If you are planning on moving to Chiclana de
la Frontera, or have recently done so, you have made an excellent choice. There
are so many benefits to living here, and Spain can offer tax-efficient
opportunities too.
Make the most of these opportunities and
avoid costly mistakes by considering these seven questions.
1.
Where
will you need to pay tax?
You
need to establish when you will become resident in Spain and liable to Spanish
taxation on your worldwide income, gains and wealth, and subject to the Spanish
succession and gift tax rules.
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 here.
Also be wary of UK tax residence rules - in
some cases, just 16 days back home could unintentionally trigger UK tax
residency and bring you in line for British taxes.
- How
much tax will you pay?
Income tax rates for general income (i.e.
pension, employment, rental income, etc.) range from 19.5% to 48% in Andalucía. Savings income (interest, dividends, capital
gains etc.) is taxed progressively at 19%, 21% and 23%.
Spain also currently imposes an annual wealth tax,
which generally hits those with worldwide assets worth over €1 million. For Spanish residents, generally there is a
personal allowance of €700,000 plus an extra allowance of up to €300,000 for
your main home. So a married couple could have up to €2 million combined allowance.
However the good news is that tax-efficient
investment wrappers offered through a Spanish-compliant bond could legitimately
reduce tax on savings income and potentially on wealth tax. While some
structures can seem similar, their tax benefits can vary significantly so take
specialist advice.
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 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. It is crucial to take a fresh look at your financial planning
to make sure you are suitably diversified and everything is set up in the best
way for your new circumstances.
4.
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, make sure you fully understand your pension options and the
tax implications before making any decisions.
There are now many
options for how you take your pension, including taking the whole fund as cash,
but you need to weigh them up, looking at how they work for you and the tax
consequences or benefits. Taking regulated, personalised pensions advice is
crucial.
- Is
your estate planning suitable?
In Spain,
succession law works very differently from the UK. Unless you take action, ‘forced
heirship' rules could automatically pass two thirds of your worldwide estate to
your direct family, whatever your intentions. Take care to understand your options and any tax
implications.
Spanish succession and
gift tax also works very differently from UK inheritance tax. The applicable rules vary according to who
the beneficiary is, where the deceased and beneficiary are resident, and where
the assets are located. Rates and allowances vary across regions.
UK domiciles also
remain liable for UK inheritance tax, so seek advice on how to reduce these
taxes for your heirs.
Getting
the answers to these key questions early can provide peace of mind that your financial affairs are in order so you
can relax and fully enjoy your new life in Spain. Cross-border taxation is complicated,
so take personalised, professional guidance to get the best results.
David Bowern, Partner, Blevins Franks
Email:
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Tel: 952 809 212
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.
For more financial articles written for
expatriates visit the Blevins Franks website
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