What is the most important financial advice for UK Expats in Spain? We asked cross-border Spain financial planning expert, Nicole Sandler. Here are her Top 10 things for UK citizens to consider when they move to Spain.
I am a Spanish resident with a UK property; where do I pay tax on the rental income I receive?
UK rental income will be liable to tax in the UK because that’s where the property is physically situated. You will also be subject to tax in Spain, where you are a Spanish resident because you’re subject to tax on your worldwide income and gains. However, a double taxation treaty (DTA) ensures you don’t pay tax twice.
The DTA means any tax already paid in the UK will be credited against any tax liability due in Spain. So, you are subject to income tax in both UK and Spanish jurisdictions.
Remember to declare the UK property on the Modelo 720 in Spain; the overseas asset reporting declaration is due each year at the end of March.
I´m a resident of Spain but am selling a UK property. Where do I pay capital gains tax on the sale profit?
If you owned the property before April 2015, when you sell the UK property, you will be subject to capital gains tax (CGT) in the UK on the gain element from 6th April 2015 until the sale date. You will still have your UK CGT allowance, even though you’re a Spanish resident.
However, because you are a Spanish resident, the sale of the UK property will also mean you will be subject to CGT in Spain. Again, this has a DTA so you won’t pay tax twice. Any CGT paid in the UK will be credited against the tax liability due in Spain. As time passes, the UK tax liability may increase if the property value increases.
So, if you are a Spanish resident with a UK property and are considering selling it, now may be an excellent time to consider your planning. As you can see, Spanish residents holding UK property are not tax efficient since they are subject to income tax, CGT, and death taxes in Spain and the UK.
It is essential that you seek professional financial advice before you move to Spain, as it can save you a lot of tax. If, for example, this property was your primary residence in the UK, you could potentially have sold it tax-free before becoming a Spanish tax resident.
Can I draft a Will in Spain to look after my worldwide assets? Like an international Will?
Typically, we recommend that you draft a Will in any country where you hold assets to speed up the probate process and ensure they do not contradict one another. You can have several Wills if you have assets in several countries. When you retire in Spain, this should be one of the first things on your list.
A notary (notario) can draft a Spanish Will, and a lawyer (abogado) can ensure any Wills do not contradict one another and are tailored to your specific situation.
Does opting for British law to apply in my Spanish Will mean UK taxes will apply to my estate?
Several years ago, the EU passed a European legislation called Brussels IV (EU Succession Regulation). It states that as a resident of Spain, you can opt for the country of your nationality (e.g., British Common Law) to apply to your Spanish Will. This law has nothing to do with taxes and is purely how your assets will be distributed upon death.
Spanish (Civil) law dictates how assets are distributed under forced heirship rules. In contrast, British law allows you to choose who the beneficiaries are and to choose the percentage terms you wish each beneficiary to receive.
If your Will is not current or you don’t have a Will in place, we urge you to contact a lawyer or Notary to draft one.
Does UK inheritance tax (UKIHT) apply now that I live in Spain?
If you have UK assets, they will always be subject to UK inheritance tax (IHT) because the assets are physically located in the UK. For example, holding UK property or a UK bank account will attract UK IHT since they are U.K.-situated assets.
If you are also deemed UK-domiciled when you pass away, you are subject to UK IHT on your worldwide assets, irrespective of where you live. Remember that your domicile can be entirely different from where you are a tax resident, and it can be different from your nationality.
Domicile is a complex part of financial planning. Whether you are UK-domiciled or not depends on how long you’ve lived abroad and any ties you still retain with the UK. We can guide you further on this particular point if necessary.
If you have Spanish assets or live in Spain and receive an inheritance from anyone, anywhere in the world, you will also be subject to Spanish IHT.
With death taxes, there are no DTA´s between the UK and Spain. However, any taxes paid in the UK will be credited against taxes due in Spain, which works similarly to having a tax treaty.
If one of us passes away, is our joint investment frozen, as happens with some Spanish bank accounts?
While Spanish-sited assets would typically be frozen, I specialize in setting up international Spanish tax-compliant investments for our clients. Tax compliance means they are liked and approved by the Spanish tax authorities.
Such investments will continue in the survivor’s name, and nothing is frozen; the surviving spouse will then be the sole owner of that policy and can continue withdrawing as needed. Check out our guide to the best Spanish banks for Expats here.
Are my UK ISAs and premium bonds tax-efficient in Spain?
The short answer here is no. While premium bonds and ISAs are very tax-efficient in the UK, they are subject to income tax in Spain and, as such, are not tax-efficient investments to hold in Spain at all. Using these investments while you are still a UK resident is best.
If the value of these investments exceeds €50,000, don’t forget you must declare these on the Modelo 720 overseas asset reporting form.
Can I take my pension lump sum tax-free in Spain, like in the UK?
In the UK, you can draw up to 25% as a tax-free lump sum on most pensions once you reach pensionable age. While tax-free in the UK, that 25% is fully subject to income tax in Spain.
So, if you are still a UK resident and are thinking of moving to Spain with a pension, it’s essential that you seek financial advice on your pension before retiring in Spain.
I have a long-standing relationship with my financial adviser in the UK. Can they continue to advise me on my investments/pensions?
U.K.-based financial advisers no longer have passporting rights in the European Union (EU) post-Brexit. This change means that unless the UK firm has sought passporting rights in the EU (and most haven’t), unfortunately, they can no longer provide financial advice once you are no longer resident in the UK.
It is something that could have a significant impact on your policies in the future. Basic administration, such as withdrawals, updating your details, or, more importantly, fund changes, can’t take place without advice.
These Brexit-related changes have been applied since 1st January 2021; however, I still receive a lot of enquiries on this topic. A lot of people are still not aware of this fact.
If you haven’t yet left the UK, I would advise you to update your financial adviser on your plans to move overseas and assess their ability to support you once you have.
Assuming they do not have the permissions required to advise you once outside of the UK, we would also recommend that you engage an adviser based in Spain. Make sure you choose one who:
- Is regulated under the relevant European directives (MIFID II and IDD)
- Possesses the qualifications, experience, and knowledge necessary to provide professional wealth management advice applicable specifically to Spain.
- Has a comprehensive understanding of regional tax laws in the area where you will live.
I have pension pots in the UK. Do I need to take any action when I move to Spain?
The pension landscape has changed dramatically over recent years. In addition to considering the tax-free lump sum, understanding your pension options once you move is very important.
Factors such as whether you should keep your pension where it is or transfer it to something more suitable once you live in Europe should be discussed.
Individuals with pensions close to the UK lifetime allowance potentially have a window of opportunity right now to act. This window is because the Labour Party has said they will reinstate the allowance if they gain power.
That said, understanding whether a pension transfer out of the UK is suitable is a very worthwhile discussion right now.
Pensions are highly complex and involve much analysis to ensure you make the right decisions. We can guide you through all the considerations to establish the most suitable option for you.
The Best Financial Advice for UK Expats in Spain?
Moving to Spain as a UK citizen can grow your wealth and increase the amount you pass on to the next generation. Or it can cost you a fortune. Book a meeting with Nicole here to get your move to Spain’s wealth management and financial planning started today.
