https://www.blevinsfranks.com/moving-to-spain-seven-questions-to-save-money/
Moving to Spain? 7 questions that could save you money
By Paul Montague, Partner, Blevins Franks
928 433 411 | canaryisles@blevinsfranks.com | www.blevinsfranks.com
If you are planning on moving to Lanzarote, or have recently done so, you have made an excellent choice. The Canary Islands offer a wonderful quality of life, and Spain can also provide tax planning opportunities.
Where possible, start planning for your move nice and early. This gives you plenty of time to research and understand the tax and wealth management implications of becoming resident in Spain, as well as how the Spanish and UK tax and succession regimes interact. You can structure your savings, investments and assets for maximum tax efficiency, with no unexpected tax consequences.
That said, if you are already living here but haven’t updated your financial planning yet, it’s never too late to do so and improve your tax position.
Taking time now to review your situation can bring peace of mind and potentially save you and your family significant tax in the long run.
- 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. As a tax resident, you are liable to Spanish taxation on your worldwide income, gains and wealth, and subject to the Spanish succession and gift tax rules.
If you continue to earn income in the UK (pension and rental income, capital gains on the disposal of UK assets etc), follow the UK/Spain double tax treaty to establish 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 the overseas transfer charge. UK inheritance tax will apply to your worldwide assets for up to 10 years, while UK assets are always liable.
Also keep an eye on the UK statutory residence test, to ensure you don’t unintentionally trigger UK tax residency and fall in line for British taxes.
- What tax will you pay in Spain?
Income tax rates for general income (pension, employment, rental, etc.) range from 18.5% to 50.5% in the Canary Islands. Savings income (interest, dividends, capital gains etc.) 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 this only affects a small percentage of people. The main wealth tax generally only hits individuals with worldwide assets worth over €1 million (€700,000 personal allowance plus €300,000 main home allowance). ‘Solidarity tax on large fortunes’ applies countrywide, but usually on assets over €4,000,000 per individual.
The good news is that tax-efficient investment wrappers offered through a Spanish-compliant bond could legitimately reduce tax on savings income and potentially wealth tax. While some structures can seem similar, their tax benefits can vary significantly so take specialist advice.
- 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 once you are no longer UK resident and the interest, dividends and gains may attract Spanish tax.
Your situation and goals will change when you relocate too. Take a fresh look at your portfolio to ensure it suits your current circumstances, objectives and risk profile, and has sufficient diversification. 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.
Bear in mind too, that since the UK is not an EU member state, UK-based financial advisers and institutions do not have ‘passporting’ rights to provide regulated advice and services to clients in the EU. Retaining UK investments and bank accounts may present challenges, and you may be asked to close your accounts.
- What is the right currency mix for you?
Once you are living in Spain and spending euros daily, keeping savings and investments in sterling makes your income vulnerable to exchange rate fluctuations. Look for structures that let you diversify by holding investments in multiple currencies, with flexibility to choose the currency of your withdrawals and convert when rates are favourable.
- What are your property options?
Another important issue to consider early is 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 in both countries? How could owning a high value property affect your wealth tax bill and succession tax liabilities in Spain? Understanding the answers could save thousands, so take care to establish your best approach.
- 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 one and how they suit your objectives. Weigh them all up carefully, analysing how they work for you and the tax consequences in both Spain and the 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.
- Is your estate planning suitable?
Spanish succession law has ‘forced heirship’ rules protecting the direct family, and this applies by default. However, you can take steps in advance to override this, so you can distribute your estate under UK law.
Spanish succession and gift tax also works very differently from UK inheritance tax. The applicable rules differ according to who the beneficiary is, where the deceased and beneficiary are resident, and where the assets are located. The Canary Islands has virtually eliminated inheritance tax for spouses, children, grandchildren, parents, siblings, nieces, nephews etc. The same 99.9% reduction applies for lifetimes gifts to 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.
It is advisable to have a Spanish will, at least to cover your Spanish assets. And when reviewing your estate planning for Spain, also consider the local probate rules and whether you can hold assets like investment funds so that they easily pass to your heirs when the time comes.
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.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at 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.
