View of Barcelona; Review financial planning for Spain for 2021

If you’re living in Spain, take time this New Year to check your residence, tax position, estate planning and financial structuring are still on track to suit your family.

Of course, you can review your financial planning any time to ensure it is on the right path, but the New Year is the perfect prompt to do so if you have not taken a fresh look at it for a while. And perhaps it is even more important this year as we navigate a post-Brexit world. 

One key reason to review your wealth management is to ensure it is up to date. You need to establish whether any tax rules or financial regulations have changed, and consider if developments in your personal and family circumstances mean you should adjust previous arrangements. 

But an effective review of your financial planning – to ensure it is suitable for your life in Spain and your wishes for the future – needs to go beyond that. 

The benefits of strategic planning

Many people only consider segments of their finances at a time. They may have bought shares in companies they like and/or invested in funds recommended by an adviser years ago. They may speak to a tax accountant about Spanish taxation and tax planning opportunities. Then they speak to a lawyer about setting up a Spanish will. At some point they look at their pension funds. 

For truly effective financial planning, however, you need to consider all these various aspects together.

For example, how you hold your investments can make a difference to your Spanish tax liabilities.

Estate planning in Spain is no simple matter, with its complex succession tax regime and forced heirship rules, and how you own assets can impact on what you can achieve.

Finally, when deciding what to do with your pensions, look at all your retirement savings and what income they can generate for you.

Here are three key areas you should consider in your financial planning review. 

Spanish residency and taxation 

If you are resident in Spain rather than the UK, this will have a significant impact on your financial and tax planning.  

First of all, make sure you establish exactly where you are resident for tax purposes, especially if you are new to Spain or spend time in both countries. The Spanish and UK tax residence rules are very different and can be more complex than first meets the eye. The double tax treaty determines where you pay tax if you are resident in one country and earn income in the other. 

Regardless of how effective your tax planning in the UK was, you pretty much need to start afresh in Spain. What was tax efficient in the UK is unlikely to be tax efficient here. You need to explore the compliant arrangements available in Spain to establish what would work for your aims and how much tax you can save.

See 4 key benefits of effective tax planning

Estate planning for Spain

Do not leave estate planning to the final stage of financial planning. The way you own assets could make a difference to how you can distribute them on death and how much tax your beneficiaries pay, so take this into consideration early on. The Spanish succession tax rules are very different to UK inheritance tax rules and you need to understand these to be able to plan around them.

Succession law in Spain establishes forced heirship rules and protects children over your spouse – in general terms, children are entitled to receive two thirds of an estate’s assets. This can have unwelcome consequences for certain families. UK nationals can use the EU regulation ‘Brussels IV’ to distribute their estate under the appropriate UK jurisdiction’s law, but research this first to confirm if it is the best solution for you. 

Financial structuring for life in Spain

Perhaps the key rule for financial planning is that it must be specifically structured around your personal circumstances – your lifestyle today and plans for the future, family situation, income requirements, objectives, time horizon and risk tolerance. 

Savings and investments

If you do not already have a strategic financial plan in place for Spain, you may need to take a completely fresh look at all your savings and investments and consider if they are suitable for you today. For example:

  • Are they too risky?
  • Do you have adequate diversification?
  • Can they provide income without risking the capital?
  • Could you consolidate shares and funds so they are easier to manage? 

Tax liabilities

At the same time, consider your tax liabilities on investment income and gains and whether you could use alternative tax-efficient arrangements to hold your investments, for today and the future. For example:

  • How will these savings be passed to your heirs?
  • What inheritance taxes will they have to pay?
  • Can the funds be passed on directly or will there be a lengthy probate process?

See six tips for protecting and growing your wealth

Securing the best results

Every family is different. Your strategic financial planning must be carefully designed for you. All the various aspects should work cohesively together to create an overall wealth management plan that provides long-term financial security for yourself and achieves your wishes for your heirs.  

For peace of mind that you have covered everything, and have understood the intricacies of Spanish taxation, and that making one financial decision will not have unexpected consequences on another, take professional advice from your local Blevins Franks advisers who are cross-border wealth management specialists. If you still use a UK-based financial adviser, confirm that they can continue to provide services to you in Spain after Brexit. And as is always the case, your adviser should take the time to get to know your situation and objectives before outlining their personalised recommendations for you. 

Contact Blevins Franks to arrange a 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.