Planning a tax-efficient move to Spain

, ,

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

If you’re moving to Spain, you need to understand how local income tax, wealth tax and succession and gift taxes may affect you and your heirs.

For most people, moving to Spain is a lifestyle choice, but with careful planning you can also make it a tax-efficient move. Find out more about the tax residence rules and what you need to know about Spanish income tax, wealth and inheritance taxes. 

If you have been dreaming about living full-time in Spain but haven’t yet, what’s stopping you? While many people need to wait until retirement, for others it may be the fear of foreign taxes, or just weighing up the pros and cons of such a big life change. And, of course, ongoing Brexit uncertainty has muddied the waters for would-be expatriates.

Political uncertainty in the UK

Interestingly, the current unsettled political situation in the UK, triggered by Brexit frustration, is the very reason some Britons are considering leaving to become tax resident elsewhere. A new UK government, of any denomination, is likely to introduce changes when taking over the nation’s purse strings. There is speculation, for instance, that higher earners or those holding valuable assets could be hit with more punitive taxes following a general election. This could be through higher income or capital gains taxes, pension reform, or tightening of the inheritance tax regime to capture more revenue. Some are even touting the possibility of a UK wealth tax.  

However, no-one can predict for sure what the future holds for taxation. Your tax burden can rise and fall at any given time. While good financial planning can help protect your wealth, wherever you are resident, if you are considering moving to Spain, this may be the time to start putting an action plan in place. 

First considerations when moving to Spain

Once you have made the decision to move, it is sensible to start reviewing your financial planning. 

As a resident of Spain, you will be liable for Spanish income, capital gains and wealth taxes on your worldwide assets and subject to Spanish succession and gift tax rules – so make sure you are prepared.   

Establish how your wealth will be affected by these taxes and what mitigation opportunities are available. With early planning it is possible to time your change of residency to minimise tax liabilities – and maximise opportunities – in both countries.

Tax residence in Spain

Tax residency in Spain is not just about day counting. You could be resident even if you do not live in Spain but your spouse and/or minor dependent children do, or if your centre of economic interests is there. It is important to be clear on your situation and plan around it accordingly. The Spanish tax office has increased inspections on tax residency, with some wealthy people being caught out by the “centre of economic interests” rule.

You also need to know how the UK’s statutory residence test could continue to apply to you even after you have left.

Spanish income tax 

Income tax rates vary a little across the autonomous regions in Spain, but range from 19% to 48%, for example:

  • Andalucía – 19.25% to 47.4%
  • Cataluña – 21.5% to 48%
  • Comunidad Valenciana – 19.5% to 48%
  • Murcia – 19.4% to 45.8%
  • Islas Baleares – 19% to 47.5%
  • Islas Canarias – 18.5% to 46.5%

For savings income, there are lower rates of 19%, 21% and 23%. 

Spanish wealth tax

Spain currently imposes an annual wealth tax, which generally hits those with worldwide assets worth over €1 million. However, there is a personal allowance of €700,000 plus up to €300,000 for a resident’s main home.  

Rates start at 0.2% and rise to 2.5% for wealth over €10,695,996, with some variations across regions. 

Spanish succession and gift tax

Succession tax in Spain works quite differently from UK inheritance tax. The rates and allowances depend on who the beneficiary is, where the deceased and the beneficiary are resident, and where the assets are located. Rates, allowances and exemptions can vary considerably depending on which region you live in. 

Tax planning and wealth management for Spain

You can often use compliant arrangements to lower taxes on investment income, assets, pensions and estate. This is not an area for ‘do it yourself’ financial planning, you do need specialist guidance. 

While tax planning is a vital step to protecting your wealth, it also important to review other aspects of your wealth management.

Your estate planning needs to take account of both Spanish succession law and succession tax.

See more about estate planning for Spain

Consider the various options for your pensions, including transferring your funds out of the UK into a QROPS, to establish which would work best for your goals and life in Spain. 

See more about your pension options in Spain

Moving to Spain is also an opportune time to review your investment portfolio. It should be designed specifically around your current circumstances (of course including the fact that you are now living in Spain and spending euros), income needs, future goals, time horizon, current risk profile and estate planning wishes.

See six tips for protecting and growing your wealth

Careful and early financial planning can help you make the most of what Spain has to offer. Cross-border wealth management is a complex area, so take specialist advice to secure the best results.  

Blevins Franks has over 40 years’ experience advising British expatriates in Spain and can guide you through the various aspects of your move, providing holistic advice on tax mitigation, estate planning, investments and pensions. 

Contact us for a financial planning review

The 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. 

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.