Many British expatriates reach a time when they decide to return to the UK. It is important to plan your move carefully in advance and review all the tax and wealth management considerations before you leave Spain.
Many British expatriates reach a time when they want to, or need to, return to the UK. Either way, you need careful planning before you leave Spain. You may think that since the UK is your home country moving back is easy. But from a tax and financial planning perspective, various aspects can trip you up.
It is important to plan your move carefully in advance, and review all the tax and wealth management considerations before you leave Spain. Do not risk undoing all the tax advantages you may have secured by previous tax planning.
In Spain, split year treatment does not apply. You are either resident or not resident for the whole tax year (the same as the calendar year). So, if you leave Spain during the first half of the calendar year, and you move back to the UK, you will not be regarded as resident in Spain for that year.
If you leave Spain during the second half of the calendar year, you will be regarded as resident in Spain for the whole of the year. However, if you move directly to the UK, then it is likely that under the tax treaty rules you would be regarded as resident in Spain up until the date you leave, and resident in the UK thereafter.
As a resident of Spain, you are liable for income, capital gains and wealth taxes on your worldwide assets and subject to Spanish succession tax rules.
You will want to reduce tax liabilities in both countries, so this is an area that needs strategic planning and advice. You may need to take action at the appropriate time to, for example, crystallise gains, realign investments, establish tax planning structures etc.
Where possible it is better to plan your return date around your tax planning. It is usually beneficial to complete any necessary arrangements in the UK tax year before your return.
Capital gains tax is an important consideration when moving from one country to another. Is it more beneficial to sell Spanish assets while still in Spain, or should you wait until you are UK tax resident?
In the UK capital gains are charged at 18% and 28%, with an £11,100 allowance.
Income in Spain is split into general (renta general) and savings (renta del ahorro) income. Capital gains (on both investments and property) are treated as savings income. In 2016, residents pay tax on savings income progressively at 19% (€0-€6,000), 21% (€6,000-€50,000) and 23% over €50,000.
If a property you are selling was your main home and all the proceeds are reinvested in another main home in the EU/European Economic Area, the gain is exempt. However, you do pay tax on the sale of any other property worldwide at the above rates – and you may have to pay tax in that country as well. The Spain-UK double tax treaty was created to prevent double taxation, but you will pay the higher amount of tax and should seek advice about your individual situation.
Residents over 65
If you are over 65 and resident in Spain, you have certain advantages. For example, if you sell a home that has been your main residence for more than three years, you do not have to pay tax on the gain even if you do not re-invest in another, though you must meet certain conditions.
If you intend to leave Spain, you may face what is commonly known as the ‘exit tax’, which is applied to unrealised gains on certain assets wherever they are in the world. However, this only applies if your shares are worth more than €4 million or the total shareholdings exceed 25% and the market value of the shares exceeds €1,000,000, and under certain circumstances.
Your estate planning will need a thorough review, to consider inheritance taxes, succession law, probate etc. If you have any UK inheritance tax planning structures set up on the basis that you had a domicile of choice in Spain, you need to seek specialist advice.
If you transferred your UK pension into a Qualifying Recognised Overseas Pension Scheme (QROPS), you should seek expert advice on the best way forward. If you made pension decisions based on Spanish taxation, you need to establish what you should do once you are liable to UK taxation.
It is important to seek guidance from an adviser with in-depth knowledge of both tax regimes. Whatever the reason for your return to the UK, it is a good opportunity to review and improve the tax efficiency of your assets as well as your estate planning.
Any questions? Ask our financial advisers for help.
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; an individual is advised to seek personalised advice.