Moving to Spain? 7 questions that could save you money

If you are planning on moving to Spain, or have recently done so, you have made an excellent choice. With its rich culture, warm climate and relaxed lifestyle, Spain offers a wonderful quality of life. It can also provide tax planning opportunities.

Take the time to research and understand the tax and wealth management implications of becoming resident in Spain. You can structure your savings, investments and assets for maximum tax efficiency, with no unexpected tax consequences.

1. Where will you need to pay tax?

You will be tax resident in Spain if you are in the country for more than 183 days in a calendar year, but possibly also if your spouse and/or minor dependent children live here or your centre of economic interests is in Spain. Tax residents are liable to Spanish taxation on worldwide income, gains and wealth, and subject to the Spanish succession and gift tax rules.

If you continue to earn income in the UK, the UK/Spain double tax treaty establishes where you must declare the income and pay tax. Other UK taxes will continue to impact you, such as the pension lump sum allowance and overseas transfer charge. UK inheritance tax will apply to your worldwide assets for up to 10 years, while UK assets are always liable.

2. What tax will you pay in Spain?

Income tax rates for general income range from 19% to 47% in Andalucía. Savings income is taxed progressively from 19% for income up to €6,000 to 30% for any earnings over €300,000.

Spain imposes annual wealth taxes, but in Andalucía this only affects those with assets over €4,000,000 per individual.

Tax-efficient investment wrappers offered through a Spanish-compliant bond could legitimately reduce your tax liabilities.

3. How should you hold savings and investments?

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 in Spain and the interest, dividends and gains may attract Spanish tax.

Your situation and goals change when you relocate. Take a fresh look at your portfolio to ensure it suits your current circumstances, objectives and risk profile. Besides considering which assets to invest in, consider where to hold your investments. The choice of jurisdiction can impact investment options, taxation and level of investor protection.

Note that UK-based financial advisers and institutions no longer have ‘passporting’ rights to provide regulated advice and services to EU clients. Retaining UK investments and bank accounts may present challenges.

4. What is the right currency mix for you?

Once you are spending euros daily, keeping savings and investments in sterling makes your income vulnerable to exchange rate fluctuations. Look for structures with currency flexibility.

5. What are your property options?

Consider the tax implications of buying and selling property. When is the best time to sell your UK property or buy a Spanish home to limit capital gains tax and stamp duty? Could owning a high value property affect wealth and succession tax liabilities in Spain? Understanding the answers could save thousands, so take care to establish your best approach.

6. What should you do with your UK pensions?

If you are planning to retire in Spain, explore the options for your UK pension funds and understand the pros, cons and tax implications of each. Weigh them up carefully and analyse the tax consequences in Spain and UK. This now needs to include UK inheritance tax, since pensions funds will form part of your estate from April 2027 and assets in the UK are always liable. Taking regulated, personalised pensions advice is crucial.

7. Is your estate planning suitable?

Spanish succession law has ‘forced heirship’ rules protecting the direct family, which applies by default. However, you can take steps in advance to override this to distribute your estate under UK law.

Spanish succession and gift tax is determined by who the beneficiary is, where the deceased and beneficiary are resident, and where the assets are located. Rates and allowances vary across regions – Andalucía has virtually eliminated this tax for spouses and children.

British expatriates also remain liable for UK inheritance tax on UK assets, and on worldwide assets for up to 10 years. Your heirs will not pay tax twice but do pay the higher amount.

Integrated planning

The sooner you review your finances, the sooner you can get on with enjoying life in Spain. For the best results, consider all these essentials in conjunction with each other. Often one will impact upon another so working on them in isolation could have unexpected consequences.

Ultimately, you want to achieve peace of mind that all your affairs are in order and designed to achieve your wishes. Taking professional guidance from a locally-based adviser will ensure you have all the facts and understand your options. Blevins Franks specialises in cross-border tax and financial planning for the UK and Spain, with offices in Spain for over 35 years. Get in touch to find out how we can help you plan a smooth, tax-efficient move to Spain. www.blevinsfranks.com

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.

Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.