British expatriates living in Spain want to feel confident that their wealth will last them for the rest of their retirement and keep them in a comfortable lifestyle. Paying less tax is one way t
British expatriates living in Spain want to feel confident that their wealth will last them for the rest of their retirement and keep them in a comfortable lifestyle. Paying less tax is one way to protect your assets and legitimate tax planning methods can help with this. The latest arrangement available to British expatriates is QNUPS (Qualifying Non-UK Pension Scheme), which provides an income for life and can also reduce taxation in Spain as well as UK inheritance tax (IHT).
QNUPS can avoid succession tax in Spain as well as succession law. Your heirs would be able to receive a larger inheritance.
Other Spanish tax savings which can be made with a QNUPS are:
- There is no Spanish tax on the transfer into a QNUPS.
- Funds within the scheme will grow free of any Spanish income tax.
- If you make a withdrawal in the form of an annuity from the fund itself (as is usually the case), then very favourable Spanish tax provisions may apply.
- There is no need to buy an annuity from an insurance company.
- You can withdraw up to 25% as a lump sum from a QNUPS. If a lump sum is taken, Spanish tax is due, but is calculated only on the difference between the capital received and the contributions you made. The tax rate is 19% (on the first ?6,000 of total savings income, including that from other sources) and 21% on the excess.
- The balance of your investment can pass onto your heirs on your death.
- The rate for Spanish wealth tax is currently set at zero but it can be increased in the future. A QNUPS can avoid wealth tax if a rate is reintroduced.
When you moved to Spain, even though you may be Spanish tax resident and liable to Spanish tax on your worldwide assets, you will probably still be liable to UK IHT on your worldwide assets. This is because liability to IHT is based on domicile and not residency.
Shaking off your domicile is not easy to do and usually takes at least three years and involves pruning your ties with the UK to the bare minimum. For example, you would need to sell your UK property or at least not have it available for use; close surplus bank accounts, credit and debit cards and other investments; sell your vehicles and cut down social and business connections in the UK. You need to be able to provide evidence that you do not intend to return to the UK, and establishing a permanent home in Spain and making a Spanish Will will help. Even if you do lose your UK domicile status, you would regain it as soon as you move back to the UK to live.
Many Britons who relocate to Spain do so without a thought of moving back to the UK. But the fact is that as the years go by many do for a variety of reasons, such as on the death of a spouse or partner or to be closer to grandchildren as they grow up. Returning to the UK means returning to a UK liability to IHT, currently at 40% above the nil-rate threshold of ?325,000 per person or ?650,000 for spouses and civil partners.
One of the side benefits of investing in a QNUPS is that it takes away the worry over whether or not you are still UK domiciled and liable to IHT, or whether you may later return to the UK. This is because assets in a QNUPS are immediately exempt from IHT, even if you are UK domiciled.
Other advantages of a QNUPS
- Investable wealth can be placed in a QNUPS. You cannot invest a UK pension plan directly into a QNUPS, although it is possible after you have been non-UK resident for five complete, consecutive UK tax years, as long as you go via the QROPS route first.
- There is no maximum age at which you can invest in a QNUPS.
- There is no maximum contribution.
- You do not need to have any earned income from an employment.
- Income and a lump sum can presently be taken from age 55, or can be deferred until the age of 75 for the lump sum and 77 for the income (although if you take income earlier, the lump sum needs to be taken then).
- Assets can be invested and benefits taken in any currency of your choice, giving you the opportunity to remove currency risk.
- Income which is taken is drawn down from the fund, leaving your scheme assets invested and rolling-up free from tax.
A QNUPS provides an opportunity for flexible investing and choice. It doesn?t matter how old you are or how long you have been retired, investing in a QNUPS will give immediate tax benefits. Within QNUPS the funds will remain fully invested and will be subject to investment risk, in line with your investment objectives.
Blevins Franks is an established international wealth and tax management firm with full knowledge of the rules of taxation in both Spain and the UK. Contact us to learn how QNUPS can help you in terms of receiving an income and tax planning.
Note that the tax treatment(s) detailed above are current at the time of writing; these are based on our understanding of current UK and Spanish legislation and taxation practice, and may change in the future.
By David Franks, Chief Executive, Blevins Franks
14th September 2010