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.
Written by Jason Porter of Blevins Franks
We’re pleased to see that Brexit did not put people off making the move – with specialist advice, you can continue to live the dream in Spain and enjoy a long and secure future there. And Spain can be a more tax-efficient place to live than you may realise.
1. Apply for your Spain residence visa
Your first step is to establish how to apply for legal residence in Spain. While this now involves stricter requirements and more advance planning and paperwork, it is not an issue provided you can support yourself.
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, and have medical cover, be it public or private, plus other basic requirements.
If you have capital to invest locally (for example, €500,000 in Spanish real estate under current rules), Spain’s Investor or ‘Golden Visa’ is still available at the moment (though this may change in future).
While work visas can be harder to obtain, Spain has now introduced the Digital Nomad Visa. To qualify, you must work remotely (online) for a company located outside the EU/EEA, or perform a maximum of 20% of your professional activity for a Spanish based company. Once accepted, you can apply to be covered by the ‘Beckham Law Regime’ which provides various tax advantages.
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.
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.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.