Another US - Spain tax treaty post - Page 2

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Another US - Spain tax treaty post - Page 2


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  #11 (permalink)  
Old 9th July 2019, 05:10 PM
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Originally Posted by EverHopeful View Post
Have you considered France? I think you would do far better tax-wise and that it could more than compensate for the higher cost of living.
I hadn't considered France because I assumed, maybe incorrectly, that the taxes would be about as high as Spain. A quick glance makes me thing that might be a bad assumption, but I do seem to recall someone mentioning a death by a thousand cuts in France because there's a large number of small taxes to take into account. I'll keep France in mind. Thank you.

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Old 9th July 2019, 05:38 PM
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[quote=Phil Squares;14902708]
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Have you considered setting up a living trust? Advantages are taxes in the US are paid at a lower rate and money distributed from the trust is tax free. Legally, the trust is an individual taxpayer and will not live in Spain, so the Spanish government has no claim to any of the trust's assets. Other advantages are in the event of the death of one of the trust's beneficiaries, the trust bypasses inheritance tax and the assets are transferred, in trust, to the other people involved
I have to say I am very skeptical of this. I don't pretend to know Spanish tax law and how trusts are treated, but I am somewhat familiar with trusts and have one (a plain vanilla self-settled, revocable trust) as part of my estate plan. For the most part (exceptions include things like charitable trusts that pay to a charity on death and various specialty trusts that might reduce the estate assets subject to taxation for things like a house), they essentially do nothing when it comes to tax avoidance, but are a convenient way to avoid probate and control property for a long time after death (or incompetence), though the latter is typically a concern of the very wealthy or those with spendthrift heirs who can't be trusted with the money.

Though originally they were created to avoid taxes, that sort of thing doesn't last for very long and the laws (in England) changed long ago to subject them to taxes. I find it hard to believe that Spain would make the avoidance of taxes so easy for people, including Spaniards, who are living there. If all that was necessary was to avoid taxation was to put the money into a trust somewhere offshore so that only the tax laws of some other country applied, but collect the income stream tax free under Spanish law, then that would quickly bankrupt Spain. Mind you, the stuff you hear about offshore accounts used to avoid taxation is largely about hiding money from the tax authority by stashing it offshore under some made up company's name or something to evade, not a legitimate way to avoid taxes.

To my knowledge, most, if not all, standard retirement accounts cannot be placed in trust. I know my pension cannot nor can my IRAs or 457 account (this is not the same as naming a trust as a beneficiary of the account on the death of the holder, which is usually allowed). Even if they could, the income streams would be taxable under the laws applying to residents of a country because they are going to an actual person who is a resident of that country.

That said, if you can reference a source for the idea of using a trust, I'd be more than happy to look into it further.


Quote:
Disadvantages are the fees can be steep but depending on which bank you use they can usually be fairly reasonable.

My retirement and social security are paid into our trust, the trust itself earns interest/dividends which is added to the trust and we are paid a monthly amount from the trust. Should we buy a house in Spain, the trust would actually purchase it as an asset and we would make monthly payments back into the trust.

If you are still in the US, it would be a good idea to speak with a bank which has a trust department or a financial planner and they could sort things out for you.
I'm confused by this. Is your trust a trust under Spanish law so that it can own a house in Spain? Aside from that, why do you think that Spain doesn't consider that an income stream going to you that is taxable under its tax laws (assuming you are a tax resident)?

Thank you for your thoughts.

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Old 9th July 2019, 10:50 PM
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Originally Posted by Bevdeforges View Post
I don't know about Spain specifically, but you may want to raise this question over in the Expat Tax section on the forum: https://www.expatforum.com/expats/expat-tax/



The issue of the "savings clause" comes up pretty frequently and, at least in the case of pensions (i.e. US SS and government created "deferred taxation" plans) it seems to be the case that these are specifically excluded from the savings clause. (That is certainly the case here in France and I've heard it cited for a number of the other European tax treaties with the US.)



Where the "savings clause" seems to really bite folks is usually having something to do with investments and bank interest. But the folks over on the Expat Tax section can probably explain this all better than I can.


Thank you, Bev. Iíll check out the forum. I wasnít aware of it. As for the saving clause, it exempts government pensions and other remuneration for government service for those who arenít citizens of or have immigration status in the state conferring the benefit. Iíve read it over and over and what I gather is that the saving clauseís exception doesnít apply because Iím a U.S. citizen receiving the pension from the U.S. That is, the saving clause does apply to me. I will be very happy if someone in the other forum shows me Iím wrong.

