Thank goodness for the Spanish compliant investment bond! It seems like each country’s tax code has various ways of relieving us of our money. However, they also offer ways in which we can legitimately avoid taxation, as long as we purchase the correct financial products.
In the UK most people are well aware of the tax-saving nature of pension plans and ISA’s. The Spanish compliant investment bond is a tax-efficient investment solution that can be used to defer Spanish personal income tax. It can also help UK domiciled individuals reduce the amount of inheritance tax payable on their death if the bond is placed into a suitable trust.
Taxation in Spain
Spain has a reputation for being a relatively ‘high-tax’ country. As a result, many UK Expats manage their affairs in such a way as to ensure the continuation of UK tax residence. As long as individuals spend less than 183 days in Spain in any given tax year, they can claim to be UK tax resident. The situation is becoming a greater challenge for those that find themselves spending more time in Spain each year. The Spanish tax authorities now require individuals to show concrete proof of time spent outside the country. Brexit may exacerbate the issue further; anyone who finds themselves in an ambiguous position should take professional advice to clarify their status.
The Spanish compliant investment bond: tax planning opportunities

Becoming Spanish tax resident may turn out to be less of a tax burden than first thought. There are legitimate ways of avoiding ‘savings income tax’ for those who use approved investment structures. A summary of the rules are as follows:
- You must invest in a tax-compliant life insurance bond;
- The bond must contain an element of ‘risk’; it must also pay out life insurance over and above the value of the plan on the death of the policyholder (generally at the 101% level);
- Investment funds available for selection have to be EU UCITS (Undertakings for Collective Investments in Transferable Securities) funds;
- The insurance bond issuer must have a fiscal representative in Spain responsible for collection and payment of taxes due.
Any investment which does not fit the criteria above will attract ‘savings income tax’ in Spain.
You should note that Spain taxes people on a worldwide basis; it makes no difference where they hold their assets. For example, a Spanish tax resident who has UK investments such as property, ISAs, shares or foreign non-compliant insurance bonds, will have to pay tax on his holdings each year. Individuals should declare such investments on their ‘modelo 720’. The rate of tax ranges from 19-23% depending on which region the individual lives.
By contrast, investments in compliant bonds do not attract annual taxation and therefore don’t have to be declared on the ‘modelo 720’ unless you make a drawdown. Tax is only payable on the growth element of the withdrawal.
Differences in taxation
The section/tables below show the differences between the taxation of compliant and non-compliant investment bonds.
Taxation if no withdrawals for a compliant vs non-compliant policy
An individual invests €150,000 in an investment bond; they have no other income from savings. If the investment is a non-compliant policy, the policyholder must declare the growth each year as savings income and pay tax on the total amount. However, if they invest in a Spanish compliant bond and make no withdrawals during the year, there will be no tax due.

Taxation on withdrawals for a compliant vs non-compliant policy
An individual invests €150,000 in a Spanish compliant investment bond; they have no other income from savings. This time the policyholder withdraws the growth each year. The owner of the non-compliant policy will pay tax based on the growth of the plan as before. However, the owner of the Spanish compliant investment bond will only pay tax on the gain element of the withdrawal.

As you can see, there are clear benefits when investing in a Spanish compliant investment bond. On the one hand, if you don’t take money from your account there will be no tax to pay; on the other, if you do make withdrawals, the amount of tax payable will be significantly reduced.
In conclusion, you should consider the level of tax in a country in the light of available investment structures and the opportunities they offer investors. Indeed, one could argue that Spain is almost a ‘tax haven’ for retirees who use or intend to use personal investments to provide income!
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