Example: Initial investment: €1,000,000; Over time the portfolio has grown to €1.200,000; Unrealised gain: €200,000. Withdrawal: €60,000 (Other Currencies are available).
Comparison Element | Standard Investment Account | Spanish Compliant Bond |
---|---|---|
Withdrawal Amount (€) | 60,000 | 60,000 |
Gain Ratio | 100% (All withdrawal is gain) | 16.67% (200,000/1,200,000) |
Taxable Amount (€) | 60,000 | 10,000 |
Tax Bands Applied |
19% on first €6,000 (€1,140) 21% on next €44,000 (€9,240) 23% on remaining €10,000 (€2,300) |
19% on first €6,000 (€1,140) 21% on next €4,000 (€840) |
Total Tax Due (€) | 1,140 + 9,240 + 2,300 = 12,680 | 1,140 + 840 = 1,980 |
Effective Tax Rate | 21.1% (12,680/60,000) | 3.3% (1,980/60,000) |
The Spanish compliant bond provides a much lower effective tax rate on withdrawals, as only the gain portion is taxed. This results in significant tax savings and a higher net withdrawal amount for the investor.
Compliant Bond: Only the gain portion of the withdrawal is taxed. With total gains of €200,000 (from €1M to €1.2M), the gain percentage is:
Gain % = 200,000 / 1,200,000 = 16.67%
So, only €10,000 (€60,000 × 16.67%) is taxable. Applying the same progressive rates:
Summary: The Spanish compliant bond provides €10,700 more after-tax income (€58,020 vs €47,320) for this €60,000 withdrawal, demonstrating significant tax savings.
Patrick Macdonald ASCI
International Financial Adviser