7 Key ‘Habits’ For A Financially Secure Retirement in Spain
This is the time of year when many British people on holiday fall in love with the Spanish lifestyle and start making plans to move here. Or perhaps you are at the final stages of your move, or have recently arrived in Spain. There are many important financial considerations to plan for, and the sooner the better.
Here is a checklist of the important ones. It is a brief summary, and you should explore them further with guidance from a tax planning and wealth management company like Blevins Franks, which is highly experienced at helping British expatriates plan for their new life in Spain.
1. Tax residency and obligations
First and foremost, you need to establish if and when you become resident in Spain for tax purposes. There is a list of criteria that make you tax resident. If you meet any of them you are liable for tax here on your worldwide income, gains, wealth and estate. You need to register for tax and submit annual tax returns.
At the same time you need to understand the UK tax residence rules as it can be harder than you think to lose UK tax residency. Where necessary, the UK/Spain double tax treaty will determine where you pay tax.
If you are not resident here but own a Spanish property you still have Spanish tax obligations. Likewise, if you have income arising in the UK you need to establish whether you pay tax in the UK or Spain.
2. Tax planning
Income and savings taxes have risen in Spain this year, but do not let this put you off. You can often structure your savings and investments to be tax efficient. Seek advice on what arrangements are effective and compliant in Spain.
Do not presume that what was tax efficient in the UK is tax efficient in Spain. You will probably need to replace existing tax planning arrangements with ones designed for Spanish residents and it may require a solution that takes into account both tax regimes.
Many expatriates keep their savings and investments in Sterling. This however puts your income at the mercy of exchange rate fluctuations, which, as seen over recent years, can have a significant impact on your income.
A good rule of thumb is to match your assets to your liabilities, so if you are spending Euros, your assets are in Euros. However you may have other considerations. Perhaps you will return to the UK one day, or want to leave an inheritance to UK resident children, or do not have confidence in the Euro.
It is often good to have some diversification in currencies. Choose flexible arrangements which allow you to change currency in future if necessary.
Retired people rely on their pension funds to provide most, if not all, of their monthly income. Depending on the type of pension funds you have, there may be ways to improve them and make them work better for a UK expatriate living in Spain.
5. Inflation and your long-term security
Inflation will reduce the spending power of your savings over your retirement years, so it is important to take steps to protect your wealth in real terms, so that you can enjoy the lifestyle you are used to right through retirement. With life expectancy increasing, this may be longer than you expect. Allow for extra expenses along the way, such as healthcare issues, home renovations, new hobbies or more time travelling.
Do not underestimate the risk of inflation. I have met many people who thought they had enough money to live on, but who 20 years later found they could no longer maintain their standard of living.
6. Investment strategy
The first rule of any investment strategy is that it should be specifically designed around your circumstances and short and long-term objectives. Your circumstances drastically change with retirement and a move to a new country, so your strategy needs to be professionally reviewed to establish how it should be adjusted to suit your new life and goals.
7. Estate planning
This is a major issue when you move to a new country, as it may have different laws regarding succession and tax. The Spanish succession laws may not affect British expatriates, but the tax laws will. Spanish succession tax works quite differently from UK inheritance tax, and is particularly complicated since the rates and allowances vary by region, and the regional rules may not apply to you.
Most British expatriates remain UK domiciled and so continue to be liable for UK inheritance tax, so you need to take that into account as well.
You also need to understand how probate works in Spain, and anywhere else you have assets, and find out if there are steps you can take to avoid probate for your heirs.
While you can do a lot of research online these days, taking advice from a professional tax planning and wealth management firm is invaluable. It is the only way you can be sure that you have not overlooked anything, and that you are have established what all your options are and how suitable they are for you. A firm like Blevins Franks has local Partner/s in key locations in Spain as well as its head office in the UK. It focuses on UK and Spanish tax and how together they impact on UK expatriates here, and will use its experience to guide you on your financial future in Spain.
22nd August 2012
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; an individual should take personalised advice.