The treaty is confusing, I think, because you have to know the goals of the treaty provisions first in order to readily understand them. I mean, why would someone contemplate that the article governing government pensions and seemingly deciding which government taxes them isnít the end of the matter and the saving clause just nullifies that article for the most part? The goal isnít to decide which state taxes something, but to decide which state has dibs on taxing something and which has to give you a credit against those taxes paid to the other state, at least for my pension.


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Old 27th July 2019, 09:35 PM
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Originally Posted by Phil Squares View Post
Have you considered setting up a living trust? Advantages are taxes in the US are paid at a lower rate and money distributed from the trust is tax free. Legally, the trust is an individual taxpayer and will not live in Spain, so the Spanish government has no claim to any of the trust's assets. Other advantages are in the event of the death of one of the trust's beneficiaries, the trust bypasses inheritance tax and the assets are transferred, in trust, to the other people involved

Disadvantages are the fees can be steep but depending on which bank you use they can usually be fairly reasonable.

My retirement and social security are paid into our trust, the trust itself earns interest/dividends which is added to the trust and we are paid a monthly amount from the trust. Should we buy a house in Spain, the trust would actually purchase it as an asset and we would make monthly payments back into the trust.

If you are still in the US, it would be a good idea to speak with a bank which has a trust department or a financial planner and they could sort things out for you.

My wife works as a Computer Science teacher and we only pay income on her earnings in Spain.
Phil,
Not an expert on trusts by any means but obviously in your situation you have set it up with whatever property, stocks and bonds and cash you had originally. The retirement and social security income you pay in to the trust BUT you report those on your return and so are US tax-paid (or tax free). Passing that income through a US trust and taking a distribution out the other end is just masking the source of your monthly funds. Your retirement income should be declared and liable for Spanish taxes (as per Treaty). Your retirement accounts and social security are your alone and cannot be held in a trust.
You really would want to be careful about the use of trusts in Spain - the Spanish Agency have an interesting view if the beneficiary is a Spanish tax resident.
https://www.internationaltaxreview.c...icleId=3790286

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Old 27th July 2019, 09:58 PM
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Just to point out, the article is written by a tax advisor. In our case, all of the beneficiaries are not Spanish Tax Residents. It is an irrevocable trust and I have no direct input as to the investments. While I have a methodology to express my level of comfort, it is up to the trustee. Any money that I want or request is tax-free income as my social security and pensions are tax-free in the US.

The situation was posed to the Spanish authorities and their position in writing is the tax-free funds which have been deposited are considered tax free here in Spain. There are some tax-free bonds which fall into the same category, the dividends are tax-free and can't/will not be touched by the Spanish government.

The bank which holds the trust had a duty to ensure they are not in violation of any tax laws, US or otherwise. My actual pensions are just like social security in there is no tax liability. If funds are needed, the SS funds are taken first then my pension. So far, very little has been taken out of the trust so it really becomes a mute point.

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Old 27th July 2019, 11:02 PM
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Oh, okay, I assumed if you were drawing funds every month you were a beneficiary. I didn't think you could withdraw (or request from the trustee) funds on a regular basis form an irrevocable trust. Goes to show what I know.

Good to know our US social security benefits won't be taxed in Spain if deposited in US bank - I've seen so many different answers online.

US Banks will only concern themselves with US laws.

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Old 28th July 2019, 11:15 AM
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You can set up an irrevocable trust to do pretty much anything (legal) you want. You can set up payments on demand, regular payments, dividend payments only. It really depends on what your goals are.

With respect to US Banks, most good US Bank Trust departments will concern themselves with what you want, especially if you are moving abroad. Luckily, I have someone I grew up with who is a trust attorney and does a great job and he is cheaper than what the bank would charge.

Plus I am very lucky, my wife is 10 years younger than I am and teaches Computer Science/ICT and we just live off her salary. Unless we go on a big trip we can live very comfortably on her salary. And the best part is the school pays for private medical insurance.

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Old 28th July 2019, 07:33 PM
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My wife and I are close to retirement age - I hit 65 next week and she is a year younger but we anticipate working for quite a few more years but we work for ourselves and it's all online and phones and is totally portable. It would be pointless for us to claim SS benefits because we'd get taxed too heavily on them.

The issue for us in the short term is to figure out the best destination between Spain and Portugal, tax-wise. Taxes in Spain at 45% over $60k seem very high and on the other hand Portugal has this tax-free NHR option that I may qualify for.

Healthcare is the other issue. As an Irish pensioner next year, I am entitled to a contributory pension. Its miniscule BUT it should entitle us both to an S1 and so free public healthcare in EU. I notice online that in Portugal you can supplement that cover through your local banks for a nominal amount but I don't see that in Spain. We are looking (from a distance) at Cascais/Sintra area outside Lisbon and outside Marbella. We would rent out our property in the US and rent in either place.

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