Retirement In Spain – 8 Key Steps To Take Before And After Your Move

Retirement in Spain remains popular among British nationals, and with very good reason – there are so many benefits to living there. Here, we look at 8 key steps to take before and after your move.  It may take more advance planning and bureaucracy since UK nationals lost EU freedom of movement, but the reward of achieving your dream retirement is worth the effort.

Written by Jason Porter of Blevins Franks

While your initial focus may be on securing residency, don’t neglect to research and understand the tax, succession and financial planning implications of retiring in Spain. Spain can be a more tax-efficient place to live than you may realise, but if you leave your tax planning until you’ve settled in Spain, you may miss opportunities to improve your tax liabilities.

1.  Apply for your Spain residence visa

While applying for legal residence in Spain now involves stricter requirements and more paperwork, UK nationals can generally still move to Spain if they can support themselves without working.

Retirees can apply for a Spanish non-lucrative visa and residency permit. You will need to prove you have sufficient means to live on without employment, have medical cover (public or private), plus other basic requirements.

Spain’s ‘golden visa’ is currently still available (as at July 2024), but the government is taking steps to amend it. Once the reform comes into effect, it will no longer be possible to obtain freedom of movement in Spain through buying high-value Spanish property.

While work visas can be harder to obtain, Spain does offer a Digital Nomad Visa. To qualify, you must work remotely for a company located outside the EU/EEA, or perform a maximum of 20% of your professional activity for a Spanish based company. If you are accepted, you can apply to be covered by the ‘Beckham Law Regime’ which provides tax advantages.

Learn more about the European Emigration and Advisory Service and download Blevins Franks’s guides.

2.  Understand the tax implications of your retirement in Spain

In summary, you are considered a tax resident of Spain if you spend more than 183 days in Spain cumulatively in a calendar year, or if your ‘centre of economic interests’ is in Spain, or your ‘centre of vital interests’ is in Spain (your spouse and/or minor children live there). There is no split-year treatment; you are either resident or non-resident for the whole year. If you meet both the Spanish and UK tax residence criteria, the ‘tie-breaker’ rules establish where you pay tax.

Spanish tax residents are liable for income, capital gains and annual wealth taxes on their worldwide income and assets and subject to Spanish succession and gift tax rules.

If however you are covered by the Beckham Law Regime, as mentioned above, you could be considered as non-Spanish tax resident for five years and it is possible that only your employment income will be taxed in Spain (income earned from Spanish assets is always liable to Spanish tax, regardless of residence).

Download Blevins Frank’s free Spanish tax guide now.

3.      Timing your move to save tax

The Spanish tax year runs from January to December, whereas the UK is from April to April. The two countries apply different capital gains tax rules and rates.

So it is worth weighing up whether it is better to sell your UK assets while still a UK resident, or wait till you are resident in Spain, then time your move accordingly. Take specialist cross-border advice to make sure you have all the facts and follow them correctly.

4.      Structure your assets to minimise tax in Spain

A potentially costly mistake is assuming what was tax-efficient in the UK is the same in Spain. ISAs, for example, lose their tax-free status once you are no longer UK resident and the interest, dividends, and gains may attract Spanish tax.

While the headline rates of tax can look high, the Spanish tax regime does present attractive tax mitigation opportunities. The way you hold your assets can make a significant difference to how much tax you pay.

5.  Research how UK pensions are taxed in Spain

For residents of Spain, UK occupational and state pensions are taxed only in Spain. The state retirement pension is always paid gross, but other taxable pensions will be taxed in the UK until you send HMRC a Spanish tax residency certificate. The taxation of UK private pensions in Spain is more complicated and can give rise to interesting anomalies, so it is better to take personalised advice about yours.

Government service pensions remain liable only to UK tax and are not directly taxable in Spain (though the income is taken into account when determining the effective tax rate on your other income).

Pension lump sums are fully taxable in Spain, so you may wish to take yours before you leave the UK.

6.  Analyse your pension options

Pensions are usually the foundation of retirement, so deciding what to do here may be one of life’s most important financial decisions. Review all the options available to you as an expatriate and weigh up which is most suitable for you and your objectives.

For example, you might benefit from consolidating several UK pensions into one to provide a coherent, more cost-effective investment platform for your retirement income.

Some British expatriates have benefited from transferring UK pensions to an EU Qualifying Overseas Pension Scheme (QROPS), which can provide various benefits. Note, however, that transferring after you are a Spanish tax resident will incur a prohibitive tax charge in Spain.  Where possible take advice before you leave the UK so that you have more tax-efficient options.

Pension rules frequently change so the appropriate solution today may be slightly different tomorrow.  The important thing is to take regulated, specialist advice before making pension decisions to protect your benefits.

7.  Reviewing your savings and investments

Once you’re retired and living in Spain, your circumstances and objectives have completely changed from when your working days in the UK.  It’s likely that your risk tolerance is lower too.

This is the perfect time for a completely fresh review of your savings and investments. Ensure your overall portfolio is suitable for you today, is designed to meet your aims and current risk appetite, and that you have adequate diversification to reduce risk.

Consider what currency to hold your savings in – keeping assets in Sterling puts you at the mercy of conversion costs and negative exchange rate movements. It may be sensible for you to have a mix, so look for investment structures that allow flexibility.

8.  Don’t forget estate planning

The Spanish succession regimes vary significantly from the UK’s. The local inheritance tax regime works very differently from UK inheritance tax and Spain also imposes forced heirship – restricting who you can leave assets to – though you can plan ahead to get around this.

UK domiciles remain liable to UK inheritance tax on worldwide assets. If you intend to live in Spain permanently, take specialist advice on cutting ties with the UK to adopt a domicile of choice in Spain.

Retirement in Spain – A helping hand

Blevins Franks have been helping people move from the UK to Spain, and advising expatriates living there, for almost 50 years now, giving us a wealth of experience.

They can provide a strategic financial plan for the whole process, from your early planning stages in the UK, ensuring you do everything at the right time, through your retirement years in Spain, and should you decide to return to the UK in the future. They will also be able to help your heirs for receiving their inheritance from you, should that time come.

They advise on how to apply for residence in Spain and what all the tax implications will be. They review your savings and investments to ensure they’re suitable for you today and set up to be as tax efficient as possible, as well as effective from an estate planning point of view.  They guide you through the local succession regime and help set up your estate to go to the right hands at the right time with as little tax as possible. And ther regulated pensions specialists help you make the most of your retirement savings.

If you are thinking of retirement in Spain, get in touch with Blevins Franks today.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon Blevins Franks’ understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.