If you are moving to Spain or have recently relocated, you have made an excellent choice.
Aside from its obvious appeal, Spain can offer real tax-efficient opportunities – if you are well prepared.
By Jason Porter
This article was written exclusively for Expat Network by Jason Porter, Business Development Director at tax and wealth management advisors Blevins Franks.
1. Where will you pay tax?
You need to establish the date you become tax resident in Spain and liable to Spanish taxation on your worldwide income, gains and wealth, and also subject to Spanish succession and gift tax rules. Be wary of UK tax residence rules that can make you tax resident in both countries.
2. How much tax will you pay?
Spanish income tax ranges from 19% to 47.5% for general income and 19%, 21% or 23% for savings income. An annual wealth tax also generally applies if worldwide assets exceed €1 million. While Spanish-compliant investment structures could reduce taxation, benefits can vary, so take advice.
3. How should you hold savings and investments?
A costly mistake is assuming what was tax-efficient in the UK is the same in Spain. Your situation will change when you relocate, and investment vehicles like ISAs have no benefit whatsoever in Spain. Review your investments to ensure they are suitably diversified and structured appropriately for your new circumstances.
4. What is the right currency mix for you?
Keeping savings in sterling makes you vulnerable to exchange rate fluctuations. Remember – once you reside in Spain, most of your expenses will be in euros, so having an account and potentially allocating investments in your new base currency is sensible. Look for flexible structures that let you diversify by holding investments in multiple currencies.
5. What are your property options?
When is the best time to sell your UK property or buy a Spanish home to limit taxation? You will need to factor in the date Spanish residence commences and UK residence ceases. How could owning a higher-value property affect your wealth and succession tax liabilities? Take care to establish the best approach.
6. What should you do with your UK pensions?
With numerous options for accessing your pension, you should weigh up what would work for you personally and the tax implications. Make sure the advice you take considers your cross-border situation and is provided in writing by a regulated adviser.
7. Is your estate planning suitable?
You need to understand how Spain’s ‘forced heirship’ rules affect your estate and establish your options. Spanish succession tax is complex, varying according to your relationship with heirs, residency of the deceased/beneficiary and location of assets. Rates and allowances vary enormously across the Spanish regions. Also, UK domiciles remain liable for UK inheritance tax, so seek advice on how to reduce these taxes for your heirs.
Getting the answers to these questions can provide peace of mind that your financial affairs are in order, but cross-border taxation is complicated. Take personalised, professional guidance for the best results.
Jason Porter is Business Development Director at Blevins Franks – the leading international tax and wealth management advisers to UK nationals living in Europe. Contact Jason at firstname.lastname@example.org
You can find much more information on retiring to Spain and other European destinations by going to retiringtoeurope.com. There you can download the a complete 276-page guide.
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.