Making a home in Spain? Five financial essentials to consider

, ,
Home in Spain

Making a new home in Spain? If you are quite new to living in Spain or in the process of organising your move there, you probably have a list of jobs to get through.  While it may seem long enough already, you need to include a wealth management review. 

It is important to adjust your tax, financial, and estate planning for your new life in Spain, and spending a little time on it now will reap dividends in the future.

If you have been living in Spain for a while, when was the last time you reviewed your financial planning?  Is it up-to-date and designed for your life in Spain?

1)         Legal and tax residence

There are two concepts of residence you need to be aware of and plan for.

Lawful residence gives you the right to live and potentially work in Spain.  UK nationals now need to plan for Spanish residence in advance since the process is more bureaucratic following Brexit.  Retirees can apply for the non-lucrative visa, while the digital nomad visa could allow you to live in Spain if you can work remotely.

Tax residence determines which country has taxing rights over your worldwide income and wealth. Make sure you understand the rules for Spanish tax residency (it is not just about day counting) and correctly declare your worldwide income, gains and wealth as required by Spanish tax law. If you hold assets or receive income in another country, follow the double tax treaty to pay tax in the right place.

2)         Tax planning

While the Spanish tax regime may look discouraging at first glance, there often are compliant opportunities to reduce your tax liabilities to lower than you expect, particularly on investment capital.  If you’re moving to Andalucía or Madrid, wealth tax has effectively been abolished, while in the Balearic Islands and Murcia it only affects those with wealth over €3,000,000 and €3,700,000 respectively.

Do not presume that what was tax efficient in the UK is tax efficient in Spain.  You may need to convert existing arrangements to ones more suitable for Spanish residents.  How you hold your assets can make a significant difference to how much tax you pay.

If you have not yet moved to Spain, you may be able to time your move to save tax. The Spanish tax year runs from January to December whereas the UK’s is April to April, and the two countries apply different capital gains tax rules and rates.  Compare how much tax you would pay when selling your UK assets as a UK tax resident to selling them as a Spanish resident.

This is one example of why it pays to take cross-border advice before moving to Spain. Another example is UK pensions, where taking the 25% tax free lump sum and/or transferring your funds to a Qualifying Recognised Overseas Pensions Schemes (QROPS) before you become Spanish tax resident could save you a large amount of tax.

You can download our Guide to Taxes in Spain completely free.

3)         Inheritance planning

You may not want to think about this as you’re starting your new life in Spain, but what happens if you die while living there?  Will the right money go to the right hands at the right time?   You need to understand how Spanish inheritance tax and succession law could impact your family.

Spouses are generally not exempt from Spanish succession and gift tax, while allowances and multipliers vary according to degree of kinship.  The autonomous communities can adjust the rules, rates, and allowances, so seek advice for your region. Andalucía, the Balearics, Valenciana, Murcia and Madrid have eliminated, or virtually eliminated, succession tax for spouses, descendants and ascendants.

Spain imposes forced heirship.  UK nationals can use the EU succession regulation to opt for UK succession law to apply to their estate, but first establish if this is the right route for your family.

4)         Your investment portfolio

Review all your savings and investments to confirm they are suitable for you now.  Are you holding the right spread of assets to meet your objectives, time horizon, and risk tolerance?   Is your portfolio too risky for you?  Do you need to hold more assets in Euros and diversify away from UK investments?

5)         Pensions

Retirees should review their pension funds and options to consider how to maximise their retirement savings without unnecessary risk.  Weigh up the pros and cons of each option and establish if they will achieve your objectives.

It is important to understand the tax implications in Spain. For example, transferring a UK pension to QROPS after you are a Spanish tax resident will incur a prohibitive tax charge in Spain.

Integrated planning for making a home in Spain

The sooner you review your finances, the sooner you can get on with enjoying life in Spain. For the best results, consider all these essentials in conjunction with each other.  Often one will impact upon another so working on them in isolation could have unexpected consequences.

Ultimately, you want to achieve peace of mind that all your affairs are in order and designed to achieve your wishes.  Taking professional guidance from one of our locally based advisers will ensure you have all the facts and understand your options.

Contact Blevins Franks today.

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.

Other News
Is your Balearics tax planning up to date for 2024?

There have been two significant tax reforms in the Balearic Islands over the last year, so here we look at how you and your family may benefit. 

How investment capital and income is taxed in Spain

How much tax you pay on your investment capital and income in Spain is determined by your circumstances and the structure of your assets. Here, we break down some of the important considerations that affect your financial situation as an expatriate living in Spain. 

Spain’s Digital Nomad Visa – can you apply and what are the tax benefits?

Spain’s Digital Nomad Visa is a residence option for non-EU nationals who have not lived in Spain for the previous five years. You must have sufficient income resources and intend to work remotely for non-Spanish companies. It may also provide tax benefits.