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Planning your retirement in Spain
8 key steps to take before and after your move
By Paul Montague, Partner, Blevins Franks
928 433 411 | canaryisles@blevinsfranks.com | www.blevinsfranks.com
The Canary Islands remain a popular destination for British retirees, and with very good reason – there are so many benefits to living here. Obtaining a residence visa may take more advance planning and bureaucracy since UK nationals lost EU freedom of movement, but the reward of achieving your dream retirement is worth the effort.
While your initial focus may be on securing residency, don’t neglect to research and understand the tax, succession and financial planning implications of retiring in Spain. Spain can be a more tax-efficient place to live than you may realise, but if you leave your tax planning until you’ve settled in Spain, you may miss opportunities to improve your tax liabilities.
- Apply for your Spain residence visa
While applying for legal residence in Spain now involves stricter requirements and more paperwork, UK nationals can generally still move to Spain if they can support themselves without working.
Retirees can apply for a Spanish non-lucrative visa and residency permit. You will need to prove you have sufficient means to live on without employment, have medical cover (public or private), plus other basic requirements.
Spain’s ‘golden visa’ is currently still available (as at July 2024), but the government is taking steps to amend it. Once the reform comes into effect, it will no longer be possible to obtain freedom of movement in Spain through buying high-value Spanish property.
While work visas can be harder to obtain, Spain does offer a Digital Nomad Visa. To qualify, you must work remotely for a company located outside the EU/EEA or perform a maximum of 20% of your professional activity for a Spanish based company. If you are accepted, you can apply to be covered by the ‘Beckham Law Regime’ which provides tax advantages.
- Understand the tax implications of living 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 here). 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.
If however you are covered by the Beckham Law Regime, as mentioned above, you could be considered as non-Spanish tax resident for five years and it is possible that only your employment income will be taxed in Spain (income earned from Spanish assets is always liable to Spanish tax, regardless of residence).
- 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 is worth weighing up whether it is better to sell your UK assets while still 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.
- 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 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.
- 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, so it is 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.
- Analyse your pension 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 various benefits. Note, however, that transferring after you are Spanish tax resident will incur a prohibitive tax charge in Spain. Where possible, take advice before you leave the UK so that you have more tax-efficient options.
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.
- 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 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 that 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.
- 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 inheritance tax and Spain also imposes forced heirship – restricting who you can leave assets to – though you can plan ahead to get round this.
UK domiciles remain liable to UK inheritance tax on worldwide assets. If you intend to live in Spain permanently, take specialist advice on cutting ties with the UK to adopt a domicile of choice in Spain.
A helping hand
It pays to do your research of course, but taking specialist cross-border advice will prove invaluable here and help you avoid potentially costly mistakes. Find a firm who can advise you for the longer-term, on all these various aspects, from the planning stages in the UK throughout your new life in Spain, and if you return to the UK in future.
Blevins Franks has been helping people move from the UK to Spain and advising UK nationals living here for almost 50 years now, with an established office in the Canary Islands for over 25 years.
The 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 should take 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.
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