocation, cancellation or fund switch of units until such time as Skandia Ireland considers appropriate.