Article also available in Spanish here.
The Spanish Tax Authorities ("DGT"), in responses to binding consultations submitted by Spanish and foreign insurers, have confirmed repeatedly (including, among other, in responses to binding consultations V2516-17, October 5, V3070-17, November 23 and V0993-18, April 12), that unit-linked mixed life insurance contracts (those covering the events of survival and death) with no surrender right are not subject to Wealth Tax. This position had previously been maintained as well by the Central Economic Administrative Court (resolutions issued on March 2, 2007: RG n ° 1046/2005, RG n ° 507/2005 and RG n ° 501/2005).
In addition, the Spanish insurance regulator, the General Directorate of Insurance and Pension Funds ("DGSFP") had also confirmed that, under the provisions of Article 98 of the Insurance Contract Law, in mixed life insurance contracts there is no legal obligation to grant the policyholder the right to surrender.
However, the "Preliminary Draft Bill on Measures to Prevent and Combat Tax Fraud", published on October 23, 2018, proposes an amendment to the Wealth Tax Law, which will cause those life insurance contracts in which the policyholder does not have the surrender right to be, ultimately, subject to Wealth Tax.
Surprisingly, there has also been a change of criterion within the DGSFP. The new criterion recently issued by the DGSFP is that mixed life insurance contracts should grant a surrender right. This new criterion clarifies that this right can only be suppressed in pure risk insurance contracts, that is, those contracts covering only survival or temporary contracts that cover death. But surrender rights cannot be suppressed for mixed policies that cover both survival and death events.
Main market participants are trying to clarify the causes, rationale and scope of this new DGSFP criterion, but there is still no certainty about it. A priori, it seems to refer exclusively to insurance products designed for retail investors and investing only in funds, which is not the case of all unit-linked insurance contracts which may offer a wide range of investments.
Lombard International Assurance, in its desire to provide the best service to its clients, will try to clarify this matter and will keep you informed of any relevant developments.
Lombard International Assurance, a leader in the market for unit-linked policies in Luxembourg and Spain, issues the present communication in the spirit of its commitment to transparency and to the provision of optimal solutions for its clients within the framework of current legislation.