Planning a tax-efficient move to Spain
If you’ve been dreaming about living full time in the Canary Isles but haven’t yet, what’s stopping you? While many people need to wait until retirement, for others it may be the fear of foreign taxes, or just weighing up the pros and cons of such a big life change. And ongoing Brexit uncertainty has also muddied the waters for would-be expatriates.
Interestingly, the unsettled political situation in the UK, triggered by Brexit frustration, is the reason some Britons are considering leaving to become tax resident elsewhere. If there was a general election, a new UK government could introduce changes when taking over the nation’s purse strings. There is speculation, for instance, that higher earners or those holding valuable assets could be hit with more punitive taxes.
However, no-one can predict for sure what the future holds for taxation. Your tax burden can rise and fall at any given time. While good financial planning can help protect your wealth, if you are considering moving to Spain, this may be the time to put an action plan in place.
Once you have decided to move, it is sensible to start reviewing your financial planning. Research the taxes you’ll be liable for as a resident of Spain, how they will affect your wealth and what mitigation opportunities are available.
Tax residency in Spain is not just about day counting. You could be resident even if you do not live in Spain but your spouse does, or if your centre of economic interests is here. Be clear on your situation and plan around it – the Spanish tax office has increased inspections on tax residency. You also need to understand how the UK’s statutory residence test could continue to apply to you.
Income tax rates in the Canary Isles range from 18.5% to 46.5%. Savings income benefits from lower rates of 19%, 21% and 23%.
Wealth tax – This annual tax generally hits those with worldwide assets worth over €1 million (there is a personal allowance of €700,000 plus up to €300,000 for a resident’s main home). Rates range from 0.2% to 2.5%, with variations across regions.
Spanish succession and gift tax rates and allowances depend on who the beneficiary is, where the deceased and beneficiary are resident, and where the assets are located. Rates, allowances and exemptions vary considerably by region.
With specialist guidance, you can often use compliant arrangements to lower taxes on investment income, assets, pensions and estate.
Investing, pensions and estate planning
While tax planning is a vital step to protecting your wealth, don’t neglect other aspects of your financial planning.
Your estate planning needs to take account of both Spanish succession law and succession tax.
Consider the various options for your pensions, including transferring your funds out of the UK into a QROPS, to establish what works best for your objectives and life in Spain.
Moving to Spain is an opportune time to review your investment portfolio. It should be designed specifically around your current circumstances (including the fact that you are now living in Spain and spending Euros), income needs, goals, time horizon, current risk profile and estate planning wishes.
Careful and early financial planning can help you make the most of what Spain has to offer. Cross-border wealth management is a complex area, so take specialist advice to secure the best results.
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 is advised to seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com