Plan for a successful retirement in Spain by following these 8 keys steps to take before and after your move. From applying for residence, to researching Spanish taxation and effective tax planning, to exploring your pension options, reviewing your investments, and updating your estate planning.
We’re pleased to see that Brexit has not put people off making the move. If you take specialist advice and follow the procedures correctly, 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. This now involves stricter requirements, and more advanced planning and paperwork – but is generally still possible provided you can support yourself.
Work visas are harder to obtain now, but retirees can apply for a Spanish non-lucrative visa and residency permit (you’ll need to prove you have sufficient means to live on without employment, plus other basic requirements).
If you have the capital to invest locally (for example, €500,000 in Spanish real estate), you can apply for the Investor or ‘Golden Visa’.
Learn more about the European Emigration and Advisory Service and download our guides.
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.
Download our free Spanish tax guide now.
3. Timing your move to save tax
The Spanish tax year runs from January to December, whereas the UK is April to April. The two countries apply different capital gains tax rules and rates.
So it’s 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 a 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 because of confusion over the meaning of “purchased annuity”, so it’s 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. UK pensions in Spain – Analyse your 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 flexibility to take income in euros, more freedom to pass benefits to chosen heirs, and protection from further UK lifetime allowance charges – but you also need to consider the tax implications in Spain.
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. If you’re not yet a Spanish tax resident, there may be tax benefits to seeking advice before you become one.
7. Reviewing your savings and investments
Once you’re retired and living in Spain, your circumstances and objectives have completely changed from 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 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 IHT and Spain also imposes forced heirship – restricting who you can leave assets to – though you can plan ahead to get around this.
If you intend to live in Spain permanently and change your UK domicile to a domicile of choice in Spain to avoid UK inheritance tax on non-UK assets, you’ll need to cut most of your ties with the UK.
A helping hand
At Blevins Franks, we’ve been helping people move from the UK to Spain, and advising expatriates living there, for 45 years now, giving us a wealth of experience.
We can provide a strategic financial plan for the whole process, from your early planning stages in the UK, ensuring you do everything at the right time, through your retirement years in Spain, and should you decide to return to the UK in the future. We’ll also be able to help your heirs for receiving their inheritance from you, should that time come.
We advise on how to apply for residence in Spain and what all the tax implications will be. We review your savings and investments to ensure they’re suitable for you today and set up to be as tax efficient as possible, as well as effective from an estate planning point of view. We guide you through the local succession regime and help set up your estate to go to the right hands at the right time with as little tax as possible. And our regulated pensions specialists help you make the most of your retirement savings.
If you are thinking of retiring in Spain, get in touch with us today.