Now that Brexit is here, it’s important that Britons in Spain understand the Spanish residence rules and meet their tax obligations, where relevant.
Brexit has highlighted the importance of understanding and correctly following Spain’s residence legislation, and anyone who has not yet applied for a residence permit has new rules to navigate.
There are two different concepts of residence you need to be aware of and plan for:
- Lawful residence – your rights, as a national of one country, to live and work in another.
- Tax residence – the country which has taxing rights over your worldwide income, gains and wealth.
Getting either of these wrong could have serious consequences, such as being deported or facing a tax investigation, back taxes and penalties.
On the other hand, 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 here, as UK nationals have done for decades. And Spain can be a more tax-efficient place to live than you may realise.
Lawful residence in Spain
If you were lawfully settled in Spain before the end of 2020 and hold an official residence card (whether the ‘green card’ or new TIE), you should have nothing to worry about. Your citizens’ rights are locked in and continue for as long as you are resident.
UK nationals can continue to apply for residence in Spain, but you now do this as a ‘third-country’ national. This involves stricter requirements, more advance planning and paperwork, but is generally still possible provided you can support yourself. Work visas are harder to obtain now though, especially if you are self-employed.
Spain’s non-lucrative visa
Retirees can apply for a Spanish non-lucrative visa and residency permit, where you need to prove you have sufficient means to live in Spain without employment (plus other basic requirements).
This commits you to spending at least half the year in Spain – you cannot apply for this visa and just spend a couple of months in your Spanish holiday home.
Spain’s ‘golden visa’
If you have capital to invest in Spain and want more freedom to spend as much or as little time here as you wish, you can apply for the Investor Visa or ‘golden visa’.
You need to make a qualifying minimum investment in either Spanish real estate (€500,000) or other qualifying investment (€1 million or €2 million if Spanish Treasury Securities) along with other basic requirements.
To help UK nationals relocate to Spain (as well as France, Portugal, Cyprus and Malta) we have launched a new European Emigration Advisory Service and published new guides on Spain’s Non-Lucrative Visa and Golden Visa, which are available for download.
Freedom of movement in Spain post-Brexit
Without a residence visa, UK nationals are now only permitted to spend up to 90 days in any rolling 180-day period in the whole Schengen area, even if you own a property here. Your arrival and departures are recorded. Those overstaying could be deported/prevented entry.
See more about freedom of movement in Spain
Tax residence and liabilities in Spain
You do not have a choice here; you either are, or are not, a tax resident under the domestic rules.
When applying for legal residence, you need to be aware of whether your tax status will change and prepare for this. Careful advance planning could help you save considerable amounts of tax in Spain.
Spanish tax residents are liable for income, capital gains and wealth taxes on their worldwide income and assets and subject to Spanish succession and gift tax rules. They are also obliged to submit an informative declaration of assets located outside Spain (Modelo 720) where the value exceeds €50,000.
Spanish residence rules
You are resident for tax purposes in Spain if any of the following apply:
- You spend more than 183 days in Spain cumulatively in a calendar year, whether or not you are formally registered. Temporary absences are ignored for the purpose of this rule unless you can prove you are habitually resident elsewhere for over 183 days (you will need to show a tax residence certificate in another country).
- Your ‘centre of economic interests’ is in Spain – the base for your economic or professional activities is here. If you earn more income or have more assets here than in any other single country, Spain will be deemed your centre of economic activity.
- Your ‘centre of vital interests’ is in Spain – your spouse and/or minor children live here. In this case you are presumed Spanish resident even if you spend less than 183 days here, unless you can prove otherwise.
There is no split-year treatment in Spain; you are either resident or non-resident for the whole year, generally based on which half you arrived in.
It is possible to fulfil the domestic tax residency rules of two different countries. In that case, the double taxation agreement sets out a list of ‘tie-breaker’ rules to establish where the individual must pay taxes.
Be aware that the Spanish tax authorities carry out inspections on tax residency, particularly for high-net-worth individuals, and this is something they are focusing on as part of their ‘Tax Control Plan’ for 2021. If you meet any of the tax residence criteria, you must register for tax and submit your annual declarations.
Residency in Spain is nothing to fear
Spain can still be everything you dreamed it would be. Take advice to secure the best residence/visa permit for your circumstances and to meet all your tax obligations. Then relax and enjoy your future in Spain.
If you are worried you will pay too much tax in Spain you may be surprised. The local tax regime provides opportunities for tax-efficient investing, and how you hold your assets can make a significant difference to how much tax you pay.
Blevins Franks specialises in reducing tax on invested capital, pensions, wealth and inheritance, and has saved our clients a substantial amount of tax over the years. Our advisers are cross-border wealth management experts. They have in-depth knowledge of the Spanish tax regime and provide holistic advice covering residence, taxation, succession issues and financial planning in Spain.
Arrange to speak to your local Blevins Franks adviser
