Property may be your biggest asset, with the potential to provide a substantial return on your initial investment over time. It may also be a legacy to help secure the financial future of children and other heirs. However, there are risks in relying on bricks and mortar for your wealth.
Compared to other investments, property can prove costly to maintain, especially for larger homes. Mortgage payments, rates, utility bills, plus building and maintenance expenses can add up to be a drain on your resources.
With today’s increased life expectancy, you may need your existing wealth to stretch long into retirement. However, many people find themselves in an ‘asset rich, cash poor’ situation, owning considerable physical wealth such as property but with substantially less disposable income.
While property can be a solid investment, it locks your money away in a highly illiquid way. If you want access to your capital, you may not be able to sell easily, nor for the right price.
Benefits of reinvesting your capital
Downsizing property can help increase your accessible wealth, but it needn’t be a compromise when it comes to investment growth. By reinvesting in suitable investment funds, for example, you can still invest in real estate but alongside other assets (equities, bonds etc.) to reduce risk through diversification. And, unlike immoveable property, if you require small amounts of cash, you can just sell the amount you need, not the whole investment.
A specialist adviser can help you explore investment arrangements that suit your particular circumstances, goals and risk appetite while being tax-efficient for Spain. You could also unlock other benefits that property cannot offer, such as a regular income and currency flexibility.
Reducing taxation
Higher-value homes can tip you over the threshold for Spanish wealth tax, as well as increasing the inheritance tax bill for your heirs. Wealth tax rates seem relatively low, but when applied to property values can add thousands to your tax bill. By reducing the amount of tax payable, you can make your money go further in your lifetime and for your heirs.
When it comes to estate planning too, there are more opportunities to reduce succession tax on investment capital than with real estate.
Ultimately, while you want to ensure your family are looked after when you are gone, do not forget your own needs. Take personalised advice to establish an investment and estate planning strategy that can secure a secure retirement for you today and a lasting legacy for your heirs.
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
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