This article is intended for use by financial advisers who provide advice to clients who are habitually resident in Spain. This only applies to the Spanish Collective Investment Bond insurance product issued by Old Mutual International Ireland Limited.
Tax on Old Mutual International Ireland
Old Mutual International 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.
Tax-compliant collective funds (for the Spanish Collective Investment Bond)
Old Mutual International 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. Old Mutual International Ireland will update the ‘Spanish Collective Investment Fund List’ from time to time.
Taxation of the tax-compliant contracts
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 Old Mutual International Ireland’s contracts are life insurance policies, this is not applicable.
Tax on fund switching
There is no tax on fund switching.
Wealth tax applies following a Royal Decree made on 16 September 2011.
The rate of wealth tax will vary depending on which autonomous region the client lives. 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 but is resident in the EU or EEA, then Spanish tax may also 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
All gains on policy payments from 1 January 2016 will be taxed at a flat rate of 19% 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 2% personal income tax liability which the policyholder will need to account for on the next €44000 savings income and a further 2% personal income tax liability on savings income above €50000. 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 Old Mutual International 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.
Foreign and non-compliant insurance contracts
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.
Investment risk and responsibilities
Old Mutual International Ireland insurance products are ‘unit-linked’. This means that part of the premium (the ‘Allocation Percentage’) buys notional units in Old Mutual International 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 Old Mutual International 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.
Old Mutual International 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, Old Mutual International Ireland may defer any transactions involving allocation, cancellation or fund switch of units until such time as Old Mutual International Ireland considers appropriate.