Tax efficient investment

Discover why tax-efficient investing is essential.

Maximize Profits, Minimize Taxes

Tax efficient investing is much more than just a financial term. In essence, it refers to a Smart investment strategy designed to minimize tax burden and maximize investor profits. In other words, tax efficiency is nothing more than increasing the net return on our investments, reducing the tax impact. In an economic landscape where taxes can consume a significant portion of investment profits, it is essential to understand how tax-efficient investing works, and subsequently implement it. It's a valuable resource that can help investors keep more of their profits, which can translate into an increase in the long-term net value of your investments. Tax-efficient investment strategies are not limited to a single type of investment or a select group of individuals. In reality, anyone who invests – whether small savers or large entrepreneurs – can benefit from adopting tactics that promote tax efficiency in their investment portfolios.

You already know What taxes are paid when investing in the stock market?

Strategies for a Fiscally Efficient Investment

There are numerous strategies that can help investors achieve greater tax efficiency. Here we will address some of the most common and effective ones:

I. Tax deferral: This strategy involves investing in investment vehicles that do not require taxes to be paid until a future date.

II. Tax-free investment accounts: These are accounts specifically designed to allow your investments to grow tax-free.

III. Investing in stocks that pay qualified dividends: Qualified dividends are taxed at a lower rate than other types of income.

I. Tax deferral

It is not that you are not going to pay personal income tax, but there are products that allow you to avoid paying taxes, PIAS, Pension Plans and indexed funds, so that the benefits generated by these investments are not taxed for the fiscal year in which they were made. have been generated, but at the time of collection.

On the other hand, an investment fund has certain advantages, since with an investment fund nOr do you have to pay taxes every time you make a transfer?. That is, You can sell your fund and you will not have to pay personal income tax as long as you reinvest that money in another fund (This is what is called a transfer, when you recover the money it is called a refund).

El benefit of not paying taxes during the duration of the investment is that you can take advantage of that capital so that the investment grows more, I give you this example below with an initial capital of €10.000, for 26 years in index funds:

The black line marks the deferred investment income (that is, without paying taxes during), which generates income, before taxes, of €76.867. Without deferral, that is, paying taxes on the profit annually, the income would be €52.834. But, once the taxes in the first case have been paid (€76.867, with a deferral), our income would be €62.608, therefore, higher than if we had paid taxes during the entire investment period.

II. Tax-free investment accounts

You really have to understand that if you live in a country like Spain, the State heavily taxes income derived from savings, such as investments in the stock market, funds, real estate investment. Therefore, although you can have tax-free accounts, if you bring the assets to Spain, you will have to pay taxes on these profits.

However, as we have already seen in the previous case, if you do not pay taxes during the process of generating profits, your final profits are higher than if you had been taxed on them during the period of time you have been investing.

For this case, there is an English product called ISA (Individual Savings Account). They are tax-free individual savings accounts for UK residents. They allow you to contribute up to 20.000 pounds annually without having to pay taxes on the income obtained from said contributions for as long as the money is kept in them.

These types of accounts have been more or less common among Spaniards residing in the United Kingdom, which is why it is not common to open them from Spain. What is common is that the holders decide to return to Spain at a given time. In that case, you should know that you can continue to maintain them, since the nSpanish tax regulations do not force you to liquidate assets UK financial institutions. It only imposes two obligations on you, one disclosures and other imposing.

  • Information obligation: if you become a Spanish tax resident andYou have goods or assets abroad worth more than €50.000, you have to declare them in form 720.
  • Tax obligation: UK tax exemptions cannot be applied in Spain. You can continue to hold British financial assets, but if they generate explicit returns or capital gains, you must declare and pay taxes on those returns or gains in Spain through personal income tax.

An option that you can take advantage of if you live and pay taxes in Spain are PIAS and index funds through digital banks such as MyInvestor.

III. Investing in stocks that pay qualified dividends

Unfortunately, this financial instrument is exclusive to the United States, although most websites want to pass it off as something common. You see, when you go to file your income tax return in the US, you can pay reduced taxes on profits obtained from dividends from the ownership of shares. You only have to meet two conditions, that the company

  • There is a period of 121 days that ends 60 days before the dividend is delivered. During those 121 days, you must own the shares for at least 60 days.
  • The dividend must be paid by a U.S. company or a foreign company that operates in the United States or has a tax treaty with the United States to qualify.


If you are looking to maximize your investments, the idea is that you make the most of your capital returns, which is why it is important to have tools that allow you reinvest income and postpone taxation over time, not avoid it, but keep it away.


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