As we start 2022 most of us have now finally recovered from the shock of the BREXIT vote back in June 2016 … it’s only taken almost 6 years, the consequences of which are still impacting our lives. For many years expats have been able to travel freely between the UK and Spain, but now, unless you have residency, you are limited to much shorter stays of 90 days in every 180. I imagine that even Amazon.co.uk have seen a reduction in orders from Brits living abroad due to the addition of customs duty to deliveries that has never been a consideration before! My new ‘go to’ customs duty free alternative surprisingly isn’t Amazon.es, it’s Amazon.de … the Germans offer a fantastic selection of goods and I have to say customer service is second to none!
For many BREXIT has meant that big decisions have had to be made; to remain in Spain and pay income tax in Spain or leave… not an easy choice for those who have happily lived under the radar for many years in Spain and have built a new life here, including a new social circle and a love for the Spanish climate and laid-back way of life.
If you’re one of many expats who have taken the plunge and now have Spanish residency, or are in the process of making that permanent move to Spain, you might want to read on. Over the years I’ve come across many expats who have put off taking up residency for fear of ending up paying too much tax in Spain. However, this belief is often misguided and is in fact more a ‘fear of the unknown’ as there are in reality a number of tax breaks available to you as a Spanish resident that you may not be aware of.
My recommendation to ‘residency newbies’ involves creating a checklist and making a plan. The plan may take a few months or years to put into action as we need to make sure that the timing of each change is appropriate to your personal circumstances and takes into account the tax implications and reporting requirements along the way. The areas where you can make sure that you are as tax efficient as possible are pensions, savings and investments. These areas can have a dramatic impact on the amount of income tax, savings tax, wealth tax and inheritance tax paid whilst you are resident in Spain. Rental income is another area … when you consider the cost of maintenance, void periods, and the income tax payable this often results in a very low yield with hassle you may not want along the way.
The best starting point is to talk to a qualified Financial Planner, who can analyse what you have in place now and make you aware of any alternative options that will reduce your tax liability and lower stress levels! Very importantly, the advice needs to be based on your own particular situation and not a generalisation of one size fits all.
Let’s start with savings. We all know about ISAs in the UK, and if you’re of a certain age, as I am, you will also remember their predecessors … TESSAs and PEPs! Once you become Spanish tax resident ISAs become very tax inefficient for you. The growth on your ISA must be declared on your Spanish tax return and tax paid on that growth each year. However, you CAN still benefit from tax free growth by taking advantage of the nearest equivalent to an ISA … a Spanish Compliant Investment.
The same rules apply to any other types of investment that are not specifically Spanish Compliant. Any investments or savings that don’t specifically comply to certain guidelines with the Hacienda should be declared and tax paid on the growth each year.
I’m not suggesting that you switch all your assets to euros and bring them to Spain … we never suggest that! You may also naturally feel inclined to keep what you have in place, but there are other downsides to keeping your favourite investments. If you would like your investments and savings to be passed to your partner in the event of your death with the minimum amount of inheritance tax, or even better no tax at all, don’t discount a Spanish Compliant Investment, as it avoids Spanish Inheritance Tax on first death when held in joint names. Any other type of savings and investments will be locked into any inheritance tax calculations.
Personal pensions and SIPPs are another area that I suggest you look at. Income from a UK pension scheme will always be taxed at source under PAYE irrespective of where you live. Also, benefits passed to beneficiaries on your death after age 75 are taxed on the beneficiary under PAYE at their marginal rate. So there’s a ‘cliff edge’ at age 75… if you die before age 75 happy days, at least for your beneficiaries, as your pension fund can pass tax free, but it’s taxable after age 75!
QROPS offer a tax efficient alternative. It may be possible to transfer your pension to a QROPS where it will benefit from no cliff edge at age 75 and as a resident of Spain the income can be paid gross and also benefits from special tax rates in Spain, which means that less of your money is going to the tax man and more is available for you to enjoy in your retirement!
As the picture suggests, what I’ve mentioned in this article really is just the tip of the iceberg … I have given you ‘a few tips!’ … I suggest that when you are planning to start your new life in Spain, think of it as an opportunity to review your whole financial situation at the same time. We can help you navigate the Spanish tax system, ensuring you are set up in the best possible way.
At Speed Financial Solutions, our focus is to ensure that our clients are able to enjoy life knowing that they are set up in the most tax efficient way for their particular circumstances. If you are considering alternatives to leaving money sat on deposit or would like to review your whole financial structure and consider alternatives to make sure that you are set up in the most tax efficient way please contact firstname.lastname@example.org
Speed Financial Solutions are a highly qualified financial services provider looking after clients throughout Spain and the UK. We provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your pension planning. We seek innovative solutions for our clients and employ our skills, based on many years of experience, to apply tax legislation to your advantage. Our relationships are built on trust and mutual respect. We are ready to answer your questions, giving you the confidence you want when dealing with a sensitive issue such as discussing your pensions, investments and savings.
Our Principal, Andrea Speed, is a qualified Discretionary Investment Manager specialising in Investment and Risk, Taxation and Trusts, and a qualified Pension Specialist. Andrea is also a Fellow of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII (Level 7) and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels. Along with a Fellowship, Andrea is a CII Chartered Financial Planner.
Please take a look at our website – www.speedfinancialsolutions.com
For further information contact us on Tel 951 315 271 or 951 318 529
We are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Our Financial Review is completely free of charge and without obligation. Follow us on Facebook for regular updates.
This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
23 December 2021